From Genes to Institutions?

According to Jason Collins, Oded Galor and Quamrul Ashraf will soon write,

there is little evidence to support the claim that the variation in institutions across societies is driven by differences in their endowment of specific genetic traits that might govern key social behaviors.

I believe that in Hive Mind Garett Jones endorses the view that higher average IQ can lead to better institutions. So I will want to read the Galor-Ashraf paper when it appears.

Racism Everywhere

Carlos Lozada writes,

“So many prominent Americans, many of whom we celebrate for their progressive ideas and activism, many of whom had very good intentions, subscribed to assimilationist thinking that has also served up racist beliefs about Black inferiority,” Kendi writes. They did so by promoting freedom but forgetting equality; by placing the burden of combating racism on black shoulders, not white ones; by implicitly accepting notions of inferiority, no matter how righteous their indignation; by conflating anti-racist claims and racist fears in an effort to claim a moralizing middle ground.

He is reviewing a book by Ibram X. Kendi, along with another book also focused on the history of racism by Nicholas Guyatt. It is too bad that Lozada did not include (and probably will never read) Thomas C. Leonard’s Illiberal Reformers. Lozada would have learned that racism became “scientific” in the latter part of the 19th century, and that American progressive economists too the lead in developing and implementing policies, including the minimum wage, that were intended to prevent “race suicide.”

The theory of race suicide was that members of inferior races could subsist on less than what superior races required. This meant that inferior races could drive wages below what the superior races needed to live on. Hence, the need for a minimum wage.

By the way, while I am not especially keen to read Kendi’s book, I would be curious to know what he means by “assimilationist thinking” and why it is a boo-phrase.

The Mervyn King Book

It is called The End of Alchemy. I can give it faint praise, but not much more than that.

1. It is long-winded.

2. I share his view that risk-based capital regulations inject a false sense of precision into bank regulation.

3. His main idea is this:

The aim of the PFAS [Pawnbroker for all seasons] is threefold. First to ensure that all deposits are backed by either actual cash or a guaranteed contingent claim on reserves at the central bank. Second, to ensure that the provision of liquidity insurance is mandatory and paid for upfront. Third, to design a system which in effect imposes a tax on the degree of alchemy in our financial system.

Here is how I understand the idea would work. A bank would make a risky loan of, say, $100. The bank and the central bank would agree that in an emergency the loan could be sold to the central bank for, say, $90. In that case, the bank could finance up to $90 of the loan with deposits. This would replace deposit insurance, risk-based capital regulations, and other attempts to reconcile the desire to prevent the bank from failing with the need to address moral hazard.

I do not see how this can handle modern financial instruments. Take AIG, for example. Their problem was that liquid liabilities appeared seemingly out of nowhere, as “collateral calls” on the credit default swaps that they had written on mortgage securities. There is no way that this contingency would have been built into King’s system. King writes,

No doubt there would be other practical issues to resolve, but the reason we employ high-quality public servants is to solve such problems.

That was the exact sort of hand-waving that came with the original TARP proposal to buy up the “toxic assets” in order to fix the financial system. Those of us who understood the financial instruments involved knew that it was impossible to work that way, and TARP as implemented did not work that way at all.

4. Perhaps of all the high-level officials involved in central banking over the past twenty years, King’s thinking is the most nuanced, realistic, and humble. And yet his ideas did not impress me. This is going to sound really arrogant, but I do not believe that the central bankers know enough about finance to be able to fulfill their promise to stabilize financial markets.

Martin Gurri Watch

Forfare Davis writes,

Whereas conventional forms of collective action, they argue, are reasonably predictable based on demographic information, the hyper interactivity of social media amplifies the role of individual personality as a dominant variable in outcomes that resemble viral outbreaks of collective action of a very unpredictable kind.

He refers to a book by Helen Margetts and others.

The fading of the Constitution means that the political vehicle has lost its brakes. Davis argues that social media have put the mob in the driver’s seat. He does not think it will end well.

You may find the entire essay interesting.

My Review of Yuval Levin

The book will not be available for another month. My review is here. An excerpt:

His diagnosis blames both the left and the right for promulgating an untenable vision of an individualistic society under the umbrella of the central government. The result has been to demean and weaken mid-level social institutions, including local government, organized religion, and the charitable sector. He argues that such institutions are the best hope for addressing challenges that require collective action but for which the federal government is poorly equipped.

Instead of Deposit Insurance?

Clive Crook writes,

banks should be made to pledge assets as collateral, in sufficient quantity to cover their deposits and other short-term liabilities. A rule to this effect could replace conventional deposit insurance (with premiums in effect collected upfront in the form of haircuts on the collateral).

Read the whole thing. Pointer from Mark Thoma. Crook is reviewing a book by Mervyn King. I will have to read the book, because I do not understand the concept.

I think of an ordinary bank as having loans as assets. Its liabilities consist of deposits and equity. You can think of the assets as already “pledged” to the depositors, and if the depositors can be paid off, then the shares in the bank have positive value. It sounds like what King is talking about is an intermediary (a government agency?) that manages the way that these assets are pledge in a way that better protects depositors. Again, I will have to read the book.

A World with B’s and C’s

The comments on my Three Axes to Explain Terrorism post inspired what I am going to say here.

1. I believe that human population includes both B’s and C’s. B’s are inclined temperamentally or ideologically to use violence to control others. C’s are not so inclined, and they seek ways for people to interact peacefully.

2. If there were no B’s in the world, C’s could adopt a simple rule of never engaging in violence. However, such a rule when followed by C’s produces a very bad equilibrium if there are B’s in the world, because it leaves the B’s unchecked.

3. To check B’s, C’s must be willing to commit violence against B’s. This makes C’s a bit like B’s, but I do not believe that this implies total moral equivalence. As one commenter put it,

The distinguishing factor is intention. The civilized nation should be motivated towards living peacefully so long as that is a live option. It does not intend harm to non-combatants and does as much as it can to avoid civilian casualties – the barbarian groups murder non-combatants in gruesome ways for shock value.

4. One of the mechanisms that C’s will use is a state and its government. When C’s organize a state and its government, they create institutions that seek to constrain the government’s ability to use violence, so that it is only used to protect against B’s. These institutions are necessarily imperfect, but this does produce a more civilized (and libertarian) outcome than (2).

5. The apparatus of a state can be taken over by B’s. See the Soviet Union or Nazi Germany. That is a major risk of (4).

6. In his comment, Handle writes,

progressive politicians and the leaders of majority Islamic countries are trying to convince [both Islamophobes and radical Islamists] that there is no link between Islam and political violence, and, at least tacitly, if we can all just get people on all sides to shut up and quit insisting there is such a link, then it will quickly cease to exist and we can reify the claim and bootstrap a decoupling into existence.

In other words, if you deny that Islam is connected to B’s, then that will be self-fulfilling. Conversely, if you insist that Islam is connected to B’s, then that will be self-fulfilling.

Unfortunately, I do not think it’s that simple. In the story about the Belgian prison, the WaPo reporter wrote

Proselytizing prisoners used exercise hours and small windows in their cells to swap news, copies of the Koran and small favors such as illicit cellphones. Gradually, they won over impressionable youths

[my emphasis]. If the prisoners had become C’s as a result, that would be fine. But instead they turned into worse B’s.

7. I do not believe that we can rely solely on the Koran to turn Muslims into C’s. I do not believe that we can rely solely on the Bible to turn Jews or Christians into C’s.

8. I think that C inclinations must be reinforced by a web of institutions, including families, the state, and civic associations of all kinds. My concern with Islam is that it privileges religion ahead of everything else, which reduces the ability of other institutions to play their civilizing role.

9. I have a similar concern about progressivism, in that it privileges the state ahead of everything else. As Yuval Levin points out in his forthcoming book, The Fractured Republic, progressives seem to extol the individual and the state, while opposing churches, corporations, and every other intermediate institution.

Martin Gurri on Donald Trump

He writes,

The right level of analysis on Trump isn’t Trump, but the public that endows him with a radical direction and temper, and the decadent institutions that have been too weak to stand in his way.

The American public, like the public everywhere, is engaged in a long migration away from the structures of representative democracy to more sectarian arrangements. In Henri Rosanvallon’s term, the democratic nation has devolved into a “society of distrust.” The reasons, Rosanvallon argues, are deep and structural, but we also have available a simple functional explanation: the perception, not always unjustified, that democratic government has failed to deliver on its promises.

Recall that Gurri wrote The Revolt of the Public, which predicted the revolt against the establishment that Trump represents.

Read the whole post, which includes this:

The charts show Ted Cruz and Marco Rubio, Trump’s chief opponents, drowning deep below the awareness threshold. They and their messages were largely nonexistent to the public.

Eliminate the Middleman

In a Russ Roberts podcast, Marina Krokovsky says,

I mean, if we really stop to think about what we do and the role that we play in our own social network, we are all middlemen.

Listen to the whole thing. By the way, there is a nice profile of Russ Roberts at a site called priceonomics. Recommended

Some pundits predicted that the Internet would eliminate middlemen, instead linking producers and consumers directly. I think that this is a misleading way to think about things.

In The Book of Arnold (which will appear this fall I hope), I point out that very few people engage in producing goods and services directly for consumers. Patterns of specialization and trade are highly complex, and nearly all of us are involved in intermediate and support roles.

What we mean by eliminating the middleman is a re-arrangement of the patterns of specialization and trade. When a pattern of specialization and trade involving physical books becomes less sustainable, Borders Books goes out of business. Other processes for connecting authors with consumers use different patterns of specialization and trade.

I think that what ought to be eliminated is the concept of “middleman.” I do not believe that it is a useful concept. It is misguided to think of economic activity as “production,” “consumption,” and “other.” (Note, however, that standard economic textbooks do nothing to discourage this way of thinking.) Instead, it is better to think in terms of the Austrian concept of roundabout production, the Smithian concept of division of labor, and the Schumpeterian concept of creative destruction. Put those together, and you have PSST.

The Early American Economic Association

Bernard A. Weisberger and Marshall I. Steinberg quote from a draft of the founding document of the American Economic Association

We regard the state as an educational and ethical agency whose positive aid is an indispensable condition of human progress. While we recognize the necessity of individual initiative in industrial life, we hold that the doctrine of laissez-faire is unsafe in politics and unsound in morals; and that it suggests an inadequate explanation of the relations between the state and the citizens.

We do not accept the final statements which characterized the political economy of a past generation. . . . We hold that the conflict of labor and capital has brought to the front a vast number of social problems whose solution is impossible without the united efforts of Church, state, and science.

They note that in the final version, the phrase “the doctrine of laissez-faire is unsafe in politics and unsound in morals” was removed. Their narrative (interesting throughout) laments the decline of left-wing radicalism in the AEA since the early days.

Thomas C. Leonard’s Illiberal Reformers covers the same ground, from a much less sympathetic perspective. About that book, the authors write,

Leonard argues that these views are central to, and thus taint, his [AEA founder Richard Ely] scholarship and those of his academic disciples. But Ely’s views were by no means unique among many intellectuals of his time, including those, like Godkin, who were his staunchest opponents, and those views certainly don’t invalidate the rest of his thinking. Above all, he considered himself an advocate for workers against exploitation by economic elites. Certainly, the set of people for whom he advocated is much narrower than would be the case among self-described progressives today. In those days, just as now, the interests of workers in developed countries were often pitted against those even more unfortunate than themselves, and consequently, many workers and their advocates supported what were in effect restrictions on labor supply in order to reduce their competition. The chief target of Ely’s scholarship and advocacy was the hegemony of free-market economics, against which he offered a vision of contending interests vying for shares of the pie, a contest in which bargaining power determined all.

I am only a little way into Leonard’s book, and I may only skim it. He uses the phrase “reform as vocation” to describe Ely’s cohort. That is, they professionalized the role of the progressive policy advocate. The economist became the scientific expert, based in academia, properly credentialed, who would be called on by political leaders for advice to better engineer the economic system.

From Weisberger and Steinberg’s point of view, the reformers are genuine, while their opponents are merely tools of the existing order. They certainly would fail an ideological Turing test. My guess is that Leonard would fail also, although not nearly as badly.