...Archive for May 2020

Pandemic diary 2020-05-25: Two big questions

My broad take on the pandemic has been and remains pretty grim. Early on, I thought that after decades of prioritizing efficiency over resilience in our supply chains, the pandemic could lead to outright collapse. Gratefully, I think that less likely now, although the possibility is not off the table. It feels like we are in the middle of this thing, but by the numbers we are still in the beginning. According to serological tests in Spain, which has endured much worse mortality than the US, only 5% of the public has been exposed and should be expected to have some degree of immunity. If we take the infection fatality rate to be 0.7% (see a range of estimates here) and if we imagine — very optimistically — that only half the US population becomes infected before “herd immunity” sets in, then we should expect a toll of more than a million dead should we fail to suppress the epidemic.

So far we are “only” one hundred thousand tragedies in. Just the beginning. This is the thinking that places me squarely in the camp of coronavirus hard-liners. I think that we as a society should place a very high priority on infection suppression. For now that means people should either be at home, outdoors and socially distant, or carefully protected when performing essential work. (Whether that “should” needs to be legally enforced is a different question, which I’ll put aside for now.) We should reduce the burden of restricted lives with generous financial and social support. But we absolutely should not encourage people to return to restaurants, bars, theaters, malls, theme parks, gyms, or salons until we are capable of suppressing outbreaks (à la Korea, test/trace/isolate), or until we develop a vaccine or effective treatment.

Is my view wrong, harmful and overdone? One of the poles of our heartbreakingly polarized political system says it is. Restaurants, salons, and gyms are all open here in Florida, where my family is isolating. (Long story.) The benefits that a functioning service economy provides to customers, workers, and business owners are very real. The question is, can “reopening” be done safely? If it can be, to the degree we can reopen without accelerating infection, of course we should. But we should not undertake any reopening that would place us back on a path of exponentially increasing infection. So we come to the key uncertainty: How dangerous is reopening? Right now the US infection rate seems stable, even gently declining. But are we suspended by a delicate thread thousands of feet above a rocky canyon? Or are we held by a firm cable just a few feet above grassy earth? I don’t think we know. A month since states began to reopen, we don’t see much evidence of accelerating infection. Internationally, there has also been some loosening of restraints, without obvious remissions. Sweden, which has been among the least cautious developed countries both in terms of legal restraint and actual behavior, is seeing its (once very high) mortality rate decline despite remaining far from estimated herd immunity. Outbreaks in the developing world, thank god, have not so far been as severe as we might have expected, at least as we can imperfectly observe them. On the other hand, benign outcomes may be the result of continuing caution by the general public. Nowhere are service economies thriving. “Reopenings” are happening mainly in low prevalence places, drawing customers from currently low prevalence populations. But prevalence can change. As we continue to loosen restrictions (legal restrictions, or just restrictions on our own behavior), sparks that have so far died out may suddenly ignite. Some of our sort-of success may be attributable to factors like seasonality and mask-wearing, but both of those are in different ways temporary.

There are I think two potential explanations of benign outcomes that would really change how we understand the pandemic. But I don’t think we know if either of these explanations are true, which turns them into very big open questions.

Explanation I: The spread of COVID-19 is overwhelmingly driven by “superspreaders”, and superspreading is determined much more by behavior and circumstance than by the biology of the superspreader.

If it is the case that the vast majority of infecteds don’t spread at all, while the average number infected (R0) of roughly three is due to a few superspreaders that compensate for the nonspreaders, then preventing infection by these superspreaders could be sufficient to suppress the epidemic. If superspreading is mostly an invisible biological phenomenon, if some recently infected people just shed a whole lot more virus than others, this fact doesn’t help us much with “reopening”. Most of the time most restaurants will operate safely, but occasionally a superspreader will walk in, and unbeknownst to her or anyone else, infect half the room. However, if superspreading is less about biology and more about behavior and circumstance, then we can simply limit the activities during which superspreading occurs. We know indoor choir practice is probably an activity that risks spreading the virus, so we don’t do that. Superspreading seems associated with congregate living arrangements (prisons and god help us nursing homes), loud crowded workplaces (meatpackers), crowded indoor social gatherings, etc. We know that we need to protect or reorganize congregate living places and crowded workplaces — although disgracefully, we seem instead to be opting for a “herd immunity strategy within many of these settings. Following Japan, we could encourage people to avoid the “Three Cs”. We’d keep places like nightclubs and sporting events closed, open up but limit crowding elsewhere.

But this only works if less close, less crowded interactions really are safe. Definitively resolving this is a strong case for aggressively pursuing contact tracing by human interviewers. If infection is a matter of avoidable circumstance rather than an ineluctable result of prior infections (as it might be in simple models of “open”), then actually learning the details of the circumstances under which people became infected is our surest path to freedom. Are indoor restaurants mostly okay? How should we arrange the air conditioning? In our dismal, ridiculous, politics, contact tracing has become associated with Democrats who (like me) want to see the US pursue a South-Korea-style strategy and criticize the President for our botched test-and-trace ramp up. Contact tracing is therefore dismissed by Republicans, who argue that Korea-style containment is unworkable in the United States, so what’s the point? But Republicans eager to reopen should be especially devoted to contact tracing. Reopenings that prove catastrophic to public health will not help anyone, economically or electorally. Contact tracing with detailed interviews is how we learn to reopen safely, if it can be done.

Explanation II: Immunity not reflected by serology

Until a few weeks ago, a big open question was whether the coronavirus was spreading much faster than the disease we actually observed. This, oddly, was more a hope than a concern. If mild infection was in fact much more widespread than we knew, then infection fatality and severity rates — the fractions of people infected who die or experience severe illness — would be much lower than we thought. For individuals, it would mean the disease is less dangerous. In aggregate, it would “lower the ceiling” on mortality. (In the bad case where the epidemic runs its course, a lower infection fatality rates means a lower total casualty count.) We thought that serological studies would answer this question of unobserved spread, and probably they have. Using Spain as an example again, we’ve learned that for every infection we formally detect, roughly 9 people other people who were never diagnosed show antibodies. That may sound like a lot, but it was only enough to bring the infection fatality rate down to about 1%, which still would mean more than a million US deaths without suppression. Undetected cases would have had to be closer to two orders of magnitude more common than detected cases, rather than just one order of magnitude, to keep the death toll in the ballpark of a few bad flu seasons. According to the serological data we have so far, I think this hope is thoroughly dashed. Studies that suggested much more widespread infection, like the Stanford Santa Clara County study, have not proved persuasive.

A last ray of hope lies in the possibility that people who undergo very mild infections do not end up with reliably detectable levels (“titers”) of antibodies in their blood, but still end up with “memory” cells in their immune system that would let them ramp up production of antibodies and specialized T-cells quickly if they were re-exposed to the virus. In other words, there may be people who have a degree of immunity that is invisible to our antibody tests, so that despite our serological disappointments, the true infection fatality rate is lower than we estimate. This is pure hope: There is no evidence that I know of for this idea, beyond circumstantial handwaving about ceilings in the levels of mortality per population we’ve observed so far, which more likely reflects a successful behavioral response than a speculative immunological one. This unobserved immunity hypothesis stands on the less persuasive side of a war between parsimony and hope. Nevertheless, I’m willing to hope.

But I think it’s the wrong call to bet people’s lives on this kind of hope until we have some evidence for it.

Pandemic diary 2020-05-05: Segregation cannot set you free

A few days ago, David Frum offered this extraordinary conjecture:

I don’t think the President and people like Governor Kemp are consciously planning this, but they’re removing all the alternatives to the only policy that is going to remain this time six weeks from now or eight weeks from now. Which is they’re moving toward the policy of what’s — “let’s take the punch.” He’ll reopen and see what happens. Let’s accept that there may be hundreds of thousands, or some double hundreds of thousands, of Americans killed. They’re going to be mostly poor and minorities, mostly not going to be Trump voters. Let’s take that punch and push through and try to get to herd immunity as fast as possible.

I don’t think the President quite processes it quite that rationally, but maybe Governor Kemp does. I suspect Governor DeSantis probably does. But that’s where with they’re going.

There’s lots to say about this. In the short-term, the strategy Frum describes is self-defeating. If affluent people don’t emerge from isolation, “reopening” won’t do much to revive the (dollar-weighted) service economy. We’ll still be saddled with the same ugly economy, but with a higher prevalence of the disease, rendering it even harder to sustain the supply chains of essential goods even Trump’s base relies upon. If the red-state affluent do emerge, the “punch” will be taken in significant part by Republicans’ base after all, and they may not like it.

But also, there’s an error in this thinking that transcends the heavily memed frontier between red and blue. It afflicts affluent Americans broadly. It’s hidden in that phrase “herd immunity”.

We have all heard that “herd immunity” may set in once, say, 60-70% of the population have been exposed to the virus and so (hopefully) immunized. The logic is simple: If R0 is 3, then once two-thirds of the public have been infected, two of the three people a new case would have infected will now be immune. So they’ll infect only one to take their place as they recover, stabilizing rather than increasing the infected population. Once more than two-thirds are immune, on average they’ll infect less than one person, causing the infected population to decrease over time rather than stabilize. Cool.

Affluent Americans of all stripes I think are quietly mulling something like this: It’s a terrible time, and tremendous death and suffering may be inevitable. For all kinds of reasons, we as a country may not be able to “crush the curve” and adopt South-Korea-style social distancing. Maybe it’s just impossible, given the extent the disease has spread and Americans’ general unruliness. Maybe it’s not worth the cost, in dollars and liberty, of living several years in a kind of quiet stage-managed by public health bureaucrats. So maybe acquiescing to “herd immunity” before a vaccine will have to be the way forward. We could get lucky! Maybe asymptomatic spread is much more than experts estimate, so the infection fatality rate is low. Maybe much of the population is immune already, genetically or due to cross-reactive antibodies from common-cold coronaviruses. But we have to be prepared for not getting lucky, in which case more than 200M Americans would become infected, and (under current estimates of an infection fatality rate of ~0.7%) more than 1.4M would die.

But even in that case, some significant fraction the country — say 25% to 33% — need never become exposed, need never risk this game of Russian Roulette where even “winning” may involve suffering and disability. If my family can isolate, comfortably and so diligently, if we can place in the top 25% of isolation diligence, then we can hold out until enough other people have risked and suffered and died that we can emerge safely. If, sadly, herd immunity before a vaccine is inevitable, then why delay acquiring it? Shouldn’t we race there as fast as we can, subject maybe to the constraint that ICU capacity should not be outstripped? The people who are going to be exposed will be exposed anyway, but at least they’ll not be unemployed as long. And the people capable of isolating most diligently would like to be (safely) free of their diligent isolation as soon as possible, thank you. So, as Frum describes it, let’s (let them) “take the punch”.

Segregation is affluent America’s go to coping mechanism. There are always horrible things going on “over there”, whether over there is a famine in Africa, a war we are prosecuting in the Middle East, or poverty and violence in West Baltimore. The first amenity Americans seek as they grow affluent is a “nice neighborhood”. As a nation, we describe ourselves as blessed by the protection of our two wide oceans. As families &mdash if we are affluent, especially if we are white — we understand that we are protected by more subtle boundaries. Maybe that’s a sad injustice, maybe it’s because we’ve earned it, choose your poison and your political party. But whatever it is, we are used to it. It’s not surprising, when we read that COVID-19 has hit poorer communities, black communities, immigrant communities disproportionately. It may not be right, but it’s the way of the world, and whatever our political or ethical attitude, affluent Americans tacitly rely upon it. Manhattan, denser but whiter and richer, has less than half the COVID infection rate as the Bronx.

But the segregation that so often protects affluent America this time cannot free it. Remember how herd immunity works? If R0 is 3 and more two-thirds of the population is immune, then an infected infects less than one replacement and the virus dies out. But that assumes a uniform draw: the three people a new case would have infected are randomly chosen from the population, and at least two of them turn up immune (on average). But if the population is segmented, segregated, stratified, that won’t be true at all. Herd immunity might be achieved in the Bronx, but over in Manhattan, most of the privileged will remain immunologically naive. If you want to ride out the epidemic without exposure, it’s not enough to be in the top 25% to 33% of the most diligent isolators in the United States, or even in New York City. You have to be one of the top 25% to 33% of diligent isolators in your own community, among the people you interact with. If you are an affluent person who lives in a desirable neighborhood, who if liberated would work in a tony office, your implicit competitors in the coronavirus virginity game are not meatpackers or transit workers, but your neighbors and coworkers. And that’s a much tougher league. They have resources comparable to your own, or maybe better. The game of mortal attrition could last a long time. Months or years after the transit workers have taken their punch, your little world could still be ripe for an outbreak, if you all come out to play. So you won’t, not until there’s a vaccine or you are compelled by circumstance. Segregation will have helped to protect you, as it usually does. But this time, it will also imprison you.

So, if you are affluent, in a comfortable isolation but eager to escape it, don’t imagine that “hard men” like Governors Kemp or DeSantis are, however regrettably, accelerating your liberation with a herd-immunity strategy. They may think they are, but all they are in fact doing is risking the supply chains that your comfort and our political order depend upon. And, of course, putting lives of the less affluent, as precious and valuable as your own, needlessly at risk. But, though we fret, those lives seem to weigh little in our political system. Maybe if the affluent understand that “taking the punch” will not protect or liberate us, but may risk food shortages, outrage, and rebellion, maybe that will weigh more.

Four functions of markets

Perhaps, perhaps, this crisis marks an end of the “neoliberal era”.

The word “neoliberal” immediately provokes contention, but let’s not get fancy or upset here. For our purposes, neoliberalism is just a set of social heuristics: 1) that markets are in general the most capable institution for organizing human affairs; 2) that therefore, absent strong reasons to the contrary, use of market or market-like institutions should be maximized, “completed”, expanded even into domains heretofore intentionally insulated from them; and 3) that other institutions, including the state, should take a supportive, even subservient role: filling in gaps (“safety net”), addressing “market failures” that are presumed to be rare rather than pervasive, and only when a high burden of proof has been met. Any other intervention is a “distortion” to be avoided at all costs.

I think it fair to describe the period from about 1980 until the 2008 financial crisis as a neoliberal era, a period of time during which these social heuristics were widely accepted by governing elites and policy, in the United States and the broad West, was informed and shaped by them. The period from 2008 until now has been a kind of undead neoliberal era. Post Great Financial Crisis, neoliberal ideas have been discredited among much of the public and are actively contested even within governing elites. But, absent consensus on some new set of social heuristics, not much has actually changed. Material interests in the continuity of institutions shaped by neoliberalism remain strong.

Continuity now is broken. When this pandemic is “over” (whatever that means), the undead bones of neoliberal governance may well yet again gather themselves from the chaos and reconstitute the suave, smooth-talking vampire to whose predations we have grown unhappily accustomed. But they may not. We may find ourselves in a period of social experimentation and change. If so, as we diminish (not eliminate!) the role of markets, it is useful I think to understand the variety of functions that markets serve, so that framers of new institutions understand what will be excised, what may sometimes need to be replaced. So. Here are four functions of markets:

  1. Markets serve as Hayekian information processors
  2. Markets naturalize outcomes, defusing social conflict
  3. Markets “flip the incentives” surrounding resource utilization
  4. Markets launder history

Obviously, the list is not exhaustive.

I. Markets serve as Hayekian information processors 🔗

This is the function of markets that economists emphasize. Voluntary exchange plus a price system compose into a massively decentralized calculating system for allocating and distributing resources. Individual units (households, firms) need know or compute very little to participate in a gigantic computation that, ideally, ensures scarce, highly sought, resources go to where they are most needed (because the most-needers are willing to pay their high price), and are most eagerly produced (because those capable are eager to receive the high price). No formal match, no central tabulator is required, because any unit’s choice to purchase puts upward pressure on prices which in theory ripple immediately to everyone, and any unit’s choice to produce and sell has the opposite effect. Widely dispersed information about preferences and abundance are continuously summarized in a price vector while goods and services flow between units with no central coordination at all.

There are a lot of problems with this story. For one, “need” gets operationalized as purchasing power, so under conditions of inequality, the calculation yields an allocation of resources not to where they are most needed, but to whom is the richest. If producers or consumers have market power, they can rig the computation towards self-serving, socially destructive ends. Even under conditions of near equality, the informational case for markets declines as market institutions are transplanted from real commodities (which really are subject to diverse, widely dispersed preferences and availabilities) to more abstract settings (financial capital, health insurance) where preference diversity is not actually so great (people participating in capital markets are mostly trying to make money, humans who might get sick similarly want effective and pleasant care as cheaply as possible) and information is more asymmetrically held than widely dispersed (insiders and professionals know more about stocks than dispersed potential buyers and sellers, insurance buyers cannot really evaluate and compare 200 page contracts that implicate but omit thousands of negotiated prices).

Nevertheless, the sphere of real goods and services is not insignificant. Distortions of inequality may corrupt the computation for big city real estate but leave the marvels of a grocery store mostly intact. Markets really can function as Hayekian information processors. It really is remarkable how, despite a lot of consolidation and predation, a massive range of goods and services gets produced and distributed across huge geographies, among consumers and firms with extraordinarily heterogeneous requirements, pretty damned well under market institutions.

II. Markets naturalize outcomes, defusing social conflict 🔗

Adam Smith famously described market outcomes as “led by an invisible hand”. Of course, markets are social institutions, and market outcomes are made by human hands, sometimes myriad and dispersed, sometimes centralized among monopolists or rule-makers. In any case, to market participants, it is usually not obvious who decided the outcomes, or that there is meaningfully such a “who” at all. “Market forces” shape our fortunes and misfortunes, rather than identifiable human beings whose judgments we might appeal.

In the same way, for the same reasons, we respond very differently to a terrorist attack than to an even more devastating hurricane, many of us accept unfortunate market outcomes as things we just have to deal with, where had some identifiable individual prosecuted the same harm we might contest it, demand compensation, even engage in retaliatory violence. Market outcomes portray themselves as facts of nature rather than acts of man. In any social system, events and institutions will lead to outcomes that create winners and losers. A hundred families want to live in a building with room for only twenty. Some will get a spot, some won’t. If some politician dictated the allocation, the losers might get mad, might even try to get even. If the losers are “priced out”, well, that was just supply and demand, baby. Market forces. Whaddayagonnado?

This trick of markets doesn’t always work. In fact, the senescence of the neoliberal era corresponds not coincidentally with its working less and less. When it seems like identifiable parties controls market outcomes, we describe the market as “rigged”. Market outcomes are no longer perceived as natural, and those on the losing end become inclined to contest them. A decade ago, the resolution of the Global Financial Crisis created a lot of winners and losers in a manner that was widely, and accurately, perceived as politically determined (even as the winners, just before and again now, portray themselves as skillful participants in a free market). No one except perhaps Jamie Dimon attributes JPMorgan Chase’s success or continued existence to the dispassionate operation of an invisible hand. Over the past decade, growing awareness of inequality, along with widening gaps across social fissures of geography, race, and profession, have increased the degree to which “market losers” perceive themselves as victims of self-interested action by identifiable classes, rather than individuals caught by misfortune in the economic equivalent of a hurricane.

That this trick of markets is not now working so well does not mean it is dispensable. Our society is not now functioning very well. The collapse of markets’ ability to effectively naturalize outcomes and render them immune from political contestation is precisely the collapse of the legitimacy of a neoliberal order. But any system of large scale social coordination is going to require action that creates winners and losers, often arbitrarily, and will require some means of legitimating those actions, of preventing the natural and inevitable unhappiness of losers from translating into attacks on the system of coordination that render it unworkable.

“Democratic legitimacy” is the most commonly posited alternative to markets’ naturalization of outcomes, but I think that both in practical and moral terms, it’s an insufficient answer. There are no perfect democratic institutions, and ours are particularly imperfect. Losers often perceive government actions that thwart them as usurpations of rather than expressions of the “true will of the people”. If democratic legitimacy is defined in majoritarian terms, all of us I think would agree there can and have been actions supported by majorities against minorities that should not be deemed moral or legitimate. Democracy matters, a lot. It does contribute to losers’ willingness to tolerate actions with disparate impact. But to recover social contentment, we’ll either need to improve our democratic institutions so that outcomes are more universally perceived as legitimate, or we’ll need to find new tricks that replace markets’ depoliticization and naturalization of tough cookies. Probably we’ll need a lot of both.

III. Markets “flip the incentives” surrounding resource utilization 🔗

Where market logic has not yet penetrated, people’s incentives are usually to hoard utilization of resources they possess. Households with a guest room leave it empty most of the time. Private cars sit idle most of the time. From an owner’s perspective, this “underutlization” is rational. Letting other people use your resources is costly, in terms of wear and tear and risks of damaging misuse. Further, possession of idle resources confers option value. Your empty guest room would not be available when your friends swing through town, if you used it to house a homeless person. Your idle car is always there for you when you want or need it. You don’t have to call a cab and worry about when it will come or the price of your ride.

If we let markets infiltrate households, we can flip these incentives. If you AirBnB your guest room, all of a sudden you spend hours on the website futzing, trying to ensure that bed is occupied almost every night. If you start driving for Uber, your car will no longer be so idle. The same logic holds for capital goods as households. If you happen to own a big, street-level space in a city, without markets, you might use it to host occasional parties, or as an art gallery, or who knows? But once there is a market for commercial space, you’ll rent it to a highest bidder who likely will ensure it is used quite intensively, in order to make the rent.

This “flipping of incentives” is important, economically and environmentally. Economically, intensive use of a resource by many creates more value in aggregate than very occasional use by a single party. (Even much of the option value can be retained, albeit split between provider and customer, if access is priced so that usually there is some slack.) Environmentally, intensively shared resources can have a much smaller footprint than widely replicated, infrequently used resources. (If 10 households can be served by one Uber, we could build a lot less cars by Uberifying.) There are nuances. If the shared resource is very far away (e.g. one intensively run factory in China), the environmental costs of transportation at least partially offset the smaller footprint. And the intensive, “efficient”, resource use encouraged by status quo markets often comes at a cost in resilience, as we are learning too well during the current pandemic. Many underutilized, “redundant” resources are less likely to fail or become unavailable all at once than a very few fully utilized resources. Perhaps successor institutions to status quo markets will better balance redundancy and efficiency.

The most important resources for which markets “flip the incentives” are, well, us. Where markets are not very extensive, the burden of collaborations falls very heavily on people who want something for which they need assistance, rather than the people who could provide the assistance. As markets develop, this burden flips. In the beforetimes, your farm lacks a blacksmith, but larger farms have them, and your horse needs shoeing. So you wander to a neighbor and ask for help, negotiating compensation ad hoc or relying upon a spirit of reciprocity. As markets develop and specialize, blacksmiths become independent, competitive businesses who advertise and post prices. Perhaps touts even pester you as you trot by, hoping you will let them provide.

In less developed markets, we conserve our time and skills like we conserve other resources that we own. As markets develop, incentives emerge to keep our time and skills heavily utilized. Most of us are ambivalent about this. As consumers, we don’t love to be pestered by marketers. As producers, everpresent consciousness of “opportunity costs” can poison our creative and family lives. Nevertheless, this shifting of burdens from consumers to producers dramatically increases economic activity, and so prosperity by conventional measures, and I think prosperity in a real sense as well. Left alone, consumers want only occasionally. But producers produce most efficiently when they produce consistently and at scale. With the help of marketing (and macroeconomic policy), they strive to engineer want for the goods they efficiently produce.

On the one hand, this is the kind of treadmill many of us hope to escape with some retrenchment of neoliberalism. But on the other hand, I don’t think we want to escape too far. Overall we are better off in a world where our incentives are to seek to do one another favors, rather than a world in which need is the dominant incentive and we have to beg favors not eagerly provided.

For now, institutions that are insulated from market incentives, in particular government institutions, often do not have these incentives flipped, and that is a problem. As I write, millions of people are struggling to get unemployment benefits to which they are entitled from states (e.g. Florida) whose incentives were to make access difficult, not easy. Much of the conventional disdain for “bureaucrats” comes from a sense that they are people with no great reason to help us when need their help or at least their acquiescence. If the operators of Florida’s unemployment system had been rewarded for ensuring that every eligible beneficiary got their check, rather than for minimal outflow of state funds, that bureaucracy would probably behave quite differently. When politicians say governments should be “run like a businesses”, they mean lean, cheap, and efficient. But what appeals to most citizens in the phrase, I think, is that they should be accessible, helpful, and eager to please. As we pull back from neoliberalism, in part by tilting away from markets and towards governments as coordinators of our affairs, we should find ways to “flip the incentives” of state actors. One great use of a job guarantee corps would be to train up humans eager to serve as bridges between busy, distracted citizens and the governments who might serve them — basically taking a role as salespeople, but for the state.

Our political resentments play out mostly in national affairs, but antigovernment animus builds up mostly locally I think. Small businesspeople especially become jaded. They face a daunting range of risks related to local codes, registration, tax, and employment. Compliance, they are told, is their responsibility, the entrepreneur’s burden alone. Talk to owners of restaurants or small retail establishments in major US cities and you’ll hear horror stories of having to pay tens of thousands to one of a few architects able to get paperwork through city hall in order to renovate and open, of new investment demanded to bring a kitchen up to code when the prior tenant had just been operating with the same kitchen, of penalties for violating regulations they hadn’t realized existed, of getting shut down for zoning violations that make no sense at all. Whether you are on the left or the right, a neoliberal or social democrat, these just aren’t good things.

Regulation and compliance are essential, especially for dense cities. But helping people manage compliance ought to be a function of the state. If a restaurant kitchen needs better equipment to come to code, that becomes the restaurant’s property, and of course it should be purchased at the restaurant’s expense. But the process of bringing an an expert to inform the restauranteur of what their requirements will be in order to come to code ought to be a public function, rather than a domain of expensive specialists. Regulations exist to ensure valuable activities are conducted in ways that contribute to the public good, not to discourage those activities, or restrict opportunity to the very well capitalized. Spurred by “flipped” incentives, market producers routinely work to absolve customers of regulatory burdens. Car dealerships hire specialists to render the bureaucracy of a loan application almost invisible to customers, because they have an interest in the purchases overcoming that burden helps to enable. Government actors should face similar incentives. Large swathes of professions that now expensively, extractively manage compliance — law, accounting, finance, architecture — should migrate into the employ of states. Professionals should be rewarded both for quality of compliance and quantity of activity they enable. If you have a hare-brained idea for a business, City Hall should invite you in and offer you a coffee, just like a salesman at the car dealership. At both enterprises, most of those encounters will be “waste”, but the overall result will be well worth it.

It’s not obvious how to design effective public-sector institutions with flipped incentives. Neoliberal politicians have frequently attempted cargo-cultish, superficial mimicry of businesses, like having government employees refer to the people and businesses they interact with as “clients” or “customers”. That’s… not it. As the neoliberal moment hopefully recedes and we come to rely more on state coordination, this is a problem we should try to solve.

IV. Markets launder history 🔗

A crucial function of status quo market institutions is to hide details surrounding the provenance of commodities, which contributes to the interchangeability or fungibility of commodities. Apple can shift the location of its production across the globe, but from a customer perspective, the only input to the process is their money which is transformed, as if by magic, into an iPhone. Outside of market processes, nothing is like this. When we produce goods for ourselves — “cottage production” as the economists call it — every item has a history. The coffee table Dad built is not the same as any other coffee table, even if it is physically not so different from some other table. As markets develop, firms try to reconstitute this kind of nostalgic, positive history, using labels like “hand-made” or “artisanal”. These attempts not very persuasive.

However, the history of commodities is not always positive. When our credit card dip magically transforms into an iPhone, it is the same iPhone whether the cobalt inside it was mined by well-treated workers or child slaves. Like Vietnam vs China vs the US, these “back ends” are interchangeable, except to the degree that one makes the product cheaper, which we prefer. But human beings are moral animals. No aspect of our experience is naturally immune from our judgments, individually and communally, and judgments have huge effects on our behavior and experience. We might not enjoy our shrimp dinner, if rather than pulling the shrimp from plastic in the freezer, it was delivered to us directly by the trafficked crewman who may have harvested it. We might feel bad, and that might impair preference satisfaction.

This function of markets is obviously essential to our neoliberal status quo. Innocuously, it allows producers the flexibility to alter and improve the internals of ethical production processes without fragmenting markets. It’s for the best that an iPhone 8 be an iPhone 8 regardless of where the screen was produced. It simplifies exchange and contributes to efficiency. The producer’s brand becomes the only history that matters, and the producer has an incentive to ensure that, however dynamic and heterogenous the details of production, the consumer’s experience is uniform. Even where we understand production processes and regard them as ethical, too salient an awareness of their history might impair our enjoyment of a product, so in a sense make us poorer. We all understand what a sausage factory is, and have some idea of why we famously might prefer not to observe one. But we all know, even if we don’t live like we know, that in fact there’s a lot of history in the goods and services we consume we’d at least be ethically squeamish about. As I write, the Federal government has just effectively coerced meatpacking workers to labor in manifestly unsafe workplaces, in the name of preserving our food supply. How should that affect our relationship to bacon? How does it, when our experience of the packaged, refrigerated product is mostly unaltered? In ordinary times, lots of us are fond of animals but do not become vegetarians. If we were required to personally kill the animals we eat, many of us would enjoy our carnivore lifestyle quite a bit less. Again, the abstraction markets offer make us richer, in the sense that we enjoy what we otherwise would not. Okay, maybe that’s gross, and we should all be vegetarians. But then what do you think about the conditions under which migrant workers harvest our garlic?

There is a case for this laundering of history. Modern production processes are complicated, involving a many stages and circumstances, each of which involves tradeoffs, conflicts, and shades of gray. If we tried as individuals to police all that, we’d do a poor job in an ethical sense and make ourselves poor in a practical sense. Instead we outsource the ethical choices to state regulation of production and trade. Then so long as commodities are produced and sold in legal markets, every purchase comes with a dollop of absolution. Individually, we might not all agree on the choices the state makes, but hey, this is a democracy right? On the whole, the theory goes, our choices will be more effective when they are collective and enforced, rather than if we tried to rely on more perfectly individualized consumer judgments, boycotts or such. So ethics as well as expedience are on the side of this arrangement.

Of course if neoliberalism is defined in part by an attitude of state subservience towards markets, perhaps, in a neoliberal era, it should not surprise us if expedience came to eclipse ethics. Many of us now think that modern supply chains are sexy Apple packaging wrapped around horrifically ugly production arrangements, and that legal and financial markets often serve to wrap theft and extraction in pretty paper bow ties. This “function” of markets is part of what motivates us to challenge them. But it remains to be answered how much and just how we might want to retain the blissful ignorance delivered by virgin commodities. Inscribing all the history markets erase on a blockchain or whatever, and then relying on individuals to evaluate the ethics of every stage of production of every good and service they consume, does not seem workable or effective. On the other hand, if markets launder history too well, that short-circuits the capacity of democratic politics to insist upon ethical production, as voters are shielded from the harms of cruel supply chains but enjoy the benefits of lower prices. Some variant of the status quo, where ethical choices are collectively made and enforced by states, seems like the only way forward. (Perhaps I am too uncreative?) It’s one thing to speak abstractly about retrenching from neoliberalism, with its corrosive effect on collective action in pursuit of moral ends. But what, concretely, do the political institutions and processes look like that would render it ethical for us to enjoy the goods and services available for purchase as though they had no history? What would be the trade-offs in what we perceive as prosperity if we instated those institutions?

Update History:

  • 3-May-2020, 2:10 p.m. EDT: “in a price vector while good goods and services flow”; “…if markets launder history too effectively well, that…”