Friday, April 29, 2011

Short thoughts, mostly about the decline of America

1. The Economist is a "classical liberal" publication. The Economist understands that America needs more, not less, government spending on infrastructure if our economy is going to thrive. The Economist also understands that America needs more, not less, government spending on research if our economy is going to thrive. Which is to say The Economist understands well the existence and importance of public goods. (It occurs to me that this might be the difference between British "classical liberals" and American "libertarians"; the former will support government intervention in the economy if the intervention raises standards of living, while the latter will usually oppose it on principle.)

2. Why is American public good provision lagging? Brad DeLong blames Republicans, and I agree. Paul Ryan, the Republicans' thought leader on budget issues, wants to slash spending on both transportation infrastructure and research and development.

3. Why are Republicans so intent on starving the economy of public goods? Well, I think conservatives (and not a few liberals!) have really fallen into the rut of thinking that all government spending = redistribution. Part of this may be a simple failure to recognize that America's gravy days are over, and that arresting the rapid shrinkage of our national pie is more important than squabbling over who gets which slice. 

But if you read this blog, you know I think that there is something bigger and deeper at work, namely our national identity crisis. Remember Alesina and Easterly's finding that ethnic divisions reduce public good provisions. This is what I believe we're facing. Conservative whites have decided that America will soon cease to be the white ethnic nation that they think it used to be; therefore, they have little interest in bankrolling the nation's future.

4. This tribal divide explains why the birthers are birthers. James Fallows:
Tribal knowledge vs actual knowledge front: Yesterday, about half of all Republicans thought Obama was foreign born, and therefore an illegal occupant of the White House. How many Republicans will think the same thing one week from now? My guess is: about half. We've reached that stage on just about everything...[I]f "actual knowledge" mattered, the number of people who thought Obama was foreign-born would approach zero by next week...My guess is that the figures will barely change.
Birthers believe in birtherism because it is a rallying flag for their ethnic/tribal identity movement. Experessing doubts about Obama's American-ness is a way of expressing solidarity with other people who think that only whites can be "real Americans."

5. As I see it, most American liberals want to heal the ethnic rift. Liberals seem to believe that America is a nation based on shared ideology and shared institutions, not on blood and soil. This explains why liberals are more likely to favor spending on public goods, and IMHO it also explains why liberals tend to be more redistributionist (they view poor blacks and Hispanics as their fellow countrymen, which conservatives generally do not). This is why, although I'm not generally a redistributionist, I count myself a liberal on economic issues.

But we liberals are up against the terrific power of the conservative populist narrative, which holds that all government spending is redistribution, and that all redistribution is racial redistribution.This is the narrative of the lazy blacks and lazy Hispanics using government to confiscate white money and jobs. Nearly every day I hear this narrative repeated. Just today, Republican Sally Kern declared that "minorities earn less because they don't work as hard." If you want more of the same, just listen to...well, everything Rush Limbaugh has ever said.

Conclusion: If our nation-state is going to succeed, we need to start thinking of ourselves as a single nation again. But powerful forces are at work every day, trying to get us to think exactly the opposite. This has been a major theme and focus of this blog, but I think it bears repeating.


  1. The reason we need downward redistribution is that for 40 years we have had upward redistribution, due to anti-tax policy and lack of regulation aiding and abetting the natural tendency of capitalism to cause wealth inequality. Now, in the age of trans-national mega-corporations, all of this is on steroids.

    This top-heavy distribution has enabled the misallocation of resources away from actual investment into financial tail-chasing, which is simply highly sophisticated rent-seeking. Which further increases the degree of wealth disparity.

    I'm 64, and the American dream is dead with my generation. RIP! My kids will never be able to enjoy the kind of retirement I have, because the Rethugs are taking it away from them, and the Demorats are hardly any better.

    Next stop: neo-feudalism.

    Alas, we're screwed!

  2. I always thought that there was something oddly subversive of the liberal order in the insistence of economists on certain spare and asceptic abstractions. Bill Black recently wrote about the odd substitution of "asymmetric information" for fraud. Consideration of "redistribution", with the background assumption, I suppose, of some "natural" distibution ex-government, is another. For a lot of neo-liberals, I think, re-distributionist policy was after-tax; nothing else mattered, and the pre-tax distribution was driven by technical considerations mediated by markets ("skills-biased technical change").

    To me, the more sensible way for an economist to think about these things would be to focus on "insurance" in a broad sense. In an economy with uncertainty and risk, "insurance", and lots of it, is necessary for efficiency and productive investment and growth. Isn't that what Arrow-DeBreu-McKenzie is all about?

    Money in a money economy, classically, has three functions: means of exchange, unit of account, store of value (aka insurance). The classical view derives its view from conservation of money as a means of exchange; the neo-Keynesians slip unit of account in as sticky prices; the debt-deflation folks bring in store-of-value through a perverse back-door of collapsing values for fraudulent debt and overvalued assets.

    The big picture, though, is that efficiency at a micro level requires a lot of "insurance". Working capital. Warranties. Fixed-wages. Credit.

    Financial wealth in the economy only has one discernible function, and that is as "insurance". It enables deals to be made and a lot of variation in results to be smoothed over. In earning a return from its insurance function, financial wealth competes with the government as a provider of insurance services -- an administratively efficient source of "mutual" insurance services, as well as rules which may limit the ability of wealth to extract a return from insurance "products" (usury laws, prohibitions on debt peonage, bankruptcy terms).

    Strategic committments involving debt contracts form key parts of the incentive structures of the micro-economy, whether you view those in terms of the promises of the Knightian entrepreneur or Stiglitz on leverage.

    It would seem to me that expansion of financial wealth in the economy -- creating more and more debt (recognizing that net debt in a closed system is always zero) -- implies pressure to extract higher "insurance premiums", and that requires political pressure to create opportunities for such financial extractions.

    I think you take a far too generous view of the motivations for libertarian-conservative politics and apologetics. They, or their sponsors, are greedy bastards. They are after the money, and they don't distinguish between genuine growth and predation, because they care about the difference, and they labor to obscure that difference, not because they don't see it, but because they are paid to keep others from seeing it.

    Growth is being sacrificed to payday lenders and high-interest credit cards and housing bubbles gone bust and sky-rocketing health care premiums, because a very large part of elite America benefits mightily from such predation.

    Herding the authoritarian followers with populist appeals and demagoguery is just a means to an end, made easier by the unwillingness or inability of liberal idealists to mobilize mass-membership organization and respect principles and feelings of political solidarity (delivering benefits for a defined in-group as opposed to the global village).

  3. Anonymous10:32 PM

    I appreciate the thought, Noah, but we've never been a single nation. Not since the first day this nation existed, and not a single day since.

    The dominant culture (white folks) have the privilege of pretending otherwise (viz Michelle Bachman's ridiculous claim about the founding fathers freeing slaves), but trust me, it's never been true. We African-Americans, including those like myself (I'm the guy with a tech PhD) have always felt like unwelcome foreigners here, at best.

    Although I voted for Obama - twice, primary and general - and I think he's generally a smart man with a high degree of integrity, it hasn't been good for me that he was elected; the "Obama backlash" (as I call it) far outweighs the import of the historical fact of his election.

    Redistributionist? Yeah. I've been a socialist for more than 3 decades. You economists can theorize all you want about how well capitalism supposedly works, but it has never worked for minorities like it's worked for the dominant culture, and I'm sure it never will.

    The very term "redistribution" presumes capitalism. Cornel West (also a socialist) makes this very point.

    There's a cruel irony to capitalism. It makes folks think that it favors the individual, when in fact it cares nothing about the arbitrary individual, far less than socialism does. Socialism can actually intend and act to take the individual into direct account; capitalism pretends to do indirect policy things that in fact largely ignore individuals and their plight. I, for one, have long been sick of this kind of thing - it's nothing more than a luxury of privileged intellectuals.

    Try coming up with economic models that, instead of presuming an equal treatment of individuals - which has never happened in this country, along any identifiable dimension - instead deals with the widespread fact of biases and preferences, for and against individuals distinguished from one another on some basis. See how long the fantasy of capitalism being broadly advantageous works under assumptions which are more realistic in that respect. If you can come up with a capitalist model that even considers the goal of reasonable survivability of the individual that doesn't leverage socialism, please write about it - make it your dissertation topic, in fact. It will certainly change the world.

    To say that "anyone can succeed" is certainly true, but, logically, is an existentially qualified statement: there exists person X such that X can succeed; a single person proves such an assertion. But that's far different from "everyone will succeed", or even "everyone will reasonably be able to survive". A single counterexample disproves it as well; e.g., the estimated 45K people who die annually for lack of health care they can't get.

    George Orwell (nee Eric Blair) was a socialist because he believed in equality; capitalism can't even discuss equality, let alone pursue it, let alone guarantee it.

    As George Carlin quipped about the American dream, you have to be asleep to believe it. That's true even if it favors you. A dream for the privileged few is far from a reality for all.

  4. I think you have made some errors.

    1. Public goods are those things which are both nonrivalrous and nonexcludable. Roads and research are both rivalrous and excludable which makes them private goods.
    2. Economics provides a model which explains, without referencing Republicans, why people outside the government don't devote much of the resources at their disposal to producing public goods. In short, people use up most of their resources on private goods. The same model works just as well for explaining the behavior of people in the government. Historically, nearly every government that ever existed provided more private goods than public goods.
    3. The conservatives I've spoken to aren't actually intent on what you say. But I only have anecdotal evidence and I guess you may have conducted a wide survey.
    4. I don't know enough about sociology to comment, other than to reiterate that you don't need ideas about tribes to explain why public goods are underproduced.
    5. When I hear liberals talking about what they'd like for the people in the government to do, the focus tends to be on private goods, especially health care and subsidies to families with children. Can you name some of the public goods that liberals want to provide?

  5. Anonymous11:06 PM

    Still me, Noah.

    BTW - I had a double undergrad major in math and physics - not just physics. The school didn't allow early graduation, so though I finished my math major in 2 years, I had to stay, so I started and finished a physics major as well.

    The stuff Trump said about Obama's education - he's talking about me as well. I've always, always tested and performed at near-genius level. I had the highest ever recorded score on my undergrad math comprehensive exam at my school. I had the highest scores on a majority of the PhD qualifying exams I took. But I needed the help of affirmative action - financial help, not lowered academic standards because of my race - I set the standard academically - it didn't have to be lowered for me.

    By contrast, Donald Trump doesn't know how many elected federal officials there are. But he's got money. And he's leading Republican polling, because more than half of all Republicans don't believe Obama was born in the US - like anyone has ever checked for a single white presidential candidate.

    Of the two major party presidential candidates in '08, one was verifiably born in the US, the other was not. Yep - John McCain was not - he was born in Panama. He gets a pass because his father and grandfather were both Navy admirals, but he, himself, was not born on US soil, in a state where federal legislators are elected and can vote. And I've not heard the first word about where he was born from anyone who questions Obama's birth circumstance.

    The US has always been a racist country, and that hasn't changed. I cried, as did many if not most of us, when Obama was elected, and I'm more grateful than I can tell you that enough decent people looked past his race and saw the substance of the man, but it doesn't happen for too many of us in too many every day situations.

    There's no decline here, Noah, just business as usual. The miracle happened, but it's now past history. But no decline since, just more business as usual.

  6. Anonymous11:21 PM

    @mktlogic - you say you don't know enough about sociology to comment, but you did anyway.

    Any discipline with empirical foundations could teach you about Type I and Type II error (Google them if you've never heard of them). Your point about tribes admits Type II error - a sort of error common to economic reasoning. And you've done absolutely nothing to contest Noah's assertions.

    I certainly don't mind your comments, but your modesty is purely false.

  7. You are wrong. The solution is not to 'somehow' get us to identify as a whole nation again. Humpty Dumpty has already shattered to pieces.

    What needs to happen is that the faith in racist elites must be shattered into pieces. There is a link of faith between the white working class and the Republicans which is crying out to be destroyed, villified, burnt to bits, desecrated, and shredded.

    This is because it has no basis except in tribal loyalties. The betrayals are profound, they need to be grabbed and twisted until they hurt like hell.

    Heighten the contradictions until it hurts so bad it's unbearable.

    Look at it this way: people think in short cuts. One is, 'He looks like me, he must be like me, and be for those who look like me, including me and my family." The reason tribalism persists is trust between members of the tribe.

    This trust in our society has no basis. The white elite, the Republican elite, are for example happy to let tens of thousands perish every year due to lack of health insurance. They kill by design, by neglect, through malice and through carelessness.

    The missing element in our political moment is the ruthlessness required to destroy these people in public. Shame them. Shred them. Attack them as crooks and killers. Substantiate with touching personal testimony. Don't let up. Make drama. Make it entertaining. Fight with brass knuckles.

    In a sense, Obama's niceness is tragedy. The Democrats and their policy wonks are so polite and so insulated from the discontents of the country that they can't speak any truth at all to what is really going on. Their inability to fight for and control a narrative is almost incomprehensible.

  8. "But we liberals are up against the terrific power of the conservative populist narrative, which holds that all government spending is redistribution."

    All government spending is paid for by taxpayers, who have money taken from them and spent. The money spent is "redistributed" to new people.

    The only way for government spending to avoid redistribution is to take the money and spend it all directly on the person from whom the money was originally taken.

  9. Anon,

    I have no idea what null hypothesis you think I'm rejecting. Since you fail to clarify, I suspect that neither do you.

    As to your claim that I've done nothing to contest Noah's assertions, start with point 1. Noah cites as public goods things which do not have either of the characteristics that define public goods.

  10. Anonymous10:08 AM


    There is no shortage of resources to 'invest in infrastructure'. The resources are simply squandered. To wit: the GAO found 100bn of duplicated federal government spending; the SEC wasted tens of millions on unused office space; Obama wasted close to 1mm on an Airforce One flyover of NY that could have been Photoshopped for a few hundred dollars; members of Congress go snorkelling in Australia to learn about global warming. These are just a handful of examples off the top of my head.

    When resources are allocated for political rather than economic reasons, this is what happens. Bridges to nowhere, airports in the middle of nowhere, etc. The problem is not unique to the US (I can think of similar examples in China, Africa, Argentina...).

  11. Anonymous4:07 PM

    The missing element in our political moment is the ruthlessness required to destroy these people in public. Shame them. Shred them. Attack them as crooks and killers. Substantiate with touching personal testimony. Don't let up. Make drama. Make it entertaining. Fight with brass knuckles.

    In a sense, Obama's niceness is tragedy. The Democrats and their policy wonks are so polite and so insulated from the discontents of the country that they can't speak any truth at all to what is really going on. Their inability to fight for and control a narrative is almost incomprehensible.

    Absolutely spot on. To my mind, Obama's two central blunders stem from his naive collegiality. He should have waged all-out political warfare on the finance "industry", and the Republican Party. I suppose he couldn't have said it explicitly, but he should have aimed for the destruction of the Republican Party as an institution. The Whigs broke up, and we survived.

    Nowadays the Republican Party isn't the source of the class and race pathologies that afflict American society, but it's a crucial vehicle for them. And it was really on the ropes in 2008-9. Obama made a crucial strategic error when he went in for the sucker's game of 'bipartisanship'. It's even worse when you consider that the Republicans he was appeasing have always been completely forthright about how much they want him to fail.

    You don't work with such people. You follow LBJ's strategy -- call them pigfuckers, and then watch them deny it. You roll them, and keep on rolling them. Tomorrow's big wins come from today's. Let's hope that with bin Laden's head on a spike, Obama can at last actually begin governing.
    -- sglover

  12. Anonymous8:33 PM

    'He should have waged all-out political warfare on the finance "industry"'

    that would be the same "industry" that provided 5 of the top 20 donors to his 2008 election campaign (and of course, the law firms on that list likely derive a high proportion of their revenue from...the finance "industry").