Hipster Politics

Greg Ferenstein writes,

Today, on every recent major issue that divides the Democratic Party, the side favoring highly-skilled workers has won over labor union opposition

Pointer from Tyler Cowen. Ferenstein says that the Democrats’ Silicon Valley constituency favors public charter schools, high-skilled immigration, Korean Free Trade, and Uber, while opposing the Keystone Pipeline. Unions have taken the opposite side, but at least in Congress the Democrats are going against the unions.

The article is interesting throughout. My thoughts:

1. I don’t think that the tech crowd is enthusiastic about the oppressor-oppressed axis. And yet they still consider Barack Obama to be cool. I doubt that Elizabeth Warren or Bill de Blasio do much for them. Or Hillary Clinton, for that matter. As far as I can tell, Silicon Valley does not have a dog in the Democratic race for President.

2. From the tech crowd’s perspective, Republicans are better on education and on Uber. In both cases, Republicans are more supportive of entrepreneurialism.

3. Still, I do not expect the tech crowd to defect from to the Republican Party. There will emerge some issue that makes the tech crowd hard-core Democrats. In the past, abortion rights played that role among many of my friends. They are not techie types, and they hold conservative views on some economic and foreign-policy issues, but for them Republican opposition to abortion rights was always considered a show-stopper. So what issue will play that role today in among the tech crowd? Gay marriage? Immigration?

What the Fed Represents

John Cochrane writes,

The Fed should welcome limits on its responsibilities, and a clear and happy arrangement with Congress.

This might be true in a world where people were focused on implementation of Constitutional principles. But think about what the Fed represents. Do you remember when on health care people were saying that we need something like the Fed for health care?

The Fed represents the idea of experts with esoteric expertise who are independent from Congress. Their exercise of discretionary power is deemed vital for the health of society. The Fed thus represents the ultimate Progressive institution. Rational governance tames the free market. Non-partisan technocrats overcome the flaws in Constitutional democracy.

This mythical Fed is what is threatened by the sorts of laws that Cochrane was asked to testify about.

Don Kohn gives the mainstream response. Pointer from Mark Thoma.

Defining Money Like a State

Kathleen McNamara writes,

single currencies are never the product of debates about optimal economic solutions. Instead, currencies like the U.S. dollar itself are the result of political battles, where motivated actors try to centralize power. This has most often occurred “through iron and blood,” as Otto van Bismarck, the unifier of Germany put it, as a result of catastrophic wars. Smaller geographic units were brought together to build the modern nation state, with a unified fiscal system, a common national language that was often imposed by force, a unified legal system, and, a single currency. Put differently (with apologies to sociologist Charles Tilly), war makes the state, and the state makes the currency.

The U.S. case is instructive. America used to have a chaotic multitude of state currencies and privately issued bank notes, with complex exchange rates between them. This only changed thanks to the Civil War. The American greenback was created in 1863 when Abraham Lincoln’s Republican Party muscled through legislation giving the federal government exclusive currency rights. It was only able to do this because Southern legislators, who opposed more centralization of power, had seceded from the American union.

Pointer from Mark Thoma, who comments, “whether the euro was politically motivated for the most part, or not, economics matters for the sustainability of a political union.”

The Future of Democracy, Freedom, and Prosperity

A simple topic for four of us to spend an hour discussing. The conclusion of my opening remarks:

one sort of maybe fictional type scenario would be that you would get a sudden sovereign debt crisis in the United States that would take place in an environment where the political feelings are frayed–there’s a lot of controversy; people no longer see the legislators and the executive as having legitimacy for solving their problems. They take to the streets. There’s fighting; there’s violence. And at that point the people are ready to turn to some kind of dictator to resolve the violence. So that’s kind of a fictional scenario. There’s certainly you can see either economic or political ways to avoid it. But that would be sort of my one pessimistic scenario relative to maintaining our open access order. Which, if we do maintain our open access order, I think eventually we do recover prosperity and we sort of maintain freedom.

John Cochrane worries about

the vast attempt of our government to control economics from the big Dodd-Frank and Obamacare down to the small regulations against Uber and occupational licensing for hairdressers, and so forth. This enterprise has vast power. It’s increasingly politicized. And right now it’s used already to silence opposition to the regulatory fiefdoms. What bank dares to speak out against the Dodd-Frank Act? What health insurer dares to speak out against Obamacare?

It seems to me that strong regulation often has the support, or at least the acquiescence, of incumbent business interests. The question is whether potential new competition is thwarted. Lee Ohanian, another speaker in this session, is pessimistic on that score.

Another recent study found that the decline in community banking accelerated considerably in the last few years, reflecting economies of scale in managing new regulation associated with Dodd-Frank. Small Business Administration says that lending to small businesses has declined by about 20% since 2008, which was of course the year of the Great Recession. And in 2013 only 1 new bank entered the banking industry. So you look at the outcome of Dodd-Frank–declining competition, fewer banks, lack of entry, higher costs, regulators with broad mandates who make vague and far-reaching rules–this represents a sharp departure from the clear and specific limits on government.

Kids Today

Two recent rants. Megan McArdle writes,

Hovering robs kids of resilience and what psychologists call “self-efficacy”: the sense that they themselves are capable of producing the outcomes they want. They’re used to functioning as closely supervised extensions of their parents, not autonomous adults.

For me, the telling symptom is the number of young people who do not attempt to get a driver’s license as soon as they are eligible. My generation prized the independence that came from having a driver’s license.

David Gelernter says,

My students today are much less obnoxious. Much more likable than I and my friends used to be, but they are so ignorant that it’s hard to accept how ignorant they are. You tell yourself stories; it’s very hard to grasp that the person you’re talking to, who is bright, articulate, advisable, interested, and doesn’t know who Beethoven is. Had no view looking back at the history of the 20th century – just sees a fog. A blank. Has the vaguest idea of who Winston Churchill was or why he mattered. And maybe has no image of Teddy Roosevelt, let’s say, at all. I mean, these are people who – We have failed.

…universities were being taken over by intellectuals and moving hard to the Left. Intellectuals have also been Leftist, have always been hard to the Left. So the dramatic steer to the Left coincides with a huge jump in the influence of American universities. We have a cultural revolution. And the cultural revolution is that we no longer love this country. We no longer have a high regard for this country or for the culture that produced it. We no longer have any particular feelings for Western Civilization.

So we have second-generation ignorance is much more potent than first-generation ignorance. It’s not just a matter of one generation, of incremental change. It’s more like multiplicative change. A curve going up very fast. And swamping us. Taking us by surprise.

It is hard to summarize his thoughts out of context.

This weekend, I was with an old friend who I used to think was on the left, and who I still think votes Democratic. But he complained about the mindless leftism on college campuses.

So, where are we? Some possibilities:

1. What I see as bugs (risk aversion, left-wing political beliefs) are really features. I am just on the wrong side of things.

2. What I see as bugs are bugs, but kids today have so many talents and skills that those bugs do not matter.

3. We are going to hell in a handbasket unless something changes.

As Gelernter admits, (3) has been the conservative viewpoint for many generations, and so far it has not proven correct.

I Would Not Publish This Paper

by Sharon Mukand and Dani Rodrik. From the abstract:

We distinguish between three sets of rights – property rights, political rights, and civil rights – and provide a taxonomy of political regimes. The distinctive nature of liberal democracy is that it protects civil rights (equality before the law for minorities) in addition to the other two. Democratic transitions are typically the product of a settlement between the elite (who care mostly about property rights) and the majority (who care mostly about political rights). Such settlements rarely produce liberal democracy, as the minority has neither the resources nor the numbers to make a contribution at the bargaining table.

Pointer from Tyler Cowen.

My problem is that the paper does not discuss North, Wallis, and Weingast, the subject of my recent review. NWW would say that a non-liberal democracy is just another form of a limited-access order. NWW have a much richer discussion of the elements needed for a transition from a limited-access order to an open-access order.

Greece and Representative Negotiation

John Cochrane writes,

So, the Drachmaized Greece that I see is not the cleanly devalued newly competitive powerhouse that some on the left seem to envision. Instead I see a two-currency economy. Pensioners and government workers and anyone unlucky enough to still have a Greek bank account get Drachmas. Hotel owners, restaurant owners, and exporters get euros, above or under the table.

My comments:

1. I agree with John that nothing real changes with a new currency. Instead, it is a way of arranging the government’s default. In addition to defaulting to bondholders, the government will default to other claimants, including pensioners. But the way it will default to the latter is by paying them in lower-valued currency.

2. I continue to believe that we will see an opaque bailout. What is happening now is pre-concession posturing on the part of the other European nations.

The classic example of pre-concession posturing is the labor union strike. One theory of strikes is that they take place because the union leaders are ready to make a deal, but they need to convince their membership that the union leaders bargained really hard. Going out on strike sends that message. Similarly, for the European leaders, engaging in table-pounding and other theatrics will help convince their constituents that they were really tough on the Greeks. Meanwhile, in the background, an opaque bailout will be arranged.

This theory of representative negotiation also holds for the nuclear negotiations with Iran. The theory predicts that there will be a deal, but in the meantime the negotiators will posture to indicate that they are being very tough with their opponents.

Speaking of Iran nuclear issues, I read Michael Oren’s new book about being Israel’s ambassador to the U.S. I found Oren credible, although for my taste he squeezes too much melodrama out of his experience. One of Oren’s points about the Obama Administration is that it has very tight message discipline, and I believe that we can see that in some of the negative reviews of Oren coming from Obama-linked writers.

Oren’s description of Obama amounts to saying that he operates using the oppressor-oppressed axis, which strikes me as accurate. Even so, it still requires some mental contortions to treat the leadership in Iran as oppressed, rather than as oppressors.

North, Wallis, and Weingast

It is not a new book, but still I wanted to review it.

Open-access orders are likely to be highly stable. Everyone who is ambitious and able to organize others is free to attempt to earn a profit or address a political problem. This gives citizens a feeling of having a stake in the system. Moreover, the layers of beliefs, norms, and institutions that precede the open-access order all serve to reinforce the order once it is in place. For example, Americans are culturally committed to free speech, disdain for corruption, and obedience to the Constitution.

This leads one to be relatively optimistic about the prospects for the United States, regardless of how one feels about recent political and economic trends.

Uncharitable Behavior on Twitter

James Poulos says much with which I agree.

Twitter is a megaphone for the worldview wars. It fosters constant competition among our claims that everyone should care and act as we do.

Read the whole thing. I would like to thank a commenter who told me about “unfollowing,” which is one of many useful but hidden options on Facebook. I have been unfollowing friends, left and right, who use Facebook only to post political views.

I think of myself as anti-elitist. But I am even more anti-mobist. When the mob emerges, I cease to be libertarian and instead become ultra-conservative. There is no phenomenon more barbaric than the mob.

Unwinnable Arguments and Normative Sociology

Young African-American males experience a high incarceration rate. Progressives, conservatives, and libertarians each have a
desired cause for this.

Progressives: racism in the criminal justice system
Conservatives: high propensity of young African-American males to commit crimes
Libertarians; the war on drugs

Progressives prefer the oppressor-oppressed axis, which makes racism the desired cause. Conservatives are most comfortable with the civilization-barbarism axis, which makes criminal behavior the preferred cause. Libertarians prefer the freedom-coercion axis, which makes the war on drugs the preferred cause.

I claim that trying to argue that one of these is the cause is an unwinnable argument. Each of these causal forces has an element of truth, or at least plausibility. The chances are slim of coming up with an empirical analysis that decisively rules in favor of one cause and rules out all other causes.

In general, an unwinnable argument about causality is any argument in which one tries to affirm that X is the sole cause of Y or that X is not at all a cause of Y under circumstances of high causal density.

For example, arguments about the role of financial deregulation in the financial crisis of 2008 tend to be unwinnable. The case for seeing financial deregulation as the sole cause is compelling only to people who are inclined to espouse it. The case for seeing financial deregulation as not a factor at all is compelling only to those of us who are inclined to emphasize other causes.

Some further claims:

1. When there is a desired cause (meaning a cause that fits well with one’s political axis in the three-axes model, chances are the issue involves an unwinnable argument.

2. If your objective is to win an unwinnable argument, then you will tend to engage in normative sociology. To turn your desired cause into the cause, you have to filter out evidence that might support another causal factor and only discuss evidence that supports your desired cause.

It hardly requires saying that I think that it is counterproductive to try to win an unwinnable argument. It is almost as counterproductive to try to reason with someone who is convinced that they can win an unwinnable argument.

I am not saying that it is counterproductive to try to make an argument for or against something being a causal factor. However, I think that it does help to keep in mind that when a desired causal factor is involved it is challenging to remain objective in assessing the evidence.

There is a Cowen-Hanson paper Are Disagreements Honest? that you should read if you have not done so already. One of the reasons that disagreements can persist is because the protagonists engage in normative sociology.