A Theological Aside on Modern Liberalism and Christain Platonism

This is a subject that I hardly consider myself an expert on, but I do have a strong interest in religious history. I don't really consider myself religious, but I do take it seriously. And the main reason I take it seriously is that I have trouble understanding how we could have gotten from the slave holding, hierarchical, and patriarchal culture of the Greeks and Romans to modern western liberalism which takes as its guiding principle that all individuals deserve to be acknowledged as being morally autonomous, to be acted upon only with their own consent, and to be able to hold accountable those that act upon them without the Christian religion. Admittedly, we still have have a long way to go to disassemble those institutions that date from our wicked past but, despite some set backs, I look at the good so many people are doing today and see hope for the future.

Now, since my own faith is deeply tied up with the recognition that modern society has, for the first time, made a real effort to embody Christ's principles, primarily the golden rule (love they neighbor as thy love thyself, also I realize the term golden rule is non-Christian in origin and basically universal) but also other common biblical themes, such as our support for the poor, emphasis on non-violence, and recognition that we are each alike created in the image of God, I find myself particularly troubled that so many who claim to speak with a Christian voice see us as so fallen in comparison to past ages. Admittedly, we don't do so well on piety, but other eras were pious but fell far short of us on just about every other aspect of Christ's teachings. I am especially troubled to see so many claim that the modern concept of consent is non-Christian, for if one does not take consent seriously how is one to love one's neighbor? If one does not take another's autonomy seriously how is one to take seriously the idea that we are all created in the image of God? Accountability has less direct ties to scripture, but indirectly we see throughout the Bible Christ questioning the authority of those that claim position and wisdom in the ancient world. Without these hierarchies how can we organize ourselves without accountability?

So, in my view I see modern liberalism as congruent with Christ's teachings. Not to say there are not some difficult passages, but it is surely easier for us to approach scripture than it was for the Greeks and Romans. Our culture, while not an end point, is surely one that has been worked upon by Christ's teachings.

I should pause for a moment to make explicit my approach to Scripture since it is not fully orthodox. My assumptions are as follows:

1. Free will - while I have read many arguments against it I am not convinced that these discussions matter in its absence, so whether or not it is a defensible doctrine it is best to assume it and move forward

2. Context matters - God does not do things by accident. Christ was made man for a reason, we should take this seriously; not just through a spiritual perspective but as a hint at how we are to approach his teachings. He was made man in a specific time and place and his teachings are tied to it. We must understand that relations between his teachings and the culture of the time and place that he was teaching. To read his teachings as if he spoke these things today is to trivialize his incarnation.

3. Christ's is a living word. The gospels have acted on men throughout history individually and through them have reformed, to some degree, a sinful world. This is an ongoing process, but to take God seriously we must acknowledge that his Word has changed this world according to his plan.

4. God created a good world - While man can be evil, and throughout history has taken efforts to dominate others, deny the moral autonomy of others, and remove choice and consent from others, the actual world God made is good. God's world is congruent with God's teachings, it is the desire to place man over man, rather than God only over man, that leads to evil. If an interpretation of Scripture is at odds with our observation of the world, and with history, we must very carefully consider whether we are in error in our interpretation of either Scripture or of God's world.

Flowing from these assumptions I often find it difficult to stay silent when I hear those invoking God's name in support of ideas that I find antithetical to what I understand to be Christianity. Often, I have heard so called traditional Christians defend ideas that seem to me to be rooted in Roman paganism rather than Christianity. A recent post by Rod Dreher gave a specific form to this general impression. He quoted an essay by Michael Martin, the key sentences for me read thus,

"Indebted to Plato and his Christian Neoplatonist interpreters, realism affirms the existence of universals: abstract, general concepts possessing objective reality anterior to particulars. For realism, universals, that is, are real things (res). The ideas of ‘woman’ and ‘man,’ for instance, precede and inform the actualities of particular women and men."

Dreher goes on to say

Opponents of traditional Christians think we’re talking about morality when we talk about gender and sexuality, which, yes, we are. But more deeply, we’re talking about ontology. This may sound like philosophical jibber-jabber to you, but if you have any interest in being fair, and in understanding your opponents’ point of reference, you should explore this idea. 

I went through a period of a few years where I was somewhat rabidly anti-Christian. It was specifically because orthodox doctrine relied on these ontological concepts. However, after reading a great deal more history, then specifically Christian history, and finally reading more of the Bible I came to realize that Christ was specifically criticizing this ontological viewpoint. One must love God, and love one's neighbor, and recognize that we are all created in the image of God. This is antithetical to the idea that there is a universal abstraction of man or woman, within Scripture there are men, women, and those that are "born eunuchs." (Matthew 19:12). This isn't exactly a modern formulation, but it is clear enough that Christ recognizes that male and female are not a Platonic duality and it follows from observing God's creation that intersex people as well as people of diverse sexual presentations and gender actually exist.  God's creation doesn't fit neatly into Platonic categories, God's creation shows a continuum, not a duality, and while Scripture generally does not go out of its way to challenge pagan dualism and patriarchy regarding gender it doesn't explicitly deny the existence of a continuum and does, at least in places, specifically acknowledge the existence of those that do not follow the pagan formulation of sex and gender as universals.

Now, I get that orthodox theology borrows heavily from Platonism and Aristotelianism. But, once I read enough to consider the subject, it seems obvious why the effort to reconcile these doctrines with the Bible was so difficult, they aren't really compatible. Theology rooted in them must go to the same lengths to create a workable moral philosophy that Ptolemaic astronomy, with its Platonic roots, did to create a workable predictive astronomy creating a complex array of indirect relations to arrive at a workable system. However, abandoning the Platonic assumptions leads to much simpler solutions, such as the Copernican system.

This does mean that the reliance of the church on these philosophical doctrines need to be explained. But that is easy to do. Platonism and Aristotelianism play such a prominent role because it was necessary in order to convert people in the Graeco-Roman world to Christianity, in the same way that missionaries developed the Cyrillic alphabet, or adapted local stories to get people in them to take Christianity seriously. I just finished listening to Augustine's Confessions on audio book, something that struck me is that he specifically wrote about how important it was that Christianity was able to explain his world in a way that Manichaeism could not, something it could not have done if it did not adapt to the local philosophy. But I see this as being all it ever was.

Once people began to again explore God's world, rather than relying on the teachings of Aristotle, they found that God's world did not correspond to Aristotle's ideas. At this point, science has thoroughly refuted the Aristotelian and Platonic philosophical systems, if they could not explain the world, which they could directly observe, how is it that we should consider them experts on metaphysics? I am unable to believe that God would have so created a world that would actively deceive those that seek truth in it. It seems obvious that given a choice between believing in the reality of God's creation or the reality of a pagan's word that the choice for a Christian is obvious.

Now, to get back to the topic of sex and gender that gets so called traditional Christians so worked up, I would also note that at least most, I don't claim sufficient knowledge of the Bible to say all, instances where Christ addresses marriage and gender roles that Christ expands women's roles and autonomy relative to the practice of the day. I would note particularly 1 Corinthians 7:4
"The wife does not have authority over her own body but yields it to the husband. In the same way, the husband does not have authority over his own body but yields it to his wife." Read in the context of the Roman world of the first century A.D. it is notable that a man already would have authority over his wife in this way, as would a father over his daughter. What is new is that this is being made reciprocal. Similar to much of Christ's teaching this seems to be simply applying the notion that one should love one's neighbor, or in this case, one's spouse, as they love themselves to a specific case. Also, it follows that using the Bible to restrict women's rights and autonomy is very different from using it to make the restrictions that women legally suffered under in Christ's day apply to men as well.

I really don't see the problem with applying this principle more generally, in my read of the Gospels the specific rules generally seem to be particular applications of Christ's general principles. Since this is an extremely unequal world, with hierarchy and the exercise of power justified by false doctrines such as Platonism and Aristotelianism the application of these rules often seems strange to us. But it is the Roman world that sees marriage as solely between that of a man and a woman, since Christ did not seek to reform laws but to reform men there would be no need to specifically address a legal situation that did not exist in his day. But it is easy enough to apply Christian principles to modern problems, we need only consult Scripture for an analogy. Where I see error occurring is when we take the laws and institutions that Christ is denouncing as models for today rather than seeing Christ's message as the application of Christian principles to evil institutions to advise his followers on how to live within a fallen world.

So I have great difficulty with granting Dreher his request to respect his ontology. I believe firmly that to love one's neighbor as thy love thyself requires recognizing another individual's moral autonomy, that they too are created in God's image, and that I must be accountable to them and ask their consent before I take any action involving them. In practical terms this means that I must recognize that I do not have the right to judge others, as the Platonic ontology seems to demand.

Religious liberty requires recognizing others moral autonomy, I do not get to judge for them what is sacred, I can only judge this for myself. I do not get to demand of others I can only seek their mutual consent and recognition. My, and their, religious liberty requires that we each accept the others autonomy and that we fulfill the roles given us in our common society, when we are in a role of power we must be accountable to those who are not. Christ consistently teaches that we have no right to exercise power over another, when society puts us in this position we must be as a servant and accountable to others. So a merchant, an official, or a business owner, is bound to respect the individual moral autonomy of their customers, citizens, or employees, they have no right to deny them their autonomy of moral choice and must fulfill their roles in a neutral fashion. In turn, when they are under the power of another, they too can claim that their autonomy be respected. So a merchant cannot deny their services to another of different beliefs, whether this is for a gay wedding or if it is a gay individual being asked to print a church missal. An official or business owner is likewise bound, being in a position of power they are the servant and must respect those they exercise authority over. Of course, within the church itself it is valid to demand that those who claim membership act in accordance with its teachings, so if a denomination does not recognize something as sacred, such as marriage between two persons of the same sex/gender, it is valid for a minister or priest to deny the sacrament as marriage since this directly involves the priest or minister acting in a sacred capacity as part of a church. But this is an easily distinguishable case from that of a business person interacting with their customers in a non-sacred capacity. Even if the customer believes something is sacred that the business person does not it follows only that the business owner treats this as non-sacred and acts in their normal capacity as a business person.

To wrap this up, I am somewhat chastened by remembering that Augustine did say in his confessions that we should recognize that others can have just as valid an interpretation as we do, and thus it is hard to deny Dreher's ontology. The problem I have with this, however, is that the Platonic ontology seems to foreclose on mine, by holding up ideas such as male and female as abstract, general concepts seems to be directly contrary to mine. They talk often of rigor and how difficult it is to adhere to these teachings. But this dismisses the rigor that comes with taking other people seriously and acknowledging their equal moral autonomy. There is a rigor in accepting that we must respect others autonomy, that the obligations that matter are those that are mutual and reciprocal, and that whenever we judge or exercise power that we must in turn be accountable to those we act upon. They seem to fail to understand that modern philosophy is not some kind of solipsistic worship of the self, rather it is about taking others seriously. And we could use the help of more religious moralizers, far too many are adrift through not having any authority figures to look up and teach them about how to apply modern liberalism in Christianity and in their daily lives.

So how can these doctrine's coexist? As religious conservative's keep pointing out, my belief that people must be treated as morally autonomous forecloses on their right to judge us upon our adherence to Platonic doctrine. By denying the right to judge, we do in fact judge.

Ultimately, I have to say that I do judge, I see throughout scripture the refutation of the Roman world that has come to dominate the land of Jesus's birth. I see nothing in the Scriptures that lead me to think that he does not include Platonism and Aristotelianism in this. As a historical matter reconciling the gospels to these doctrines was necessary. But this is so that Christ could be understood in native terms, there is no particular reason to think their systems of moral reasoning have any pride of place, rather the opposite. It is a simplification, but in general Medieval scholasticism sought to reconcile two things that were known to be true, the gospels and Aristotle's teachings, Aristotle was considered so important because he was thought to understand God's creation. But, once the scientific revolution refuted Aristotle the rationale for interpreting the Gospel's through an Aristotelian lens collapsed. I often hear conservative Christian's wonder why so many have turned from Christianity. I believe this is the answer, we are not Romans. Why would any modern person be convinced by a Christianity filtered through Graeco-Roman philosophy? Instead, the task still stands, to interpret Christ's teachings through the world that God has made. If the goal is a more Christian society this is the task that is set. Aristotle and Plato distract from this task, moreover, with people as transformed as they are it actively drives them away. Modern people see Platonic and Aristotelian reasoning as something wrong and repugnant when they encounter it. And they should! We are an improved people because of Christianity, it is not right that we fall back on these evil times. To misapply a Biblical quote, "Render to Caesar the things that are Caesar's, and to God the things that are God's" (Mathew 22:21). As Caesar is dead it is time to bury his philosophy along with him. It is time to interpret God's Scripture through God's creation rather than through that pagan philosophy whose truth has been denied.

[Edited to correct some minor errors]

My Trump Nightmare

I've seen a number of posts recently trying to show some humility regarding Trump being a disaster and giving some boilerplate regarding hoping he does make things better. I had my own moment of this right after the election. Most of this seems to hinge on Trump using relatively traditional tools to enact economic and social policy. Now, if Trump backs away from everything he has said, I guess I have no problem with this position.

But, after some reflection, my thoughts are that I hope Trump doesn't succeed. Even in its mildest form a Trump success has the potential for people to associate racism and misogyny with economic success for a long time to come; this isn't a price I'm willing to pay for a bit of GDP growth.

My nightmare scenario comes from remembering that Hitler ushered in a pretty good economy for Germany before military reverses began to bite. While I don't think Trump will be another Hitler this has made me consider that there are a number of polices that are long term destructive that could let Trump meet some of his promises in the short term.

The first scenario would be a policy of explicitly targeting his supporters and screwing over everyone else. This isn't that uncommon in one party states. Given the level of support Trump received in rural areas, small towns, and small cities it seems not impossible for Trump to reallocate funds to benefit these areas at the expense of America's urban areas. Think the Japanese LDP's bridges and highways focused in rural areas.

To make this scenario a bit worse, imagine if Trump funded programs targeted to his supporters through discriminatory taxation policies. On a small scale this could be Federal excise taxes on things urban dwellers are more likely to buy, such as Uber rides, or it probably wouldn't be impossible with a unified House, Senate, and Judiciary to cut off funding for liberal states while leaving it in place for conservative states provided some paper thin justification is given. Simultaneously, we could see an income tax surcharge on immigrants followed by making it more difficult to gain US citizenship. Trump could also balance the budget in the short term by selling off assets such as Federal land. In a real pinch he could even resort to tax farming to recognize multiple years of tax receipts during his time in office, like the city of Chicago did when it gave the rights to collect parking meter fees to a private firm.

To continue my trip into economically successful nightmare, imagine if Trump started using forced labor. Detained immigrants could be leased to companies for below market wages. Prison work programs could be expanded. Welfare programs, including food stamps and Medicaid, could have work requirements added complete with a waiver for the minimum wage for these workers. To add to these, new laws, beginning with anti-press legislation, could be drafted which would provide legal mechanisms to seize companies that offend Trump and sell them off to the highest bidder.

To complete my decent into nightmare, Trump could also embark on a campaign of outright plunder. He has brought up Iraq's oil more than once. I believe it seems obvious to most people that war costs more than it could possibly return, but remember that Trump also seems enthralled by our nuclear weapons. While it is far too costly to hold large population centers, a complete monster could simply nuke these and then embark on ethnic cleansing to clear out any remaining people in the area that has the oil. This would be rather economical and help Trump to hit his impossible growth targets.

Very little of this is stuff that I think has any chance of happening. However, when people write that they hope a racist, misogynist, authoritarian warmonger succeeds economically they should be stopping to consider that such a person will not feel restrained by liberal democratic norms. We have seen many dictators in the third world that managed a few economically successful years as a result of policies that we find highly distasteful. This isn't good for these countries in the long term but if you have no respect for others it is not difficult to post good economic results for a few years by simply taking what others have.

So I hope he fails, if a racist succeeds in his policies it opens the way for the next one to do something worse, this is a script we have seen before. The only path to long term growth lies through inclusiveness but Trump reminds us that we can achieve personal success through hate and divisiveness. I don't want to see this extended into the economic sphere, this creates a world whose horror we haven't seen in decades. Again, none of the above seems likely but I think it needs pointing out that economic success over two or four years can be obtained through policies that are horrible to contemplate; judging Trump solely on economic performance just isn't enough.

What If A Real Populist Had Run?

My second take on Trump, which I never got around to writing, boils down to the observation that Trump offered rural whites an explanation as to what has caused them to fall so far behind and a way to reassert control over their own lives. While his explanation is bullshit, it's at least an explanation. Democrats offered concrete policy improvements but they didn't offer what mattered to voters, an explanation, a solution, and most critically a way to have some control over their lives, such as whether or not their local plant closed. My impression is that rural voters are a lot less worried about wages than they are about the mere continued existence of their jobs; in low wage, less urbanized areas a higher wage through policies such as a minimum wage hike could often be seen as a threat to the continued existence of the crap job that's at least a job.

But what if Democrats had offered something more concrete then the 30 second hate offered by Trump about devious, cheating foreigners stealing our jobs through some magical, unspecified mechanism? The following is a brief outline of the dream speech of my idealized next populist candidate. Warning, it's NSFW, I believe that a key way to connect with low information voters is to violate elite norms, swearing like a sailor is a norm violation that doesn't involve racism and misogyny.

What if Politics Can't Deliver What Americans Voted For?

While I don't agree with it, part of the purpose of the electoral college is to prevent "tyranny of the majority" and to make sure that a President takes into account a strong, unified minority. That seems to have happened with this election.

While we are still waiting for more data, my first take on this is that the much wider margins in rural voters was a key point. I am sure we have all read far too many articles about how rural voters feel ignored and that policy isn't responding to them.

If you can excuse my strong language, while the feeling is obviously real, this is complete bullshit. As long as I've been conscious of politics we've been deluged with articles about real Americans. Small town citizens have been shown as the quintessential American for most of my life; though I think this has begun to change over the past few years. The Federal governments spends at least as much on rural citizens as it does on urban ones; though the exact ratios depend on if you only count direct subsidies, which according to some analyses are slightly lower for rural citizens, or if you also count the siting of Federal facilities, such as prisons and military bases, whose sites are often chosen partly for consideration of the jobs they bring.

Now, this doesn't change the fact that rural areas are suffering, both in absolute and comparative terms. I've written before about slow income and job growth in rural areas and there is a great deal of evidence that rural areas have been growing slower than urban areas and losing relative, and in recent years, absolute population.

While I ultimately have to agree with Chris Dillow that we have to hope that Trump succeeds in helping these areas to recover and grow, angry people are likely to stay mobilized and vote against progressive reform, I don't believe that there is any real chance of his policies succeeding.

But not just his policies, I don't think there are any policies that would help rural areas catch up to urban. Clinton had numerous policies that would help rural communities and constituencies that they particularly care about, like veterans. It would have helped if the press had covered actual issues and policies, but it is notable that Obama has tried to do a lot for these communities as well. But the new policies proposed seem far too minor to close the gap, and the policies that have been enacted obviously haven't done the job.

To me, the deeper issue is that there is no political solution to their relative decline. Something I gathered from my MBA courses is that the advantages to density, human capital, and diversity are becoming much more powerful forces in modern society. A modern business needs a diverse set of specialists to succeed, it needs an accounting group that can use a modern ERP system that can interface with major vendors, it needs people that can properly use CRM systems, management that can integrate all of this additional information, and IT personnel that can keep it all running. In an urban environment a small business has a decent shot at cobbling this together through a combination of outsourcing and strategic hires. 

However, there just aren't that many urban professionals that want to move to rural areas. It doesn't help that most of these rural areas or small towns have businesses that attempt to specialize in the low cost sections of the market. Back when I was looking for a job I would see insanely low wage posting week after week asking for someone with good educational credentials and experience to come work in these areas, it didn't look to me like many of these ever got filled. While there are a lot of young graduates looking for work, the problem is that most of these small businesses needed someone that could function as the entire department themselves, this required someone with experience. And someone with experience would only move for a huge premium, like what my wife sees when she looks at rural medical jobs paying 2 to 3 times the salary of what we can make in a metro area.

So, the bottom line to my mind is that the problem rural areas are facing is due to changing economies of scale and to competitive pressures changing businesses from being organized around production to being organized around processing information.* My fear is that Trump's policies will fail, likely making the situation worse, and that Trump's supporters will simply become further enraged by the political system's inability to restore what they feel the natural order is. 

What happens after this I don't know. I don't think there is any set of policies that can win over Trump's supporters because I don't think there is any set of policies that will work or even seem plausible to them. But it seems difficult to get urban and inner ring suburban voters to turn out in the necessary numbers to win elections against united white, rural opposition. My only small consolation is that myself, and most of my friends and relatives, are well off enough to be sheltered by the direct negative consequences of this election. But I worry a great deal of what happens over the next several years.

*This needs some explanation. Basically, my view is that with capital so abundant there are too many concentrations of capital able to produce goods chasing too little demand. What distinguishes businesses is their ability to process, and act on, information. So no matter how good of a product you make and how hard your work force works it isn't worth anything if you can't gather, analyze, and act on timely market information. And that process relies on people that just don't want to live in rural areas.

Trump, Trust, and Our Political Divide

I was reading an article about trust today and it made something I've observed both anecdotally and in articles about the election click for me. Something I've noticed in sales meetings and some other interactions is that, very broadly speaking, there are two essentially different ways that people go about establishing trust (there are many potential other ways to divide this phenomenon, my interest here is in this one particular divide). One is to establish that you have something in common with each other, often through actions with cultural significance such as a firm handshake or bringing up a controversial subject and seeking agreement (such as "locker room talk"). The other way is to simply stay focused on the goal of the interaction, establish the framework of rules that govern it, and to build out from there.

While some people function well in both worlds, in my experience it's not that uncommon for people to have very strong feelings one way or the other. The most awkward professional interactions I've been a part of have a resulted from the clash of these two sets of expectations. A couple of examples would be someone who harangued several people, rather loudly, about the most recent book they read denying global warming and someone who had everyone, including a couple of people who were non-Christian, to say grace at a work lunch. There are lots of smaller instances, but the attempts to establish rapport through these methods can fall very flat and make everyone awkward. I am sure that someone else could have examples from the other side, I've experienced some push back from being more standoffish and not wanting to get too personal, but my preferences are pretty strong towards formal structures so I can't speak for the other side.

What this has to do with Trump and the election is that I think this represents a fairly fundamental divide in outlook, as well as something that at least a portion of Trump supporters feel they stand to lose. Their frequent complaints regarding political correctness remind me of this, opening a professional interaction with an off color joke or controversial topic is something I've run into enough to realize this is a real problem for many people. But my experiences have also led me to believe that it is generally meant to be friendly, they're doing this to establish rapport. But instead of gaining trust with strangers they are instead met with hostility. From a liberal perspective there is a sense that you can't work with someone if they don't take the time to actually listen and understand you, someone that charges in with an off color joke marks them as someone that will be difficult to work with. From the other side, the formalism liberals insist on is often off putting, an attitude I've run into is that the formalism and paperwork is somehow being used to hide things or trick them (how disclosure is supposed to hide something that could instead be sussed out with a firm handshake, a drink after the deal is made, and some non-pc bullshitting is beyond me but I have met people that feel this way).

My observation is that these people are growing increasingly enraged at the increasing dominance of formal structures and at the corresponding narrowing of their world. They come from a culture which sees their habits as being strong positives, they are surprised and upset when the joke that was well received back home makes them pariahs at a national sales meeting or conference. Then, when they get home they are left feeling that godless liberals hate Christians,* never considering how their actions look to the diverse crowd they are interacting with. At the same time, when they are at these events they often express scepticism, they often express doubt regarding the presenter and this leads them to doubt the rest of the presentation, whatever the facts presented are (I admit I am stereotyping from a few anecdotal observations, but it is consistent with what I've read about the far right's attitude towards a number of subjects).

Something these experiences have led me to realize is that navigating the more formal structures involved with interacting with diverse people is a learned skill. It is second nature to people that have lived in diverse areas, it just seems natural to pay attention to how another person is acting and what they are saying to discern how it is best that we interact. But I've realized this isn't natural for everyone, some people just barge ahead and act the same way towards everyone, often in a way that someone else will find offensive. It reminds me of the article that was talking about rural Trump supporters and describing how they felt like they were doing everything right but that others were cutting ahead of them.

I may be reading too much into it, but it seems like these people think that there should be a certain way that you act and then you're OK; they just don't get that doing everything right means recognizing the agency of others and actively involving them in building up discussions and ways of doing things. Instead, they want there to be a set of rules that they're OK if they follow and that they can judge others for if others don't follow. But this is the anti-thesis of modern liberalism which demands that others be given respect, which means actually involving them rather than just judging them. And people are enraged that they're being asked to adapt to a world that they never learned how to interact with; especially since it's one that doesn't recognize their rules and that keeps calling what they call right, wrong.

Given the very different conceptions of what it takes to build trust, and right and wrong more generally (since I somehow ended up there), I don't find it surprising that both sides are talking past each other. But I don't see how this is resolved either, treating other people as having agency inherently means that you can't simply hold people up to a code,** and vice versa. There simply isn't a possible compromise, these moral positions are mutually exclusive.

*I have heard people say that Christians are disliked a few times. I have never seen or heard anyone make an anti-Christian comment about someone that professed religious belief or did something like cross themselves and say grace over their lunch. What I have heard is outrage when someone doesn't bother to try to be sensitive to people around them, it's really rude to just assume that other people share your beliefs and to make them say grace with you. YOU ARE MAKING THEM TAKE THEIR GOD, AND YOUR GOD, IN VAIN!!!! In my experiences these actions are well meant, the person is just so sheltered that they can't really conceive that they are surrounded by people who hold different deeply held beliefs. But it really shows that you don't really care to learn about the people around you, respect their beliefs, or to involve them in deciding even the little things, like how to eat their lunch.

** Well, beyond a minimal code like respect others, be tolerant, and follow rules once established. This means, of course, that just about the only thing that can't be tolerated is intolerance or attempting to wield power over someone else without accountability and consent. But traditional morality is largely about assigning roles, thus removing agency, and about stipulating who has power over whom. So about the only rule that the liberal perspective has is at the core of the more traditional culture. Another area where compromise seems defeated at the start.

Trying to Wrap My Head Around Trump 1st Take

This is my attempt to wrap my head around the appeal of Donald Trump. I have two different takes on this dealing with what I think are distinctly different sources of support. I'm going to be tying my anecdotal experiences to what I've seen of Trump on TV and what I've read in the news.

My first take on Trump comes from a certain type of business owner I've run into frequently in sales, both in person when I worked in Toledo and around the country when I've worked the phones. This is the type of guy that is going to buttonhole anyone he can to spout right wing propaganda and decorates his office with Ayn Rand books, Republican calendars, and Gadsden flags. Not to mention some of the more unsavory racist stuff I've heard a few of this type spout.

Something I've noticed in doing business with these types is that they always seem to make business very personal. Their business approach emphasizes personal relationships and doing business locally. They're the kind that prefers to do business with a handshake and dislikes the paperwork and formality associated with modern business. They're not the kind to have up to date ERP or CRM systems that are able to extract the maximum value from their knowledge base and business operations. Instead, their approach, which I personally find unprofessional and off-putting, is to try to establish a bond with the people they're interacting with. Their message is always that we're just like each other, sharing similar beliefs, political views, etc. and establishing the bond of being minor common criminals together through expressing anti-PC views, usually tinged with racism and sexism.*

In working with these folks, something I've often heard is how under threat they feel from big business. They often see the competition as unfair, they're firmly grounded in their communities and see the outside competition as an interloper. And they don't know what to do about it; they simply don't have the skill sets necessary to add value to their business beyond their personal relationships and their capital. But they don't see it this way. Instead, for all their talk about free markets, they seem to see business through a prism of personal relationships, while they may feel that they're a pillar of the community locally they seem to assume that all of business runs this way and that they're simply closed off from the important networks and that they'd be a smashing success if only they could get the right contacts.

Trumps rise has strongly reminded me of this kind of person. Trump seems to be this kind of small time operator scaled up massively. For this kind of person I think he confirms their view of business, it isn't the impersonal transactions of the market, using technology to leverage information, or efficiencies gained through careful planning that matter, instead it's the mano-e-mano cut and thrust of one on one deal making and the relationships made through a life time of business that matter. Trump confirms for them that they're right about how the world works, Trump knows the best people and he's successful because of his personal qualities, not because of running a tight business organization. Given these assumptions he must confirm for these folks what they "know" deep down, that they are falling behind because coastal elites have reserved the important networks for themselves and locked people like them out. They're pissed off because they see programs like affirmative action providing an alternate way into these networks that are closed off to them. They want access to these networks and they see Trump shaking things up enough that there might be some openings. Especially if trade is reduced, then those business elites will have to do business with them because they can't turn to Europe or China for suppliers and will have to turn to the small businesses in the US.

Just to make sure it's clear, I don't see all or even most small business owners as thinking this way. In truth, many of them are finding valuable niches in the modern economy. But these businesses are nothing like what I've described above. They tend to be professional, have skilled people able to leverage low cost technology options, and are able to work with people that aren't like themselves. One particular example I remember was a four man shop I walked into that specialized in doing custom work for China. These folks were the polar opposite of the kind of guy that would buttonhole me to talk about whatever Limbaugh has been going on about that day. So it isn't a small business thing, but if you're going to try to build your business on nothing but relationships with people like you its a given that you're never going to be anything but small. We live in a world that big or small you just can't get by acting like a Trump style business; our world no longer has a place for these people. And there's a lot of them and they're really, really mad about the fact that the world has changed to favor people that know how to work in an environment where trust is established through formal agreements rather than through bullshitting in a smoky back room.

What Are Their Self-Interests Anyway?

It has been a long time since I wrote a post. I started a new job as an auditor and that has been leaving me sufficiently occupied to not feel the bug to write. It has also meant this has taken a rather long time to finish writing, I have retained references from before it was obvious Trump would dominate the Republican primary. I must also note that I am not trying to explain Trump here, his appeal does not appear to differ significantly between rural and urban areas, but rather to look at how the Republican Party as a whole may be representing the interests of the people that vote for them and not just the donor class.

However, I have been bothered by the re-emergence, more so in comment threads than in articles or blog posts, that right wing voters do not recognize or vote for their own best interest. I have read some excellent writing on how class and race play into this to define interests beyond income but what really jumps out at me regarding the identify of the right wing are maps like this which shows how concentrated Democratic voters are, primarily in urban counties, though the northeast and some other areas are exceptions:


"2012 Presidential Election by County" by Kelvinsong - Own work. Licensed under CC0 via Commons.

This leads me to believe that to understand what is happening in the right wing, and with political polarization more generally, we need to look through the lens of rural vs. urban America. The lenses of class and race, while relevant to these problems, miss many aspects of the urban and rural divide.

Looking through this lens we see very different lived experiences. While Obama could rightly state during his State of the Union Address that the US unemployment rate has been cut in half during his presidency this likely rang hollow to many rural voters. While US urban employment had risen above its pre-recession level by 2014, rural employment remained 3.2 points below its pre-recessionary level in 2015 (page 1 and 2). Furthermore, the period of 2010-2014 marks the first time that rural America as a whole has faced population declines, with a loss of 116,000 people over this period. While overall poverty rates are comparable with past history in rural areas, the poverty rate for children living in rural areas has continued to climb through the recession and recovery, from 21.9% in 2007 to 24.2% in 2009 and to a further 25.2% in 2014 (page 3). Poverty in working age adults has risen from 14.6% in 2007 to 17.6% in 2014 (page 3). This was offset in declines in poverty rates among seniors. (both links in the paragraph are to USDA Rural America at a Glance report)

These statistics reflect a reality that many liberal pundits are missing when they react to Republican statements such as Bush's "The idea that somehow we're better off today than the day that Barack Obama was inaugurated president of the United States is totally an alternative universe," or Kasich's "In this country, people are concerned about their economic future... And they wonder whether somebody is getting something to — keeping them from getting it." A few hours outside their urban liberal bastions lies an America a few hours outside of urban America which has a declining population, job numbers that haven't recovered to pre-recession levels, businesses permanently closed, and at least in some areas (my knowledge is anecdotal) property values which continue to decline. (quotes from MotherJones, also see MSNBC for another liberal article striking the same theme) While these statements do not reflect America as a whole, I have little doubt that many conservative politicians are hearing from supporters who feel everything is getting worse for themselves and for just about everyone like them. They aren't sharing even in the little bit of prosperity being experienced in urban and suburban areas, instead they are in both absolute and relative decline. They feel that people not like them, and from the rhetoric I think this would include urban hipsters and pundits as well as other groups, are receiving all the gains and that they are being left out. In their view, they want to be listened to and important, like they were through most of America's history, and resent being left behind.

In addition to this recent decline, liberals should consider that rural areas, particularly in the south, had very different experiences in the past as well. Liberals tend to hold up the high wage, high security union jobs in the rust belt cities as an ideal to go back to, however, much of the initial de-industrialization came from competition from more rural, and particularly southern and western, areas where companies could pay lower wages and labor had more difficulty organizing. The experiences of these areas was that union-busting and long, hard work for less saved towns and small cities that seemed doomed due to declining employment in agriculture and other resource extracting activities. Many corporations and businessmen who would be decried by liberals for their labor practices are looked at much more positively by people that depend on that plant for the survival of their town.

This translates into support for policies that liberals consistently claim is not in these people's best interests. However, if your interest is in preserving your community, your property, and your way of life it may be entirely consistent to support low taxes on the rich, low wages, and low regulation; after all, these are the policies that attracted to the local factory to your town in the first place. It may seem very likely in these cases that supporting more of the same is the only path forward that would preserve the things these people value most.

Now, we can recognize that this was always an unstable equilibrium. In practice companies used these areas as leverage to lower labor standards, environmental regulation, and wages throughout the U.S.; for instance 25 states now have right to work laws removing the comparative advantage that states gained by pioneering these laws. Wage growth has been slow for decades eroding the cost differences between states for low skill manufacturing jobs. Furthermore, international competition has left a very small gap in which these companies can exist, there has to be a reason for these companies to stay in the US rather than seek even lower wages elsewhere but not a need for them to locate in a higher productivity area with more access to specialized skills. For the US as a whole, trying to be a low cost competitor means pay cuts and a much worse quality of life to most of us, but it may be entirely consistent that pursuing this strategy would be in the interest of rural communities having trouble competing in the modern economy.*

But what alternative do rural areas have? Even in the best days their low wage, low tax strategy meant that they never had the revenue necessary to build up the infrastructure, institutions, and human capital necessary to be competitive in the knowledge economy. Due to these deficits in investment as well as the disadvantage of low population density, these rural communities lack the diversity of skilled professionals needed to staff a well managed business as well as lacking the close proximity to related businesses and customers that fosters innovation. A movement back towards unionization, higher wages, and stricter regulation on a nationwide scale threatens the only business model available to these communities, in these conditions what business would choose not to locate near an urban area?

These concerns also tie in with the cultural issues that have become so prominent in Republican rhetoric. This subject deserves a full post on its own, which I may or may not get around to writing, but reading a lot of Rod Dreher (http://www.theamericanconservative.com/dreher/) and Ross Douthat (http://douthat.blogs.nytimes.com/) has caused me to reflect on how modern values are causing great harm to some communities. However, their perspective runs into the fact that, in aggregate, kids these days are doing better on pretty much everything (see Healthcare Triage for the most recent thing I've seen on this). In aggregate, adults are doing better too, crime rates are down and marriages are more stable. My view on this is increasingly shaped by an urban vs rural divide, traditional morality taught how to live life in a small, rural community. The modern norms we see developing through campus protests and other forms of activism are about how to live in a modern, urban setting. But only one of the two sets can be normative across a society as a whole, and as urban and suburban views become more dominant people that live in and prefer small town and rural life naturally feel dislocated and marginalized.

These issues have created a large minority who are left feeling that no one is responding to their problems. Despite net income flows to their communities from government they see the communities they live in crumbling around them. They grew up with an image of small town America being America's true self, they feel dislocated in a country that is increasingly presenting a suburban and urban face to the world. They don't see either government or business responding to their concerns, and they are very, very angry about this especially because they see their version of America as being the true America, and they can point to support going back to Thomas Jefferson for this view. They are looking for someone to blame for their fall from influence, it appears that it has become easy to focus this on outsiders but they also cast blame on moochers in their midst, such as those receiving government assistance. It would be hard for them to admit that there is simply no way to develop these areas and that many of those on government assistance are likely those who feel too closely tied to their community to look elsewhere for work.

This leads to the deep problem however, there is no plausible policy path within US political traditions to help these regions. A report by the St. Louis Fed finds that convergence to the national average income across people is driven by urbanization, they find that non-metros areas converge to a lower income. They state the prospects for non-metro areas very bluntly, "Our results provide evidence that the idea of preserving rural economies while achieving significant gains in per capita income (or slowing divergence) in the long run appears to be far-fetched." (Income Convergence and in the United States, page 12) It is worth noting that things have only gotten worse in rural areas since 2008 relative to the rest of the United States. Most policy paths that could have helped are now no longer possible, I remember back when I was an undergrad taking economics courses hearing about how terrible the employment preserving European Common Agricultural Policy was compared to our efficiency focused policies; however, as I grow older I am forced to reflect on the fact that an awful lot of people desire to live in rural communities and that it is rather peculiar that our socio-economic system has little way of prioritizing how people want to live but instead only what they want to purchase. People feel the political system has failed them because it cannot preserve their communities, they are enraged because they see that the political system is helping many people build and maintain stable communities in urban areas; communities they do not desire to be part of. Ultimately, however, I don't see how the system can respond to their desires. Even a Japan style massive building program would be temporary and it wouldn't stop the kids from wanting to leave. Government can help stabilize urban communities because they ultimately have the density to support the modern, highly complex production process that businesses require to be competitive. Rural areas don't so there is no political fix available.

You can get mad and you can block responses to the problems of an increasingly urbanized America trying to adapt to the dominance of multi-national firms, but there just isn't anything to bring back a country dominated by small towns and small businesses so there is nothing for a political party focused on America's small towns and rural areas to do but block and obstruct. The problems these areas face aren't fixable so the party that does nothing is acting in the interests of their constituents by doing the only thing they can, holding back everyone else so they at least lose slower than they would if America's problems were addressed. And with no prospect for better wages in an area whose competitive advantage is low costs, a tax cut may represent the only chance for an increase in real take home pay, so there's some small prospect of improvement there.

*I don't mean for it to sound like all rural areas are suffering. Rural areas blessed with outdoor amenities are doing quite well. In addition to attracting tourists they also attract well educated individuals lucky enough to have jobs that they can do remotely. However, this does nothing for an old coal town or agricultural community, instead it generally means the growth of new areas and the growth of these new communities is likely masking an even sharper decline in the health of older rural communities in the aggregate statistics.

What is the Inequality for Our Age?

The article, "To Each Age Its Inequality," presents a concept that in broad outline reflects my own view. Underlying economic conditions lead to differing levels of inequality being efficient giving differing economic conditions. The key concept is this:

So, just as in the farming and foraging worlds before it, our fossil fuel world has a “right” level of inequality, and societies that move toward it will flourish, while those that move the other way will not. Successful governments know this and apply taxation and other measures to push economic inequality toward what they hope is the sweet spot.

However I have a major problem with the next passage:

The big question, of course, is just where this sweet spot is. By 1970, the Organization for Economic Cooperative and Development nations had driven post-tax income inequality down into hunter-gatherer territory, averaging just 0.26 on the Gini scale. The economic difficulties of the following decades, however, suggest that this was perhaps too low. Most people apparently thought so, electing governments in the Reagan-Thatcher era that allowed the rich to keep more of their gains.

My issue with this is that while we can be fairly confident that over the millenia agrarian societies had plenty of time to reach their equilibrium levels of inequality the same cannot be said for modern ones. While powerful groups did an excellent job selling low inequality as a source of the problems of the 70s the economic history that I've read focuses on other factors, primarily the oil shock and the beginnings of adjustments to globalization. It does not follow from the fact that various groups in favor of higher inequality successfully sold their ideas to the public that this was in fact the correct diagnosis. It may or may not be, but we lack the evidence to call this one accurately and this particular observation is basically irrelevant to the question as to what inequality is in truth demanded by our age.

To get at this, I suggest we should explore the concept a bit more deeply, and think about what underlying economic factors drive the variance in efficient levels of inequality. This is straightforward enough for pre-modern agrarian societies. Everything I've read on this topic is in agreement that inequality arises because the variance in the productivity of the land is far greater than the variance in the output of individuals. Some societies tried various schemes to reduce this inequality, such as periodic rotation of fields between households, These societies proved less successful because of a second factor, while land could be improved rates of return were very low for investments in early periods. To create incentives for long term investment it was necessary to make land holdings perpetual, if a household could pass down the improvements to subsequent generations then the investment looked more attractive then if the land was likely to be redistributed at some future point. Since the variability in an individual farmer's skills were less important than the variability in the land itself it was inevitable that highly unequal societies would emerge.

The above is of course vastly oversimplified but it is far more difficult to tell a similar story for the modern world. We are still faced with the fact that human ability just doesn't vary that much, while some individuals can pick things up quicker than others with enough time most humans will perform most tasks with relatively similar ability.* Another factor is that unlike with land most plant and equipment used in the modern productive process can be replicated, there isn't a similar dynamic with land where high variance in the productive qualities of plant and equipment would lead those that have it to get high returns.

Since it can be taken as a given that any firm could acquire both people and the plant and equipment necessary to perform economic tasks with similar efficiency as existing firms we are left with intangibles as being the driving force behind the efficient level of inequality. Firms do differ with respect to their internal culture, the efficiency of their organization, and factors such as reputation and market position. These are the factors that lead firms that are otherwise similar to experience greatly different returns. The question that arises is what does this imply for the efficient level of inequality? In my opinion, I see the differences as arising primarily from the bottom up, emerging from the solutions reached by workers within the firm to gradually become institutionalized in the practices of the firms they work for. But this is contained within structures of property rights which evolved to create incentives for the development of land in agrarian societies, with something of an overlay to encourage agrarian land owners to transition their wealth into property, plant, and equipment instead of agricultural land, and not to create incentives for the development of the intangibles necessary for success in the market.

Given the extent to which our property laws continue to resemble those of the agrarian era rather than those that would create incentives for those traits needed in modern market economies, my view is that current property laws tend to lead societies to have much greater levels of inequality than would be ideal for a market economy. While competition between societies is resulting in some experimentation towards more efficient forms of organization they power granted by current law allows those with that power to exploit openings, such as the economic turmoil of the 1970s, to reassert their historical dominance and roll back the evolution towards more efficient forms of economic organization. Over time, competition between societies will decrease the power of these groups but this is likely to be a very slow evolution, just like the transition from the egalitarian world of the foragers to agrarian societies was very slow. But I see power structures that give outsize influence to owners to be essentially similar to that of agrarian societies that tried to rotate their fields to make people more equal, an inefficient set of institutions that will cause these societies to decline and to eventually be replaced by societies that recognize that underlying economic conditions have changed and that society must reflect the underlying more egalitarian requirements created by modern systems of production if they are to flourish.

* I realize this is a fairly strong statement, and there are obviously tasks where some trait is hugely beneficial, but most workplace tasks are of the type that any individual performing them repetitively for a long enough period of time will perform similarly. Of course, since some tasks are valued far more than others those that take to them easily will tend to get the high valued tasks to perform and leave others for the lower valued tasks; opportunities are just never given for these slower individuals to perform high value tasks.

Some Brief Thoughts on the Team Production Theory of the Corporation

I wanted to briefly react to Justin Fox's post on the team production theory of the firm. His contrast between the shareholder and team production view of the firm, and the recognition that the broad acceptance of the shareholder view of the firm is of recent vintage, provides a great short overview of the topic.

These are topics we spend a great deal of time on in my business ethics classes. The focus was on the stakeholder theory of the firm rather than the team production theory, but the idea that the shareholder value theory of the firm is not efficiency maximizing is a common element. There are very good reasons to think that the shareholder value theory of the firm fails to maximize value for any of the interested members of the firm, whether employees, customers, neighbors, or, at least in the very long run, shareholders.

My problem with these conceptualizations is that while the behavior of institutions like boards of directors does show that the interests of other stakeholders have some impact, this impact is generally fairly minor or lasts for only a short period. Doubtlessly, the period when norms involving strong stakeholder interests dominated in the immediate aftermath of WWII and the Great Depression involved great gains for corporations and widely held prosperity. But this period lasted for only a generation, the norms that held this consensus together quickly unraveled as those shaped by these experiences lost their influence. In the long run, formally and explicitly granted rights, such as those governing corporate control, will always win out against informal rights; no matter how effective those informal rights. Since shareholders are granted ultimate control they will always come out ahead in the long run, no matter how inefficient this outcome is.

No large organization can ever function effectively when control is vested in external elites who are not part of the day to day operation of that organization. The problem faced by business in the modern market economy has close parallels to the issues faced by aristocratic societies before democratization. When a group is run for the benefit of a few, no matter what norms seek to impose good behavior on them and how honestly they try to act for the betterment of the group, the reality is that their interests necessarily diverge from those of the other members of the organization. Elites try to make their interests appear invisible, either by claiming their interests are natural or identical to those of the organization they are influencing, but historically it has always been obvious that once their power is limited that their interests diverged sharply from the interests of others.

This is why I find the current property laws governing corporations so troubling. Similar to how aristocratic land ownership lent special privileges and influence to aristocrats under the ancien regime property rights concerning corporate property grant rights and privileges to those that own enough corporate property to exert control. They can circumvent campaign finance laws, speak with the corporations voice to claim broad support, and furthermore can protect themselves and their wealth and station through limited liability laws.

The solution to this isn't terribly difficult. It is simply to grant explicit and formal rights regarding control of the corporations they work for to labor as part of our laws governing corporations. Shareholders, can, and should, retain voting rights and rights regarding residual returns. But unless labor is granted an equal voice I do not see how any stable solution is possible to the problems of governing a corporation. While I admit this is radical the more I learn about business the more inescapable I find this conclusion; the same logic driving democratization of states ultimately holds for firms. I also see no reason to think this would deter investment, aside from an initial downward valuation as control premiums get wiped out, shareholders adjust to lower total returns, and shareholders overreact (yeah, this would be very costly short term, but so is democratization and since this is ultimately an adjustment of claims to wealth and income value is ultimately redistributed not destroyed). In the longer run, however, investors would continue to receive cash flows, incentives to create new businesses would increase since shareholder power would be diluted in more mature businesses, and incentives throughout large organizations would be improved as control comes to align more closely with the interests present in a corporation. But without this change, no matter what the normative appeal or positive benefit a different conception of the corporation has, I do not see how corporations will do anything in the long run but serve shareholder interests since their formal claims to control are given primacy and other claims have little force in law.*

* At least not beyond some minor rights at the margins. But other interests can hardly be said to have much in the way of rights governing control of a corporation in the US; other jurisdictions differ. There are also some situations where specific corporations have granted specific rights, or distributed stock in ways to give other stakeholder groups a capital stake, but these are exceptions to a general rule.

The Taboo of Discussing Hours and the Alleged Skills Shortage

[Edit: Added links I meant to go with the original post}

In sales, an effective technique is to identify your prospect's pain point and to offer a solution to their problem. The idea is that while there can be multiple benefits your product offers getting someone to switch requires identifying a real problem that they currently have and fixing it.

So when economists question (I'm also reacting to Matthew Yglesias) why aren't we seeing wages go up among high skill workers if there is a skills shortage my thought is that maybe this is indicating that the pain point for high skill employees* isn't their wage level. Instead, my experiences with being in an MBA program and speaking with other people who would be considered high skilled is that generally the concern is with the long hours and level of commitment required. High skill employees are generally relatively satisfied with their income levels, their unfilled needs lie elsewhere.**

This is a major problem for employers since one of the main traits that employers are looking for is a willingness by the employee to be exploited. They tend to phrase this as a willingness to do what it takes, employees as family, a corporate culture where employees work hard and play hard, or "some overtime required," but the bottom line is that the employer expects the employee to be their dependent and to subordinate the employee's goals to the business's goals. Intense pressure to keep labor costs down, even if a business is incredibly profitable already, limits an employer's ability to differentiate itself by offering easy hours.

These limitations are reinforced by a set of beliefs which regards not wanting to take on additional work as laziness, an attitude of entitlement which regards the demands of an employment contract as being unlimited in return for a wage, and a general view that someone that objects to ever increasing demands on their time as an undesirable employee. By defining a good employee as one who does what it takes and making this a minimal qualification for most any high skill jobs employers render themselves unable to attract people talented on other dimensions, employers want employees that will let them run their business a certain way and put business priorities first and what employees really want is an employer that respects them and their priorities outside work; the goals of each group are mutually incompatible.

The result is a deeply dysfunctional labor market. How can the market price labor efficiently when an individual has no way of knowing how much labor they are selling in a given transaction? While high skill employees are confident that they can meet their minimum salary expectations, they find it much harder to get solid information on how much labor they are selling for this salary. Any source of interview advice will emphasize not asking about how long a workweek is or about vacation and leave policy; too many employers regard it as an automatic disqualification. Employers that are well staffed and don't require long hours are afraid to advertise it for fear of attracting the wrong sort of worker.*** Potential employees also know that employers advertising being one of "the best places to work in X" and to give good work life balance are suspect.**** With all other information sources regarding actual hours worked cut off employees are left trying to piece together the bits of information they can find to help them choose where they want to focus their job search. Problematic for trying to recruit based on the one dimensional measure of salary, one of the key beliefs among most job seekers is that a relatively higher salary for a similar position means more hours. Since this is rarely the pain point among high skilled individuals this means the price signal can't work; since a business won't make any firm statements regarding hours, much less a credible commitment to respect an employees time, the price signal just ends up signalling that a job has potentially undesirable characteristics as it does a higher willingness to pay for the same labor input. Among already employed skilled employees why should they take the risk of jumping to a new employer for a higher wage when their wage isn't their main problem? There is simply too much risk for a marginal 10 or 20% pay bump when what they really want is an extra week's vacation and a 40 hour work week so they can be in time for dinner while still making the same wage they currently are.

There are a number of other issues that I think are leading to broken labor markets. One additional point that I do want to briefly mention is that there is a disconnect between when employers talk about skills and much of what I see in the press. I haven't heard anything from businesses that makes me believe that there is a shortage of trained people with the desired skills, the problem arises from businesses wanting proven talent. This is highly problematic, individuals have no way to respond to these incentives and create additional supply since it requires that an individual gain experience from another employer; something that the other employer has an active interest in NOT providing to an employee who will leave in response to the incentives from another employer. There is no way for the market to respond since the source of supply, the competing employer, gains nothing from the transaction between the skilled employee and the new employer.

The Influence of Institutional Disparities on Bargaining Power Between Capital and Labor

Mark Thoma has an excellent column regarding rising inequality and the role that the relative bargaining power of workers and employers plays in this. I am in complete agreement as to his points and to his opinion that market power has not received enough attention.

I do want to drill down further regarding the concept of economic power. To understand the disparity in bargaining power we need to be aware of the institutions and norms which give rise to it. Our institutions and norms are simply not those of a world of "the textbook ideal of competitive markets." Instead our institutions have evolved in a direction that serves to greatly reduce the inherent organizational problems of capital without serving a similar role to reduce similar problems faced by labor. Our institutions make it easy for capital to organize itself in the form of corporations and contain elaborate protections to safeguard the rights of owners of capital against others claiming interests and rights in these corporations. Easily available information on the performance of capital investments similarly serve to reduce coordination and collective action problems among individuals who control capital.

Corporate law is the major culprit in this unequal institutionalization. It is obvious enough why early modern legislatures would have seen it necessary to grant very strong rights to capital in order to induce investors to take capital out of land and put it to more productive uses in the under-capitalized world of the time.* It is less obvious why this continues unremarked in market economies that are far from their agrarian past. The problems facing the modern world, and more narrowly modern businesses, are not those of capital scarcity. Sufficient capital exists to easily replicate any given concentration of property, plant, and equipment. What distinguishes businesses is the quality of their internal institutions, the policies, procedures, norms, knowledge, and other intangible qualities that separate the leaders of an industry from those with similar capital accumulations but lesser results.

In the kind of competition that determines success in modern business it seems obvious that the disproportionate rights granted to the capital interest in an organization leads to inefficient incentives. The intangible elements which lead to business success develop at least as much, if not more, out of the labor element of the productive process rather than from the capital investments of owners. Yet, control in the modern American corporation rests with owners and management rather than the lower levels of organizations where institutional norms generally develop and are then propagated within the organization.**

It is not difficult to imagine how laws governing corporations could be changed to more closely conform with the market ideal of equal individuals bargaining from legally equal positions of power freely and without coercion. To a certain extent, the Rhenish model of capitalism already does this, providing some proof on concept. A more complete system would be corporate law which explicitly recognized that employees contribute to an organization in ways not explicitly reimbursed through market income and required that corporations grant employee organizations explicit voting rights and control that grew along with a corporation. As an ideal end point a mature organization would completely extinguish its equity accounts returning capital to investors to be reinvested in new enterprises and leaving control entirely with employees. Current corporate law obviously doesn't allow for this, but it would much more closely resemble the market ideal of the textbooks where capital and labor are equal partners and where the market tends towards a normal rate of return leading investors o continuously seek new and innovative investments in search of higher returns to capital rather than accumulate massive capital stocks in mature blue chip companies.

A second notable institutional disparity is the set of institutions that have evolved explicitly to protect the rights of capital. These are both public institutions, such as the SEC, and private organizations such as the AICPA or the ratings agencies. By providing investors with high quality information, explicit sanctions against violating accepted practices, and making this information readily available these organizations contribute greatly to capital interests overcoming the collective action problems they would otherwise face.

This isn't to say that these organizations aren't enormously beneficial, but why do similar organizations not exist to help labor overcome similar problems? How much better would the labor market function if regular audits were conducted of labor practices and annual reports were made available regarding salary ranges for positions, actual hours worked by position and department, adherence to labor standards, and other characteristics of interest explicitly to labor? What if government organizations existed which regularly policed statements made by companies regarding their efforts to attract the labor the way that the SEC policies registrations of publicly traded corporations?

The disparities in access to information and the relative institutionalization of the interests of both capital and labor are stark and obvious if even a moment's thought is paid to them. Organizations such as labor unions or the NLRB are poor substitutes for the alphabet soup of organizations dedicated to assisting with the efficient allocation of capital. If our society placed a similar priority on the efficient allocation of labor how much more efficiently could our economy allocate resources and how much more closely would it conform to the textbook ideal? Instead, we put up with a situation where capital enjoys disproportionate influence and there is little discussion, or even recognition, that our society has granted capital these rights and that other sets of choices can be made.

Unless something is done at the basic level of institutions I do not see how our economy can be either equitable or efficient. The happy post war period rested on an exceptional set of circumstances, given the unequal distribution of rights in our economic system I do not see how it is possible to reach a stable equilibrium. Instead, the kinds of inefficient disparities we see today, and that we say at the turn of the 19th century, are what I see as the norm. Rights are too unequal for anything else to be the case.

Too Much Stuff Means There is a Distribution Problem

Business school has been making me think a great deal about the mismatch between our economic institutions and the actual practice of business. There are many aspects of this which I plan to explore over the summer but one aspect of this is the apparent glut of capital and other goods written about Nick Bunker in this post.

I have to confess, I find the concept of a global oversupply of capital to be incoherent. It can certainly be the case that a nation, or an individual, has more capital then they can possibly use efficiently. But the globe as a whole? How could this be?

The answer, of course, is that its a problem of distribution. If poor people had more capital they would use it more efficiently than rich people that have capital. A poor African like I saw in Zambia could trade their traditional hut with no plumbing for a house with plumbing, let their kid go to school, or possibly invest in a small business. If they had it, they'd put it to good use. Meanwhile, we have a global capital glut because the capital is in the hands of rich folks who are more interested in preserving their capital than putting it at risk. Want to solve the problem? Get it out of the hands of those who don't have a current use for it and into the hands of those that do.

In the context of property rights, I am beginning to see the transition from the feudal era to the capitalist area largely in terms of providing institutions which caused capital to flow from those that sought safety in the form of land to those that were willing to take risks. Our current business friendly regulatory environment has resulted in a social context that is beginning to look more like the feudal era, capital is concentrated in large, mature, stagnant enterprises controlled by people whose goal is to minimize risk rather than maximize growth. If we want to jump start growth we are going to need to rewrite our property laws to get capital back in the hands of risk takers and out of the hands of those that currently have it.

Never thought business school would radicalize me the way it has, but there you go. More on this to come.

You Could, You Know, Actually Talk to Managers

Sorry for the long hiatus in blogging, I overcommitted between work and my MBA and something had to give.

But a rather good post on rents in the modern economy by Evan Soltas mentioned something that I had to talk about. It's a great post with some great ideas about how to build a research program within economics that would better define and detect rent seeking. However, it also exposed gave full display to some of the frustrations I have with the pedestal given to economic thinking when it is so limited in its methods.

Specifically he mentions "Is it really possible that, as Bloomberg put it, Larry Ellison is "still a bargain" to Oracle at $100 million a year?" and later mentions "To Bivens and Mishel, executives would still do what they do even if they were paid less -- Larry Ellison is not about to sail off in his America's Cup yacht -- which means that executives are, in fact, being paid above their opportunity cost. (The logic here is, if their pay falls below opportunity cost, they would go do that other, next-best project which determines the opportunity cost.)"

The problem is that a fairly big chunk of this compensation problem is commonly and openly talked about in businesses, limiting your methodology as strictly as economists do cuts them off from picking some really low hanging fruit to resolve this problem.

Firms pay top management outrageous salaries because it is a way to reduce total compensation costs. You pay everyone else in the firm far less than they are worth and motivate them by getting them to struggle to gain that golden ticket that will lead them to the top. It reduces total compensation, motivates employees, and shifts consumer surplus from consumers and employees to shareholders and top executives.* Its no mystery, many of my management professors have mentioned this in passing, its widely accepted by both the left leaning members of the profession and the staunch right wing members. This is a natural, and probably inevitable, byproduct of shareholder capitalism.

The social costs of this are, in my opinion, terrible. Many people are unwilling to join the rat race, they want to be compensated fairly now not compete for decades in the hope of a reward that may or may not be rewarded on merit. These people never choose to compete for high power careers, sharply reducing the talent available to business, of course businesses never observe this since these people are not on their radar. Furthermore, there are not enough top positions to go around, this results in up or out promotion systems in many firms, practices such as forced rankings, and in some firms, mandatory retirement to keep the system going; further limiting the matching of available talent to open positions. Other problems are associated with the demands put on lower ranking employees, they have signed up for a major gamble and this drives reckless, and sometimes unethical, behavior, which harms their health, leads to psychological and physical stress associated with poor quality decision making, and drives many talented people to self select out rather than continue in high powered careers. The remnant which eventually gain leadership positions tend to be highly narcissistic (since they don't realize early on how low their odds of making it to the top are), highly motivated by money (since why give up so much of their life to get where they are), and prone to reinforce these norms because they take rightful pride in having made it to the top in such a cutthroat environment after having sacrificed so much.**

This results in an awful business culture that is highly self destructive. The norms formed by it are very powerful, which is the answer to the inevitable question of the libertarian is why doesn't a company defect and recruit the people dropping out of the rate race. Of course, these norms mean that you know before you even start that you are facing 60+ hour weeks, that you are expected to sacrifice your health and well being to the company, and that you need to show early on a willingness to put the needs of the company before your own to get to the top. This means that the best people never step forward, people suited for top management positions tend to be socially and group oriented and value their lives and families above the company, they are never in the running. There is no way to select for them because young people today know what is required of them and the best of them choose careers that will not demand this level of sacrifice, knowing the odds and having a realistic idea of the possibilities and sacrifices involved mean that you have to have a very specific type of personality to even consider aiming for a high powered career these days. So the company seeking to defect from these norms can't find anyone to select for because the people they need know better than to advertise the character traits that the rest of the business world is selecting against.

It's a huge collective action problem, a rather classic one actually, well explained in social sciences outside of economics. It's obvious that companies have developed norms designed to drive income to the top, to use this to motivate employees rather than to induce them monetarily, and that this serves to maximize profits for shareholders more readily than actually focusing on building long term careers for people while recognizing their other needs. It makes everyone but shareholders and winners of the career lottery worse off and since it is social and normative there is no way for markets to correct it. But while this can easily be observed through interviews or even through questionnaires it remains invisible to much of the economics profession.

*Most people in business seem to believe that this also helps to recruit quality people and get the most out of them, though I believe this is a bunch of self justifying bullshit and have yet to discover any methodologically sound evidence of this. Though there is a lot of self confirming nonsense of the form that everyone does this so it must be good, with no effort to reject the hypothesis that this is simply normative behavior disconnected from performance.

**Something I noted from a lot of my management classes is that the managers that outperform the average are people that are not on the fast track to top spots, they tend to be group oriented people unwilling to make the sacrifices required of a high powered career. They tend not to get noticed but in the cases they get tapped they perform well. Current selection methods do a great job at motivating and selecting for front line and mid level management but there are sharp discontinuities between what selects for these individuals best vs. what is necessary at the top. Since proven performance is what boards and managers are looking for by the time they are selecting individuals for the top spots there is no one ideal left because the selection methods used at earlier levels of the process have selected against all the good people. It's crazy, but that's what it is.

Quick Thoughts on Norms, Institutions, and Inequality

Something that has been really bothering me since starting my MBA is the extent to which the actual operations of business are run by norms and institutions rather than by economics. Specifically, we seem to have a serious hangover of agrarian norms and institutions that cause serious damage when applied to a market based society. Instead of studying for auditing like I should be I am going to try to use my lunch hour to use this concept to tie together a few disparate blog posts that I believe are tied together by this concept.

Yesterday, Paul Krugman wrote:

Why are debtors receiving so little relief? As I said, it’s about righteousness — the sense that any kind of debt forgiveness would involve rewarding bad behavior. In America, the famous Rick Santelli rant that gave birth to the Tea Party wasn’t about taxes or spending — it was a furious denunciation of proposals to help troubled homeowners. In Europe, austerity policies have been driven less by economic analysis than by Germany’s moral indignation over the notion that irresponsible borrowers might not face the full consequences of their actions.

It isn't clear to me why righteousness is so one sided, on what ethical or moral basis does the debtor bear more blame then the creditor? Going back to biblical times wasn't usury considered sinful and the lender not the debtor the one morally suspect?


Linked to this question we get Mark Thoma's column today regarding the best way to fight rising inequality. In it he writes that "This debate brings up an important question: what is the best way to fight economic inequality? I think most people would agree that the best approach is to provide good jobs to working class households, and to make sure workers receive their fair share of the value of the output they produce." And further down he adds "And if workers have not received the income they deserve – their contribution to the value of the output they produce – as has been the case for the last several decades, then progressive taxation and redistribution returns income to its “rightful” owners. It’s the fair and right thing to do," with some excellent analysis and suggestions in between.

What is tying these concepts together, I think is mentioned in a post by Steve Roth at Angry Bear commenting on Piketty and some remarks by Bill Gates. Steve makes some excellent points on the need to distinguish wealth from capital, however the part I am interested in is his point that:

Important: that stock of real assets is not just the “fixed capital” tallied (because it can be measured) in the national accounts; that’s actually a small part. Knowledge, skills, and abilities (think: education, training, health), business/organizational systems (this is huge), and similar unmeasurables constitute the bulk of real capital — the stuff that allows us to produce in the future. Most of that stock is not specifically claimed, but it is that whole body of real capital that the market it trying to value properly via pricing of claims — basically, holding up its collective thumb and squinting.

To me, this is the crux of the problem regarding widening inequality. How do we as a society assign claims on capital in the form of "knowledge, skills, and abilities, business/organizational systems, and similar unmeasurables"?

In my MBA program we focus a great deal on the stakeholder perspective of the firm. This is all well and good, this is pushing back against the norms portion of those agrarian attitudes that I mentioned or that Krugman is describing as the sense of righteousness about debt. This is probably far too little to have a measurable impact on its own, though shifting norms is a necessary first step for social change.

The deeper problem here is institutional, in our society providers of fixed capital generally have a stronger claim to those "unmeasurables that constitute the bulk of real capital." They receive this claim through a series of institutional features. The first is the relative ease with which providers of fixed capital can combine together in unions of capital, commonly called corporations. This provides them with far greater bargaining power regarding the bulk of capital in our society than other stakeholders with an equal, or greater than, interest and role in the production of the unmeasurables which constitute our capital.

[Lunch hour is over and I am posting this incomplete as I do not know when I will have time to continue this. Hopefully there will be a part two in a semi-reasonable timeframe.]