In most farmer-era cultures extended families, or clans, were the main unit of social organization, for production, marriage, politics, war, law, and insurance. People trusted their clans, but not outsiders, and felt little obligation to treat outsiders fairly. Our industrial economy, in contrast, relies on our trusting and playing fair in new kinds of organizations: firms, cities, and nations, and on our changing our activities and locations to support them.
Read the whole post.
It is the lead story in today’s Washington Post.
Lawmakers have responded by introducing legislation that would at least temporarily block the standards in at least nine states, including two that have put the program on hold. The Republican governors of Indiana and Pennsylvania quickly agreed to pause Common Core, and Michigan Gov. Rick Snyder (R), a vocal supporter of the plan, is nevertheless expected to accept a budget agreement struck by GOP legislators that would withhold funding for the program pending further debate.
I strongly support the Tea Party on this one. I was an early opponent of national testing. Ten years ago, I wrote
For the standardized testing approach to accountability, success by definition means making schools responsive to top-down control. In the case of the Bush administration “reforms,” standardized testing increases the leverage of the Federal government over local schools. Any conservative ought to think twice about supporting such a trend.
At the WSJ blog, Michael Derby writes,
The way some schools are being held to account for student performance can corrupt how these institutions seek to achieve the standards, a new paper from the Federal Reserve Bank of New York warns.
In other news, the way banks are being held to risk-based capital standards can corrupt how banks seek to achieve the standards, according to a new paper from researchers at the department of education.
The Washington Post reported (a few weeks ago) that Fannie Mae has made large profits that will go to the U.S. Treasury.
I expect these profits to continue, because the business model right now is excellent. The government is saying to mortgage originators:
1. Do not originate any loans that do not comply with our rules.
2. We cannot tell you what the rules are yet, because they are not final (it’s only been, what, 3 years since Dodd-Frank passed?)
3. But Freddie and Fannie have an exemption, so anything they will take you can originate and we won’t bother you.
Freddie and Fannie do not have to worry much about credit risk, because the housing market bottomed out a while ago, so we are unlikely to see another house price collapse.
Freddie and Fannie are borrowing at Treasury rates, so they enjoy a nice, juicy margin. And the Fed is still holding onto a lot of mortgage securities, which helps keep their prices up.
The one fly in the ointment is that Freddie and Fannie probably are exposing taxpayers to more interest-rate risk. That is, all those 4 percent mortgages that the government is holding on our behalf will not look so profitable if the Treasury’s cost of borrowing should go up to, say, 6 percent. That is already the worst possible scenario from a government solvency standpoint. In that sense, from a taxpayer point of view, Freddie and Fannie are risk-aggravating. Meanwhile, enjoy the windfall.
James Hamilton points out that another fly in the ointment is that a lot of Fannie’s profits are actually tax deductions that come at the expense of the Treasury.
Timothy Taylor reports on a symposium on productivity trends. He quotes Robert Gordon,
I have often posed the following set of choices. Option A is to keep everything invented up until ten years ago, including laptops, Google, Amazon, and Wikipedia, while also keeping running water and indoor toilets. Option B is to keep everything invented up until yesterday, including Facebook, iphones, and ipads, but give up running water and indoor toilets; one must go outside to take care of one’s needs; one must carry all the water for cooking, cleaning, and bathing in buckets and pails. Often audiences laugh when confronted with the choice between A and B, because the answer seems so obvious.
I think that what this anecdote indicates is that measured productivity is bunk. Gordon’s anecdote suggests that people derive a lot of consumers’ surplus from modern water systems. But this consumers’ surplus does not show up in measures of productivity, either for one hundred years ago or for today.
I am becoming a productivity measurement pessimist. That is, I am becoming pessimistic that what we call “productivity” is anything more than a crude indicator of trends in living standards.
I can imagine coming up with an accurate measure of productivity in soybean output. However, it is difficult to imagine coming up with anything accurate for health care, where we have little idea about what generates value at the margin, or for education, we where have almost no idea at all.
Moreover, the value of many goods and services, including the Internet and modern water systems, is under-estimated because we do not measure consumers’ surplus. Going forward, suppose that researchers come up with a way to prevent or cure Alzheimer’s. The effect on consumers’ surplus would be quite large. The effect on measured productivity? To a first approximation, nil.
In assessing economic progress, productivity may be the best indicator we have. However, we take small differences in measured productivity growth rates way too seriously. On the one hand, it is correct to say that if you extrapolate a difference in productivity growth of 1 or 2 percentage points over thirty years, it accumulates to a big number. But I fear that it is quite possible that the error in measuring productivity growth can exceed 1 or 2 percentage points for thirty years or more. That is, I think it is quite possible to take two thirty-year periods and arrive at a very large estimate of the difference in the rate of growth of living standards that is entirely due to mis-measurement.
From Kelefa Sanneh in the New Yorker.
Rothbard was an anarchist, but also a capitalist. “True anarchism will be capitalism, and true capitalism will be anarchism,” he once said, and he sometimes referred to himself by means of a seven-syllable honorific: “anarcho-capitalist.” Graeber thinks that governments treat their citizens “like children,” and that, when governments disappear, people will behave differently. Anarcho-capitalists, on the contrary, believe that, without government, people will behave more or less the same: we will be just as creative or greedy or competent as we are now, only freer. Instead of imagining a world without drastic inequality, anarcho-capitalists imagine a world where people and their property are secured by private defense agencies, which are paid to keep the peace. Graeber doesn’t consider anarcho-capitalists to be true anarchists; no doubt the feeling is mutual.
The article is a profile of David Graeber, an anthropologist who got involved with the Occupy movement.
A few takes.
1. To me, the real story is the low status of the Tea Party. As others have pointed out, if the NAACP or the Sierra Club had complained about harassment, politicians and the press would have investigated the story from day one. But I think that it is wrong to think of this as an ideological double standard. If Code Pink or Greenpeace had complained about IRS harassment, nobody would have risen to their defense. My point is that, in the eyes of the establishment, the Tea Party is closer to Code Pink or Greenpeace than to a respectable organization. The low status of the Tea Party was brought home to me reading Moises Naim’s The End of Power, in which Naim was much kinder to Occupy Wall Street than to the Tea Party. I think he reflects establishment opinion.
2. I am surprised at how long the story has remained in the news, because I think of news as dominated by cable TV, which is ADD, ready to shift to a celebrity’s hijinks, a gruesome murder, or some other political event. If Watergate had taken place in today’s media environment, I don’t think the scandal would have stayed in the news long enough to jeopardize Nixon’s Presidency.
3. I was also surprised to see Jonathan Turley’s WAPO op-ed.
Our carefully constructed system of checks and balances is being negated by the rise of a fourth branch, an administrative state of sprawling departments and agencies that govern with increasing autonomy and decreasing transparency.
Suppose that there are two groups of people. One group thinks that the Tea Party is the problem with America and technocrats are the potential solution, while another group thinks it’s the other way around. The research I cited in The Three Languages of Politics predicts that this scandal will reinforce both groups’ thinking. So I would not be optimistic that Turley will persuade anyone to change their mind.
The IGM Forum asks an odd question. Agree or disagree with the statement
Reducing the income-tax deductibility of charitable gifts is a less distortionary way to raise new revenue than raising the same amount of revenue through a proportional increase in all marginal tax rates.
Janet Currie writes
The wording implies that distortion is bad, but the point of the charitable deduction is to encourage charity, ie to “distort” behavior.
Angus Deaton agrees with the statement, but adds
If minimizing distortion is your target, though seems like a very odd one.
In fact, the consensus seems to be that this was not the right question.
For more on the charitable deduction, you might look at this Hudson Institute event.
For me, the difficulty of assessing the charitable deduction concerns the relevant margin. If the relevant margin that it affects is the mix between profits and non-profits, then I would rather see more firms driven by profit. Non-profit to me means not being accountable to consumers, and that is not a good thing. On the other hand, if the relevant margin is the mix between private charity and government-run charity, then I do not think that shrinking private charity to grow government charity is a good idea.
there are clearly countries that spend less per student than you would expect given their level of per capita GDP, like Iceland, which is labelled, and Italy, which is the unlabelled point more-or-less under Spain. There are also countries that spend more per student than you would expect given their GDP, including Ireland, Canada, and especially the United States.
He is referring to higher education.
Returning to the Oregon Medicaid study, Tyler Cowen writes,
The key question here is how we should marginally revise our beliefs, or perhaps should have revised them all along (the results of this study are not actually so surprising, given other work on the efficacy of health insurance). For instance should we revise health care policy toward greater emphasis on catastrophic care, or how about toward public health measures, or maybe cash transfers? (I would say all three.) One might even use this study to revise our views on what should be included in the ACA mandate, yet I haven’t heard a peep on that topic. I am instead seeing a lot of efforts to distract our attention toward other questions.
Nick Schulz and I have referred to health care and education as the new commanding heights. That is, they are as important in the 21st century as steel and electric power were in the 20th. However, steel and electric power had major scale economies that lent themselves to top-down, bureaucratic management. Health care and education do not.
What I think this means that those who want to apply centralized, technocratic solutions in health care and education (“Obamacare,” “No Child Left Behind”) are on the wrong side of history. Perhaps my views are mistaken. But in any case, I wish that people were less emotionally invested in the technocratic approach, so that if it does prove to be dysfunctional they are able to back off.
One reason American political culture has become polarized and uncivil, Mr. Kling believes, is that each side puts its contentions almost exclusively in terms of its favored language, and fails to see that contrary opinions are manifestations of a different language rather than evidence of stupidity or duplicity.
I notice that The Three Languages of Politics also has ten favorable reader reviews.