Historical Revisionism

Historical revisionism has become rampant in our society.  While sometimes the term is used when new evidence overturns what used to look like truth more often it's used for the more dangerous purpose of whitewashing our past so that we cannot learn from and old evils can be perpetuated in a new era.

The Civil War seems to bring out the worst strains of this in our country.  As has been often said, while the Civil War is not just about slavery there's no Civil War without slavery.  There's a strong strand of historical revisionism trying to use pride in a myth of the Civil War purged of its evils to push a new agenda, mostly having to do with State's rights though I detect a distinct undercurrent of populism against liberal northern elites.

The New York Times has been running a great series on the Civil War that gives good history in easily digestible chunks.  Today's posting does a good job of detailing how slavery was an essential issue and how it mobilized people in the South to fight, you can't really get away from the issue in any honest history of the South.

The harsh truth is that the Civil War was a wholly retrograde movement with nothing to redeem itself except the bravery and beliefs of individual men and women, there is nothing in the collective action that should be held up pridefully.  Which is not to say that the North was a shining beacon or that mistakes were not made in other areas, these are other sins however and not celebrated.  The South has much to be proud of, many of the Founding Father's were from the South and its role in history was noble in many other ways.  If events from the Civil War must be honored than honorable men like General Lee or the sufferings of citizens in places such as Atlanta are worth honoring and commemorating.

However, the Civil War itself was nothing more than an elite trying to hold on to its privileges despite its weakness and the increasing horror of the world at their actions.  If the war had been won by the South it is hard to see what good could have come from it, an ever more powerful landholding class exploiting both white and black?  Would they have become like Prussia or Russia or another state where the landholders did win?  This was nothing but a war of an elite against the passing of their time in power, there's nothing to be proud of here.  Be proud of victories and of contributions to the good of mankind, don't try to whitewash sins.

John Stewart on the 9/11 Responder's Health Care Bill

This outraged me when I first saw it in the NY Times.  I hadn't thought of a good way to express it however, so posted nothing then.  The Daily Show manages to give the reaction I was looking for that I hadn't seen elsewhere.  One of my favorite bits was when one of the first responders mentioned how they felt it was an honor to work on Christmas Day and not a sign of disrespect, which Senators had been saying when called to work on Christmas to do the nation's business.  Check it out.

Why Examine Decadance?

I had originally been intending for this to be my last post on the subject, rather than somewhere in the middle.  However, I was considering that since my blog normally focuses on more immediate topics, with only brief and sporadic forays into more general academic topics, I thought it might be worth explaining why I think this topic is immediately relevant rather than purely academic.  The first reason is purely academic, as I consider applying to begin a PhD program in the relatively near future I intend not to make the same mistake as my Master's in not knowing in advance where I want to focus my research, this seems like a good topic, though one that might require a level of knowledge not practicable to attain in the limited timeframe of the program (this will be more apparent when I get to the post on how to test the model).  Of course, since I'm already thinking about it probably a year before I'd start this may give me enough of a head start to make this topic work.

The basis of the critique I'm presenting is that throughout history there seems to be a constant pattern of successful societies that know they must change but simply refuse to do it, even though there are already those urging the necessary changes.  The narrative is consistently along the lines of some sort of barbarous new group of successful people threatening the former virtuous way of life.  Yet, if these people are so successful with their new habits, what are so virtuous about the old?  Consistently, these societies then begin to seek to prevent the new successful people from advancing and to instead institute policies to extend the privileges granted to the old way of life.  When these societies inevitably collapse, the modern reader is left wondering what would have happened if instead of favoring the virtuous small farmer or caring local elites if the society had instead let the new merchants grow or let the old landed elite die away in favor of their unethical, but successful, urban challengers?  I'm led further to ask this what if by how different whatever the society that replaces the old is, the new society is never like that of the old order overthrown but rather a new order with a different cultural attitude and moral underpinning.  If it had been old virtues that made a society successful, wouldn't the successful new society have shown the old virtues renewed?

Some Income Inequality Stats

Came across this on a link on Timothy Egan's Opinionator piece on the NY Times.  It's some interesting graphs on changes in income inequality over the years.  I think one of the most important aspects of a society is the degree of challenge its elites face on holding onto their status against those lower down that wish to compete with them.  Healthy societies will see a lot of churn as the best and brightest of those born with less advantages manage to beat the rich and powerful at their own game.  When this happens less, it's likely to indicate that the powerful have found some way of blocking this churn.  Much of what I've been suggesting on this blog are ways to restart these types of challenges and help give those less wealthy the initial push needed to challenge the powerful.

Back to the data.  Two slides stand out most to me.  The first is the one on upward and downward mobility.  While this has always been messy, there definitely seems to have been a downward trend over time.  The second interesting slide is that regarding the US and France, which shows that the income gap has not increased to the same degree in other countries.  While I'm not sure that France is the point of comparison I'd choose as most relevant, it is worth noting that inequality trends are not an unavoidable fact of life but the results of policy choices.

Criminal Justice System: Labor Destroyed

I've been postponing my next post in the rethinking ideology section to do some reading on the topic of criminal convictions and employment.  I still haven't found the time to do more than skim a few articles but since I eventually do want to get around to putting this all together into a fairly coherent platform (my goal has coalesced into something similar to the Republican's Pledge to America or Paul Ryan's Roadmap for America's Future, since actual politician's running for office haven't come up with a coherent political vision that addresses America's problems in a way that I believe could actually solve them I'm taking on the task myself so when I write to my representatives about how I dislike what they're doing I can send them a real alternate vision, this will wait till I've given some thought on each of the issues that I'd like to address in separate posts to make me think through them more, with the more radical things like Constitutional changes allowing for national level representation to be confined to appendixes) I think it's time to write another post.

What I want to address today is how adversely our criminal justice system affects our labor pool and how this is rarely considered in conversations about criminal justice topics.  The data is unfortunately too messy for me to have found any simple graphics or data I'd find worth putting up here, what there seems to be agreement about is that any criminal record at all significantly adversely affects employment prospects as well as reducing income.  Based on what I read, the reduction in income seems to be around 30% for someone with a criminal record vs. someone without.  Thus in addition to a significant amount of state spending required to incarcerate someone, we also end up permanently reducing the income of those individuals, further permanently reducing state revenue (with some potential for an offsetting effect due to reduced crime through a deterrent effect, I have no idea how these numbers compare).

Too Sick to Fail (to be treated at massive taxpayer expense)

As you no doubt know by now a Virginia judge has ruled the provision of the health care reform law that requires that people buy insurance unconstitutional.  If this ruling stands, which it probably won't, this makes health care reform basically impossible without constitutional reform. 

It comes down to a problem that since the public isn't willing to simply let sick people die in the gutters and requires that emergency rooms treat patients regardless of ability to pay, everyone already has their health implicitly backed by the government.  Let's call it Too Sick to Fail (to be treated at massive taxpayer expense).  Of course, since this treatment is reserved for those that have become far too sick to be treated efficiently or, in many cases, to work to pay back even a fraction of their medical expenses, this becomes a very costly medical subsidy for those that choose to recklessly speculate on margin that their physical condition will stay sound enough that they can forgo spending on health care now to raise present consumption.  They can do this knowing that if things go too badly they can rely on the government, and those moved with sympathy by their sob stories, to provide a level of medical care sufficient to prevent truly disastrous consequences.

Given that this implicit government and community backing has proven time and time again to exist, it simply makes sense to acknowledge its existence and make those covered by the implicit government subsidy pay for this backing and face the costs of it themselves, either through obtaining health insurance or through a national taxpayer funded plan, rather than being able to gamble that they can enjoy more consumption today knowing that if they do get sick they'll be shielded from the worst consequences by the tax dollars paid equally by those that bought insurance, who do not rely to the same extent on health care provided at public cost.  This would have a further advantage in providing the means to pro-cyclically monitoring a person's health and perhaps catching a disease before it became both more costly to treat and more likely to prevent later recuperation of the costs through future income by the patient.

Or we can simply bury our heads in the sand and try to rule modern problems unconstitutional in an effort to avoid having to come to terms with the fact that our favored solutions can't fix modern problems.

Decadence Continued

Rather later than I had promised, this is an expansion of my earlier post on decadence.  In particular, I intend to take up some discussion of the model.  Later, I may expand on this with further examples to illustrate my point, in particular a stylized look at the Roman Republic, a look at the European notion of divine right, and a much more complex look at the struggle among various American elites and their normally fractious nature, which I fear has been replaced in recent decades with an unprecedented cultural dominance by a single elite, with challenging elites uncharacteristically being confined to relatively uninfluential positions that lack moral and cultural seriousness.

So to get back to the model and a basic discussion of it.  This is basically a cultural model, I'm arguing that a successful, healthy society must have a number of competing cultural norms, represented by a number of competing elites, to continue to be vibrant.  If a single cultural norm becomes dominant, most likely due to a long period where socio-economic conditions favor a particular elite, there will then be a cultural efflorescence as resources previously wasted in intra-elite competition are put to more effective use by the dominant elite.  Then, as socio-economic trends shift away from favoring the dominant elite, the dominant elite will be able to limit the influence of new, competing elites with cultural norms better suited to new socio-economic conditions, causing a gradual slide down into decadence and decline as the dominant elite prevents the reforms pushed for by the rising elite and instead futilely seeks to channel resources into changing socio-economic conditions back those that favored its continued dominance.  Eventually, this sufficiently saps the resources of society that the formerly dominant elite loses legitimacy and can be successfully challenged by the rising elites.

Nursing Home Care: A Specific Failing of Our Health System

An excellent article in the NY Times today covers the topic of middle class families using spousal refusal to pay for nursing home care.  A few things stand out, first average care costs of over $100,000 a year.  Surely, there must be a market for more mid-range care, while some patients undoubtedly need this level I can't imagine that this need is universal.  There seems to be an opening for research on whether market failure is occurring, potentially because of programs like Medicaid and long term care insurance, of if there is something else going on, insurance costs leap to mind.

The second thing that jumps out at me is that this is a prime example of how our mixed system of health care creates market failures.  In this case, to qualify for Medicaid an individual can retain:

The federal government allows a healthy spouse to keep a house, a car, up to about $2,700 a month in income and up to about $110,000 in other resources. Anything above that must be spent on nursing care before Medicaid kicks in.

This system obviously discriminates heavily against savers.  Anyone that wanted to fully fund their retirement would be basically wiped out by costs of $100,000 a year or more.  If someone is unfortunate enough to have a loved one get a condition that requires long term care then trying to take responsibility and pay for it will rapidly deplete any savings they had, of course if they had been spending the money from the start they wouldn't have this problem.

I don't really see how this problem is solvable without universal coverage.  Conditions that result in this situation are rare enough, and private options such as long term care insurance uncertain enough (I've seen a number of articles on how these plans are constantly having problems and having to shut down, or make other changes), that it's unlikely someone could adequately prepare in advance.  With universal coverage this problem can be dealt with more effectively.  Either its paid for by universal premiums to insurance companies, which would then have a huge incentive to look at and press for reform at long term care facilities, or it is paid for universally through taxes.  As it is today, there is no good way to distribute costs, people that try to pay privately get wiped out and those that don't suffer these misfortunes resent having this paid for by the public purse rather than by the individual suffering the tragedy, who does have significant assets that could partially pay for the care.

At the end of the article a reform effort within the existing system is mentioned:

Lawyers within the New York State Bar Association who represent the elderly have proposed a compromise system. It would allow people to negotiate a payment plan with the state, in which they would pledge to pay a “fair share” of their spouses’ nursing home costs — perhaps half their assets — while keeping enough for their own living expenses, Mr. Krooks said. There are plans to try out a version of this system upstate.

 While better than what we have today, half of someone's assets seems high, especially when Medicare gives so much better coverage to people suffering from diseases requiring hospital care instead.  I continue to have the same thoughts on the subject I expressed earlier in my posts on medical care, we all run the risks of acquiring these conditions and very few of us possess the ability to pay for them, therefore the only way to pay for these conditions is through universal cost sharing.  Anything else will lead to perverse incentives, such as the byzantine bureaucratic process described in the article with suits, counter-suits, and settlement negotiations becoming an expected part of life for individuals who are likely undergoing some of the most traumatic times of their lives due to the conditions their loved ones are suffering from.

An Example of Innovation Driven by Regulation

The NY Times has a very interesting article on a Swedish city that has been switching much of its energy use over to renewables from fossil fuels, in this case biogas.  It's a very interesting alternative, since it also serves a role in waste disposal.  The incentive to do this seems to have been a combination of carbon taxes and desire to shield themselves from fluctuations in fossil fuel prices.  This always seemed like the key to the importance of putting a tax on fossil fuels, very large incentives already exist to switch but most of them have to do with uncertainties, which gives people a reason to put off making the switch.  Providing a certain penalty is enough to drive people's cost calculations over the edge, at least in some cases.

What I find most interesting about this however is that it seems to solve what I see as perhaps the biggest hurdle in making a transition away from fossil fuels, the different incentive structures facing urban and rural areas.  In this case, rural areas get incentives because the plant relies on fuel provided by agricultural areas providing a good means of disposal.  Urban areas get the lower cost heating and power generation, which benefits rural areas as well.  Of course there are some problems, it seems unlikely that people's transportation needs can be met through a variety of different fuel options, which is what local initiatives like biogas would provide.  I plan on extending on this thought later, I believe that energy reform in the US will require an upfront acknowledgment of the differing costs of adjustment to rural and urban areas.  The essential frame I see is that if we simply let the market do its thing, then rural areas will find themselves facing very high energy prices with little choice but to pay them.  Urban areas will suffer little damage, plenty of substitutes exist to fossil fuels, especially for transportation, that will easily be deployed in urban settings.  If we adjust in advance through a mix of policies however, we can make the costs of adjustments fall more evenly, with everyone paying something but urban areas making the adjustments well in advance of price spikes, exerting downward pressures on fossil fuel prices limiting the costs incurred by rural areas.  More on this later.

Krugman on Corporations and Kleptocrats

I thought this was an excellent post by Krugman.  He argues that the notion of corporations as having undue influence is dated, instead it is more accurately seen as powerful individuals having too much influence.  I see this as very accurate, look how hard they've been fighting for lower individual tax rates but how readily calls to reform and lower corporate tax rates have been abandoned.  We're seeing the slow rise of very powerful individuals in this country, not the increasing influence of corporations.  My only slight critique is that kleptocracy focuses too much on economic resources, people seek power, wealth is ultimately only one way to this.  Seen through that lens history makes much more sense than it does if you try to read resource centric views back to too many times and places.

Tax Reform I Can Believe In?

Apparently Obama is considering the idea of pushing for a major overhaul of the tax code that will eliminate loopholes and lower rates.  At this early stage there isn't a lot to say about it, other than the obvious fact that this is an essential reform.  It's also a very risky move to pursue at this stage in his first term.  I'd be surprised if the reform is in finished form before the next election but if it's going to happen at all we'll know enough about it to piss off the special interests.  Still, if it's well done and will generate the revenue we need this is something that could energize the base and get the support of moderates.  I believe this would be a high-risk, high-reward strategy.

However, the cynic in me thinks that this is all about distracting the base from the recent tax proposal and will simply drop off the agenda rather than show any real accomplishments.

Randomized Trials and Social Assitance

The NY Times has a very interesting article on how New York City is using randomized trials and follow up to discover whether the Homebase program is fulfilling its goal of keeping people out of shelters.  There's a lot of opposition to this, which would make sense if the program had previously approved everyone.  However, this isn't the case.  The program already had a limited budget and had to refuse people.  What's different now is that some good is coming of this, we're becoming more able to assess a program's success which should improve homelessness prevention programs in the future.  I do of course understand the emotional aspect making people angry which happens when there is a change in the programs.  But is it really any better to be denied because of an opaque bureaucratic process than it is to be denied because of a lottery understood beforehand?  When you get past the emotion, that seems to be what the two options are, opaque bureacracy or lottery.  The lottery has the added advantage of being able to assess the program.

We need more of this if we're going to trim government effectively and make government better able to fulfill its goals.  I do need to add a note of caution however.   Since there are many different programs out there to combat homelessness to assess things correctly this has to be done one program at a time.  While I don't think there will be a big rush to do more of these studies, especially when the emotional response is considered, since good government movements sometimes come in waves I feel the need to note in advance that if people are bouncing from program to program getting denied as a result of randomized trials you're just going to mess up the results of all the tests.  I know the bureaucracy understands this, I'm less sure about politicians.

Some Good Eduction Data

If you haven't seen it already, Economix has some good charts on results from the most recent education assessment test administered by the OECD.  The most interesting bits are how low the R² is so low on GDP and education spending and how high it is for socioeconomic status.  Also not the R² is low on the immigration status as well.

I'd have to see more data but it lends more evidence to the idea that you can't fix education solely by focusing on education

Decadence Modeled

[Update: At long last continued here]

Perhaps the longest lasting explanation for the rise and decline of nations is the theory of the organic nature of the state and its senescence and eventual collapse due to decadence.  This is quite common throughout classical literature, since I read it most recently I'll give Ibn Khaldun's version of it as an example:

1. Overthrow of old regime, beginning of new, group feeling means ruler is a model for the people and excludes them from nothing -->
2. Ruler seeks to consolidate power and reserves glory to himself -->
3. Leisure and tranquility leads to focus on government and winning support of followers through money and positions -->
4. Contentment and peacefulness, lives at peace and imitates predecessors -->
5. Waste and squandering, ruler ruins the foundations of his state leading to eventual destruction of the state

The classical formation is of course no longer used and I have no desire to revive it.  However, I do think there is something to the concept of decadence, I just don't think the formulation of some sort of pure past and corrupt present is what is actually going on.  Rather I suggest this:

1. Coalition of new elites overthrows old elites, institutes series of agreed upon reforms leading to initial prosperity -->

2. After the initial reform period, the coalition of elites begin to struggle amongst themselves for dominance.  This occurs primarily at the policy level and leads to a great deal of growth and innovation, the people at large prosper but are upset at the pace of change and the level of social chaos.  -->

3.  Eventually one of the competing groups wins out.  This ushers in a period of consolidation and social peace, however there is less innovation and change during this period.  The winning elite is credited with the current peace and prosperity and its rise to power is recognized as how a society must operate to be successful.  Society valorizes the actions and qualities of the reigning elite and begins to condemn other values. -->

4. Socio-economic changes threaten the ascendancy of the dominant elite.  If the process of valorization has progressed enough, these challenges are met by measures that increase the dominance of the elite, if valorization has been weak, a period of social disruption and reform ensues that brings us back to an earlier phase. --> back to 1 or 2, alternately -->

5.  The power that the elite holds over hearts and minds means that order is maintained in the short term.  However, the failure of society to adapt to a changing socio-economic reality means that relative decline sets in and society becomes infused with a reactionary, golden age rhetoric.  Changing realities mean that the old elite cannot prevent the rise of new elites, which may at this stage manage to rise to centralized power. --> back to 1 or 2 if new elites succeed, otherwise -->

6.  Revolution and revolt.  The grip of the old elites falters and new elites overthrow the old regime.  While this need not be violent, it often is.  --> back to 1 if new elites succeed, or state failure.

This framework is meant for societies strong enough to warrant the term hegemonic, it is not meant for states small enough to enjoy the externally corrective forces of the international system.  For examples, I'll apply it to a few cases.

Soviet Union
1. Alliance of liberals and socialists overthrow Tsarist government and make initial institutional reforms.  Further conflict between Bolsheviks and other factions results in the Soviet State.  While war communism led to initial failures, the emergence of the NEP led to relative prosperity.

2.  Struggles among various factions within the Bolshevik party lead to the end of the NEP and more centralization of the economy.   Given the low levels of [prior] investment growth was quite remarkable.  With the constraints facing the Soviet Union, and in particular the pressures of war, the Soviet Union made quite impressive progress.  Of course, due to the relatively short history of the Soviet Union and WWII this stage is quite compressed.

3.  Communism's success is valorized by its success in war and remarkable industrialization.  In the short term, successes such as the rapid development of nuclear weapons and the launch of Sputnik confirm the Soviet economic model and lend it legitimacy.  Soviet style Communism becomes ever more firmly entrenched and beliefs in this system reinforced.

4.  The limits of the Soviet model begin to be reached.  Major problems with goods shortages emerge and the difficulties of a central planning model to spur the innovation needed by a post-industrial economy become ever more apparent.  Despite this, more government edicts get passed and ever more centralization occurs, with various sectors of society being blamed for under-performance.

5. New elites begin to emerge and to significantly challenge the hold of the party.  Elite party rhetoric maintains its grip on important institutions in society, such as the military.  Weaknesses become so undeniable that reform oriented elites begin to initiate reforms under Gorbachev.

6. An attempted reactionary coup halts the process of elite peaceful reform, leading to new elites seizing control over the state.


There's a bit more I want to do with this framework before abandoning it.  I'll take up some more related topics tomorrow.

[Edited for clarity, also update has been delayed due to my easily distracted nature, will be picked up by the end of the weekend.]

A Foretaste of Bipartisanship in an Age of Divided Government

From the NY Times:

"The payroll tax cut would put about $120 billion back in the pockets of workers and the unemployment benefits would cost about $60 billion, officials said. Continuing the lowered tax rates for the highest-earners, by contrast, would cost the government $700 billion in lost revenue over the next 10 years, according to budget analysts. "

 

"But it generally won praise from Republicans, and suggested that how the White House and the newly empowered Republicans on Capitol Hill might work together." 

God, I hope not.

At this rate we're going to get Social Security reform that guarantees benefits won't go down in return for lowering the payroll tax cap from $106,800 to half that, $53,400.  This is nuts.

If this is the kind of bipartisanship we're going to be getting for the next two years let's cut it out and go full partisan before we go bankrupt.

Crazy About Taxes

Apparently the current deal envisions dropping the Making Work Pay tax credit as part of the grand bargain on extending the tax cuts.  While I dislike using the tax code as a welfare device, this particular credit has been recognized as one of the more beneficial anti-poverty measures of recent years, and one that has been especially helpful because it particularly helps the working poor and gives greater incentive for these individuals to work.  Apparently it will be replaced with a payroll tax cut, we'll have to wait to see in what amount, which is at least a symbolic blow against entitlement programs.

I become more convinced every day that the right in this country believes they are engaged in some kind of anti-Communist class war.  I also become more convinced that this is met by bafflement on the left, which woke up one morning, discovered that Communism failed and is dead, and abandoned most socialist influence and class war in favor of traditional liberalism, such as that of Mill, though updated for the modern age.  However, this makes compromise difficult because the right is still shouting slogans at the corpse of Communism, convinced it will get up any moment now and fight back, while the left has lost any desire to engage in the frame of capitalism vs. communism frame making it impossible to even speak the same language as the right to enable some form of compromise to be reached.  We're just not using compatible ideas and frames of reference anymore.


I do have to ask though, what the Hell happened to the country that we can envision raising taxes on the poor and dropping them for the rich as a compromise?

[Update:  It seems the payroll tax cut will be 2%.  I'm not certain about the distributional effects of this relative to the Making Work Pay credit but from what I remember about MWP this favored lower incomes more and upper incomes less than this would do, though I doubt this reporting is on final rules.  In any case, I think the Republicans are doubling down on the notion that a successful upper class is the main driver behind the economy, an idea I've expressed disagreement with before.  I just don't see the evidence that we're capital short, I think our problems lie with an inability to create sufficient incentives for those without wealth to save and grow new businesses and insufficient investment in public goods to make it easier for those businesses to succeed.  We're also failing to invest sufficiently in human capital.  I look at what the Republicans are pushing for, look at our economic numbers, and am just baffled.  Their economic theory doesn't seem to be translating into their expected reality.  Tax cuts aren't raising revenue and we're not getting unprecedented economic growth since we've started slashing taxes.  How many more times do we have to run this experiment?]

[Update 2:  I must also add that I find it very depressing that a compromise involves simply enlarging the deficit by more, rather than compromises that keep it stable or shrink it.  If this at least involved creative ways of spending money now to grow the economy so that more could be collected later, I'd at least find it interesting and worth an attempt.  Spending more now in ways that will not significantly alter the current situation is just depressing.]

Pay Discrimination and Secrecy

Economix has a good post on pay discrimination and pay secrecy.  I'll confess that I simply don't understand why pay information isn't made transparent.  I don't see any big downsides and see a lot of upsides for the workforce as a whole, and some for oversight by employees of their company (it's always a good thing to get people more involved, while top management may not be enthusiastic I bet shareholders would feel differently).  We do it in NY and the state hasn't collapsed yet (though we yet may due to unrelated reasons).  While some privacy concerns likely exist, it shouldn't be too hard to at least post titles with all associated salaries without names attached.  People could figure out the pay top figures much easier than lower down.  I'd also agree that promotion and training opportunities should be posted, though I don't see a law as necessary.  I kinda feel this way about salary information too but I lean towards this being a good idea not being done due to cultural inertia rather than sound objections.  This is the kind of thing the state is good at fixing, though also one where caution is warranted because sometimes there are good reasons for cultural practices that are not at first apparent.  In this case, since we have examples of this not causing problems, is one where I can safely lean towards the side of this being cultural inertia and not pragmatic tradition.

Stupid: Giving Your Employees Less Information about Your Operations than Everyone Else Has

This is just stupid.  Apparently the Federal government is barring employees and contractors from reading the cables leaked through Wikileaks.  There is no other way to put this, this is stupid.  It makes no sense whatsoever to attempt to bar your employees from at least the same level of access that the public has.  It is completely mind-boggling that an open government such as ours would attempt this.

Things like this make me lean just a little more towards the whole concept of government being necessarily inefficient.  I have enough trust in the system to think it will eventually occur to someone that giving yourself less access to information about yourself is probably a poor idea.  The logic behind this is incredibly convoluted and defies common sense.  It's like something out of a comedy sketch.

Education: Teacher's Evaluations

The New York Times has an excellent article today on an effort to conduct widespread observations of teachers by video camera to help identify specific practices that are working.  First, I think it's crazy that something of this scale hasn't been done before with the amount we spend on education.  It seems so obvious I kind of thought this would already have happened.  We need more of this.

A big next step would be to place hidden cameras in some classrooms.  As anyone that has ever been through a workplace evaluation or audit knows the kind of practices that happen when under observation are never quite the same as what happens during the normal day to day.  While there are a few privacy concerns these seem to me to be surmountable.  In particular, a handful of particularly good teachers would probably volunteer for this monitoring as part of a research project.  It could then be used as a stick against failing schools or teachers that doesn't involve cutting aid.  Struggling schools could be asked to submit to hidden remote monitoring in exchange for allowing cameras to be installed.  People would bitch of course, but to this non-expert it simply seems like a sensible step

Education: A Radial Idea; Get Politics Out of the Classroom

Something that has always bothered me about the education in the US is how highly politicized it is.  We have school board elections in Texas resulting in dedicated political entrepreneurs attempting to influence how nationwide textbooks are written by using their skills at political mobilization to stack the board.  School board elections happen on the ballot, which may be a poor representation of those most interested in the school and get too many voting on board elections that have neither the knowledge or interest to make an informed decision.  We also have shenanigans like New York State hiking tuition at state schools and putting the money into the general fund.  There are few places more clearly in need of expert opinions, from the fields being taught especially, yet these expert opinions seem weak relative to the political forces that determine education policy.

So to fix this, a truly radical idea, depoliticize the schools.  Remove them entirely from government oversight.  Create an entirely separate institution, with revenue raising capability, to oversee the school system that is not directly answerable to the state.  To maintain democratic governance an oversight board would be elected.  These elections would be a required form during school registration (though making a selection would be optional) to insure the parents have a say in how their kids are educated.  An additional open election would be held so those without kids currently in school could elect a certain proportion of the oversight board members as well. Local oversight boards would then elect a number of their own members to sit on state and national boards, or there could be direct elections to these boards as well (though at this point we're getting into a pretty complicated additional electoral system).  Curriculum would be drawn up, likely primarily at the national level, by a panel of experts in each field with input from members of the board selected for these panels.

Revenue collection would be a major problem.  Parents would of course be a large source of revenue but the rest of society has a nearly equal interest in the education of children* so this institution would need to have powers to collect revenue more broadly, which would require a special grant of powers from the government.  This likely makes the idea a non-starter but if we are going to remove the school system from existing partisan politics and political issues that have no bearing on education truly radical options, such as this (though hopefully more detailed and carefully thought through than this skeletal outline), will be necessary.

*I see arguments that parents should be solely responsible for the education of their children fairly frequently.  While I agree that parents are responsible for the upbringing of their child, I don't see that this carries over well into education.  Parents are the ones who will suffer the consequences if their child ends up being a brat or is completely ungrateful or lacking in a number of other signs of a good upbringing, we all suffer if a child ends up being without marketable skills and able to participate in society.  Whether or not we have kids, today's kids, whoever their parents are, are going to be the people working for our companies, paying for our social security, paying the taxes that keep society going, fighting and dying in our wars, and providing staff to the nursing homes we live in tomorrow.  We have almost as much interest that kids are educated to be competent at their jobs as parents are.  Our interest in most other parts of a child's upbringing is limited, but when it comes to education and skills we face a much different set of incentives and responsibilities if we desire to live in a functioning society.

Education: Expanding Opportunities; A National Research University System

There are a number of fields where it is constantly claimed that we have too few graduates of, namely primary care physicians, engineers, and scientists.  There is also a number of very good criticisms of our government that we are underinvesting in a number of basic research fields, energy especially but also materials science and a few other fields.

To create incentives to fix this problem a national research university system could be instituted.  To encourage a focus on these majors, especially among people who fear they might not otherwise be able to afford college, degrees at this university would be free, with a contingency that a graduate work in the US for several years (5 being an easy number); similar to how we have service requirements for ROTC programs.  Degrees would be limited to fields that we have a demonstrated need for, so available majors would be confined to the sciences, engineering, and medicine (though only primary care would be offered through this school with a requirement that graduates work in primary care for 5 years).  Other courses would be offered in conjunction with the National Online University to provide a rounded education without requiring additional staff.  All professors would also be funded researchers and, to the extent practical, students attending the university would be required to fulfill work study requirements that would involve acting as research assistants.

The narrow focus of these universities would limit competition with more traditional universities and the focus on research would help to fulfill another needed policy goal.  Providing these degrees at no cost to the student would also provide valuable downward pressure on degree costs that existing federal programs such as loans and grants do not.

Another Example of the Dangers of Overzealous Budget Cutting

The first to fall in times of tight money are often the most innovative programs.  The NY Times has an excellent article from a writer with The Bay Citizen on a program named Caduceus which seeks to provide services to people who are severely mentally ill and homeless.  The program relies on donated time and since its population is unable to meet even very basic eligibility requirements, in some cases things as simple as filling out forms, has difficulty accessing funding.  It is however very cheap due to its structure.  Despite this, the program is unable to secure funding to maintain itself and will be wound down withdrawing services from these individuals.  More traditional service systems will supposedly fill this need, whether they can effectively remains to be seen.  It is likely these other programs will however cost more than one that relied on donated time.  Programs like this are always the first to go when the calls are for budget cuts, rather than for reform which tends to have better long run impacts on both programs and budgets.

Cohen's Take on Wikileaks

I liked Cohen's column in the NY Times today and think it's worth reading for its focus on front line officers and the effects on them.  He's right, the cables so far show good US diplomacy.  He's also right that the damage done will be broad but shallow and his comparison of the effect this will have on diplomacy to that a similar action would have on reporters is probably spot on.  The damage done by these leaks won't be great but it will fall across pretty much all areas of US diplomatic activity.  We'll be operating just a little bit more in the dark since we won't be able to get confirmation about the views being held by foreign governments but it's unlikely that anything big will come of this, providing some sort of major event doesn't happen where we need these contacts to be strong before our contacts are rebuilt.

What I really don't understand is that after being able to look through these cables that anyone would have thought that the advantages provided by releasing them were worth the potential damage.  It will give us a nearer term look at how our foreign policy operates which will be interesting for academics but all of these would have likely been released to the public record eventually anyway (if you've found a taste for reading primary diplomatic documents there is a wealth of them for you to enjoy here: http://history.state.gov/).

Education: Expanding Opportunities; a National Online University

I believe one of the main barriers to people improving their skills is a feeling that they're either not prepared and thus not willing to risk the time and money on education or that they simply  have difficulty in figuring out how to get from where they are today to where they want to be tomorrow.

A national online university would be a partial solution to both of these issues.  It could focus on providing a decent quality, no frills education that people across the United States would be able to access to update their skills and to prepare to move on to more traditional colleges and universities.  Also it would provide a way to provide everyone with access to college preparatory work without needing to worry about how reputable the local schools are.  Of course, efforts would also have to be made to make broadband more accessible to the poor to make this work but that's a separate issue.

The online university would focus on two things, remedial courses and skills small businesses most need that can be taught online, principally business and computing courses.  All courses would also be offered at very low cost to attract as many applicants as possible.

Remedial courses would be offered at no cost, provided that a student passes a course.  If a student fails they would have the option of retaking the course or instead to try the next lower level, no charge will be levied if this course is successfully completed.  This can be repeated until a student passes a course, with a number of well publicized exceptions for extenuating circumstances where a course could be dropped.  These remedial courses would go up to the standard 100 and 101 level courses in subjects such as college writing or mathematics, which have come to grace the course lists for virtually ever university.  The idea is to make going back to college easy, and to make it particularly easy and painless for those unsure if they are capable of doing the work so they can test themselves and gradually build the confidence they need.

The business focused portion should be fairly self-explanatory.  It's simply a low cost way for business owners, or those wanting to become a business owner, to test the waters in a low cost way to see if college courses will benefit them.  It can also provide individuals with a number of skills that will make them better employees.

To a certain degree this would compete with existing community colleges and online universities.  Community college coverage is highly variable across communities however and existing online colleges aren't necessarily widely known about and can be expensive or of questionable quality, sometimes both.  A national school would benefit from economies of scale as well as being easier to promote to those most in need of its services.

[As a side note, Edward L. Glaeser is promoting human capital as a driver of American renewal as well on the NY Times Economix blog.  Being quite a prominent economist I thought I'd point it out.  His vision is to sell this to the Republicans so it is likely to be vastly different from mine.  I personally can't see how we can reach those most in need of a skills update without state intervention but it will be very interesting to see his take in his next post.]

A Special Economic Zone in Burma. Boon or Bane?

Another great NY Times article today is on a development project in Burma.  It seems that a quite massive industrial project, including new port facilities and power generation, is being developed in Burma in a deal between Myanmar's government, the Thai government, and a Bangkok based corporation, Italian-Thai Development.

Generally, I favor special economic zones as a great way to develop an underdeveloped country.  They have several advantages, including a focus that allows truly modern infrastructure to be built in a small location (rather than spread too thinly across a country to have any major impact), a large enough industrial complex to change attitudes in a focused area, a focus on creating real economic gains that can create sustainability through being self supporting,  and the opportunity to separate this small area of the country from the broken and corrupt institutions present in the rest of the country.  If these programs are run like China's original special economic zones, they are something that I think is under-utilized by the foreign aid community.

While it is very early and I am basing my opinion on a single article (always a bad idea but acceptable as a provisional opinion in a blog), there seem to be a few reasons to have doubts about this project.  The biggest one is that this project seems to be as much about environmental arbitrage as it does about any real economic advantages to the location, though some economic advantages are mentioned.  The biggest reason I am sceptical about this project however, is that no mention is being made of special institutional arrangements.  The biggest advantage to special economic zones is that they can allow for a small island of relatively (I have no illusions about these things being paragons of virtue, just better relative to the mean in these areas) well managed activity where the standard problems of these states are reined in by the pressure of international investors.   None of this is mentioned in this particular project.  It may be that this was not reported on or that it is too early to tell but until I hear more I am sceptical if this project will do much more than pollute the area and provide cheap electricity and semi-finished goods to Thailand.  Though I hope it will instead be the thin wedge to a better developed economy in the longer run, much like the special economic zones were in china.

Education: More Second Chances

I believe that a major flaw in our economy is that we give too little support to those that need retraining or that need to upgrade their skills later in life.  I do realize that we have a multitude of different targeted programs that seek to address this, I'm not suggesting that we make the system more complex by simply adding additional programs.  Rather, I'd like to suggest that we make a broader set of programs with simpler rules that would be accessible to most anyone working.  In my next post I'll get into some more involved ideas, in this post I'll lay out some more basic ones.  The objective here is to focus on making education and training accessible to people at every stage of their life and in particular people that have made mistakes that make getting training more difficult.

1.  Expanded education tax credits.  This would supplement existing programs and would allow for a broader range of expenses to be targeted by the credit.  Existing credits would be expanded to cover the entire cost of part time attendance at a state school (this would likely be in the ballpark of up to $8,000 a year total), as well as related expenses including text books and child care.  I had looked at New York State data for rough numbers but quickly realized the subject was too complicated to be worth the time in making specific recommendations in a blog post.  These credits would have to be written carefully, the target is a full time worker going to night school in order to get a better job in the future, or to get new skills because of fear of a job being eliminated or off-shored.  This is not meant as a tax break for wealthier families to put their kids through college, though a kid wanting to pay for their own college would be a perfect target for this credit.  While generally opposed to means testing it is also likely worthwhile to phase this out at high incomes to prevent it from being a subsidy for executive MBAs who don't really need it.  A gradual phase out starting at $100,000 a year may be in order, or if a more complicated provision isn't too distortionary, a lower phase out with an additional allowance per child could also work.  In any case, this credit should be designed so that families don't have to make hard choices about taking a chance on their own success or being able to better provide for their children's needs.  This tax credit should be limited to the income earner, or alternately for dual income households, to the secondary income earner as well.  Other household members should not be eligible for this expanded credit.

2.  Supplementary unemployment benefits.  This program would be designed to encourage unemployed workers to update their skills so that they are more likely to be able to get a job after unemployment at a higher wage then when they went on unemployment.  It would also be designed to encourage them to continue working while receiving unemployment.  The requirements would be that the beneficiary be enrolled in school full time and also that they look for part time employment while in school.  Unlike regular unemployment, beneficiaries would continue to receive benefits if they take a part-time job while in school.  It would extend the unemployment benefits, though it would likely be beneficial to make this at a reduced rate, for up to two years to supplement the income they make from working part time to something closer to the income they received while fully employed.  The objective would be to use periods of economic disruption as an opportunity to upgrade the workforce to meet changing economic needs and reduce long term structural unemployment.  It would also prevent long gaps in resumes by encouraging workers to take jobs that pay much less while unemployed and feeling justified in doing this by having school as a reason for doing this.

Both these suggestions would likely be expensive in the short run, though longer run cost would be more unpredictable since they would be likely to result in larger long term government revenue.  I believe paying for these out of slightly higher taxes on high incomes would be justified and likely acceptable to most Americans.  After all, this isn't giving out freebies, it's giving people an opportunity to work hard to better themselves that they might not otherwise have due to choices they find difficult to make.  Only those willing to take on the task of both working and going to school would qualify for either program.

I'm Ambivalent about Government's Privacy but Individual's Privacy is Another Matter

I was just reading this NY Times article on the most recent information from Wikileaks.  I'm fairly ambivalent about the privacy of the government, while I can't imagine this level of transparency is likely the ideal for diplomacy to fulfill its needed functions I can imagine a version of diplomacy where no privacy is assumed that works well enough, though I'd rather have traditional diplomacy over this nonsense.

What's going too far though is summed up in this line from the article:

Many more cables name diplomats’ confidential sources, from foreign legislators and military officers to human rights activists and journalists, often with a warning to Washington: “Please protect” or “Strictly protect.”

Having information to be revealed depends on having individuals willing to speak their minds.  The long run trajectory for Wikileaks actions isn't a more open government.  Rather it's a world where no one in any official capacity can ever speak their mind or take the risk of being open about anything.  Rather, the threat of being exposed will insure that anyone acting in any official capacity will never say anything aside from the tired lines of bullshit that have been pre-approved up and down the lines of command.  This is a world where no information exists that cannot be safely relayed in a press release and where people only speak their own thoughts with those in their same agency and never risk anyone outside hearing anything.  The world of Wikileaks isn't a more open world, it's a black box.

Bad Labor Habits and Medical Errors

Just finished reading a NY Times piece on medical errors.  It was good and it's worth reading the whole thing.  A couple of quotes jumped out at me though.

Dr. Wachter said: “The study is telling us how hard improving safety really is. Process changes, like a new computer system or the use of a checklist, may help a bit, but if they are not embedded in a system in which the providers are engaged in safety efforts, educated about how to identify safety hazards and fix them, and have a culture of strong communication and teamwork, progress may be painfully slow.”

Earlier in the article however:

“A third of the errors in the intensive care unit disappear when residents work 16 hours or less,” Dr. Landrigan said, but noted that senior residents are still allowed to work longer.

Not having people work 16 hour days isn't hard, it's common sense.  Of course there will be a few situations where it's beneficial but this is an instance where I see a cult of hard work having significant negative effects in the real world.  I am certain it's not the only one.  We need to stop talking about the hard work that goes into a 16 hour day as a good thing and start condemning it as reckless behavior.  While the ill effects are clearest in medicine this is simply forcing people to do things we're not built to do.  We need to build systems that work with people as they actually are, not as we wish them to be and to stop treating reckless behavior as something that should be honored.  It reminds me of the bankers justifying their salaries through the long hours they work.  My first reaction was that perhaps the system wouldn't have crashed if the lot of them had been getting enough sleep and weren't making stupid errors due to fatigue.

Education: The Low Hanging Fruit

I'll eventually get into some more complicated issues but as a first step I'd like to list what I consider some common sense educational reforms.  By common sense I don't mean easy to put in place, instead, while there are few that would argue these reforms wouldn't help our education system, these are very difficult to pass reforms for social or political reasons.  Since I'm putting an emphasis on the labor force at the heart of my take of rethinking ideology I'm going to ignore the political difficulties since if you can't successfully argue for the core of your thesis despite obstacles there is little reason to even attempt the approach.

Also, I'd like to note that the vast bulk of what I know about the education comes from newspapers and does not come from any particular expertise (other than a lot of time spent in school).  While I've tracked back information to a journal article here and there I'm communicating primarily based upon what I see the current consensus is rather than on any particular expertise.

1.  Start the school day later.  There has been a lot of research that younger people simply aren't wired to get up as early as older people.  While I have no idea what the magnitude of the effect would be, simply making the school day start later would help to increase the amount of learning that goes on in classrooms.  I would also guess it would reduce problem behaviors.  There are obviously a number of social and political reasons why instituting this reform would be difficult.  Incidentally, this is also one of those traits our meritocratic society selects for that has nothing to do with merit.  Those that are naturally early risers have an advantage over those that are late risers that sets in quite early.  While this certainly impacts your lifetime ability to contribute this has nothing to do with any individual merit you possess, it's solely an artifact of our institutions.

2. Make the school year longer.  Our school year has become shorter than that of many of our competitors and this is likely associated with less overall learning.

3. Shorten summer break and break up the school year more.  I've heard in a few places that lower performing students in particular have their skills deteriorate over long breaks.  Since these are the students I am most concerned about doing what will help them learn best is necessary.

4. Look at making the school day longer.  I have no idea if this is actually something that would help since I'm unsure if kids do a good job paying attention over long periods of time.  If this is a major problem, a longer school day with a few breaks for more fun activities may be in order.

5. More guidance, and in particular resources, for self-study.  While this may benefit all kids, this suggestion is more for those at the upper half of the distribution.  A frequent frustration of mine as a younger kid was that I wanted to learn all kinds of new things but had no idea where to start.  This led me to read a lot of Greek philosophy, or other subjects where I happened to have stumbled across author names or titles, which looking back on it was a waste of time because I didn't really have the background to understand it, particularly how different the culture was, till later.  A listing of progressively more difficult resources, not just age-level appropriate which may not be challenging enough for every student, would be helpful.  Combining this with an online library for accessing these texts would also be helpful.  Some sort of rewards system would also be necessary to get the full benefit, whether some kind of accelerated coursework or some form of more material reward.

6.  Explore more incentive systems for classroom work, especially for low income students.  I've heard the idea but haven't read much.  I see no particular reason to oppose it, except for spending.  Targeting this to lower income students may be ideal, wealthier parents tend to set up incentive systems for their kids already anyway.  It's those whose parents aren't doing this that could use a break.

Much of this could be achieved simply with more federal funding.  In general, I don't believe current levels of taxation are high enough to sustain our investment in either our labor force or our physical infrastructure so I'll simply be assuming taxes will eventually go up to pay for this, though I'll likely be doing another spot on taxation since I'm still thinking through some issues with it.  Also, I assume a better education system will involve more centralized control, though I see some options with this, issues that I'll be getting into in later posts

Some Thoughts on Long Range Economic Development

Over the next few posts I intend to start going into some of the domestic factors that I believe are holding the US back.  This will all be very speculative and based on a rather general observation of mine that I admittedly haven't researched enough to have 100% confidence in.  That is that I believe that over longer periods of time the key thing holding back societies is their inability to maximize the potential of their labor supply and that an emphasis on capital rather than labor leads to the misallocation of resources.  I believe the key thing to long run development is to balance development of all of a nation's resources.  In the modern USA I believe we have enough capital sloshing around that capital is unlikely to be the limiting factor.  Growing our supply of capital will do us little benefit, though it will shift incomes around, if it is instead the quality of labor where our society is lacking.  This is sharply different from the 18th, 19th, and the first half of the 20th century where we remained under-capitalized.  This is no longer the case here, though investment is likely to be the limiting conditions in less developed nations.

This is a slight shift in emphasis from what I generally see as the main thrust of mainstream social science and is rooted in a basic criticism I have towards the field that we place too much emphasis on 18th, 19th century and early 20th century thinkers (this does not apply equally to all subfields, some of which are much more modern).  The major emphasis in both political science and economics has been in explaining industrialization.  While I agree this was a major event, I also think it was a unique one and the lessons learned from it are not truly generalizable.  I believe there were elements of this transition that stood out so strongly that other threads of development were left completely obscured by the key role that capital development played in the transition to industrialization.  Focusing on capital formation distracts us from deeper issues that are playing a greater role today as we move more completely out of the initial transition to an industrial society and into whatever is coming next.  This is rooted in a few observations, such as the lack of success of slashing taxes to encourage capital formation towards creating broad based growth and the ability to sustain growth and production in countries that focus more on encouraging a highly skilled labor supply, but I will admit it is very preliminary.

Based on what may be a faulty starting assumption however, I will be suggesting that a focus on taking an approach that seeks to maximize the quality and efficient allocation of our existing labor supply is the proper foundation to build a new approach to American politics and government on.  While education will be a significant part of this I intend to make the approach much broader.  I wish to examine how various policies, such as our prison system and discrimination against ex-cons or the difficulty of gaining a university degree or advanced technical training later in life, are leaving significant portions of our population in a condition where they can be nothing but under-utilized.  I will also be looking at how existing policies make labor mobility more difficult and policies that are blocking the kind of organizational flexibility that would be necessary to get every American working at their full potential.

My vision of society may not be widely shared but at its heart it's one that we give people as many chances as they need to get their act together so they can contribute and that breaks down any barrier that provides someone with an excuse not to put in the effort to better themselves.  I think our focus on trying to spur private investment and the focus on incentives does little to spur those people that have more awareness of the possibilities for failure than they do of the possibilities for success.  American society already has everything it needs to make the best and brightest do their thing, doing more to encourage this has little to no pay off.  Getting those who aren't the best and brightest to pull their weight and contribute everything they can is the real challenge we need to meet if we're going to compete with nation's having a multiple of our population in the 21st century.  They can afford to chew people up and spit them out if they don't meet their standards.  We used to do this, and still do, but it's no longer a luxury we can afford.

[Update:  After looking over this I think my brief digression into half thought out theory may have been unclear.  I'm not proposing anything terribly new or anything terribly different, just a shift in emphasis.  What I have in mind is that:
1. Growth is limited by a number of limiting conditions such as capital, labor, technology, or organizational sophistication.
2.  We tend to overemphasize capital as a limiting condition because the foundation of much of our social sciences comes from the 18th, 19th, and first half of the 20th century when our society was not yet fully industrialized so lack of capital was generally the limiting condition.  Also, capital formation is easily amenable to economic methods while the labor issues and technology I am pointing out falls into the less mathematically amenable realm of political economy as social forces and political concerns dominate over the actions of the private sector and the relatively easily tracked cash flows necessary for capital investment.
3.  While we certainly will continue to need more emphasis on capital formation than earlier societies did, our challenges are more likely to be in the form of trying to develop a sufficiently skilled labor force, though technology and science is also likely to be an issue.  This is because a society such as ours has an ample capital base and enough capital seems to be produced in its normal operation to meet our capital needs.  Additional capital has a decreasing rate of return because the amounts of skilled labor, technology, etc. are not available to give the full return on new capital spending.
4. The incentives to stay in school and get a good education are already enormous so lack of incentives is unlikely to be the reason our labor force is inadequate.
5. We need to look at why people are failing to develop skills that are rewarded in the modern economy.  Also, we need to think about how careers that can be very rewarding to society as a whole, such as scientific careers, are unable to capture their full social benefit.]

A Few Ways Our Society Advantages the Wealthy

Now that I've covered the big issue areas of the day, in regards to which I have relatively few unique suggestions, my focus over the next few weeks will be on areas where I think more significant changes are desirable and which are currently not at the top of the agenda.  Many of these suggestions involve trying to even the playing field between the wealthy and non-wealthy so that those without assets can more successfully compete in the economy against those better off.  The idea will be not to push transfer payments but rather to focus on making various forms of investment pay off better for those with few assets.

I often here a complaint leveled against progressive taxation and other policies that have disparate effects on rich and poor that it is unfair to tax the rich simply for being rich.  Those who argue this often go on to claim that the tax is even more unfair because public investments tend to be consumed by the poor and not the wealthy.

While I think most non-wealthy see these arguments as absurd, I think it's worth pointing out a few ways that the institutions of our society disproportionately advantage the wealthy.  There's a perfectly good reason why expecting the rich to bear a greater burden is a necessary part of the social contract, we live in a society where the institutions overwhelmingly favor those that already possess wealth.  While this is no excuse to simply expropriate the wealthy acknowledging these advantages upfront is necessary to think rationally about policy and the necessity of providing a set of advantages for those left well off to compete on a more even field.  Also, it should be noted I don't believe in trying to change society to eliminate these advantages.  Many of them are the results of institutions that are necessary for our society to compete globally and that have done much to grow the pie bigger for everyone.  I simply believe that there is a natural social contract that comes with these institutions to provide countervailing forces to help those without assets compete with those with preexisting wealth to become wealthy themselves.  This is by no means meant to be a comprehensive list, simply a number of the more obvious advantages that occur to me.

New Page Added

In order to organize my reading list and plan out my next book purchases I have been writing up a list of what I've read so far.  I have no idea why this would necessarily interest someone else but if you're curious about what I've read and what I haven't feel free to take a look.  It's woefully incomplete as of now but I will continue adding to it in the future.

Some Thoughts on Taxation

I was intending to take this up later when I was able to take the time to assemble some data but this post today on the Economist DiA blog meant I had to address it.

Dr. Robert Frank has an interesting proposal to to tax consumption instead of income by making savings deductible.  I largely like this but with some caveats.

First, it's not distortion free because this will favor whatever type of savings are allowed under the plan.  Small but still there and worth mentioning.  I think this would be most noticeable in the case of financial assets vs. other kinds of investments meant to increase personal productivity.   Probably surmountable, this would have to be done in regards to small businesses that pay on individual income taxes anyway (and ideally should include education as a form of savings), but this is going to make it more complex.

Second, it can be argued that this favors wealth inequality, which I agree is a significant problem.  I think there are a few ways to lessen this.  My views on inequality are slightly odd though so a brief aside on that first.

I'm not really worried about inequality if it is all money tied up in businesses rather than money that is being used to create a real perceived gap in lifestyle or is used in the exercise of power (donating to political campaigns should not be counted as savings).  I do worry about inequality if it is simply inflating asset values, particularly in goods that can't be produced (in reasonable amounts or at reasonable cost) such as land.  This is too big of a subject to take up here, I'll do so in a later post.

Inequality is also a problem because it shapes outcomes.  While many want to deny this, there are too many historical examples of how the powerful have been able to shape social outcomes, both through the use of the state and simply by private economic power.  This isn't wholly avoidable and the costs of trying to correct it are too high and too uncertain to be worth trying to eliminate these advantages entirely, though trying to do so in part is worth doing.

So, we need to do something to make the tax even more progressive to help those with low incomes compete against those with high incomes who have a number of natural advantages.  With the goal in mind of increasing competition and presenting established fortunes with a constant flow of new challengers.  The first advantage to those trying to move up the ladder would be a fairly high standard exemption.  The second would be a standard income tax but only on very high earners and then at fairly low rates.  This is meant to equalize the playing field a bit, not predetermine the outcome.  These rates would ultimately be subject to actual budget analysis as to what the trade offs would be between a high consumption tax and the portion of it left to an income tax.  To give an idea what I have in mind, a ballpark figure would be 1% at $250K, 3% at $1M, 5% at $10M, and 10% at incomes over $10M.  Nothing scientific about it, but frankly, I think we know enough to say that high incomes distort the playing field but we don't know enough to say by how much in a way that amounts to more than pulling complicated sounding numbers out our rear ends.

Something will also have to be done about corporate taxes but since there are no recent news articles on the subject I can leave this for when I've done some real research on the subject.  Also taxes will have to be diversified further, a single revenue stream is always less than optimal and there are a few areas where positive goods can be achieved through the tax system, I will take this up later.

Of course, vast change in government always seems unlikely.  However, our revenue policies are so bad, and so widely recognized as being so, that this is the one policy area that I think there is a decent chance of having a revenue system 10 years from now that is completely different from today's.

[Update:  While this article got me to thinking, after considering it a little longer I think I may prefer to encourage people to keep money invested simply by slashing the corporate tax rate and simply treat all income equally.  This way, if you want to build up your vast fortune you're best off simply keeping the money invested and never realizing the gains.  You still get to be an uber-billionaire but most of the effects of inequality would be muted.  I'll take this up a little more when I treat corporate taxes later on.]

Social Security

I wish I had more to add on this topic but the debate already seems to be hitting most of the sensible options.  All I've got to add is that I don't like the idea of raising the retirement age because average life expectancy hasn't increased much for lower income workers.  Also, increasing life expectancy at age 65 is the proper number for calculating social security, much of the increase in overall life expectancy is do to better treatment of conditions that killed before 65, such as cardiovascular disease, only part of it is do to increased life expectancy after 65.


My only suggestion to make the program better is to change the different benefit calculations for early and late retirement to include caps.  That way manual workers, who probably can't work later in life and are likely to have lower life expectancy, won't see their benefits cut if they have to retire earlier.  Workers that enjoy better wages and less physically demanding jobs would have to work longer if they want to receive their full benefit.  Given the complexity of Social Security calculations, it would probably be necessary to make benefit payments either the cap or the old calculation, whichever is lower.  After taking a brief look at the numbers, I realized calculating the changes would take far more time than its worth so I don't know precisely how close to solvency this would get us.  Still, by using gradually increasing benefit caps there would be at least some room to allow for those lower on the income scale to retire early with full benefits while being able to raise the retirement age for those better off while retaining the broad based nature of the program.  I have something in mind like capping benefits at age 62 to $6000 a year, increasing the cap gradually to $12000 at 67 and then the maximum benefit available somewhere around 70.

As an addition, Social Security should embark on a program to encourage gradual retirement so that workers are paying in longer.  I have doubts about the government's ability to effectively change culture so won't spend too much time on this but the program would certainly be more solvent if workers continued to pay in through their jobs past 65 by gradually transitioning to a partial work schedule.  There's only so much that can be done but shifting the cultural norm from an absolute shift from work to retirement to one of shifting from full to part time with a gradually declining work schedule would be beneficial to more than just Social Security.

Along similar lines, I have some issues with the decline in SSI/SSDI benefits with relatively low levels of income.  The numbers being simpler, but still enough that I need some time with them, I'll go into more details at a later date.

A Little More on Transactions

Just in case I ever decide to come back to the notion I figured I'd list a bit of a grab bag of the situations that I had in mind for my focus on transactions.

The first is the long run importance of powerful commercial groups in controlling distribution channels for long distance trade.  This goes back to the middle ages and the fair system etc. and the importance of a few key merchants who had access to particular goods or finances.  These merchants seemed to have an outsize impact on which fairs were successful and on how business was conducted.

The second was the importance of control of actual mediums of exchange or capital accumulation.  Mostly the importance of changes from early exchange systems (which could be very complex), to money, the introduction of bank notes, the importance of relationships between banking groups (and the ability to choose to introduce someone into these circles) before the state took over the role of banker, and various attempts at concentrating early capital, such as stock systems in Genoa or Venice or shared space on ships in Southeast Asia.

Another aspect is the off noticed tendency for certain sectors of the economy to have effects on the overall system that are far larger than their size.  This has been observed regarding the spice trade, the textile trade, steam engines and rail roads, and a few other sectors across history.  These fields have been pioneering ones using new forms of social organization and contract to get the resources they need (sometimes this takes place with labor,  sometimes with unusually large fixed capital, sometimes with new corporate organization).

Where this differs from economic history accounts is that I am downplaying the absolute size and instead focusing on which agents have the power to set the "menu" (for lack of a better word) of choices available to others.  This can be early merchants who formed fairly exclusive cliques who would trade amongst themselves balancing accounts at various fairs, the great mercantile companies which introduced new trading practices in Africa and Asia, early industrialists who were able to introduce new labor contracts to fill their factories, tensions between wage labor in agriculture and other forms of tenancy, states which could favor or disfavor various forms of economic activity through taxation and other policies, modern issues involving intellectual property rights or digital infrastructure, etc.

This is all of course to some extent covered within other perspectives.  What I'm mostly suggesting is that the power to shape social outcomes lies with whoever sets the menu.  Who gets to decide if family businesses will dominate or if more impersonal corporate structures (and what rules will govern them) will proliferate?  Can I trade my labor directly for goods or services or am I only allowed to use money?  Can I trade my raise for a constant salary with less hours?  Is production centralized as a matter of course, or is household production a possibility?  What are the standard contracts involving loans?  Simple things, like bundling of television channels so that I have no option to subscribe to Showtime to view the shows I want to watch online without owning a TV.

In this perspective, power lies with whoever makes these decisions (even if not consciously, this is a matter of socioeconomic change and small changes can lead to large effects and path dependency over time).  It is not necessarily the government, nor is it necessarily those that control wealth.  Rather it is whoever is able to influence how contracts are constructed or what the standard methods of exchange are.  Power can lie with a corporation if it is able to control the set of contracts available* or it can lie with the government if the state gets a say over contracts.  Power isn't necessarily purely a function of wealth, a marginal example would be subsistence populations with only limited contact with the market, they will frequently work for some wages in addition to their subsistence production but ultimately can impose their schedules on producers since production for the market is secondary.  Wealthy and profitable business interests with high levels of fixed cost and a reliance on a skilled labor force may loom large economically but be so dependent on current conditions that they have little scope to change any existing relationships (on the other hand, if the society lets wealth get translated into the political process this business will gain the ability to exercise power).  Alternately, a not so profitable industry with low fixed capital costs but many low wage, low skill jobs may have outsize power because it can shape behavior by making a credible threat to move, it's power to upset existing means of trading labor grant it power out of relation to its economic size.  Alternately, a high tech sector may have outsize socioeconomic impact by being able to pioneer new forms of conducting transactions (whether by moving things online or by allowing for a more decentralized labor system that could bring back household production).

Anyway, this is a grab bag of things for me to come back to later if I decide there's something to this that isn't adequately covered elsewhere.  I think there are some real gaps in economic development, especially the outsize impact on society of a small handful of sectors at various points in history or small shifts in government policy, but there may be good existing perspectives on this I'm as yet unaware of or this perspective may be too difficult to problematize to be truly effective.  After this post I intend to set it aside for some time and get back to reviewing the deficit commission proposals and moving on to social security.

*This is most obvious right now with intellectual property rights.  Patent holders can make innovation more difficult, or ease it.  Various types of content holders can control the means of distribution, despite consumer demand, through their market clout (I have the record companies, film distributers, publishers, and such in mind here, while other options exist you need to go through them to reach a mass audience.  Admittedly, there is a dimension of state support through regulatory capture but some of this is simply due to the nature of the industry).

[Update:  The more I think about this, the more I think this is just a slightly different way of defining power that avoids the common confusion of too much focus on state power and instead defines it as being distributed throughout multiple levels of society.  There are other conceptions of power that already do this so I'm unsure I'm adding anything.]

Democrat's the Party of No?

Ross Douthat has a column this morning on the deficit commission and the Democrat's rejection of it.  Here, he accuses the Democrats of being the party of no and blocking any solution and tries to imply that the Democrats must be in favor of all the distortions.  He also tries to argue that the deficit commission is not that in favor of Republicans.

This is nonsense.  The left in the US shows pretty strongly that its biggest concern is rising income inequality.  The Bowles-Simpson plan would substantially shift the tax burden away from the wealthiest Americans.  Sure, it would do this without cutting programs for the very poorest but it wouldn't make things better for the working poor or anyone on up to the highest income brackets.  This is why liberals and progressives are crying bloody murder over it.  I may not always be on the side of the Democrats, and I think inequality needs to be broken down more to be useful, but I can't support a plan that would slash the top income bracket to 23% either.  Where I differ from most Democrats is I'd like to see the corporate tax go much lower but income from corporate ownership get taxed when it becomes income for an individual (more on this when I take up tax policy as a whole).  But you can't say the Democrats are opposed to sensible solutions when the left's primary argument is that income inequality is making America less competitive and making it more unjust as well.  Few on the left seem opposed to most of the sensible measures, some are opposed to Social Security reform but they have a good critique about actual changes in life expectancy by income and there are ways around this (more on this later), what they can't stomach is a plan that functions primarily by making the existing tax structure favor the wealthiest even more.  This is a deal breaker for the left.  The commission could have lowered rates a bit, particularly if they added a few brackets closer to existing rates (why not additional brackets at $1 million, $10 million, and $100 million) this would have been far more palatable for the left.

What shocks me is that anyone would think this isn't highly favorable to the right.  No one is opposed to fixing government by ending its worst programs, many people are opposed to doing this solely to justify shrinking government as a whole and doing it in a way that primarily favors our wealthiest citizens.

[Update:  My first thought on what I bipartisan compromise would actually look like.  This plan comes close but to make it bipartisan it would need to put the spending cap higher, it's obvious we're going to have record levels of government spending when our demographics are the worst our country is likely to ever face, pretending otherwise is simply ignoring the obvious.  The alternative is politically impossible, reinstate the policy of open borders. 

The next compromise would be that an additional tax bracket for those making over $1 million would have to be added at 25%.  Then further tax cuts to every lower bracket, and a much higher initial exemption, would have to be added as well to be paid for with a pollution tax and a VAT.  This additional revenue would also pay for a new old age expansion of SSI for the elderly that would have formerly received social security but no longer can under new rules.  Ideally eligibility for this would be set at 60 and rules would be designed to favor those working at manual labor who are the most likely to have difficulty working when they are older and who have also not seen the sort of longevity increase that those better off have.  To throw the Republicans something corporate taxes could be lowered further if additional revenue is sufficent.  I think this would be enough to buy off the Democrats without compromising the rest of the plan.  I haven't gotten around to reading the full report yet, when I do I'll do a more complete review.]

[Update 2:  Actually, I think I let a couple of my priorities slip in with what I think the Democrat's priorities are.  I think if you added in an additional tax bracket on those making over $1 million and use it to pay for an SSI expansion aimed at the elderly working poor then you're all the way to something acceptable.  Throw in a pollution tax and an infrastructure fund and I'm sure that compromise is very possible.]

The Importance of the Means of Transaction

This is just a random thought that occurred to me that I want to keep a record of for revisiting later, and to ask my readers if they know of sources that have explored the idea in detail before.  Based on some reading I've been doing recently* it has occurred to me just how important control of the means of transaction (a clumsy formulation I'm using to distinguish this from the already taken term the means of exchange) has been for determining social, economic, and political outcomes.  I don't mean solely the traditional narrow definition of the means of exchange (money or commonly traded commodities such as grains or silk) but a more multidimensional way of using the concept that encompasses means of labor exchange (the medieval manor system, Chinese lineage groups, temple distribution of grain in Uruk, the modern corporation, etc.) and the control over the systems by which goods are exchanged (such as the organization of long distance trading networks, organization of local and regional markets, modern bundling of goods and services, taxation by the state for public goods, etc.).

I realize that a very common mistake committed in the social sciences is to mistake a range of disparate mostly unrelated facts for a pattern.  This strikes me as a possibility with my desire to link all of these aspects together into some form of broader causal system.  So this has to be understood as a germ of an idea than something I have a great deal of evidence for or that I would be willing to defend. 

All that said, I have often been critical of the importance given to material factors or to theories that emphasize the importance of the means of production and investment or the importance of economic classes.  By looking at the means of transaction I think there may be a better way to frame how material factors interact with social and ideational factors to lead to social, political, and economic outcomes.  The ability to control how goods are exchanged, how labor is exchanged, and how public goods are created seems to me to be a possible contender for a better way of conceiving of the interaction between material and social life than more commonly used conceptualizations.

While this is very preliminary, and possibly a waste of my time to think about and yours to read, what I'm suggesting is that rather than looking at the standard focus of economic theorizing on production and wealth or social theorizing that emphasizes class it may be more fruitful, and more applicable to wider time frames, to look for explanations of social outcomes and economic growth by focusing on the control exerted over how goods are exchanged.  Throughout history these powers have always been divided between a variety of actors.  The focus would be not on who owns what but instead on who is able to control how contracts are formed, how contributions are assessed to provide social goods (often the state, but private charities or religious organizations have in the past fulfilled aspects of this role), how labor exchange is organized (I'm trying to think of a term that would encompass modern companies organized for market production as well as both modern and older organizations that involve labor exchange for non-market activities, I see no compelling reason to make a distinction, especially since the division between market activities and non-market shifts and is part of what needs to be explained), how the medium of exchange is set, and other activities that emphasize organizing exchange over actual ownership.

A number of observations are behind my consideration of the importance of a change of focus.  First of all, I think too much emphasis has been placed on capital goods and the means of production as a result of the industrial revolution and the surge in capital accumulation required.  While this focus is important for early industrialization, I think a focus on it has obscured trends of longer duration and importance that underlie this transformation and that of earlier periods and that are of more importance to future change in economic, social, and political structures.  I think that the means of conducting transactions, which transactions involve the government vs. which transactions are private or through other designated organizations, how different forms of institutions are formed to conduct activities, and the simple control over expectations of how people will act in different sets of interactions (things as simple as knowing what to expect when dealing with a merchant to something as complex as organizing a large enterprise, whether a modern corporation or a Roman colony, in a foreign territory) are more important to determining social outcomes than standard economic explanations are.  While there is significant overlap, wealth or state power can certainly help to establish the means by which transactions are conducted, this perspective (if anything other than nonsense constructed from far too few data points) would explain the unusual importance of new sectors of activity (such as the importance of early industrializers or other innovators) as well as the outsize importance of control over finance.  It would also provide a strong perspective for explaining how private economic actors can exert outsize control over society when they are in positions essential to distribution, which seems to be a common historical theme.

That's enough on this for now.  My above description is incomplete, the primary purpose of this however is to get something on record for me to possibly revisit later if I find the time and continue to see evidence that this is an important frame.  I also believe that to properly explain it I would have to spend rather more time on specific historical examples and contrasting it with standard economic interpretations of development (such as North's), Marxist interpretations, and more sociological explanations (such as Moore's class based explanations).  If any readers have come across similar attempts to focus on transactions over production, the state, or class as socioeconomic explanatory frames I'd appreciate the reference.  I'd also appreciate any critiques, both to think through these ideas more and to know if this is so far off base that I shouldn't be wasting my time on it any further.

* Recently, I've been reading Moore's Social Origins of Dictatorship and Democracy, Ibn Khaldun's Muqaddimah, Belknap Press's History of Imperial China series, Skocpol's Democracy, Revolution, and History, Wolpert's A New History of India, Mokyr's The Lever of Riches, North's The Rise of the Western World, lots and lots of papers on Chinese trade and currency, and Mieroop's A History  of the Ancient Near East.  I have no doubt that many, or all, of these have contributed to  my recent thinking along these lines, in particular Mieroop's book which got me to thinking of just how vastly the means of conducting transactions has changed over time.  The modern methods of market exchange simply don't look like something that is based upon any sort of fundamental human characteristics, rather they seem to be the product of particular social circumstances.