Wednesday, June 19, 2019

The Middle Eastern Thirty Years War?

I know sweeping historical analogies are silly, but I've always been partial to the analogy between the Middle East's recent decades of war and the Thirty Years War of early modern Europe. So let's run with that and see where it takes us.

The Thirty Years' War

In the early 1600s, most of Europe was involved in a gigantic war (which really lasted more than 30 years if you count other associated wars). A good history is C.V. Wedgwood's creatively named classic, The Thirty Years War.

Most people think of the war as a Protestant-vs-Catholic fight -- an extension and climax of the Wars of Religion that had been going on in Europe since the Reformation a century earlier. And religion was a big fault line between the two sides, and a big motivator for both people and regimes to keep fighting. But Wedgwood believes that the war was primarily a proxy contest between France and Spain for control of Europe. "There was enmity between France and Spain" is an often-repeated line throughout the book.

Spain, at that time, was under the control of the Habsburg family, Europe's most famous set of blue-blooded aristocratic schemers. Europe was still in transition between the old feudal form of political organization and the modern nation-state system, and the Habsburgs definitely represented the former -- besides Spain, they had tons of possessions in Germany, Belgium, and elsewhere, in addition to the Spanish Empire in South and Central America. The Habsburgs wanted to control Germany, which was the richest and most densely populated part of Europe, but which at that time was divided into a ton of tiny little micro-states loosely under the control of the increasingly irrelevant and rickety Holy Roman Empire:

The Habsburgs had maintained loose domination of Germany by constantly winning the elections for Holy Roman Emperor, but when some Protestant states rebelled against the emperor, they decided it was time to conquer Germany for real. They had massive resource wealth (silver and gold) from the New World, and they had the feared Spanish fighters, so they seemed to have a pretty good shot.

But that didn't work out, and one big reason was the Habsburgs' chief rival in Europe: France. France was Catholic, but had no desire for pan-Catholic solidarity with the Habsburgs. When the war broke out, France was in the process of becoming an absolute monarchy, and -- especially after subduing the Protestant Huguenot rebellion -- looked increasingly like an effective centralized state. Under the effective control of the famous Cardinal Richelieu (villain of the Three Musketeers!), encouraged first Denmark and then Sweden to enter the war against the Habsburgs, as well as supporting various Protestant leaders. In the end, the Habsburgs were unable to conquer most of Germany, and their holdings in the south part eventually turned into the Austrian Empire.

Spain finally got pissed enough to attack France directly, but -- to many people's surprise -- France gave them the boot. France's counterattack also failed, but by then Habsburg power in Europe was broken forever. The idea that a noble house with distributed feudal possessions could dominate the region was over, and absolute monarchies and modern nation-states started their long climb to preeminence. In fact, the Peace of Westphalia, the series of treaties that officially ended the Thirty Years War, is often cited as the blueprint for the modern concept of state sovereignty.

The Saudi-Iranian Rivalry

In the modern Middle East, a royal family with ample flows of natural resource wealth (the House of Saud) is engaged in a long proxy conflict with a autocratic, centralized rival state (Iran). Here's a slightly out-of-date map, from back when the Islamic State still had territory:

Religion is involved, as Iran is Shia and the Saudis are Sunni; both sides have sought at various times to whip up religious fervor as a weapon against the other. But most observers think the conflict is as much about which regime controls the Middle East as it is about religion.

The conflict has its roots in an ancient Arab-Persian rivalry, but it really began after the Iranian Revolution of 1979. Ayatollah Khomeini was hostile to all of the Middle Eastern monarchies, and wanted to replace them with Islamic Republics. In response, Saudi Arabia backed Saddam Hussein's invasion of Iran in 1980; the king of Saudi Arabia actually wrote to Hussein and told him to "crush these stupid Iranians". The Iran-Iraq War killed around 800,000 people, and Saudi Arabia and Iran nearly came to blows at least once during that conflict.

The Saudi-Iranian conflict quickly became entangled with religion. Sunni and Shia Muslims had coexisted more-or-less peacefully for a long time, but Saudi Arabia and Iran have both been eager to destroy that comity in order to motivate their citizens and proxies. In 1987 Khomeini said that "these vile and ungodly Wahhabis are like daggers which have always pierced the heart of the Muslims from the back”, and called the Saudis “a band of heretics". In that same year, Iranian pilgrims and Saudi security clashed at the Hajj in Mecca, leaving over 400 people dead. Meanwhile, Saudi Arabia increasingly sponsored and supported Sunni radicalism around the world, partly as a bulwark against Iranian influence. The Saudis also repressed Shia within their borders, and there are accusations that the regime supports anti-Shia sentiment abroad as well.

The Saudi-Iranian rivalry was effectively put on hold during the Gulf War in the early 1990s, but it never quite went away. Iran and the Saudis backed rival factions in the Afghani Civil War in the late 90s, and Iran almost went to war with the Saudi-supported Taliban. In Lebanon in the 2000s, the Saudis backed efforts against Iranian-backed Hezbollah, and Lebanon has continued to be a locus of proxy conflict. During the U.S. invasion of Iraq, the Saudis supported the U.S. presence while the Iranians backed Shia militias.

But the rivalry really kicked into high gear after the Arab Spring in 2011. A Shia uprising in Bahrain was crushed by Saudi soldiers, and the Sunni Bahraini royals accused Iran of stirring up the unrest. The Saudis supported some of the rebels in Syria, while Iran vigorously supported the government and even sent troops to help. Now, Saudi Arabia is fighting a war against the Shia Houthi movement in Yemen, which many claim is backed by Iran.

This conflict has now been going on for 40 years. By my rough guesstimate, the various wars related to the conflict have now cost about 2 million lives. That is a lot less than the Thirty Years War, in both absolute numbers and percent of population, but the carnage is still significant.

Parallels and Differences

The House of Saud is a bit reminiscent of the Habsburgs -- a hidebound, sprawling royal family supported by natural resource wealth (oil, vs. gold and silver from the Spanish colonies). That would put Iran in the role of France, its autocratic/bureaucratic rival. Like France, Iran has made use of various proxies -- Bashar al-Assad, Hezbollah, the Houthis, etc. And like France, Iran has generally chosen the more effective proxies -- Assad has crushed the rebels (with Russian help), Hezbollah dominates its Lebanese rivals, and the Houthis have proven far better fighters than Saudi's Yemeni proxies, and have even scored wins against Saudi Arabia's own military.

But there are at least two big differences between Iran now and France in the 1600s. First, whereas France crossed the religious divide and employed Protestant proxies, Iran's proxies are mostly either Shia or quasi-Shia sects like the Syrian Alawites. Thus, there seems to be the possibility that the Saudi-Iranian conflict will stay religious in character, as opposed to the Thirty Years War, where the religious aspect eventually took a back seat to the intra-Catholic conflict between France and Spain.

Second, Iran has a lot of oil too. While this might appear like an advantage, it can lead to the dreaded Resource Curse (which arguably helped sink Spain in the Thirty Years War, when its shipments of silver were interrupted and it went bankrupt several times due to the habit of relying on steady flows of free money). Oil wealth could actually inhibit Iran from becoming an effective modern bureaucratic state. It seems possible that both the Saudis and the Iranians will be able to fuel their conflict with oil money for years to come, without being forced to cultivate more effective economic institutions. While France came out of the Thirty Years War looking stronger than ever, Iran might not be so lucky.

Meanwhile, the Saudis differ from the Habsburgs in one important way -- they exist in the modern, Westphalian world of nation-states. Thus, they cannot hope to gain influence by taking personal possession of territory, as the Habsburgs could. Instead, their hope for long-term influence probably depends on continued use of proxies in places like Iraq, Syria, and Yemen. And the Saudis will probably try to motivate and bind those proxies with religious ties.

In other words, while the Thirty Years War signaled a shift from religion to nationalism as the organizing principle of Europe, the Saudi-Iranian conflict might not be able to repeat the trick for the Middle East -- instead, it might leave the region more polarized between Sunni and Shia.

Another big difference between the wars is the importance of outside powers. The Thirty Years War really had only one relevant outside superpower, the Ottoman Empire, which offered limited help to some anti-Habsburg forces. But the modern Middle East has seen major interference from both the United States and Russia. The U.S. invaded and occupied Iraq, helped smash ISIS, supported autonomy for the Kurds, has provided financial and military support for the Saudis, and has occasionally threatened war with Iran. Meanwhile, Russian intervention proved decisive in Syria. Middle Eastern oil is so important to China's economy that China could conceivably become involved in the region as well.

Thus, while the Thirty Years War ended with the consolidation and increased independence of European proto-nation-states, a similar process in the modern Middle East might be harder to achieve, thanks to the influence and domination of outside superpowers.

Still, it does seem like the Saudi-Iranian conflict might lead to big and lasting changes in the Middle East, and some of those changes might not be too dissimilar from the aftermath of the Thirty Years War. The depredations of ISIS and other extremist groups -- almost as savage as the atrocities in 1600s Europe -- might convince Middle Easterners that fundamentalist sectarian warfare is not a source of power and unity, but a one-way road that leads nowhere good. Already, the legitimacy of the Islamic Republic in Iran has eroded, as young people come to resent the constant conflict, social repression, and lack of economic development.

Second, the wars might end up leading to increased nationalism. If pan-Shia and pan-Sunni solidarity are seen as leading to endless conflict, young Middle Easterners may instead decide to think of themselves as Syrians, Iraqis, or Yemenis. Granted, this future looks fairly remote right now, but the rise of nationalism in Europe took centuries.

Third, the constant warfare might simply create a weariness with war and conflict, especially when paired with the big drops in fertility rates across the region. After the smoke clears from the wars in Syria, Yemen, Iraq, and elsewhere, the Middle East might enter an era of enlightenment, much as Europe did. Science, literature, and institution-building might replace violence as sources of mass inspiration. As oil becomes less important to the global economy, Middle Eastern states will have the chance to shrug off the Resource Curse and diversify their economies to more productive, inclusive industries.

Though the Thirty Years War was insanely savage and destructive, some good things did come out of it in the end. I hope that the same is true of the Middle East's current era of wars.

Sunday, March 31, 2019

Examining an MMT model in detail

What is MMT, the heterodox economic theory that has captivated Alexandria Ocasio-Cortez, made its way into the Green New Deal discussion, and inspired dozens of thinkpieces and critiques? What does it say? How can we tell if it's a good theory or a bad one?

These are incredibly important questions. Thanks to Ocasio-Cortez and the Green New Deal, MMT has very quickly gone from an obscure heterodox idea to one of the most potentially influential and important theories in all of economics. 

Formal Models vs. Guru-Based Theories

These days, most economic theories are collections of mathematical models. If you want to know what the theory says, you can parse out the models and see for yourself. You don't have to go ask Mike Woodford what New Keynesian theory says. You don't have to go ask Ed Prescott what RBC theory says. You can go read a New Keynesian model or a Real Business Cycle model and figure it out on your own.

MMT is different. There are many wordy explainers and videos that will explain some of the concepts behind MMT, or tell you some of MMT's policy recommendations. But that's different than having a formal model of the economy. In a criticism of MMT, Thomas Palley writes:
The critical economic policy question is what does the power to money finance deficit spending mean for government’s ability to promote full employment with price stability? This question can only be answered by placing that power within a theoretical model and exploring its implications...Proponents of MMT have a professional obligation to provide [a simple mathematical] model to help understand and assess the logic and originality of their claims. Yet, [MMT proponents Eric Tymoigne and L. Randall Wray] again fail to produce a model...If MMT-ers did produce a model, I am convinced the issues would become transparent, but readers would also see there is “no there there”.
Now, a lot of people like to criticize mathematical models in economics. And they do have their drawbacks. Economists can sometimes become so entranced by the precision of math that they ignore the need to connect that math with the real world. And the difficulty of hacking through math can lead economists to make the models too simple.

Furthermore, Palley is being a bit too strict in demanding math; formal models can be stated in English or in graphs, rather than in equations.

But formal models have important advantages. For one thing, a good formal model can be compared with quantitative data, to see whether it works or whether it fails. Formal models can make testable predictions.

A second advantage of formal models is that you can figure them out for yourself, without having to ask any gurus. If you have to run to the gurus to ask them what the theory says any time you think you've found a flaw, it becomes almost impossible to skeptics or outsiders to evaluate the theory objectively.

This latter issue comes up a lot when dealing with MMT. In a recent post, Brad DeLong expresses his frustration with the theory's apparent slipperiness:
"Functional finance" is a doctrine originated and set out by Abba Lerner...When I said that "functional finance" is at the core of MMT, I got immediately smacked down by one of the gurus...Perhaps the key to the eagerness of [L. Randall] Wray to dismiss me (and James Montier) for saying that MMT is Lerner+ is sociological. Perhaps MMT is not model-based ("IS-LM with a near-vertical IS curve") and not idea-based ("Functional Finance") so that it can be guru-based. (emphasis mine)
It wasn't just DeLong and Montier who conflated MMT with Functional Finance. Aryun Jayadev and J.W. Mason did something similar in their attempted write-up of MMT, leading Josh Barro to do the same thing in his own criticism of MMT. Mason, Jayadev, and Barro criticized MMT on the grounds that raising taxes to control inflation - something you have to do in Functional Finance, and which some MMT advocates agree is necessary - is politically very difficult.

But in response to these critiques, Mason, Jayadev, Barro, Montier, and DeLong were told: No, MMT's approach to fiscal policy is not just Functional Finance. It is very very different. On Twitter, MMT insider Rohan Grey declared that MMT has other tools besides fiscal policy for fighting inflation. On his blog, MMT insider L. Randall Wray said that MMT's main tool for maintaining price stability is the federal Job Guarantee:
Yes, MMT does have another tool to maintain price stability. It is the JG approach to full employment. It has always been a core element of MMT. We have never relied the simplistic version of Functional Finance that was presented by Mason. It would take about five minutes of actual research to demonstrate this.
Now that's a perfectly fine rebuttal. People get theories wrong all the time. It's perfectly possible that Mason, Jayadev, Barro, Montier, and DeLong were all very wrong to conflate MMT with Functional Finance, and that five minutes of actual research would have demonstrated this.

But which five minutes? If you want to know how MMT's price stabilization policy differs from Functional Finance, where do you look? Do you trust Wray's blog? Or Grey's tweets? Or an online explainer? Or a video explainer? Or in one of the many papers written by MMT proponents? Which one?

Because MMT doesn't often include formal models, the question of how MMT thinks inflation works is very difficult to answer for yourself. The same is true of a number of other questions, such as how MMT's Job Guarantee would create full employment with price stability. You have to go ask the MMT People themselves.

But "few formal models" doesn't mean "no formal models". Occasionally, MMT people do write down a formal description of how they think the economy works (or might work). One example is "Monopoly Money: The State as a Price Setter", by Pavlina R. Tcherneva.

Examining an MMT Model (or, "Pavlina Tcherneva and the EMPL of Doom")

"Monopoly Money: The State as a Price Setter" explains the idea of how a Job Guarantee would work. The formal model begins on p.130 (page 7 of the PDF).

Here is the model's "conceptual framework":

The government demands that people pay taxes in dollars, which you can only get by working for the government. So people work for the government because that's the only way they can pay their taxes.

Now let's look at exactly how people work for the government and pay their taxes:

Already I can see one potential problem with this model, which is that everyone in the entire economy dies.

Note the part that I've marked with a red arrow. This economy produces only one service, which is firefighting. But you can't eat firefighting. So if that's literally the only thing anyone does in this economy, everyone will starve to death.

LOL OK, so that's probably too harsh. Maybe the people in this economy are doing other stuff on the side that's not in the model - farming, manufacturing, etc. After all, Tcherneva does mention that T could be "a property tax", and the model doesn't include property. So let's assume there's other stuff outside the model too, so that people don't starve, or freeze, etc.

But that still leaves the question of why the government needs firefighting services in the first place. What if there aren't any fires? If the government hires more firefighters than it needs to actually fight fires, then it's just wasting resources - making people labor in useless toil, taking them away from subsistence farming, or whatever. The more useless firefighters it hires, the poorer each person is. (In the limit, if every person has to spend all their time and effort doing unproductive work for the government, they actually do starve to death!)

Anyway, let's go on. 

So the government can hire 1 firefighter for $10 or 10 firefighters for $1 each, etc. (cents apparently don't exist in this world, so you can't hire 4 firefighters for $2.50 each, which is weird but OK).

Another question arises: Why is anyone willing to work as a firefighter in this model? According to Tcherneva, they need dollars to pay their taxes. But who pays the taxes? Tcherneva specifies that the tax bill "for the entire community" is $10. But how is this tax bill paid? Does the entire community file taxes jointly?

Suppose the government chooses to hire only one firefighter - call her Susan. She gets $10 for firefighting, and everyone else gets $0. Does the government tax Susan $10 and tax everyone else $0? Apparently so. Because Susan has $10 and everyone else has $0, so the only way the government can get its $10 is to tax Susan $10.

So why does Susan go fight fires in the first place? Firefighting takes work. If instead she decides to be one of the 9 people who don't work as firefighters, she can relax and watch Netflix, or farm food, or go do whatever it is that people in this model do when they're not firefighting. Someone else will get the dollars, someone else will pay the taxes. Because if you don't work as a firefighter your tax bill is zero, because you don't have any dollars to tax!

So taxation in this model doesn't make a lot of sense, because the model doesn't explain who actually pays the taxes. Without knowing that, it's hard to know why people would accept the government's prices for their firefighting services.

But OK, there must be some reason they work. Maybe the government makes people work at the price it offers. In this case, people are effectively doing slave labor for the government.

That sounds bad...right? It sounds a bit like colonialism, when European governments would send their armies to Africa or Latin America or India and make the locals labor for their overseas masters. 

At this point you may be saying "Noah, you jerk, why are you slandering the MMT people by equating their ideas with colonialism? That's not fair!" But I have a good reason for drawing this comparison: Tcherneva makes it herself, earlier in the paper! European colonialism in Africa is explicitly held up as a successful example of a "tax-driven currency":

On p.135 (page 12 of the PDF), Tcherneva explicitly states that the case where the government sets prices for firefighters "is the African example." So yes, it's explicit that in the model where the government sets prices, it also sets quantities - i.e., it forces people to work. 

I don't want to editorialize too much here, but "the African example" seems bad. Forced labor, potentially to the point of genocide, does not sound like the kind of "job guarantee" I would want. 

Does Tcherneva offer any alternative? Yes. In her "case 2b" on p.134 (page 11 of the PDF), she relaxes the assumption of forced labor, and allows the price (and therefore also the quantity) of workers to be set by the market. She also allows for the possibility that labor unions might organize to reduce the amount of labor they do in exchange for their tax dollars:

In this model, the government can't determine how much labor it gets or how much each laborer gets paid; it can only determine the total number of dollars it pays for labor. In fact, as Tcherneva suggests, labor unions might even allow workers to get all the government's dollars for a very small amount of labor - good for workers, but bad news if there really is a fire!

Anyway, this new model sounds much less horrifying, but it still doesn't answer the fundamental questions of "why do we need all these firefighters" or "who exactly pays the taxes". But at least it does allow for the possibility that either market forces or organized labor could minimize the amount of potentially-useless labor people were compelled to perform for the government in exchange for the money they need to pay their taxes. Colonial Africa, but with labor unions.

(Tcherneva also develops some further cases, including one where the government purchases park benches and another in which desired net saving is nonzero. But none of these cases answer the basic questions either. But don't take my word for it; check the paper.)

Anyway, this formal model is very useful, because it allows careful, precise, explicit analysis of MMT ideas. It allows us to identify potential problems with the theory, such as the question of whether a job guarantee would represent unproductive toil, and whether that's something we would want as a society. 

Further Questions for MMT

There is much I do not yet understand about MMT, that I would like to understand. 

For example, suppose the government implements a job guarantee and sets deficits, credit policies, etc. at the appropriate level to ensure price stability, but we still have more inequality of income and wealth than we would like? What policies should then be used to reduce inequality, without interfering with the goals of price stability and full employment?

Also, I would like to know how to test MMT empirically. What concrete predictions - about macroeconomic aggregates or other quantities - does MMT make that would allow us to determine whether it describes the economy better than, say, Old Keynesian IS-LM models, or New Keynesian models with financial frictions?

Also, how does MMT model productivity in the economy? It seems like hiring a bunch of firefighters in the absence of fires would negatively impact productivity and reduce living standards. Does MMT assume that productivity is exogenous, does it assume that productivity reductions will always be of secondary concern relative to the importance of full employment, or does it have some other way of dealing with potential hits to productivity?

I'm not confident in my ability to answer these and other important questions by reading L. Randall Wray blog posts, or long online explainers, or wordy MMT papers. I want to be able to read a concrete, formal, well-specified model like the Tcherneva model above, and answer these questions myself. And the rest of the non-MMT econ deserves this as well.

Saturday, March 30, 2019

Where should Americans live if they live abroad?

I'm a huge fan of living abroad, and I think many more Americans should do it. Living in a big, rich country with relatively few other countries nearby, Americans don't tend to travel overseas much. And of course, a great many don't have the economic opportunity to do so. I think there should be government programs that help young Americans travel and live abroad, and I think more charities, religious organizations, and other nonprofits should focus on helping people go overseas.

In a recent Twitter thread, I explained how I think living abroad changes one's perspective. In addition to the obvious benefits of cosmopolitanism - helping people realize that people around the world aren't so different after all, etc. etc. - I think it conveys a healthy appreciation for how hard institutions are to get right. Living in Japan for a few years, I got to observe institutions that work better there (cities, primary education), but also institutions that in many ways don't work as well - like the media, universities, corporate culture, the justice system. In fact, the institutions that Japan struggles with the most tend to be things that Americans complain about a lot.

Thus, living abroad taught me that institutions are very hard to get right, that tradeoffs and path dependence are very real, and that even the smartest people (in this case, Japan's vaunted elite bureaucracy) can often get things wrong for a very long time. I think I returned to the U.S. with a deeper appreciation of how hard it is to make a society work the way you want it to, and how precious functional institutions are. It made me both less satisfied with the things America does wrong - for example, urban density and transportation - and more wary of tearing up the things that actually work halfway decently. I can see the same sort of perspective in the writing of some of my favorite writers, including James Fallows and Terrell Starr.

OK, so if you're young-ish and looking to live overseas and gain some perspective, where do you go? Or if you're a nonprofit looking to give young Americans some perspective by sending them overseas, where do you send them? Japan's not a bad choice, but I imagine that there are even better places in terms of comparing/contrasting local institutions and culture with the U.S. Here are some ideas:

1. China

China has got to be the obvious choice, because the country is just so important to the world economy and to geopolitics. This is the Chinese Century, so might as well try living where the action is! Making connections to China could be very useful in life, in addition to any perspective gained.

Furthermore, China's one-party rule, development-oriented state, and close cooperation between government and companies make for an important and interesting institutional contrast. Chinese politics, ethnic divisions, and sense of history are also probably all very interesting and different. Some of these differences are very scary, but scary things can also be instructive. James Fallows is one of my favorite writers, and his time in China shaped him deeply.

The big problem here is that unless they speak Chinese (which, due to the large # of characters and the tonality, is not the easiest language to learn), an American's ability to really get to know people in China might be limited. Being trapped in the expat community is an easy way to avoid getting the full experience of a country. Though notably, some Americans who have actually lived in China claim that Chinese ability isn't as necessary as you might think.

I hear through the grapevine that the best city to live in is Shenzhen, though of course Shanghai and Beijing will always be popular (and Sichuan in general has my favorite food!). There are tons of other places to choose from, too.

Alternative: For those who want to see an up-and-coming superpower with more democratic governance and more English usage, try India.

2. Germany

When choosing a foreign country to live in, there's a balance between choosing one that's too similar (in which case you might overlook the important differences) and one that's too different (in which case you might assume there are no relevant lessons to be learned). Germany might be in the sweet spot. It's a rich Western country, which contributed more immigrants to America than any other nation except possibly Mexico. But it also has a very different economy and set of institutions -- worker councils and co-determination, strong vocational education, export- and manufacturing-oriented industrial policy, and dense urbanism with good public transit.

Germany might therefore be the best country if you want to see different ways to run an advanced economy. Also, lots of people can speak good English, and the country is safe, wealthy, beautiful, and fun. It might also give good perspective on issues of ethnonationalism, what with its WW2 history and its recent acceptance of large numbers of Middle Eastern refugees.

Berlin is the most famous place to live - it's very cheap, and is a legendary party town, with lots of history. But Munich is my personal favorite.

Alternative: France is a country with similar points of interest, though its economic model is a bit different and its English usage is a bit less.

3. Brazil

Brazil is, in many ways, America's "sister country". It's a large, populous post-colonial Western Hemisphere nation with a history of slavery (abolished 1888), a history of immigration, and a very diverse population. For those who are intent on living somewhere nice, it's also famous for its natural beauty and fun culture (though with a murder rate 6 times as high as that of the U.S., it's also a bit dangerous).

Brazil could offer some broad perspective on how to make a very diverse young society with a checkered past work for all its people. Economically, it's middle-income (slightly poorer than China), with some advanced industries but low productivity growth. It may therefore be a good example of the "middle income trap" - a country that is no longer mired in poverty but is struggling to make it into the ranks of wealthy nations.

Alternative: For those who would rather stick closer to the U.S., Mexico shares some of these points of interest.

4. Ethiopia

My Bloomberg Opinion colleague Tyler Cowen strongly recommends Ethiopia. If you want to see a developing country just on the cusp of industrialization, Ethiopia might be your best bet. Thanks to a recent improvement in political stability and a torrent of foreign investment (much of it Chinese), Ethiopia looks like it's hopping aboard the train to industrialization. That could mean useful commercial advantages to living there, if you want to invest and get in on the ground floor! And because Ethiopia is the first African country to start out on this manufacturing-based growth path, you'd be there for a historic moment.

The country is still desperately poor -- its income per capita is less than 1/30 that of the United States. But living in a desperately poor country is a good way to see what life is like without industrialization, and why countries rush to embrace it despite all the pollution, safety issues, and other drawbacks.

Alternatives: Other countries going through similar rapid industrialization, but slightly farther along, include Bangladesh and Vietnam.

5. Ukraine

It might feel a bit voyeuristic to go live in a country that is mired in troubles. But it could also be very instructive. Despite a history of industrialization as the center of Soviet heavy industry, and despite some of the world's most fertile agricultural land, Ukraine remains poor. It's mired in economic stagnation, political dysfunction, and a seemingly never-ending war with a small Russian-backed breakaway region in the east. If you want to see how a country with lots of advantages and close connections to the West can still struggle in this day and age, Ukraine is probably your best bet.

Of course, Ukraine also no doubt has much charm. Terrell Starr lived there and liked it. Nor is he the only one. It's cheap, and if you decide you'd rather return to the comfort of the developed world, other European countries are very close by!

Alternative: You could always take the full leap and go live in Russia.

So there are some suggestions of where to live if you're looking for some international perspective (with a bit of adventure thrown in). Of course, I haven't lived in any of these places, so this post is highly speculative. In the end, you won't know until you go!

Thursday, March 28, 2019

Guest post: Roy Bahat on Uber, Lyft, and the future of work

Roy Bahat is the head of Bloomberg Beta, a venture capital firm focused on the future of work. In this guest post, he explains what he thinks is wrong with the way the "ride sharing" companies treat their workers.




Lyft could go public as soon as this week, with Uber tailgating. For either to succeed, they have to stop the rot at the core of their business: their drivers are suffering. Like a factory worker in a 1950 auto plant, Uber and Lyft drivers epitomize the struggles of many Americans today. To solve their drivers’ challenges, Uber and Lyft might need to strike a new bargain for all of American work, a new “Treaty of Detroit.”

The Treaty of Detroit, just after World War II, established employers as the providers of benefits. Then, the big three automakers rang up outsized profits, which depended on working people welding, painting, and assembling. Those people suffered unacceptable conditions, like many gig workers today, so they organized.

United Auto Workers chief Walter Reuther pressed General Motors to create the standard for a full-time job in America: health insurance, vacation, enough of a wage to provide for a family, regular raises, and money for retirement. He negotiated, in one word, security.


Our economy and society are different today. Family lives come in many forms, and our workforce is more diverse. In a family headed by a single parent or by two working parents, all work, not just full-time jobs at profitable companies, must provide for stability.

Lyft and Uber, like many companies in the new economy, have been unable to provide their workers with a stable and complete livelihood. Still, with their bully pulpit and their relationship with millions of Americans, they might be our best hope for provoking change.

That change starts with something unfamiliar to Uber and Lyft: partnering with government. Instead of using their muscle to whine to cities about taxi regulations, Uber and Lyft should call on government to lift the floor for working people. They could ask the federal government to pay for healthcare, joining the conversation about Medicare for All (as they did during the discussions about the Affordable Care Act). Government could set a minimum wage for drivers, as New York just did, so we riders pay our fare share.

Lyft and Uber could enable drivers to choose their own paths, in what’s now called “lifelong learning.” Uber offers online college classes for free at Arizona State. Driver centers could offer GED-equivalent classes, or help drivers build their network and then learn how to network. Imagine if drivers, who Lyft and Uber chose to brand as “independent entrepreneurs” at the height of the employee-or-contractor game, actually received support to become genuine entrepreneurs -- like financing, or access to mentors to help them with business plans? Or better: Uber and Lyft could buy services from companies owned by their own workers, to create the spark of demand that gets them going.

This company-supported learning might extend to developing drivers’ careers at Uber and Lyft. Unlike a retail store, where the cashier sees the manager every day and gets a shot to build a relationship and prove they can do that job, the app-is-my-boss experience gives drivers only the thinnest exposure to management. So Uber and Lyft need to invent ways to get drivers into corporate headquarters, or risk permanent castes dividing their workforce.

Maybe workers conceded too much in the Treaty of Detroit, and drivers should organize to have a representative on Uber and Lyft’s boards? Uber’s CEO, Dara Khosrowshahi, talks about his family coming from struggle. What if the Dara Khosrowshahi of 2030 is someone driving for Uber right now?

Despite the avalanche of investor money that blanketed Uber and Lyft, they barely earn enough revenue to pay their costs. It’s hard to imagine them paying more for driver healthcare. They’re also locked in a do-si-do where if one raised prices to pay drivers more, we riders would probably just pick the other one -- you know you would. So a “Treaty of Silicon Valley” would need government to both level and raise the playing field.


After the Treaty of Detroit, the President of General Motors said “what was good for the country was good for General Motors, and vice versa.” Uber or Lyft might say the same today. The technology companies driving changes in work need to call on government and workers to strike a new bargain, and then do their part to invest in those workers’ futures. Big corporates, who have long shifted work from employees to contractors, might follow -- and we might all agree to a new treaty that will hold for another 70 years.

Thursday, February 28, 2019

A proposal for an Alternative Green New Deal

Usually, Bloomberg Opinion understandably does not want me to repost my Bloomberg articles at this blog. But they made an exception for my Alternative Green New Deal plan. So here it is.


The planet is in grave danger from climate change. No reasonable person can doubt this fact. Drastic and immediate action is needed to reduce global carbon emissions.
But that doesn’t mean that any sort of drastic action is a good one. The Green New Deal, proposed by Representative Alexandria Ocasio-Cortez, has two big flaws. First, the plan overreaches in its desire to deliver a raft of expensive new entitlements — guaranteed jobs, benefits, health care, housing, education, income and more. If the large deficits required to pay for all of these things ended up harming the economy, it would actually hurt the cause of limiting climate change rather than help it. Second, the plan focuses far too much on the U.S.’s own carbon emissions. The U.S. accounts for only about 14 percent of global carbon output, and that percent is falling every day. The climate change battle will be won or lost in developing countries such as China:

So I propose an alternative Green New Deal, which would focus on actually defeating climate change. Some of the proposals here are included in the Green New Deal resolution; some are not.The first pillar of an alternative Green New Deal would be green technology. If the U.S. can discover cheap ways of manufacturing cement and concrete without carbon emissions, and of reducing emissions from agriculture, it will give developing countries a way to reduce carbon output without threatening their economic growth. To this end, the U.S. should pour money into research. The budget of ARPA-E, the agency charged with leading this research, should be increased from about $300 million to $30 billion per year.
The second way to move green technology forward is to encourage the scaling of these technologies. As companies build more solar power, batteries, smart grids, low-carbon building retrofit kits and other green technologies, the costs go down. To that end, the government should provide large subsidies to green-energy companies, including solar power, batteries and electric cars, as well as mandating the replacement of fossil-fuel plants with zero-carbon plants.
Infrastructure spending is also important. The original Green New Deal’s goal of building a smart electrical grid is a good one, as is the idea to retrofit American buildings to have net zero emissions.
Technologies developed in the U.S. need to spread quickly to other countries. All ARPA-E breakthroughs should be freely transferred to other countries, through the offices of the United Nations Framework Convention on Climate Change or other agencies. Subsidies should be increased for companies that export their emissions-reducing products. The plan should also include offers of favorable trade relations for countries that reduce their use of fossil fuels, as well as tariffs on the carbon content of imported goods.
An alternative Green New Deal should also provide incentives for higher density in urban areas, since sprawl contributes to emissions. It shouldn’t require the decommissioning of nuclear plants. It should also implement a carbon tax, something now missing from the plan. This would encourage factories to reduce carbon output, to encourage air and sea travel to search for lower-carbon alternatives and to address various other sources of emissions.

In addition, an alternative Green New Deal should include proposals to make sure as little as possible of the costs of the transition fall on the economically vulnerable. Government infrastructure and retrofitting projects will naturally create many green jobs. The proceeds of a carbon tax can be rebated to low-income Americans, either as a carbon dividend, or through earned income tax credits, child tax credits, food stamps, housing vouchers and income support for the elderly and disabled. These policies combine the goals of fighting climate change and supporting the poor and working class.
In order to sweeten the deal politically, an Alternative Green New Deal should also include some economic policies that aren’t directly related to climate change — but make sure these are things that should be done anyway, and which won’t break the bank. Universal health insurance, which would free employees to move from job to job, as well as giving the government power to negotiate lower health-care prices, should be included. Increased spending on public universities and trade schools in exchange for tuition reductions, and grants to help lower-income students pay for these schools, would help increase educational attainment without being too costly.
Finally, an alternative Green New Deal should involve progressive taxes, both to raise revenue for the spending increases and to let the nation know that the well-off are shouldering more of the burden. Wealth taxes and inheritance taxes are good ideas. Income taxes should also go up, not just on the super rich, but on the affluent and the upper-middle class as well. And most importantly, capital gains and dividends should be treated as ordinary income, which would increase the tax rate actually paid by the wealthy.
This alternative Green New Deal has similarities to Ocasio-Cortez’s version, but also has key differences. By focusing on technological development and international assistance, it would tackle the all-important problem of global emissions. By avoiding huge open-ended commitments like a federal job guarantee or universal basic income, and by including progressive tax increases, it would avoid the threat of excessive budget deficits. Ultimately, this plan would represent the U.S.’s best shot at fighting the looming global menace of climate change while also making the country more egalitarian in a safe and sustainable way. It would be a worthy successor to the original New Deal.

Thursday, February 21, 2019

Book Review: The Revolt of the Public, by Martin Gurri

If you do not read "The Revolt of the Public and the Crisis of Authority in the New Millennium," by Martin Gurri, you will not be sufficiently prepared for the world to come.

Well, you probably won't be anyway. No one will! But this book brings together a startling number of important threads of contemporary politics, geopolitics, public affairs, and media, and weaves them into a coherent, comprehensible, and very plausible narrative. And it does so far better than any other book, blog post, or Twitter thread that I have seen attempt to deal with these issues (including my own modest foray). So buy this book and read it.

Why This Book Is Great

The basic thesis of the book is that social media has empowered the public, and that the public is using its newfound power to attack - but not to replace - the dominant institutions of society. Citing examples from the Arab Spring revolutions to the Indignado protests of Spain to Occupy Wall Street and the Tea Party, Gurri pegs 2011 as the year where the new paradigm of viral, explosive discontent first asserted itself. 

Importantly, Gurri defines the "public" in a weird, idiosyncratic way. It's not the people as a whole, so it can't be represented by opinion polls. It's not the "masses" of the mid 20th century, since it's not organized into hierarchical mass movements coordinated by leaders. Instead, Gurri defines the public as the set of people who are interested enough in a particular issue to pay attention and get involved. Thus, the public is actually a different set of people in each situation.

(Gurri's public is somewhat similar to my own conception of the "Shouting Class", but not quite the same. The Shouting Class are the set of people who are always vocally upset about one thing or another, due to their own personal life dissatisfaction, natural argumentativeness, desire for attention, or other factors that can't be assuaged or mollified by any change in the structure of the world. Gurri's public often includes these people, but often also includes non-shouters who genuinely care about one particular issue or are moved to action by viral enthusiasm instead of their own natural predilections.)

Social media, Gurri asserts, has both empowered and emboldened the public, freeing it from the control of centralized, hierarchical push-media. The age of Walter Cronkite has given way to the age of the Twitter mob and the Facebook protest organizer. But the newly empowered public, he argues, has not focused on building things up, but on breaking them down. The public's goal is negation - denunciation of respected leaders, derailment of political programs, overthrow of parties or governments, discrediting of institutions, etc. 

Gurri worries that this constant anti-everything attitude will descend into "nihilism", and that weakened institutions will be trapped in an eternal stalemate with an eternally raging public. The events of the 2010s have certainly conformed to this description. And the book, the first edition of which was released in 2014, looks especially prophetic when viewed from the vantage point of 2019. All the trends Gurri describes have only intensified.

The usefulness of this book is in drawing parallels between a bunch of things that might seem unrelated (and as a former CIA analyst, that's Gurri's specialty). If the many explosions of anger and activism since 2011 were fundamentally about specific issues - the Tea Party about taxes, the Women's March about sexism - then you might expect the anger to recede as the issues get successfully addressed. But if Gurri is right, these things are fundamentally about a technology - social media - and the way it changes power relations between the public and elites, then we can expect today's explosions of anger to be followed by others tomorrow, and then others the day after tomorrow, and on and on and on. 

Gurri may not convince you - in fact, if he does, you're probably not enough of a skeptic - but he will give you a new framework with which to usefully think about the political chaos of the modern world.

That said, there are some limitations, omissions, and missteps in the book (as there are in every book). Here are the biggest things I think Gurri left out:.

More Than Two Futures

Near the end of the book, Gurri allows for the possibility that his big thesis might be wrong. But he demands that readers choose between his hypothesis and the "null hypothesis" - i.e., the exact opposite of every trend he describes. If he's wrong, Gurri asserts, the world will proceed toward greater centralization, greater hierarchy, greater trust in and respect for authority, etc. etc. 

But this is a false choice. Gurri's vision is complex and multi-dimensional, not a univariate hypothesis that can be tested against a null. It's perfectly possible that Gurri's description of the world will hold true in some respects but not in others. For example, it may be that elites and institutions never regain their aura of Olympian invincibility, but that the public becomes more constructive over time, eschewing nihilism and pushing for big utopian visions like the Green New Deal. Or it might be that elites never become effective or respected, but successfully implement systems of total social control similar to the one China is trying to implement. Or it might be that elites never recover their power and effectiveness, but the public gets tired of outrage and finds something else to do, leaving society in a comfortable stasis.

There are many possible futures, not just two. 

Underrated Public, Underrated Elites

Gurri takes a very even-handed approach toward the public and the elites. He criticizes the former for its inflated expectations and destructive nihilism, while taking the latter to task for failed grandiose promises, tone-deafness, and exclusion of outside voices. But my impression is that he is a bit too hard on both.

Recent protests in the U.S. have not been completely nihilistic - often, they've motivated real, concrete policy changes. Occupy Wall Street probably contributed some popular energy to the push for financial reform, which culminated in the Dodd-Frank law. The Black Lives Matter protests, which Gurri mostly doesn't touch on, may have led to needed police reforms in many cities. In Tunisia, the Arab Spring led not to bloody civil war, but to the first green shoots of liberal democracy. I'm not a big fan of the Tea Party, to put it mildly, but they did seem effective in their goal of forcing Obama to cut spending.

Meanwhile, elites have not failed as badly as Gurri describes. The era of desegregation, civil rights, and the Great Society saw massive, permanent decreases in the black poverty rate (and modest decreases in the white poverty rate):

During the mid 20th century, the era Gurri describes as High Modernism, the U.S. government also built the interstate system and helped create the early internet, in addition to implementing Medicare. Other rich country governments successfully implemented government health care systems that to this day are highly effective and relatively cheap. Government research pushed forward the frontiers of science and technology in ways too numerous - and too important - to count.

More recently, efforts by the Clinton, Bush, and Obama administrations led to modest but real decreases in poverty. Even after Obama was checked by a Republican Congress, his Clean Power Plan helped start a transition from coal power to natural gas and renewable energy. Gurri excoriates the Obama administration and the Federal Reserve for failing to stop the Great Recession, but it's notable - and at the end of the book, Gurri even admits - that things never degenerated into another Great Depression. The system may not have worked perfectly, but it worked

In other words, the public often gets things done, and government often gets things done. Gurri is too hard on both. 

So Why the Rage?

Gurri accuses the public of nihilism, and that accusation often seems right - especially when it comes to Twitter outrage mobs and the more radical political movements that have fought each other in the streets since 2017. But he doesn't really explore the reasons for this rage. He mentions elite failures - the Iraq War, the persistence of poverty, the Great Recession. But he also characterizes the public as being generally drawn from people whose personal circumstances are not so dire. So why are people so mad?

One possibility is that we're dealing with a "revolution of rising expectations". This is the theory that an era of steady progress leads to ingrained expectations of continued progress, or even accelerating progress. So whenever the inevitable slowdown or minor reversal arrives, a generation with great expectations explodes in rage at the future visions that suddenly seem denied to them. Last September I wrote a Twitter thread applying this idea to disappointed educated young people and the rise of the socialist left in America. The process might apply more generally. It might have been the success of modern societies and their elites, rather than their failure, that set the public up for disappointment and rage.

This Might Have All Happened Before

Gurri declares 2011 to have been a "phase change" in human relations, and portrays modern social media outrage and protests, and the chaos they cause, as something new under the sun, crucially dependent on information technologies that have never existed before. But the events he describes sound strikingly, even eerily similar to those described in another book I read recently: "Phantom Terror: Political Paranoia and the Creation of the Modern State, 1789-1848".

"Phantom Terror" describes how, in the wake of the French Revolution, the governments of Europe became extremely paranoid about the existence of conspiracies they believed were fomenting revolution. They implemented police states, but could find no such conspiracies. Yet revolutions happened anyway - spontaneous, grassroots revolutions, culminating in the upheavals of 1848. Some governments fell and were replaced, most endured, and the character of European governance largely persisted even though institutions and their legitimacy seemed permanently weakened. And all of this without any centralized hand or elite conspiracy driving the revolutions - just a bunch of spontaneously materializing mobs. Sound familiar? 

Another pair of books I read recently were "Nixonland: The Rise of a President and the Fracturing of America" and "Days of Rage: America's Radical Underground, the FBI, and the Forgotten Age of Revolutionary Violence". These books described the political upheavals of the late 1960s and 1970s - smack dab in the middle of the elite-dominated industrial age. These were years of chaos. Hundreds of riots, striking every major American city. Widespread protests. High-profile assassinations. Thousands of (mostly non-fatal) terrorist bombings every year, very few coordinated or directed by any organization or hierarchy. And this chaos repeated itself throughout Europe, and in much of the rest of the world - witness China's Cultural Revolution. 

These were two former eras, one far in the past, one recent, in which spontaneous activism and popular rage led to widespread rejection of elites and endemic political chaos. And yet in each case, the public didn't need Facebook or Twitter to revolt - all it needed were pamphlets, independent newspapers, books, or that ultimate information technology, word of mouth.

So the Revolt of the Public might not be such a new thing under the sun. Instead, it might be a recent manifestation of a recurring phenomenon - a periodic eruption of popular discontent. Such a cycle might be driven by improvements in information technology - the printing press, telephones, radio, blogs, and now social media. Each time information technology improves, it might lead to an explosion of chaos and rage while elites and institutions struggle to adapt. But each time in the past, the slow-moving engines of government, business, and media have eventually figured out how to put the lid back on public rage. It may turn out similarly this time. 

More historical perspective might have also affected Gurri's predictions and recommendations, which he delivers at the end of the book. Gurri predicts a compression of society's hierarchical pyramid, and recommends that governments adopt a combination of localism and responsiveness. But over the last few centuries, as information technology has improved, government has tended to move in the opposite direction - toward greater control, greater intrusiveness, and greater projects of centrally directed social change. In the 1400s, government was highly localized and parochial, with the exception of the occasional conquering army. Why should we expect to go back in that direction? Instead, should we not expect Even Bigger Government and Even Higher Modernism to eventually assert itself as the antidote to social media rage? 

In Conclusion

These omissions in the book should only emphasize how thought-provoking it was, and how interesting and useful of a framework Gurri has created for evaluating the modern world. I'm not repudiating Gurri, but riffing on him. I'm sure if you read this book, you'll find yourself doing the same.

So grab a copy of "Revolt of the Public". In these turbulent times, it provides a much-needed map.


Martin has a friendly response to my review! He basically says that A) government may have done OK, but the public is never satisfied, B) government may have done OK but it over-promised relative to what it could deliver, and C) the public often doesn't even want real change, just to protest and get mad and feel important.

Those all seem right to me. These ideas are part of the reason Revolt of the Public is such a great and important book.