Political Order and Political Decay

That is the title of Francis Fukuyama’s latest book. I have started reading it. So far, I would summarize it as saying that government must overcome both market failure and government failure. That is, it needs to be effective at providing public goods while serving everyone equally (not succumbing to the problems of public choice). I might summarize this as follows:

Public Goods Provided Public Goods Not Provided
Treats People Equally good government weak government
Privileges Elites crony government predatory government

Think of Denmark as good government, China as crony government, Zaire under Mobutu as predatory government, and Afghanistan as weak government. I assume that “political decay” will mean the movement from good government toward either weak government or crony government.

For a review by someone who has finished the book, see Michael Barone.

What I’m Reading

The Making of the Modern World: Encounters, by Alan MacFarlane. He has an almost infinite list of books on Amazon, many of them with “Modern World” in the title. This is a Kindle edition, very garbled, but with much interesting material. An attempt to summarize:

1. “Modernity” is different and important. One way to think of it is that in modern societies, there is separation and balance among power, economic activity, religion, and kinship.

2. In pre-modern societies, whether tribal or imperial, these forces are fused, into the tribe or the state, respectively.

3. The 18th century was when thinkers such as Adam Smith began to notice a cultural break with the past. 19th-century legal historian Henry Maine called this the transition from a society of status in which social relationships are determined at birth to a society of contract, in which social relationships are more egalitarian and formal.

4. Maine notwithstanding, modernity reflects a balance of status and contract. We are not so atomistic that we live in a world of arms-length contracts. We belong to various types of associations (MacFarlane notes that many more team sports were invented in England than in other countries) which are bound by more than self-interest, but we do not belong to one single encompassing tribe or theocratic state.

5. The smaller, more fluid units of civil society are key to keeping modern states from reverting to tribalism or all-powerful states. This idea goes back to Tocqueville, of course. Nowadays, I would note that Yuval Levin is one of its leading champions, and he often cites Burke.

6. Modernity is not necessarily robust. Modern societies have managed to make production more rewarding than predation, and consequently they are wealthier and more powerful than pre-modern states. But humans remain attracted by encompassing ideologies, such as Communism or radical Islam. In fact, MacFarlane cites several scholars who wrote over 100 years ago that Islam did not adapt to modernity as did Christianity, and Islam still calls for a pre-modern unity of all spheres.

7. The Industrial Revolution combines modernity with the scientific/technological revolution. Neither alone is sufficient.

I highlighted numerous passages in the book. A few are given below the fold. Continue reading

My Take on the Piketty Poll

1. The poll asked whether the post-1970s increase in inequality in the U.S. is due to r>g. No one* agreed with that statement. Piketty does not agree with that statement.

2. What this makes clear is that Piketty is making a claim about the future. That is, in the future, we will have rising inequality because r>g.

3. Supporters of Piketty can say that the poll asked the wrong question, and those of us who jumped on the poll should have known that.

4. Still, in my opinion, the poll serves to highlight that there is no necessary link between (i) rising inequality and (ii) r>g. You can have (i) without (ii), and you can have (ii) without (i). Yes, we already knew that. You can argue that it does not refute Piketty, because he would never come out and insist that (i) entails (ii) or that (ii) entails (i). However, his book is making a rhetorical attempt to link the two propositions (he would hardly have written it otherwise). I think that the poll illustrates that the rhetoric cannot overcome the economics.

*except for Hilary Hoynes

Isabel Sawhill’s New Book

Generation Unbound. I am reading it–may have finished by the time this is posted. In short, her thesis is that many twenty-somethings are having unplanned children out of wedlock, with detrimental consequences, particularly for the children.

Possibly related: This chart from Frances Woolley, showing Canadians’ intentions to have children, sorted by gender and age. What stands out is that among 15-24 year-olds, females are much keener on children than males.

Certainly related: Ben Casselman on a recent Pew survey of marriage patterns. Pointer from Jason Collins.

Robert Litan’s New Book

It is called Trillion Dollar Economists. The concept is to show how useful the ideas of economists have been in business, finance, and public policy. For example, auctions have been used in business (Google’s ad words, e-Bay’s classified ads), price discrimination is very important in the real world (I like to tell students that “price discrimination explains everything”), option pricing is important, etc.

I like the concept, and I like much of the material. Litan’s taste in economics–what he considers to be valid and useful–is much closer to mine than that of just about anyone else who might attempt a similar project. However, this is one of those books that I wish had been structured differently. I will put my extended remarks below the fold. Continue reading

My Review of Peter Thiel

I write,

the business environment of biotechnology, which Thiel and I agree is a very promising field for future economic growth, may be different from that of software. In software, companies like Microsoft and Facebook grew to dominance in large part because consumers find an advantage in using the same software as other consumers — this is the network effect. This in turn creates an opportunity for venture capitalists to back the rapid expansion of a firm that is unprofitable for a few years and then wildly profitable a few years later, once the network effect has been captured. It is not necessarily the case that biotechnology will exhibit network effects in which profits are created by rapidly expanding on an early lead.

I should note that Edmund Phelps, in Mass Flourishing, argues that progress is driven not by big individual breakthroughs but instead by cumulative entrepreneurial progress.

UPDATE: Peter Lawler also writes about Thiel. A sample:

What, today, would be “the largest endeavor over which you can have definite mastery”? This would be the startup. For the libertarian Thiel, the startup has replaced the country as the object of the highest human ambition. And that’s the foundation of the future that comes from being ruled by the intelligent designers who are Silicon Valley founders.

Sentences that I Might Have Written, Continued

Then there are those whom Sunstein refers to as “we.” We know this, we know that, and we know better about the way ordinary people make their choices. We are the law professors and the behavioral economists who (a) understand human choosing and its foibles much better than members of the first group and (b) are in a position to design and manipulate the architecture of the choices that face ordinary folk. In other words, the members of this second group are endowed with a happy combination of power and expertise.

That is Jeremy Waldron, and I recommend the entire essay.

Jason Collins Reviews Scarcity

He writes,

I also doubt that Mullainathan and Shafir’s description of the poor as suffering from scarcity is generally true. When it comes to time, the poor watch more television, invest less time in caring for their children, have plenty of free time to think about what they will eat, and yet are more likely to be obese. Their characterisation of the poor having a lot on their mind whereas the rich are relaxed despite their more complex employment does not seem particularly strong.

Read the whole thing.