I haven’t written much about Brexit. It’s always been a bit of a case of “not my monkeys, not my circus”. And we’ve had plentyofcircuses on this side of the Atlantic for me to write about.
That said, I do think Brexit is useful for illustrating the pitfalls of this sort of referendum, something I’ve taken to calling “The 50% Problem”.
To see where this problem arises from, let’s take a look at the text of several political referendums:
Should the United Kingdom remain a member of the European Union or leave the European Union? – 2016 UK Brexit Referendum
Do you agree that Québec should become sovereign after having made a formal offer to Canada for a new economic and political partnership within the scope of the bill respecting the future of Quebec and of the agreement signed on June 12, 1995? – 1995 Québec Independence Referendum
Should Scotland be an independent country? – 2014 Scottish Independence Referendum
Do you want Catalonia to become an independent state in the form of a republic? – 2017 Catalonia Independence Referendum, declared illegal by Spain.
What do all of these questions have in common?
Simple: the outcome is much vaguer than the status quo.
During the Brexit campaign, the Leave side promised people everything but the moon. During the run-up to Québec’s last independence referendum, there were promises from the sovereignist camp that Québec would be able to retain the Canadian dollar, join NAFTA without a problem, or perhaps even remain in Canada with more autonomy. In Scotland, leave campaigners promised that Scotland would be able to quickly join the EU (which in a pre-Brexit world, Spain seemed likely to veto). The proponents of the Catalonian referendum pretended Spain would take it at all seriously.
The problem with all of these referendums and their vague questions is that everyone ends up with a slightly different idea of what success will entail. While failure leads to the status quo, success could mean anything from (to use Brexit as an example) £350m/week for the NIH to Britain becoming a hermit kingdom with little external trade.
Some of this comes from assorted demagogues promising more than they can deliver. The rest of it comes from general disagreement among members of any coalition about what exactly their best-case outcome is.
Crucially, this means that getting 50% of the population to agree to a referendum does not guarantee that 50% of the population agrees on what happens next. In fact, getting barely 50% of people to agree practically guarantees that no one will agree on what happens next.
Take Brexit, the only one of the referendums I listed above that actually led to anything. While 51.9% of the UK agreed to Brexit, there is not a majority for any single actual Brexit proposal. This means that it is literally impossible to find a Brexit proposal that polls well. Anything that gets proposed is guaranteed to be opposed by all the Remainers, plus whatever percentage of the Brexiteers don’t agree with that specific form of Brexit. With only 52% of the population backing Leave, the defection of even 4% of the Brexit coalition is enough to make a proposal opposed by the majority of the citizenry of the UK.
This leads to a classic case of circular preferences. Brexit is preferred to Remain, but Remain is preferred to any specific instance of Brexit.
For governing, this is an utter disaster. You can’t run a country when no one can agree on what needs to be done, but these circular preferences guarantee that anything that is tried is deeply unpopular. This is difficult for politicians, who don’t want to be voted out of office for picking wrong, but also don’t want to go back on the referendum.
There are two ways to avoid this failure mode of referendums.
The first is to finish all negotiations before using a referendum to ratify an agreement. This allows people to choose between two specific states of the world: the status quo and a negotiated agreement. It guarantees that whatever wins the referendum has majority support.
This is the strategy Canada took for the Charlottetown Accord (resulting in it failing at referendum without generating years of uncertainty) and the UK and Ireland took for the Good Friday Agreement (resulting in a successful referendum and an end to the Troubles).
The second means of avoiding the 50% problem is to use a higher threshold for success than 50% + 1. Requiring 60% or 66% of people to approve a referendum ensures that any specific proposal after the referendum is completed should have majority support.
This is likely how any future referendum on Québec’s independence will be decided, acknowledging the reality that many sovereignist don’t want full independence, but might vote for it as a negotiating tactic. Requiring a supermajority would prevent Québec from falling into the same pit the UK is currently in.
As the first successful major referendum in a developed country in quite some time, Brexit has demonstrated clearly the danger of referendums decided so narrowly. Hopefully other countries sit up and take notice before condemning their own nation to the sort of paralysis that has gripped Britain for the past three years.
“Hi, I’m Zach! I’m out here knocking on doors for Tenille Bonoguore, who is running to represent you in Ward 7. Do you have any questions for her, or concerns that you’d like her to know about…” is now a sentence I have said more than possibly any other.
Ontario had municipal elections on October 22nd. I looked at the bios of my local candidates, emailed all of them to find out more about their platforms, met with two of them, and ultimately decided that I wanted to help Tenille. Soon after that, I had been drafted to help manage canvassing efforts (although my colleague Tanya did more of that work than I did) and I was out knocking on doors again.
I knocked on countless doors and talked to an incredible variety of people. I don’t even know how many times I went out canvassing, but it was lots. More, I think, than the last time I did this.
This blog post outlines the differences (I found) between municipal politics and provincial politics, as well as the difference between volunteering for a campaign and being part of the core campaign team. I hope it can be informative for other people looking to get involved in politics any level.
The first thing I should mention about municipal campaigns is that they are (in many cities; Toronto is one notable exception) much smaller than campaigns for provincial or national government. If you’re volunteering for one, you will probably frequently meet and talk with the candidate. This was a big contrast to my volunteering at the provincial level, where I met the candidate only once (and that was brief), despite regularly canvassing on her behalf.
This, along with the non-partisan nature of many municipal elections means that volunteering at the municipal level is a much better way to get your voice heard. When there’s no party line to toe, your perspective (or a voter’s perspective as relayed by you) can change someone’s mind and lead to a (potential) city councillor voting differently.
Money also goes a lot further in municipal elections. Waterloo had a spending limit of around $12,000 (and I don’t know how many candidates even hit that). This means that donating a couple hundred dollars could make you one of the largest donors to a candidate. I don’t recommend this as a way of influencing policy – I didn’t see anyone act differently because of who donated and I sure as heck didn’t see donors get any sort of special “access”. Trying to get “access” is more or less pointless anyways; municipal boundaries are often small enough that a simple email is all you need to get real, detailed answers right from a candidate (or sitting counsellor).
That said donating is a great way to support a candidate you care about and help them get their message out.
The smaller scale of municipal campaigns also means that any past experience will probably make you the resident expert in something. When you volunteer for a provincial campaign, you’re a small cog in a big machine. When you volunteer municipally, it’s not like that.
Although not all campaigns need your help to the same degree. Incumbents almost never lose races municipally. Only one incumbent (out of 4 who stood for re-election) lost in Waterloo. In Cambridge, no incumbent counsellor lost re-election. Incumbent counsellors are also more likely to have an experienced existing team, potentially limiting the responsibility you could hold. This isn’t necessarily a bad thing! There’s lots to be said for learning skills from more experienced people.
Still, if your main goal is to maximize your contribution towards the election of candidates who you trust, you should focus on open seat races (a seat where there’s no incumbent, due to retirement, scandal, etc.). Second to open seat races might be challengers who are unusually good candidates (e.g. they have extensive community ties and recognition, or other political experience).
(This is speculative. Local conditions may vary. You, or a sitting counsellor you trust might be best positioned to figure out where you can do the most good)
The ease in which you can find yourself in a position of responsibility in a municipal campaign comes with one drawback if you accept it – it can be stressful to be responsible. I don’t want to discourage anyone from getting involved, but I did find even my limited leadership role a source of stress.
From my point of view, three things make being part of a campaign team stressful:
It’s a lot of work; the emotion work of listening to people’s concerns can be emotionally draining and the walking physically taxing. This leads to you trying to do admin work when tired and worn-out.
The outcome is uncertain. Many people like certainty and the combination of caring about a specific outcome a lot and being unsure if it will come about can wear you down.
The buck stops with you. When you’re a simple canvasser, you just need to show up; everything else is taken care of. When people asked me to do things, they wouldn’t get done unless I took care of them.
Now there were two further factors that probably made this more stressful for me than the average volunteer. First, I was working around my blogging French practice. If I was exhausted from campaigning and didn’t work on them, I’d beat myself up about it. People who respond to exhaustion in healthier ways (hint: any other way) wouldn’t have this stressor.
Second, one of the other candidates may have been engaging in underhanded tactics. As a young idealist, I took this rather hard and wasted a lot of energy being angry about it.
Now, I want to be clear that me being such a ball of stress wasn’t the fault of the campaign or anyone else in it.
I read an article a few months ago (that I’m now no longer able to find) about a campaign run and almost entirely staffed by women in California. The women who worked on it talked about how supportive the environment was and how useful it was to have things like “what are times you need off for childcare?” and “please let us know if you feel like you’re taking on too much” asked explicitly at the start.
Tenille’s campaign wasn’t run entirely by women, but it was pretty close (there was only myself and her husband on the core team). And just like the campaign I read about in California, Tenille and Zivy (our campaign manager) did an excellent job checking in with everyone and doing their best to make sure no one took on too much. If I pushed myself past the point I should have, it wasn’t for lack of them trying to create a campaign that didn’t encourage that.
I don’t want to get all gender essentialist here, but working on this campaign made me genuinely believe that women might bring something important and different to the political process. Previously, I’d wanted to see gender balance in elected representatives for basic fairness reasons. Now I find myself even more committed to it.
I think there were two things that made the stress all worth it. The first was getting Tenille elected. I was continually floored by just how good she will be as a counsellor. She knows so much about how Waterloo’s weird two-level government works, has been very involved in the community, and has a journalist’s instinct for hard questions. The second upside is all the other people I met.
There’s this branch of decision theory called functional decision theory that claims the key component of decision making is the algorithm that people use to make decisions. Functional decision theory holds that you can coordinate with someone without talking to them, as long as you can make an accurate guess as to what their decision-making algorithm will be.
This is relevant to campaigning, because you can coordinate with other cool people with similar beliefs to all end in the same room. All you have to do is figure out what candidate they’ll volunteer for and get on her campaign team. Then you’ll all show up in that candidate’s living room, drink coffee, and figure out how to get her elected.
(This can also be a general piece of advice; if you want to meet people you’ll find cool, go do whatever you think a 10% cooler version of you would do. Being part of a core campaign team works so well for this because you’ll spend a lot of time with the other members and be in a social context that provides lots of stuff for you all to talk about. This beats being a canvassing volunteer, where you’ll only see the same people intermittently and have less of a context that encourages mingling.)
Most of the people I met through the campaign are in a rather different stage of life than I am; they aren’t all young techies like most of my other friends. Many of them had kids. Some of them even had jobs outside of tech! Despite the fact that our lives looked rather different, I found I really liked them. They were universally kind, thoughtful, and willing to listen to other perspectives.
(It is rare that I get to hear multiple people talk about why that had kids, what they expected to get out of it, and how they were surprised, but it turns out I really enjoy it when I do. Knowing people at other stages of life is great because you can get advice about your stage of life.)
We had a potluck and reunion a month after the campaign was over and I found myself giddy afterwards; it wasn’t just the stress of the campaign that made me like them. They’re just cool people.
The social scientist Jonathon Haidt wrote in The Righteous Mind that many of the experiences people highlight as the most meaningful in their life happen in the context of some shared struggle. Whatever the depredations, working together for some important cause feels good. In my last post on canvassing, I also quoted Hannah Arendt, who talked about the “extreme pleasure” of working in a group. She was right. Haidt is right as well. Canvassing, volunteering, trying to get someone elected – these are all things that you will look back on and feel proud about.
It’s for these reasons – and because politics needs good, dedicated, decent people – that I recommend becoming involved at any and all levels of government. You don’t have to run yourself. There are plenty of excellent candidates out there who need help, money, and time. If you’re new to politics, consider volunteering to knock on doors. If you’re an old hand, consider taking on a leadership role.
You might change the world. And you might make amazing friends.
It had sparked a brisk and mostly unproductive debate. If you want to see people talking past each other, snide comments, and applause lights, check out the thread. One of the few productive exchanges centres on bridges.
Bridges are clearly a product of science (and its offspring, engineering) – only the simplest bridges can be built without scientific knowledge. Bridges also clearly have a political dimension. Not only are bridges normally the product of politics, they also are embedded in a broader political fabric. They change how a space can be used and change geography. They make certain actions – like commuting – easier and can drive urban changes like suburb growth and gentrification. Maintenance of bridges uses resources (time, money, skilled labour) that cannot be then used elsewhere. These are all clearly political concerns and they all clearly intersect deeply with existing power dynamics.
Even if no other part of science was political (and I don’t think that could be defensible; there are many other branches of science that lead to things like bridges existing), bridges prove that science certainly can be political. I can’t deny this. I don’t want to deny this.
I also cannot deny that I’m deeply skeptical of the motives of anyone who trumpets a political view of science.
You see, science has unfortunate political implications for many movements. To give just one example, greenhouse gasses are causing global warming. Many conservative politicians have a vested interest in ignoring this or muddying the water, such that the scientific consensus “greenhouse gasses are increasing global temperatures” is conflated with the political position “we should burn less fossil fuel”. This allows a dismissal of the political position (“a carbon tax makes driving more expensive; it’s just a war on cars”) serve also (via motivated cognition) to dismiss the scientific position.
(Would that carbon in the atmosphere could be dismissed so easily.)
While Dr. Wolfe is no climate change denier, it is hard to square her claims that calling science political is a neutral statement:
You are getting warmer. Fascinating how “science” is read as “empirical findings” and “political” as inherently bad.
When pointing out that science is political, we could also say things like “we chose to target polio for a major elimination effort before cancer, partially because it largely affected poor children instead of rich adults (as rich kids escaped polio in their summer homes)”. Talking about the ways that science has been a tool for protecting the most vulnerable paints a very different picture of what its political nature is about.
(I don’t think an argument over which view is more correct is ever likely to be particularly productive, but I do want to leave you with a few examplesfor myposition.)
Dr. Wolfe’s is able to claim that politics is neutral despite only using negative examples of its effects by using a bait and switch between two definitions of “politics”. The bait is a technical and neutral definition, something along the lines of: “related to how we arrange and govern our society”. The switch is a more common definition, like: “engaging in and related to partisan politics”.
I start to feel that someone is being at least a bit disingenuous when they only furnish negative examples, examples that relate to this second meaning of the word political, then ask why their critics view politics as “inherently bad” (referring here to the first definition).
This sort of bait and switch pops up enough in post-modernist “all knowledge is human and constructed by existing hierarchies” places that someone got annoyed enough to coin a name for it: the motte and bailey fallacy.
It’s named after the early-medieval form of castle, pictured above. The motte is the outer wall and the bailey is the inner bit. This mirrors the two parts of the motte and bailey fallacy. The “motte” is the easily defensible statement (science is political because all human group activities are political) and the bailey is the more controversial belief actually held by the speaker (something like “we can’t trust science because of the number of men in it” or “we can’t trust science because it’s dominated by liberals”).
I have a lot of sympathy for the people in the twitter thread who jumped to defend positions that looked ridiculous from the perspective of “science is subject to the same forces as any other collective human endeavour” when they believed they were arguing with “science is a tool of right-wing interests”. There are a great many progressive scientists who might agree with Dr. Wolfe on many issues, but strongly disagree with what her position seems to be here. There are many of us who believe that science, if not necessary for a progressive mission, is necessary for the related humanistic mission of freeing humanity from drudgery, hunger, and disease.
It is true that we shouldn’t uncritically believe science. But the work of being a critical observer of science should not be about running an inquisition into scientists’ political beliefs. That’s how we get climate change deniers doxxing climate scientists. Critical observation of science is the much more boring work of checking theories for genuine scientific mistakes, looking for P-hacking, and doubled checking that no one got so invested in their exciting results that they fudged their analyses to support them. Critical belief often hinges on weird mathematical identities, not political views.
When anyone says science is political and then goes on to emphasize all of the negatives of this statement, they’re giving people permission to believe their political views (like “gas should be cheap” or “vaccines are unnatural”) over the hard truths of science. And that has real consequences.
Saying that “science is political” is also political. And it’s one of those political things that is more likely than not to be driven by partisan politics. No one trumpets this unless they feel one of their political positions is endangered by empirical evidence. When talking with someone making this claim, it’s always good to keep sight of that.
[Epistemic Status: I am not an economist. I am fairly confident in my qualitative assessment, but there could be things I’ve overlooked.]
Vox has an interesting article on Elizabeth Warren’s newest economic reform proposal. Briefly, she wants to force corporations with more than $1 billion in revenue to apply for a charter of corporate citizenship.
This charter would make three far-reaching changes to how large companies do business. First, it would require businesses to consider customers, employees, and the community – instead of only its shareholders – when making decisions. Second, it would require that 40% of the seats on the board go to workers. Third, it would require 75% of shareholders and board members to authorize any corporate political activity.
Vox characterizes this as Warren’s plan to “save capitalism”. The idea is that it would force companies to do more to look out for their workers and less to cater to short term profit maximization for Wall Street . Vox suggests that it would also result in a loss of about 25% of the value of the American stock market, which they characterize as no problem for the “vast majority” of people who rely on work, rather than the stock market, for income (more on that later).
Other supposed benefits of this plan include greater corporate respect for the environment, more innovation, less corporate political meddling, and a greater say for workers in their jobs. The whole 25% decrease in the value of the stock market can also be spun as a good thing, depending on your opinions on wealth destruction and wealth inequality.
I think Vox was too uncritical in its praise of Warren’s new plan. There are some good aspects of it – it’s not a uniformly terrible piece of legislation – but I think once of a full accounting of the bad, the good, and the ugly is undertaken, it becomes obvious that it’s really good that this plan will never pass congress.
I can see one way how this plan might affect normal workers – decreased purchasing power.
As I’ve previously explained when talking about trade, many countries will sell goods to America without expecting any goods in return. Instead, they take the American dollars they get from the sale and invest them right back in America. Colloquially, we call this the “trade deficit”, but it really isn’t a deficit at all. It’s (for many people) a really sweet deal.
Anything that makes American finance more profitable (like say a corporate tax cut) is liable to increase this effect, with the long-run consequence of making the US dollar more valuable and imports cheaper .
It’s these cheap imports that have enabled the incredibly wealthy North American lifestyle. Spend some time visiting middle class and wealthy people in Europe and you’ll quickly realize that everything is smaller and cheaper there. Wealthy Europeans own cars, houses, kitchen appliances and TVs that are all much more modest than what even middle class North Americans are used to.
Weakening shareholder rights and slashing the value of the stock market would make the American financial market generally less attractive. This would (especially if combined with Trump or Sanders style tariffs) lead to increased domestic inflation in the United States – inflation that would specifically target goods that have been getting cheaper as long as anyone can remember.
This is hard to talk about to Warren supporters as a downside, because many of them believe that we need to learn to make do with less – a position that is most common among a progressive class that conspicuously consumes experiences, not material goods . Suffice to say that many North Americans still derive pleasure and self-worth from the consumer goods they acquire and that making these goods more expensive is likely to cause a politically expensive backlash, of the sort that America has recently become acquainted with and progressive America terrified of.
(There’s of course also the fact that making appliances and cars more expensive would be devastating to anyone experiencing poverty in America.)
Inflation, when used for purposes like this one, is considered an implicit tax by economists. It’s a way for the government to take money from people without the accountability (read: losing re-election) that often comes with tax hikes. Therefore, it is disingenuous to claim that this plan is free, or involves no new taxes. The taxes are hidden, is all.
There are two other problems I see straight away with this plan.
The first is that it will probably have no real impact on how corporations contribute to the political process.
The Vox article echoes a common progressive complaint, that corporate contributions to politics are based on CEO class solidarity, made solely for the benefit of the moneyed elites. I think this model is inaccurate.
From a shareholder value model, this makes sense. Lower corporate tax rates might benefit a company, but they really benefit all companies equally. They aren’t going to do much to increase the value of any one stock relative to any other (so CEOs can’t make claims of “beating the market”). Anti-competitive laws, implicit subsidies, or even blatant government aid, on the other hand, are highly localized to specific companies (and so make the CEO look good when profits increase).
When subsidies are impossible, companies can still try and stymie legislation that would hurt their business.
This was the goal of the infamous Lawyers In Cages ad. It was run by an alliance of fast food chains and meat producers, with the goal of drying up donations to the SPCA, which had been running very successful advocacy campaigns that threatened to lead to improved animal cruelty laws, laws that would probably be used against the incredibly inhumane practice of factory farming and thereby hurt industry profits.
Here’s the thing: if you’re one of the worker representatives on the board at one of these companies, you’re probably going to approve political spending that is all about protecting the company.
The market can be a rough place and when companies get squeezed, workers do suffer. If the CEO tells you that doing some political spending will land you allies in congress who will pass laws that will protect your job and increase your paycheck, are you really going to be against it ?
The ugly fact is that when it comes to rent-seeking and regulation, the goals of employees are often aligned with the goals of employers. This obviously isn’t true when the laws are about the employees (think minimum wage), but I think this isn’t what companies are breaking the bank lobbying for.
The second problem is that having managers with divided goals tends to go poorly for everyone who isn’t the managers.
Being upper management in a company is a position that provides great temptations. You have access to lots of money and you don’t have that many people looking over your shoulder. A relentless focus on profit does have some negative consequences, but it also keeps your managers on task. Profit represents an easy way to hold a yardstick to management performance. When profit is low, you can infer that your managers are either incompetent, or corrupt. Then you can fire them and get better ones.
Writing in Filthy Lucre, leftist academic Joseph Heath explains how the sort of socially-conscious enterprise Warren envisions has failed before:
The problem with organizations that are owned by multiple interest groups (or “principals”) is that they are often less effective at imposing discipline upon managers, and so suffer from higher agency costs. In particular, managers perform best when given a single task, along with a single criterion for the measurement of success. Anything more complicated makes accountability extremely difficult. A manager told to achieve several conflicting objectives can easily explain away the failure to meet one as a consequence of having pursued some other. This makes it impossible for the principals to lay down any unambiguous performance criteria for the evaluation of management, which in turn leads to very serious agency problems.
In the decades immediately following the Second World War, many firms in Western Europe were either nationalized or created under state ownership, not because of natural monopoly or market failure in the private sector, but out of a desire on the part of governments to have these enterprises serve the broader public interest… The reason that the state was involved in these sectors followed primarily from the thought that, while privately owned firms pursued strictly private interests, public ownership would be able to ensure that these enterprises served the public interest. Thus managers in these firms were instructed not just to provide a reasonable return on the capital invested, but to pursue other, “social” objectives, such as maintaining employment or promoting regional development.
But something strange happened on the road to democratic socialism. Not only did many of these corporations fail to promote the public interest in any meaningful way, many of them did a worse job than regulated firms in the private sector. In France, state oil companies freely speculated against the national currency, refused to suspend deliveries to foreign customers in times of shortage, and engaged in predatory pricing. In the United States, state-owned firms have been among the most vociferous opponents of enhanced pollution controls, and state-owned nuclear reactors are among the least safe. Of course, these are rather dramatic examples. The more common problem was simply that these companies lost staggering amounts of money. The losses were enough, in several cases, to push states like France to the brink of insolvency, and to prompt currency devaluations. The reason that so much money was lost has a lot to do with a lack of accountability.
Heath goes on to explain that basically all governments were forced to abandon these extra goals long before the privatizations on the ’80s. Centre-left or centre-right, no government could tolerate the shit-show that companies with competing goals became.
This is the kind of thing Warren’s plan would bring back. We’d once again be facing managers with split priorities who would plow money into vanity projects, office politics, and their own compensation while using the difficulty of meeting all of the goals in Warren’s charter as a reason to escape shareholder lawsuits. It’s possible that this cover for incompetence could, in the long run, damage stock prices much more than any other change presented in the plan.
The shift in comparative advantage that this plan would precipitate within the American economy won’t come without benefits. Just as Trump’s corporate tax cut makes American finance relatively more appealing and will likely lead to increased manufacturing job losses, a reduction in deeply discounted goods from China will likely lead to job losses in finance and job gains in manufacturing.
This would necessarily have some effect on income inequality in the United States, entirely separate from the large effect on wealth inequality that any reduction in the stock market would spur. You see, finance jobs tend to be very highly paid and go to people with relatively high levels of education (the sorts of people who probably could go do something else if their sector sees problems). Manufacturing jobs, on the other hand, pay decently well and tend to go to people with much less education (and also with correspondingly fewer options).
This all shakes out to an increase in middle class wages and a decrease in the wages of the already rich .
(Isn’t it amusing that Warren is the only US politician with a credible plan to bring back manufacturing jobs, but doesn’t know to advertise it as such?)
As I mentioned above, we would also see fewer attacks on labour laws and organized labour spearheaded by companies. I’ll include this as a positive, although I wonder if these attacks would really stop if deprived of corporate money. I suspect that the owners of corporations would keep them up themselves.
I must also point out that Warren’s plan would certainly be helpful when it comes to environmental protection. Having environmental protection responsibilities laid out as just as important as fiduciary duty would probably make it easy for private citizens and pressure groups to take enforcement of environmental rules into their own hands via the courts, even when their state EPA is slow out of the gate. This would be a real boon to environmental groups in conservative states and probably bring some amount of uniformity to environmental protection efforts.
Looking at the expected yields on these funds makes it pretty clear that they’re invested in the stock market (or something similarly risky ). You don’t get 7.5% yearly yields from buying Treasury Bills.
Assuming the 25% decrease in nominal value given in the article is true (I suspect the change in real value would be higher), Warren’s plan would create a pension shortfall of $750 billion – or about 18% of the current US Federal Budget. And that’s just the hit to the 30 largest public-sector pensions. Throw in private sector pensions and smaller pensions and it isn’t an exaggeration to say that this plan could cost pensions more than a trillion dollars.
This shortfall needs to be made up somehow – either delayed retirement, taxpayer bailouts, or cuts to benefits. Any of these will be expensive, unpopular, and easy to track back to Warren’s proposal.
Furthermore, these plans are already in trouble. I calculated the average funding ratio at 78%, meaning that there’s already 22% less money in these pensions than there needs to be to pay out benefits. A 25% haircut would bring the pensions down to about 60% funded. We aren’t talking a small or unnoticeable potential cut to benefits here. Warren’s plan requires ordinary people relying on their pensions to suffer, or it requires a large taxpayer outlay (which, you might remember, it is supposed to avoid).
This isn’t even getting into the dreadfully underfunded world of municipal pensions, which are appallingly managed and chronically underfunded. If there’s a massive unfunded liability in state pensions caused by federal action, you can bet that the Feds will leave it to the states to sort it out.
And if the states sort it out rather than ignoring it, you can bet that one of the first things they’ll do is cut transfers to municipalities to compensate.
This seems to be how budget cuts always go. It’s unpopular to cut any specific program, so instead you cut your transfers to other layers of governments. You get lauded for balancing the books and they get to decide what to cut. The federal government does this to states, states do it to cities, and cities… cities are on their own.
In a worst-case scenario, Warren’s plan could create unfunded pension liabilities that states feel compelled to plug, paid for by shafting the cities. Cities will then face a double whammy: their own pension liabilities will put them in a deep hole. A drastic reduction in state funding will bury them. City pensions will be wiped out and many cities will go bankrupt. Essential services, like fire-fighting, may be impossible to provide. It would be a disaster.
The best-case scenario, of course, is just that a bunch of retirees see a huge chunk of their income disappear.
It is easy to hate on shareholder protection when you think it only benefits the rich. But that just isn’t the case. It also benefits anyone with a pension. Your pension, possibly underfunded and a bit terrified of that fact, is one of the actors pushing CEOs to make as much money as possible. It has to if you’re to retire someday.
Vox is ultimately wrong about how affected ordinary people are when the stock market declines and because of this, their enthusiasm for this plan is deeply misplaced.
 To some extent, Warren’s plan starts out much less appeal if you (like me) don’t have “Wall Street is too focused on the short term” as a foundational assumption.
I am very skeptical of claims that Wall Street is too short-term focused. Matt Levine gives an excellent run-down of why you should be skeptical as well. The very brief version is that complaints about short-termism normally come from CEOs and it’s maybe a bad idea to agree with them when they claim that everything will be fine if we monitor them less. ^
 I’d love to show this in chart form, but in real life the American dollar is also influenced by things like nuclear war worries and trade war realities. Any increase in the value of the USD caused by the GOP tax cut has been drowned out by these other factors. ^
 Canada benefits from a similar effect, because we also have a very good financial system with strong property rights and low corporate taxes. ^
 They also tend to leave international flights out of lists of things that we need to stop if we’re going to handle climate change, but that’s a rant for another day. ^
 I largely think that Marxist style class solidarity is a pleasant fiction. To take just one example, someone working a minimum wage grocery store job is just as much a member of the “working class” as a dairy farmer. But when it comes to supply management, a policy that restriction competition and artificially increases the prices of eggs and dairy, these two individuals have vastly different interests. Many issues are about distribution of resources, prestige, or respect within a class and these issues make reasoning that assumes class solidarity likely to fail. ^
 These goals could, of course, be accomplished with tax policy, but this is America we’re talking about. You can never get the effect you want in America simply by legislating for it. Instead you need to set up a Rube Goldberg machine and pray for the best. ^
 Any decline in stocks should cause a similar decline in return on bonds over the long term, because bond yields fall when stocks fall. There’s a set amount of money out there being invested. When one investment becomes unavailable or less attractive, similarly investments are substituted. If the first investment is big enough, this creates an excess of demand, which allows the seller to get better terms. ^
Indeed, the death rate in surgery is almost unique among regulated professions. One person has died in a commercial aviation accident in the US in the last nine years. Structural engineering related accidents killed at most 251 people in the US in 2016  and only approximately 4% of residential structure failures in the US occur due to deficiencies in design.
It isn’t accidental that Canada and America no longer see many plane crashes or structural collapses. Both professions have been rocked by events that made them realize they needed to improve their safety records.
The licensing of professional engineers and the Iron Ring ceremony in Canada for engineering graduates came after two successivebridge collapses killed 88 workers . The aircraft industry was shaken out of its complacency after the Tenerife disaster, where a miscommunication caused two planes to collide on a run-way, killing 583.
As you can see, subsequent safety improvements were both responsive and deliberate.
These aren’t the only events that caused changes. The D. B. Cooper high-jacking led to the first organised airport security in the US. The Therac-25 radiation overdoses led to the first set of guidelines specifically for software that ran on medical devices. The sinking of the Titanic led to a complete overhaul of requirements for lifeboats and radios for oceangoing vessels. The crash of TAA-538 led to the first mandatory cockpit voice recorders.
All of these disasters combine two things that are rarely seen when surgeries go wrong. First, they involved many people. The more people die at once, the more shocking the event and therefore the more likely it is to become widely known. Because most operations involve one or two patients, it is much rarer for problems in them to make the news .
Second, they highlight a specific flaw in the participants, procedures, or systems that fail. Retrospectives could clearly point to a factor and say: “this did it” . It is much harder to do this sort of retrospective on a person and get such a clear answer. It may be true that “blood loss” definitely caused a surgical death, but it’s much harder to tell if that’s the fault of any particular surgeon, or just a natural consequence of poking new holes in a human body. Both explanations feel plausible, so in most cases neither can be wholly accepted.
(I also think there is a third driver here, which is something like “cheapness of death”. I would predict that safety regulation is more common in places where people expect long lives, because death feels more avoidable there. This explains why planes and structures are safer in North America and western Europe, but doesn’t distinguish surgery from other fields in these countries.)
Not every form of engineering or transportation fulfills both of these criteria. Regulation and training have made flying on a commercial flight many, many times safer than riding in a car, while private flights lag behind and show little safety advantage over other forms of transport. When a private plane crashes, few people die. If they’re important (and many people who fly privately are), you might hear about it, but it will quickly fade from the news. These stories don’t have staying power and rarely generate outrage, so there’s never much pressure for improvement.
The best alternative to this model that I can think of is one that focuses on the “danger differential” in a field and predicts that fields with high danger differentials see more and more regulation until the danger differential is largely gone. The danger differential is the difference between how risky a field currently is vs. how risky it could be with near-optimal safety culture. A high danger differential isn’t necessarily correlated with inherent risk in a field, although riskier fields will by their nature have the possibility of larger ones. Here’s three examples:
Commercial air travel in developed countries currently has a very low danger differential. Before a woman was killed by engine debris earlier this year, commercial aviation in the US had gone 9 years without a single fatality.
BASE jumping is almost suicidally dangerous and probably could be made only incredibly dangerous if it had a better safety culture. Unfortunately, the illegal nature of the sport and the fact that experienced jumpers die so often make this hard to achieve and lead to a fairly large danger differential. That said, even with an optimal safety culture, BASE jumping would still see many fatalities and still probably be illegal.
Surgery is fairly dangerous and according to surgeon Atul Gawande, could be much, much safer. Proper adherence to surgical checklists alone could cut adverse events by almost 50%. This means that surgery has a much higher danger differential than air travel.
I think the danger differential model doesn’t hold much water. First, if it were true, we’d expect to see something being done about surgery. Almost a decade after checklists were found to drive such large improvements, there hasn’t been any concerted government action.
Second, this doesn’t match historical accounts of how airlines were regulated into safety. At the dawn of the aviation age, pilots begged for safety standards (which could have reduced crashes a staggering sixtyfold). Instead of stepping in to regulate things, the government dragged its feet. Some of the lifesaving innovations pioneered in those early days only became standard after later and larger crashes – crashes involving hundreds of members of the public, not just pilots.
While this only deals with external regulation, I strongly suspect that fear for the reputation of a profession (which could be driven by these same two factors) affects internal calls for reform as well. Canadian engineers knew that they had to do something after the Quebec bridge collapse created common knowledge that safety standards weren’t good enough. Pilots were put in a similar position with some of the better publicized mishaps. Perhaps surgeons have faced no successful internal campaign for reform so far because the public is not yet aware of the dangers of surgery to the point where it could put surgeon’s livelihoods at risk or hurt them socially.
I wonder if it’s possible to get a profession running scared about their reputation to the point that they improve their safety, even if there aren’t any of the events that seem to drive regulation. Maybe someone like Atul Gawande, who seems determined to make a very big and very public stink about safety in surgery is the answer here. Perhaps having surgery’s terrible safety record plastered throughout the New Yorker will convince surgeons that they need to start doing better .
If not, they’ll continue to get away with murder.
 From the CDC’s truly excellent Cause of Death search function, using codes V81.7 & V82.7 (derailment with no collision), W13 (falling out of building), W23 (caught or crushed between objects), and W35 (explosion of boiler) at home, other, or unknown. I read through several hundred causes of deaths, some alarmingly unlikely, and these were the only ones that seemed relevant. This estimate seems higher than the one surgeon Atul Gawande gave in The Checklist Manifesto, so I’m confident it isn’t too low. ^
 Furthermore, from 1989 to 2000, none of the observed collapses were due to flaws in the engineers’ designs. Instead, they were largely caused by weather, collisions, poor maintenance, and errors during construction. ^
 Claims that the rings are made from the collapsed bridge are false, but difficult to dispel. They’re actually just boring stainless steel, except in Toronto, where they’re still made from iron (but not iron from the bridge). ^
 There may also be an inherent privateness to surgical deaths that keeps them out of the news. Someone dying in surgery, absent obvious malpractice, doesn’t feel like public information in the way that car crashes, plane crashes, and structural failures do. ^
 It is true that it was never discovered why TAA-538 crashed. But black box technology would have given answers had it been in use. That it wasn’t in use was clearly a systems failure, even though the initial failure is indeterminate. This jives with my model, because regulation addressed the clear failure, not the indeterminate one. ^
 This is the ratio between the average miles flown before crash of the (very safe) post office planes and the (very dangerous) privately owned planes. Many in the airline industry wanted the government to mandate the same safety standards on private planes as they mandated on their airmail planes. ^
 I should mention that I have been very lucky to have been in the hands of a number of very competent and professional surgeons over the years. That said, I’m probably going to ask any future surgeon I’m assigned if they follow safety checklists – and ask for someone else to perform the procedure if they don’t. ^
Last week I explained how poor decisions by central bankers (specifically failing to spur inflation) can make recessions much worse and lead to slower wage growth during recovery.
(Briefly: inflation during recessions reduces the real cost of payroll, cutting business expenses and making firing people unnecessary. During a recovery, it makes hiring new workers cheaper and so leads to more being hired. Because central bankers failed to create inflation during and after the great recession, many businesses are scared of raising salaries. They believe (correctly) that this will increase their payroll expenses to the point where they’ll have to lay many people off if another recession strikes. Until memories of the last recession fade or central bankers clean up their act, we shouldn’t expect wages to rise.)
Now I’d like to expand on an offhand comment I made about the minimum wage last week and explore how it can affect recovery, especially if it’s indexed to inflation.
The minimum wage represents a special case when it comes to pay cuts and layoffs in recessions. While it’s always theoretically possible to convince people to take a pay cut rather than a layoff (although in practice it’s mostly impossible), this option isn’t available for people who make the minimum wage. It’s illegal to pay them anything less. If bad times strike and business is imperiled, people making the minimum wage might have to be laid off.
I say “might”, because when central bankers aren’t proving useless, inflation can rescue people making the minimum wage from being let go. Inflation makes the minimum wage relatively less valuable, which reduces the cost of payroll relative to other inputs and helps to save jobs that pay minimum wage. This should sound familiar, because inflation helps people making the minimum wage in the exact same way it helps everyone else.
Because of increasingly expensive housing and persistently slow wage growth, some jurisdictions are experimenting with indexing the minimum wage to inflation. This means that the minimum wage rises at the same rate as the cost of living. Most notably (to me, at least), this group includes my home province of Ontario.
When the minimum wage is tied to inflation, recessions can become especially dangerous and drawn out.
With the minimum wage rising in lockstep with inflation, any attempts to decrease payroll costs in real terms (that is to say: inflation adjusted terms) is futile to the extent that payroll expenses are for minimum wage workers. Worse, people who were previously making above the minimum wage and might have had their jobs saved by inflation can be swept up by an increasingly high minimum wage.
This puts central bankers in a bind. As soon as the minimum wage is indexed to inflation, inflation is no longer a boon to all workers. Suddenly, many workers can find themselves in a “damned if you do, damned if you don’t” situation. Without inflation, they may be too expensive to keep. With it, they may be saved… until the minimum wage comes for them too. If a recession goes on long enough, only high-income workers would be sparred.
In addition, minimum wage (or near-minimum wage) workers who are laid off during a period of higher inflation (an in this scenario, there will be many) will suffer comparatively more, as their savings get exhausted even more quickly.
Navigating these competing needs would be an especially tough challenge for certain central banks like the US Federal Reserve – those banks that have dual mandates to maintain stable prices and full employment. If a significant portion of the US ever indexes its minimum wage to inflation, the Fed will have no good options.
It is perhaps darkly humorous that central banks, which bear an unusually large parcel of the blame for our current slow wage growth, stand to face the greatest challenges from the policies we’re devising to make up for their past shortcomings. Unfortunately, I think a punishment of this sort is rather like cutting off our collective nose to spite our collective face.
There are simple policies we could enact to counter the risks here. Suspending any peg to inflation during years that contain recessions (in Ontario at least, the minimum wage increase due to inflation is calculated annually) would be a promising start. Wage growth after a recession could be ensured with a rebound clause, or better yet, the central bank actually doing its job properly.
I am worried about the political chances (and popularity once enacted) of any such pragmatic policy though. Many people respond to recessions with the belief that the government can make things better by passing the right legislation – forcing the economy back on track by sheer force of ink. This is rarely the case, especially because the legislation that people have historically clamoured for when unemployment is high is the sort that increases wages, not lowers them. This is a disaster when unemployment threatens because of too-high wages. FDR is remembered positively for his policy of increasing wages during the great depression, even though this disastrous decision strangled the recovery in its crib. I don’t expect any higher degree of economic literacy from people today.
To put my fears more plainly, I worry that politicians, faced with waning popularity and a nipping recession, would find allowing the minimum wage to be frozen too much of a political risk. I frankly don’t trust most politicians to follow through with a freeze, even if it’s direly needed.
Minimum wages are one example of a tradeoff we make between broad access and minimum standards. Do we try and make sure everyone who wants a job can have one, or do we make sure people who have jobs aren’t paid too little for their labour, even if that hurts the unemployed? As long as there’s scarcity, we’re going to have to struggle with how we ensure that as many people as possible have their material needs met and that involves tradeoffs like this one.
But when we’re making these kind of compassionate decisions, we need to look at the risks of whatever systems we choose. Proponents of indexing the minimum wage to inflation haven’t done a good job of understanding the grave risk it poses to the health of our economy and perhaps most of all, to the very people they seek to help. In places like Ontario, where the minimum wage is already indexed to inflation, we’re going to pay for their lack of foresight next time an economic disaster strikes.
There are many problems that face modern, developed economies. Unfortunately, no one agrees with what to do in response to them. Even economists are split, with libertarians championing deregulation, while liberals call for increased government spending to reduce inequality.
Or at least, that’s the conventional wisdom. The Captured Economy, by Dr. Brink Lindsey (libertarian) and Dr. Steven M. Teles (liberal) doesn’t have much time for conventional wisdom.
It’s a book about the perils of regulation, sure. But it’s a book that criticizes regulation that redistributes money upwards. This isn’t the sort of regulation that big pharma or big finance wants to cut. It’s the regulation they pay politicians to enact.
And if you believe Lindsey and Teles, upwardly redistributing regulation is strangling our economy and feeding inequality.
They’re talking, of course, about rent-seeking.
Now, if you don’t read economic literature, you probably have an idea of what “rent-seeking” might mean. This idea is probably wrong. We aren’t talking here about the sorts of rents that you pay to landlords. That rent probably includes some economic rents (quite a lot of economic rents if you live in Toronto, Vancouver, San Francisco, or New York), but does not itself represent an economic rent.
An economic rent is any excess payment due to scarcity. If you control especially good land and can grow wheat at half the price of everyone else, the rent of this land is the difference between how much it costs you to grow wheat and how much it costs everyone else to grow wheat.
Rent-seeking is when someone tries to acquire these rents without producing anything of value. It isn’t rent-seeking when you invent a new mechanical device that cuts your costs in half (although your additional profit will represent economic rents). It is rent-seeking when you use some of those profits as “campaign contributions” to get the government to pass a law that requires all future labour-saving devices need to be “tested” for five years before they can be introduced. Over that five-year period, you’ll reap rents because no one else can compete with you to bring the price of the goods you are producing down.
How could we know if rent-seeking is happening in the US economy (note: this book is written specifically about the US, so assume all statements here are about the US unless otherwise noted) and how can we tell what it’s costing?
Well, one of the best signs of rent-seeking is increased profits. If profits are increasing and this can’t be explained by innovation or productivity growth or any other natural factor, then we have circumstantial evidence that profits are increasing from rent-seeking. Is this the case?
Lindsey and Teles say yes.
First, it seems like profits for US firms are increasing, from a low of 3% in the 1980s to a high of 11% currently. These are average profits, so they can’t be swayed by one company suddenly becoming much more efficient – as something like that should be cancelled out by a decline in profits at somewhere less efficient.
At the same time, however, the majority of these new profits have been going to companies that were already very profitable. If being very profitable makes corrupting the political process easier, this is exactly what we’d expect to see.
In addition, formation of new companies has slowed, concentration has increased, the ratio of intangible assets to tangible assets has increased, and yet spending on intangible assets (like R&D) has dropped. The only intangibles you get without investing in R&D are better human capital (but then why should profits increase if this is happening everywhere?) and tailor-made regulation.
Lindsey and Teles go on to cite research by Dr. James Bessen that show that most of the increases in profits since the start of the 21st century is heavily correlated with increasing regulation, a result that remained robust even when accounting for reverse causation (e.g. a counter-factual where profits causing regulation).
This circumstantial evidence is about all we can get for something as messy as real-world economics, but it’s both highly suggestive and fits in well with what keen observers have noted in individual industries, like the pharmaceutical industry.
An increase in rent-seeking would explain a whole bunch of the malaise of the current economy.
Economists have been surprised by the slow productivity growth since the last recession. If there was significantly more rent-seeking now than in the past, then we would expect productivity growth to slow.
In a properly functioning economy, productivity growth is largely buoyed up by new entrants to a field. The most productive new entrants thrive, while less productive new entrants (and some of the least productive existing players) fail. Over time, this gradually improves the overall productivity of an industry. This is the creative destruction you might hear economists talking glowingly about.
Productivity can also be raised by the slow diffusion of innovations across an industry. When best practices are copied, everyone ends up producing more with fewer inputs.
Rent-seeking changes the nature of this competition. Instead of competing on productivity and innovation, companies compete to see who can most effectively buy the government. Everyone who fails to buy off the government will eventually fail, leaving an increasingly moribund economy behind.
Lindsey and Teles believe that we’re more likely to see the negative effects of rent-seeking today than in the past because the underlying economy has less favourable conditions. In the 1950s, women started to enter the workforce. In the 60s, Boomers began to enter it. In addition, many returning soldiers got university educations after World War II, making college graduates much more common.
Therefore, rent-seeking, as a force holding down productivity growth, would be a serious problem in political economy even if it didn’t lead to increased inequality and all of the problems that can cause.
But that’s where the other half of this book comes in; the authors suggest that our current spate of rent-seeking policies are fueling income inequality as well as economic malaise . Rent-seeking inflates stock prices (which only helps people who are well-off enough that they own stocks) or wages at the top of corporations. Rents from rent-seeking also tend to accrue to skilled workers, to people who own homes, and people in regulated professions. All of these people are wealthier than average and increasing their wealth increases inequality.
That’s the theory. To show it in practice, Lindsey and Teles introduce four case studies: finance, intellectual property, zoning, and occupational licensing.
Whenever I think about finance, I am presented with a curious double image. There are the old-timey banks of yore, that I see in movies, the ones that provided smiling service to their local customers. And then there are the large financial entities that exist today, with their predatory sales tactics and “too big to fail” designations. Long gone are the days when banks mostly made money by collecting interest on loans, loans made possible by paying interest on deposits.
Today’s banks also have an excellent racket going on. They decry taxes and regulation on one hand, while extracting huge rents from governments on the other.
To understand why, we first need to talk about leverage. Bank profits can be increased many times over via the magic of leverage – basically borrowing money to buy assets. If you believe, for example, that the price of silver is going to skyrocket tomorrow, you could buy $100 of silver. If silver goes up by 20%, you’ll pocket a cool $20 for 20% profit. If you borrow an extra $900 from friends and family at 1% interest and buy silver with that too, you’ll pocket a cool $191 once it goes up (20% of $1000 less 1% of $900), for 191% profit.
Leverage becomes a problem when prices fall. If the price goes down by 10% instead of going up, you’ll be left with $90 if you didn’t leverage yourself – and $1 if you did. Because it leads to the potential of outsized losses, leverage presents problems with downside risks, the things that happen when your bet is wrong.
One of the major ways banks extract rents is by forcing the government to hold onto their downside risks. In America, this is accomplished several ways. First, deposits are insured by the government. This is good, in that it prevents bank runs , which were a significant problem in the 19th and 20th century, but bad because it removes most incentive for consumers to care about the lending practices of their bank. Insurance removes the risk associated with picking a bank with risky lending practices, so largely people don’t bother to see if their bank is responsible or not. Banks know this, so feel no pressure to be responsible, especially because shareholders love the profits irresponsibility brings in good times.
Second, the government (especially in America, but also recently in Ireland) seems unable to resist insulating bondholders from the consequences of backing a bank with bad standards. The bailouts after the financial crisis mean that few bondholders were punished for their failure to do due diligence when providing the credit banks used to make leveraged bets. As long as no one is punished for lending to the banks that make risky bets, things won’t get better.
(Interestingly, there is theoretical work that shows banks can accomplish everything they currently do with debt using equity at the same cost. This isn’t what we see in real life. Lindsey and Teles suggest this is because debt is kept artificially cheap for banks by repeated bailouts. Creditors don’t demand extra to lend to an indebted bank, because they know they won’t have to pay if things go south.)
Third, there’s mortgage debt, which is often insured or bought by the Federal Government in America. This makes risky lending much more palatable for many banks (and much more profitable as well). This whole process is really opaque and largely hidden from the US population. When times are good, it’s a relatively cheap way to make housing more affordable (although somewhat regressive; it favours the already wealthy). When times are bad it can cost the government almost $200 billion.
The authors suggest that this sort of “public program by kluge” is the perfect vehicle for rent-seeking. The need to do the program in a klugey way so that taxpayers don’t complain is anathema to accountability and often requires the support of businesses – which are happy to help as long as they get to skim off the top. Lindsey and Teles suggest that it would be much better for the US just to provide straight up housing subsidies in a means-tested way.
Being able to extract all these rents has probably increased the size of the US financial sector. Linsey and Teles argue that this is a very bad thing. They cite data that show decreased economic growth once the financial sector grows beyond a certain size, possibly because an outsized financial sector leads to misallocation of resources.
Beyond a certain point, the financial sector is just moving money around to no productive aim (this is different than e.g. loans to businesses; I’m talking about highly speculative bets on foreign currencies or credit default swaps here). The financial sector also aggressively recruits very bright people using very high salaries. If the financial sector were smaller and couldn’t compensate as highly, then these people would be out doing something productive, like building self-driving cars or curing malaria. Lindsey and Teles suggest that we should happily make a trade-off whereby these people can’t get quite as high salaries but do actually produce things of value.
(Remember: one of the pair here is a libertarian! Like “worked for Cato Institute for years” libertarian. If your caricature of libertarians is that “they hate poor people”, I suggest you consider the alternative: “they think the free market is the best way to help disadvantaged people find better circumstances”. Here, Lindsey is trying to correct market failures and misallocations caused by big banks getting too cozy with the government.)
Intellectual Property Law
If you don’t follow the Open Source or Creative Commons movements, you probably had mostly positive things to say about copyright until a few years ago when the protests against SOPA and PIPA – two bills designed to strengthen copyright enforcement – painted the internet black in opposition.
SOPA and PIPA weren’t some new overreach. They are a natural outgrowth of a US copyright regime that has changed radically from its inception. In the early days of the American Republic, copyrights required registering. Doing so would give you a fourteen-year term of exclusivity, with the option to extend it once for another fourteen years. Today all works, even unpublished ones, are automatically granted copyright for the life of the author… plus 70 years.
Penalties have increased as well; previously, copyright infringement was only a civil matter. Now it carries criminal penalties of up to $250,000 in fines and 1-5 years of jail time per infringement.
Patent protections have also become onerous, although here the fault is judicial action, not statute. Appeals for patent cases are solely handled by the United States Court of Appeals for the Federal Circuit. This court is made up of judges who are normally former patent lawyers and who attend all the same conferences as patent lawyers – and eat the food paid for by the sponsors. I don’t want to claim judicial corruption, but it is perhaps unsurprising that these judges have come to see the goals of patent holders as right and noble.
Certainly, they’ve broken with past tradition and greatly expanded the scope of patentability while reducing the requirements for new patents. Genes, business methods, and most odiously, software, have been made patentable. Consequently, patents filed have increased from approximately 60,000 yearly in 1983 to 300,000 per year by 2013. If this represented a genuine increase in invention, then it would be a cause for celebration. But we already know that R&D spending isn’t increasing. It would be very surprising – and the exact opposite of what diminishing returns would normally suggest – if companies managed to come up with an additional 240,000 patents per year with no additional real spending.
What if these patents just came from increased incentives for rent-seeking via the intellectual property system?
“Intellectual property” conjures a happy image. Who doesn’t like property ? Many (most?) people support paying authors, artists, and inventors for their creations, at least in the abstract . Lindsey and Teles argue that we should instead take a dim view of intellectual property; to them, it’s almost entirely rent-seeking.
They point out that many of supposed benefits of intellectual property never manifest. It’s unclear if it spurs invention (evidence from World Fairs suggest that it just moves invention towards whatever types of inventions are patentable, where payoff is more certain). It’s unclear if it incentivizes artists and writers (although we’ve seen music revenue fall, more people than ever are producing music). My personal opinion is that copyright doesn’t encourage writers; most of us couldn’t stop if we wanted to.
When it comes to software patents, the benefits are even less clear and the harms even greater. OECD finds that software patents are associated with a decrease in R&D spending, while Vox reports that costs associated with software patent lawsuits have now reached almost $70 billion annually. The majority of software patent litigation isn’t even launched by the inventors. Instead, it’s done by so called “patent trolls”, who buy portfolios of patents and then threaten to sue any company who doesn’t settle with them over “infringement”.
When even a successfully-defended lawsuit can cost millions of dollars (not to mention several ulcers), software patents (often for obvious ideas and assuredly improper) held by trolls represent a grave threat to innovation.
All of this adds up to a serious drag on the economy, not to mention our culture. While “protecting property” is seen as a noble goal by many, Lindsey and Teles argue that IP protections go well beyond that. They acknowledge that it makes sense to protect a published work in its entirety. But protecting the setting? The characters? The right to make sequels? That’s surely too much. How is George Lucas hurt if someone can sell their Star Wars fanfiction? How is that “infringing” on what he has created?
They have less sympathy for patents, which grant a somewhat ridiculous monopoly. If you patent something three days before I independently invent it, then any use or sale by me is still considered infringement even though I am assuredly not ripping you off.
Lindsey and Teles suggest that IP laws need to be rolled back to a more reasonable state, when copyright was for 14 years and abstract ideas, software implementation, and business methods couldn’t be patented. About the only patents they really approve of are pharmaceutical patents, which they view as necessary to protect the large upfront costs of drug development (see also Scott Alexander’s argument for why this is the case); I’d like to add that these upfront costs would be lower if the rent-seeking by pharmaceutical companies hadn’t supported rent-seeking regulation that has made the FDA an almost impenetrable tar-pit.
Occupational licensing has definitely become more common. It’s gone from affecting 10% of the workforce (1970) to 30% of the workforce today. It no longer just affects doctors, teachers, lawyers, and engineers. Now it covers make-up artists, auctioneers, athletic trainers, and barbers.
Now, there are sometimes good reasons to license professionals. No one wants to drive across a bridge built by someone who hasn’t learned anything about physics. But there’s good reason to suspect that much of the growth of occupational licensing isn’t about consumer protection, despite what proponents say.
First of all, there’s often a quite a bit of variability in how many days of study these newly licensed professions require. Engineering requirements tend to be similar from country to country because it’s governed by international treaty. On the other hand, manicurist requirements vary wildly by state; Alaska requires three days of education, while Alabama requires 163. There’s no national standards at all. If this was for consumer protection, then presumably some states are well below what’s required and others are well above it.
Second, there’s no allowance for equivalencies. Engineers can take their engineering degrees anywhere and can transfer professional status with limited hassles. Lawyers can take the bar exam wherever they want. But if you get licensed as a manicurist in Alabama, Alaska won’t respect the license. And vice versa.
(Non-transferability is a serious economic threat in its own right, because it makes people less likely to move in search of better conditions. The section on zoning further explains why this is bad.)
Several studies have shown that occupational licenses do nothing to improve services to customers. Randomly sampled floral arrangements from licensed and unlicensed states (yes, some states won’t let you arrange flowers without a license) are judged the same when viewed by unsuspecting judges. Roofing quality hasn’t fallen after hurricanes, when licensing restrictions are lifted (and if there’s ever a time you’d expect quality to fall, it’s then!).
Despite the lack of benefits, there are very real costs to occupational licensing. Occupational licensing is associated with consumers paying prices between 5% and 33% above unlicensed areas, which translates to an average 18% increase in wages for licensed professionals. The total yearly cost to consumers for this price gouging? North of $200 billion. Unfortunately, employment growth is also affected. Licensed professions see 20% slower employment growth compared to neighbouring unlicensed jurisdictions. Licensing helps some people make more money, but they make this money by, in essence, pulling up the ladder to prosperity behind them.
Occupational licensing especially hurts minorities in the United States. Many occupational licenses require a college degree (black and Latino Americans are less likely to have college degrees) and they often exclude anyone with a criminal record of any sort (disproportionately likely to be black or Latino). It may make sense to exclude people with criminal records from certain jobs. But from manicuring? I don’t see how someone could do worse damage manicuring then they could preparing fast food, and that isn’t regulated at all.
Licensing boards often protect their members against complaints from the public. Since the board is composed only of members of the profession, it’s common for them to close ranks around anyone accused of bad conduct. The only profession I’ve seen that doesn’t do this is engineers. Compare the responses of professional boards to medical and engineering malpractice in Canada.
Probably the most interesting case of rent-seeking Lindsey and Teles identify are lawyers in the United States. While they accuse lawyers of engaging in the traditional rent-seeking behaviour of limiting entry to their field (and point out that bar exam difficulty is proportional to the number of people seeking admittance, which suggests that its main purpose it to keep supply from rising), they also claim that lawyers in the United States artificially raise demands for their services.
Did you know that lawyers made up 41% of the 113th Congress, despite representing only 0.6% of the US population? I knew the US had a lot of lawyers in politics, but I hadn’t realized it was that high. Lindsey and Teles charge these lawyers with writing the kind of laws that make sense to lawyers: abstruse, full of minutia, and fond of adversarial proceedings. Even if this isn’t a sinister plot, it certainly is a nice perk .
I do wish this chapter better separated what I think is dual messages on occupational licensing. One strand of arguments goes: “occupational licensing for jobs like barbers, manicurists, etc. is keeping disadvantaged people, especially minorities out of these fields with slightly better than average wages and making everyone pay a tiny bit more”. The other is: “professionals are robbing everyone else blind because of occupational licensing; lawyers and doctors make a huge premium in the United States and are disproportionately wealthy compared to other countries and make up a large chunk of the 1%”.
I’d like them separated because they seem to call for separate solutions. We might decide that if we could fix the equality issues (for example, by scrapping criminal records checks and college degree requirements where they aren’t needed), it might make sense to keep occupational licensing to prevent a race for the bottom among occupations that have never represented a significant fraction of individual spending. One thing I noticed is that the decline among union membership is exactly mirrored by the increase in occupational licensing. In a very real way, occupational licensing, with some tweaks, could be the new unions.
On the other hand, we have doctors and lawyers (and maybe even engineers, although my understanding is that they do far less to restrict supply, especially foreign supply) who are making huge salaries that (in the case of lawyers) might be up to 50% rents from artificially low supply. If we undid some of the artificial barriers to entry they’ve thrown up, we could lower their wages and improve income equality while at the same time improving competition and opening up these fields (which should still pay reasonably well) to more people. Many of us probably know people who’d make perfectly fine doctors that have been kept out of medical school by the overly restrictive quotas. Where’s the harm in having two doctors making $90,000/year instead of one doctor making $180,000/year? It’s not like we couldn’t find a use for twice as many doctors!
The weirdest thing about the recent rise in housing prices is that building houses hasn’t really gotten any more expensive. Between 1950 and 1970, housing prices increased 35% above inflation (when normalized to size) and construction costs increased 28% above inflation. Between 1970 and 2000, construction prices rose 6% slower than inflation – becoming cheaper in real terms – and overall housing costs increased 72% above inflation.
Maybe house prices have gone up because house quality has improved? Not so say data from repeat house sales. When analyzing these data, economists have determined that increased house quality can account for at most 25% of the increase in prices.
Maybe land is just genuinely running out in major cities? Well, if that were the case, we’d see a strong relationship between density and price. After all, density would surely emerge if land were running out, right? When analyzing these data, economists have found no relationship between city density and average home price.
The final clue comes from comparing the value of land houses can be built on with the value of land houses cannot be built on. When you look at how much the size of a lot affects the sale price of very similar homes and compare that with the cost of the land that goes under a house (by subtracting construction costs from the sale prices of new homes), you’ll find that the land under a house is worth ten times the land that simply extends a yard.
This suggests that a major component of rising house prices is the cost of getting permission to build a house on land – basically, finding some of the limited supply of land zoned for actually building anything. This is not land value per se, but instead a rent imposed by onerous zoning requirements. In San Francisco, San Jose, and Manhattan, this zoning cost is responsible for approximately half of house worth.
The purpose of zoning has always been to protect the value of existing homes, by keeping “undesirable” land usage out of a neighbourhood. Traditionally, “undesirable” has been both racist and classist. No one in a well-off neighbourhood wanted any of “those people” to move there, lest prospective future buyers (who shared their racial and social prejudices) not want to move to the neighbourhood. Today, zoning is less explicitly racist (even if it still prices minorities out of many neighbourhoods) and more nakedly about preserving house value by preventing any increase in density. After all, if you live in a desirable neighbourhood, the last thing you want is a large tower bringing in hundreds of new residents at affordable prices. How will you be able to get a premium on your house then? The market will be saturated!
Now if there were no real benefits to living in a city, Lindsey and Teles probably wouldn’t care about zoning. But there definitely are very good reasons why we want more people to be able to live in cities. First: transportation. Transportation is easier when people are densely packed, which makes supplies cheaper and reduces negative externalities from carbon intensive travel. Second: choice. Cities have enough people to allow people to make profits off of weird things, to allow people to carefully choose their jobs, and to allow employers choice in employees. All of these are helpful to the economy. Third: ineffable increases in human capital. There’s just something about cities (theorized to be “information spillover” between people in unrelated jobs) that make them much more productive per capita than anywhere else.
This productivity is rewarded in the form of higher wages. Lindsey and Teles claim that the average income of a high school graduate in Boston is 40% higher than the average income of a college graduate in Flint, Michigan. I’ll buy these data, but I’m a bit skeptical that this results in any more take-home pay for the Bostonian, because wages in Boston have to be higher if people are to live there. Would this hold true if you looked at real wages accounting for differences in cost of living ?
If wages are genuinely higher in places like Boston in real terms, then this spatial inequality should be theoretically self-correcting. People from places like Flint should all move to places like Boston, and we’ll see a sudden drop in income inequality and a sudden jump in standard of living for people who only have high school degrees. Lindsey and Teles believe this isn’t happening because the scarcity of housing drives up the initial price of moving far beyond what people without substantial savings can pay – the same people who most need to be able to move .
Remember, many apartments require first and last month’s rent, plus a security deposit. I looked up San Francisco on PadMapper and the median rent looks to be something like $3300, a number that agrees with a cursory Google. Paying first and last on that, plus a damage deposit would cost you over $7,000. Add to that moving expenses, and you can see how it could be impossible for someone without savings to move to San Francisco, even if they could expect a relatively well-paid job.
(Lack of movement hurts people who stay behind as well. When people move away in search of higher wages, businesses must eventually raise wages in places seeing a net drain of people, lest the whole workforce disappear. This effect probably led to some of the convergence in average income between states that occurred from 1880 to 1980, an effect that has now markedly slowed.)
Out of all of these examples of rent-seeking, the one I feel least optimistic about is zoning. The problem with zoning is that people have bought houses at the prices that zoning guaranteed. If we were to significantly loosen it, we’d be ruining many people’s principle investment. Even if increasing home wealth represents one of the single greatest sources of inequality in our society and even if it is exacting a terrifying toll on our economy, it will be extremely hard to build the sort of coalition necessary to break the backs of municipalities and local landowners.
Until we figure out how to do that, I’m going to continue to fight back tears every time I see a sign like this one:
How do we fight rent-seeking?
Surprisingly, most of the suggestions Lindsey and Teles put forth are minor, pro-democratic, and pro-government. There isn’t a single call in here to restrict democracy, shrink the size of the government, or completely overhaul anything major. They’re incrementalist, pragmatic, and give me a tiny bit of hope we might one day even be able to conquer zoning.
Rent-seeking is easiest when democracy is opaque, when it is speedy, when it is polarized, and when it is difficult for independent organizations to supply high-quality information to politicians.
One of the right-wing policies that Lindsey and Teles are harshest on are efforts to slash and burn the civil service. They claim that this has left the civil service unable to come up with policies or data of its own. They’re stuck trusting the very people they seek to regulate for any data about the effects of their regulations.
Obviously, there are problems with this, even though it doesn’t seem to extend to outright horse-trading or data-manipulation. It’s relatively easy to nudge peoples’ decision making by choosing how data is presented. Just slightly overstate the risks and play down the benefits. Or anchor someone with a plan you know they’re primed to like and don’t present them any alternatives that would hurt your bottom line. No briefcases of money change hands, but government is corrupted nonetheless .
To combat this, Lindsey and Teles suggest that all committees in the US House and Senate should have a staffing budget sufficient to hire numerous staffers, some of whom would work for the committee as a whole and others who would work for individual members. Everything would get reshuffled every two years, with a rank-match system used to assign preferences. Employee quality would be ensured by paying market-competitive salaries and letting go anyone who was too-consistently ranked low.
(Better salaries would also end the practice of staffers going to work for lobbyists after several years, which isn’t great for rent-seeking.)
Having staff assigned to committees, rather than representatives on a permanent basis prevents representatives from diverting these resources to their re-election campaigns. It also might build bridges across partisan divides, because staff would be free from an us vs. them mentality.
The current partisan grip on politics can actually help rent-seeking. Lindsey and Teles claim that when partisanship is high, party discipline follows. Leaders focus on what the party agrees on. Unfortunately, neither party is in any sort of agreement with itself about combatting rent-seekers, even though fighting rent-seeking offers a compelling way to spur economic growth (ostensibly a core Republican priority) and decrease economic inequality (ostensibly a core Democratic priority).
If partisanship was less severe and the coalitions less uniform, leaders would have less power over their caucuses and representatives would search for ways to cooperate across the aisle whenever doing so could create wins for their constituents. This would mark a return to the “strange-bedfellows” temporary coalitions of bygone times. Perhaps one of these coalitions could be against rent-seeking ?
Lindsey and Teles also call for more issues to be decided in general jurisdictions where public interest and opportunity for engagement are high. They point to studies that show teachers can extract rents when budgets are controlled by school boards (which are obscure and easily dominated by unions). When schools are controlled by mayors, it becomes much harder for rents to be extracted, because the venue is much broader. More people care about and vote for municipal representatives and mayors than attend school board meetings.
Similarly, they suggest that we should very rarely allow occupation licensing to be handled by the profession itself. When a professional licensing body stacked with members of the profession decides standards, they almost always do it for their own interest, not for the interest of the broader public. State governments, one the other hand, are better at considering what everyone wants.
Finally, politics cannot be too quick. If it’s possible to go from drafting a bill to passing it in less time than it takes to read it, then it’s obviously impossible to build up a public pressure campaign to stop any nastiness in it. If bills required one day of debate for every hundred pages in them and this requirement (or a similar one) was inviolable, then if someone buried something nasty in it (say, a repeal of a nation’s prevailing currency standards), people would know, would be able to organize, and would be able to make the electoral consequences of voting for it clear to their representatives.
To get to a point where any of this is possible, Lindsey and Teles suggest building up a set of policies on the local, state, and national levels and working to build public support for them. With these policies existing in the sidelines, it will be possible to grab any political opportunity – the right scandal or outrage, perhaps – and pressure representatives to stand up against entrenched interests. Only in these moments when everyone is paying attention can we make it clear to politicians that their careers depend most on satisfying our desires than they do on satisfying the desires of the people who fund their campaign. Since these moments are rare, preparation for them is key. It isn’t enough to start looking for a solution when an opportunity presents itself. If we don’t move quickly, the rent-seekers will.
This book is, I think, the opening salvo in this war. Its slim and its purpose is to introduce people from across the political spectrum to the problem of rent-seeking and galvanize them to prepare for when the time is right. Its’ authors are high profile economists with major backing. Perhaps this is also a signal that similar backing might be available for anyone willing to innovate around anti-rent-seeking policy?
For my part, I had opposed rent-seeking because I knew it hurt economic growth. I hadn’t understood just how much it contributed to income inequality. Rent-seeking increases corporate profits, making capitalists far wealthier than labourers can ever hope to be. It inflates the salaries of already wealthy professionals at the cost of everyone else and locks people without college degrees out of all but the most moribund or dangerous parts of the job market. It leads bankers to speculate wildly, in a way that occasionally brings down the economy. And it makes the humble home-owners of last generation the millionaires of this one, while pricing millions out of what was once a rite of passage.
Lindsey and Teles convinced me that fighting rent-seeking is entirely consistent with my political commitments. Municipal elections are coming up and I’m committed to finding and volunteering for any candidate who is consistently anti-zoning. If none exists, then I’ll register myself. Winning almost isn’t the point. I want to be one of those people getting the word out, showing that alternatives to the current broken system is possible.
And when the time is right, I want to be there when those alternatives supplant the rent-seekers.
 Rent-seeking doesn’t necessarily have to lead to increased inequality. Strict immigration controls, monopolies, strong unions, and strict tariffs all extract rents. These rents, however, tend to distribute down or sideways, so don’t really increase inequality. ^
 Banks don’t keep enough money on hand to cover deposits entirely, because they need to lend out money to make money. If banks didn’t lend money, you’d have to pay them for the privilege of parking your money there. This means that banks run into a problem when everyone tries to withdraw their money at once. Eventually, there will be no more money and the bank will fail. This used to happen all the time.
Before deposits were insured, it was only rational to withdraw your money if you thought there was even a small chance of a bank run. If you didn’t withdraw your money from a bank without deposit insurance and a bank run happened, you would lose your whole deposit.
Bank architecture reflects this risk. Everything about the imposing facades of old banks is supposed to make you think they’re as stable as possible and so feel comfortable keeping your money there. ^
 I wonder if this generalizes? Would a parliament full of engineers be obsessed with optimization and fond of very clear laws? Would a parliament full of doctors spend a lot of time running a differential diagnosis on the nation? Certainly military dictators excel at seeing everyone as an enemy on whom force can be justifiably used. ^
 College graduates in the wealthiest cities make 61% more money than college graduates in the least wealthy cities, while people with only high school degrees make 137% more in the richest cities compared to the poorest cities. This suggests that it’s possible high school graduates are much better off in wealthy cities, but it could also be true that college graduates fall prey to money illusions or are willing to pay a premium to live in a place that provides them with many more opportunities for new experiences. ^
 I think there will also always be social factors preventing people from moving, but perhaps these factors would weigh less heavily if real wage differences between thriving cities and declining areas weren’t driven down by inflated real estate prices in cities. ^
 This is perhaps the most invidious – and unintended – consequence of Stephen Harper’s agenda for Canada. Cutting the long form census made it harder for the Canadian government to enact social policies (Harper’s goal), but if these sorts of actions aren’t checked, reversed, and guarded against, they also make rent-seeking much more likely. ^
 In Canadian politics, I have hope that some sort of housing affordability coalition could form between some members from left-leaning parties and some principled free-marketers. Michael Chong already has a plan to lower housing prices by getting the government out of the loan securitization business. No doubt banks wouldn’t enjoy this, but I for one would appreciate it if my taxes couldn’t be used to bail out failing banks. ^
I write today about a speech that was once considered the greatest political speech in American history. Even today, after Reagan, Obama, Eisenhower, and King, it is counted among the very best. And yet this speech has passed from the history we have learned. Its speaker failed in his ambitions and the cause he championed is so archaic that most people wouldn’t even understand it.
I speak of Congressman Will J Bryan’s “Cross of Gold” speech.
William Jennings Bryan was a congressman from Nebraska, a lawyer, a three-time Democratic candidate for president (1896, 1900, 1908), the 41st Secretary of State, and oddly enough, the lawyer for the prosecution at the Scopes Monkey Trial. He was also a “silver Democrat”, one of the insurgents who rose to challenge Democratic President Grover Cleveland and the Democratic party establishment over their support for gold over a bimetallic (gold plus silver) currency system.
The dispute over bimetallic currency is now more than a hundred years old and has been made entirely moot by the floating US dollar and the post-Bretton Woods international monetary order. Still, it’s worth understanding the debate about bimetallism, because the concerns Bryan’s speech raised are still concerns today. Once you understand why Bryan argued for what he did, this speech transforms from dusty history into still-relevant insights into live issues that our political process still struggles to address.
When Alexander Hamilton was setting up a currency system for the United States, he decided that there would be a bimetallic standard. Both gold and silver currency would be issued by the mint, with the US Dollar specified in terms of both metals. Any citizen could bring gold or silver to the mint and have it struck into coins (for a small fee, which covered operating costs).
Despite congressional attempts to tweak the ratio between the metals, problems often emerged. Whenever gold was worth more by weight than it was as currency, it would be bought using silver and melted down for profit. Whenever the silver dollar was undervalued, the same thing happened to it. By 1847, the silver in coins was so overvalued that silver coinage had virtually disappeared from circulation and many people found themselves unable to complete low-value transactions.
Congress responded by debasing silver coins, which led to an increase in the supply of coins and for a brief time, there was a stable equilibrium where people actually could find and use silver coins. Unfortunately, the equilibrium didn’t last and the discovery of new silver deposits swung things in the opposite direction, leading to fears that people would use silver to buy gold dollars and melt them down outside the country. Since international trade was conducted in gold, it would have been very bad for America had all the gold coins disappeared.
Congress again responded, this time by burying the demonetization of several silver coins (including the silver dollar) in a bill that was meant to modernize the mint. The logic here was that no one would be able to buy up any significant amount of gold if they had to do it in nickels. Unfortunately for congress, a depression happened right after they passed the bill.
Some people blamed the depression on the change in coinage and popular sentiment in some corners became committed to the re-introduction of the silver dollar.
The silver supplies that caused this whole fracas hadn’t gone anywhere. People knew that re-introducing silver would have been an inflationary measure, as the statutory amount of silver in a dollar would have been worth about $0.75 in gold backed currency, but they largely didn’t care – or viewed that as a positive. The people clamouring for silver also didn’t conduct much international trade, so they didn’t mind if silver currency drove out gold and made trade difficult.
There were attempts to remonetize the silver dollar over the next twenty years, but they were largely unsuccessful. A few mine owners found markets for their silver at the mint when law demanded a series of one-off runs of silver coins, but congress never restored bimetallism to the point that there was any significant silver in circulation – or significant inflation. Even these limited silver-minting measures were repealed in 1893, which left the United States on a de facto gold standard.
For many, the need for silver became more urgent after the Panic of 1893, which featured everything a good Gilded Age panic normally did – bank runs, failing railways, declines in trade, credit crunches, a crash in commodity prices, and the inevitable run on the US gold reserves.
The commodity price crash hit farmers especially hard. They were heavily indebted and had no real way to pay it off – unless their debts were reduced by inflation. Since no one had found any large gold deposits anywhere (the Klondike gold rush didn’t actually produce anything until 1898 and the Fairbanks gold rush didn’t occur until 1902), that wasn’t going to happen on the gold standard. The Democrat grassroots quickly embraced bimetallism, while the party apparatus remained supporters of the post-1893 de facto gold standard.
This was the backdrop for Bryan’s Cross of Gold speech, which took place during summer 1896 at the Democratic National Convention in Chicago. He was already a famed orator and had been petitioning members of the party in secret for the presidential nomination, but his plans weren’t well known. He managed to go almost the entire convention without giving a speech. Then, once the grassroots had voted out the old establishment and began hammering out the platform, he arranged to be the closing speaker representing the delegates (about 66% of the total) who supported official bimetallism.
The convention had been marked by a lack of any effective oratory. In a stunning ten-minute speech (that stretched much longer because of repeated minutes-long interruptions for thunderous applause) Bryan singlehandedly changed that and won the nomination.
And this whole thing, the lobbying before the convention and the carefully crafted surprise moment, all of it makes me think of how effective Aaron Swartz’s Theory of Change idea can be when executed correctly.
Theory of Change says that if there’s something you want to accomplish, you shouldn’t start with what you’re good at and work towards it. You should start with the outcome you want and keep asking yourself how you’ll accomplish it.
Bryan decided that he wanted America to have a bimetallic currency. Unfortunately, there was a political class united in its opposition to this policy. That meant he needed a president that favoured it. Without the president, you need to get 66% of Congress and the Senate onboard and that clearly wasn’t happening with the country’s elites so hostile to silver.
Okay, well how do you get a president who’s in favour of restoring silver as currency? You make sure one of the two major parties nominates a candidate in favour of it, first of all. Since the Republicans (even then the party of big business) weren’t going to do it, it had to be the Democrats.
That means the question facing Bryan became: “how do you get the Democrats to pick a presidential candidate that supports silver?”
And this question certainly wasn’t easy. Bryan on his own couldn’t guarantee it, because it required delegates at least sympathetic to the idea. But there was a national backdrop such that that seemed likely, as long as there was a good candidate all of the “silver men” could unite around.
So, Bryan needed to ensure there was a good candidate and that that candidate got elected. Well, that was a problem, because neither of the two leading silver candidates were very popular. Luckily, Bryan was a Democrat, a former congressman, and kind of popular.
I think this is when the plan must have crystalized. Bryan just needed to deliver a really good speech to an already receptive audience. With the cachet from an excellent speech, he would clearly become the choice of silver supporting Democrats, become the Democratic party presidential candidate, and win the presidency. Once all that was accomplished, silver coins would become money again.
The fantastic thing is that it almost worked. Bryan was nominated on the Democratic ticket, absorbed the Populist party into the Democratic party to prevent a vote split, and came within 600,000 votes of winning the presidency. All because of a plan. All because of a speech.
So, what did he say?
Well, the full speech is available here. I do really recommend it. But I want to highlight three specific parts.
A Too Narrow Definition of “Business”
We say to you that you have made the definition of a business man too limited in its application. The man who is employed for wages is as much a business man as his employer; the attorney in a country town is as much a business man as the corporation counsel in a great metropolis; the merchant at the cross-roads store is as much a business man as the merchant of New York; the farmer who goes forth in the morning and toils all day—who begins in the spring and toils all summer—and who by the application of brain and muscle to the natural resources of the country creates wealth, is as much a business man as the man who goes upon the board of trade and bets upon the price of grain; the miners who go down a thousand feet into the earth, or climb two thousand feet upon the cliffs, and bring forth from their hiding places the precious metals to be poured into the channels of trade are as much business men as the few financial magnates who, in a back room, corner the money of the world. We come to speak of this broader class of business men.
In some ways, this passage is as much the source of the mythology of the American Dream as the inscription on the statue of liberty. Bryan rejects any definition of businessman that focuses on the richest in the coastal cities and instead substitutes a definition that opens it up to any common man who earns a living. You can see echoes of this paragraph in almost every presidential speech by almost every presidential candidate.
Think of anyone you’ve heard running for president in recent years. Now read the following sentence in their voice: “Small business owners – like Monica in Texas – who are struggling to keep their business running in these tough economic times need all the help we can give them”. It works because “small business owners” has become one of the sacred cows of American rhetoric.
Bryan added this line just days before he delivered the speech. It was the only part of the whole thing that was at all new. And because this speech inspired a generation of future speeches, it passed into the mythology of America.
Trickle Down or Trickle Up
Mr. Carlisle said in 1878 that this was a struggle between “the idle holders of idle capital” and “the struggling masses, who produce the wealth and pay the taxes of the country”; and, my friends, the question we are to decide is: Upon which side will the Democratic party fight; upon the side of “the idle holders of idle capital” or upon the side of “the struggling masses”? That is the question which the party must answer first, and then it must be answered by each individual hereafter. The sympathies of the Democratic party, as shown by the platform, are on the side of the struggling masses who have ever been the foundation of the Democratic party. There are two ideas of government. There are those who believe that, if you will only legislate to make the well-to-do prosperous, their prosperity will leak through on those below. The Democratic idea, however, has been that if you legislate to make the masses prosperous, their prosperity will find its way up through every class which rests upon them.
Almost a full century before Reagan’s trickle-down economics, Democrats were taking a stand against that entire world-view. Through all its changes – from the party of slavery to the party of civil rights, from the party of the Southern farmers to the party of “coastal elites” – the Democratic party has always viewed itself as hewing to this one simple principle. Indeed, the core difference between the Republican party and the Democratic party may be that the Republican party views the role of government to “get out of the way” of the people, while the Democratic party believes that the job of government is to “make the masses prosperous”.
A Cross of Gold
Having behind us the producing masses of this nation and the world, supported by the commercial interests, the laboring interests, and the toilers everywhere, we will answer their demand for a gold standard by saying to them: “You shall not press down upon the brow of labor this crown of thorns; you shall not crucify mankind upon a cross of gold.
This is perhaps the best ending to a speech I have ever seen. Apparently at the conclusion of the address, dead silence endured for several seconds and Bryan worried he had failed. Two police officers in the audience were ahead of the curve and rushed Bryan – so that they could protect him from the inevitable crush.
Bryan turned what could have been a dry, dusty, nitty-gritty issue into the overriding moral question of his day. In fact, by co-opting the imagery of the crown of thorns and the cross, he tapped into the most powerful vein of moral imagery that existed in his society. Invoking the cross, the central mystery and miracle of Christianity cannot but help to put (in a thoroughly Christian society) an issue on a moral footing, as opposed to an intellectual one.
This sort of moral rather than intellectual posture is a hallmark of any insurgency against a technocratic order. Technocrats (myself among them!) like to pretend that we can optimize public policy. It is, to us, often a matter of just finding the solution that empirically provides the greatest good to the greatest number of people. Who could be against that?
But by presupposing that the only moral principle is the greatest good for the greatest number, we obviate moral contemplation in favour of tinkering with numbers and variables.
(The most cutting critique of utilitarianism I’ve ever seen delivered was: “[These problems are] seen in the light of a technical or practical difficulty and utilitarianism appeals to a frame of mind in which technical difficulty, even insuperable technical difficulty, is preferable to moral unclarity, no doubt because it is less alarming.”, a snide remark by the great British ethicist Sir Bernard Williams from his half of Utilitarianism for and against.)
This avoiding-the-question-so-we-can-tinker is a policy that can provoke a backlash like Bryan. Leaving aside entirely the difficulty of truly knowing which policies will have “good” results, there’s the uncomfortable truth that not every policy is positive sum. Even positive sum policies can hurt people. Bryan ran for president because questions of monetary policy aren’t politically neutral.
The gold standard, for all the intellectual arguments behind it, was hurting people. Maybe not a majority of people, but people nonetheless. There’s a whole section of the speech where Bryan points out that the established order cannot just say “changes will hurt my business”, because the current situation was hurting other people’s businesses too.
It is very tempting to write that questions of monetary policy “weren’t” politically neutral. After all, there’s a pretty solid consensus on monetary policy these days (well, except for the neo-Fisherians, but there’s a reason no one listens to them). But even (especially) a consensus among experts can be challenged by legitimate political disagreements. When the Fed chose to pull interest rates low as stimulus for the economy after 2008, it put the needs of people trying to find jobs over those of retired people who held their savings in safe bonds.
If you lower speed limits, you make roads safer for law abiding citizens and less safe for people who habitually speed. If you decriminalize drugs, you protect rich techies who microdose on LSD and hurt people who view decriminalization as license to dabble in opiates.
Even the best intentioned or best researched public policy can hurt people. Even if you (like me) believe in the greatest good for the greatest number of people, you have to remember that. You can’t ever let hurting people be easy or unthinking.
Even though it failed in its original aim and even though the cause it promotes is dead, I want people to remember Bryan’s speech. I especially want people who hold power to remember Bryan’s speech. Bryan chose oratory as his vehicle, his way of standing up for people who were hurt by well-intentioned public policy. In 1896, I might have stood against Bryan. But that doesn’t mean I want his speech and the lessons it teaches to be forgotten. Instead, I view it as a call to action, a call to never turn away from the people you hurt, even when you know you are doing right. A call to not forget them. A call to try and help them too.
“Hi I’m Zach. I’m out here canvasing for Catherine Fife, Andrea Horwath, and the NDP. I was wondering if Catherine could count on your support this election…” is now a sentence I’ve said hundreds of times.
Ontario had a provincial election on June 7th. I wasn’t fond of the Progressive Conservative (PC) Party’s leader, one Doug Ford, so I did what I could. I joined the PC party to vote for his much more qualified rival, Christine Elliot. When that failed, I volunteered for Waterloo’s NDP Member of Provincial Parliament (MPP), Catherine Fife.
As a volunteer, I knocked on more than a thousand doors and talked to more than two hundred people. I went out canvassing eight times. According to Google Maps and its creepy tracking, I walked about 24 kilometers while doing this (and have still-sore feet to prove it).
Before I started canvassing, I knew basically nothing about it. I knew I’d be knocking on people’s doors, but beyond that, nadda. Would I be trying to convince them? Handing out signs? Asking for money?
The actual experience turned out to be both scarier and more mundane than I imagined, so I’ve decided to document it for other people who might be interested in canvassing but aren’t sure what it entails.
The first thing you need to know about canvassing by foot is that it can be physically draining. Water was a must, as some of the days I canvassed featured 31ºC (88ºF) temperatures, full sunlight, and 70% humidity. I sweated more canvassing than I did hiking in Death Valley a few weeks before. Death Valley was hotter, but as anyone who has experienced a summer in Ontario can attest, humidity is what really makes heat miserable. From what I’ve heard, even the worst summer heat and humidity still beats canvassing in the winter.
The campaign helpfully supplied sunscreen and water bottles. They didn’t provide anything to carry all the leaflets in though. After the first day, I brought a messenger bag along. It turns out carrying hundreds of leaflets for several hours without resting can leave your arms hurting for a week. I only made that mistake once.
(Plus, as the campaign wore on, we switched to smaller literature. Literally every canvasser I talked to was very, very excited by the switch.)
The second thing you need to know about canvassing is that it’s an emotional rollercoaster. Not because of the people, but because of the lack of people.
Depending on the time of day and the neighbourhood, I spoke to somewhere between one person for every five doors I knocked on and one person for every fifteen doors I knocked on. I’d get myself psyched up, mentally rehearse my speech, double check the house number, walk up to it, press the doorbell… then wait foolishly while nothing happened.
Sometimes I suspected the doorbell was broken. When I was pretty sure it was, I’d knock as well. Sometimes the knocking did indeed result in someone answering the door, but most of the time the house was just empty. I did have one person hide behind some equipment in their kitchen as I walked up to the door. They ignored the doorbell and my soft, confused knock. I saw them checking if the coast was clear as I trudged away from the front step.
The constant build-up of energy, followed by the all-to-common let down and dejected walk back to the sidewalk exhausted me more than talking with people did. More than half of the people we talked to were supporting our candidate or leaning towards her (she won the vote with 51% support, a crushing margin in a system where many candidates win with support just over 40%) so a majority of my conversation were energizing. It’s fun to discover shared purpose with strangers.
I can’t tell you how much I was grateful to all of the strangers I talked to. I know intellectually that some people really dislike the NDP and don’t like anything it stands for, but you wouldn’t know it from telling more than 200 random people whose dinner you just interrupted that you support the NDP. Not one single person said a mean thing to me.
Many were annoyed by the state of politics. Some didn’t like the party’s policies. Some weren’t interested in politics. But everyone heard me out politely. Some quickly asked me to leave, but no one slammed a door in my face. One man did close his door in my face, but not even the most uncharitable person couldn’t call it a slam. Besides, he said bye and made sure I wasn’t going to be hit by the door.
Many people followed up “sorry, I’m voting for the conservatives”, with “but good luck out there”. Several people asked if I needed a break, some shade, some water. Maybe things would have been different if I’d been out for the Liberals (who were deeply unpopular after 15 years governing) or the Conservatives (with their polarizing leader), but as it was I was impressed by the kindness and politeness of my fellow citizens.
(If you see a canvasser on your doorstep and don’t agree with their party’s positions, please be nice to them. They’re doing what they’re doing out of a sincere desire to make the world a better place. Even if you think they’re misguided, you aren’t going to change anything by being nasty to them. On the flip side, if you find yourself canvassing, it will never be in your interest to be nasty to anyone. I learned that someone high up in the campaign started volunteering for the NDP when a Conservative candidate was rude and patronizing to him at the door. “Be nice” was the very first rule of canvassing.)
Canvassing really isn’t about convincing people. We had scripts for that, but as far as I know, most people didn’t use them much. The doorstep really isn’t the best place to try and change someone’s political views and the time we would spend trying to convince people was normally considered better spent knocking on more doors.
Our actual objective was to figure out who our supporters were and who was open to being convinced. After each conversation, we’d jot down a level of support, any alternative parties being considered, and any issues the person cared about. We had specific shorthands for common occurrences, like people who were ineligible to vote, who had moved, or who didn’t want to talk to us (if you tell a canvasser not to bother you, they will stop coming to your house; this is a corollary of “be nice”, as the last thing we want is to annoy someone into helping our opponents). We’d also offer people literature about our platform. If no one was home, we’d leave it in the mailbox. I was told the notes we took could influence future phone calls (e.g. if we said “hospitals”, people might be talked with about healthcare policy) or help Catherine when she went canvassing
We were working from lists provided by Elections Ontario and augmented by the party databases. We knew what people had told past canvassers about their support for the NDP, going all the way back to 2012. These lists were correct about 80-90% of the time. Most often, mistakes were the fault of Elections Ontario; they were particularly bad at telling us when people were actually permanent residents and ineligible to vote. Beyond “not home” and “won’t say”, “ineligible to vote” become my third most common annotation.
Part of our job was to update these lists for the next election. That entailed asking for names, if someone new was living there and verifying phone numbers. I hated verifying phone numbers. I understand the necessity behind it, I really do, but it was far and away the most awkward part of canvassing. Right when every social instinct I had was telling me my interaction with someone was over, I had to ask for a piece of information they probably didn’t want to give me. I’m sure I’ll get used to it – the experienced canvasser who taught me the ropes was particularly adept at asking for numbers – but it was far and away my least favourite part.
Much easier to ask about was advanced polling, signs, and volunteering. These questions only got asked to our strongest supporters, so we knew we were getting a friendly audience. I had three people agree to take signs over my eight days of canvassing, which is less than the experienced canvasser who showed me the ropes got in our first night out. I hope one day to be as good at getting people to show support as he was.
What else? Kids are the best part. I got to watch as a father explained to his little girl that the NDP wasn’t the type of party that had cake. I got to watch a little girl jump up and down with enthusiasm for Catherine. She had seen her at a school visit and thought she was the coolest thing ever. This really struck home the importance of representation in politics to me. Maybe that girl will never lose her admiration and will grow up to seek office herself someday. Would as many girls be able to imagine themselves as MPPs if they only ever saw men in that role?
There were less happy moments. I met a woman who quizzed me in depth on our healthcare platforms before telling me that if that’s what we stood for, we had her vote. Her husband was in the hospital. I saw a notation on a canvassing sheet that said “do not bother – funeral”. I talked with a man who had been turned away at a poll, despite the fact that he was a citizen. I met a mother who relied on the Hydro tax credit to make ends meet.
Their voices were important and I did what I could to make sure they’d be heard, but I can see how people can lose themselves in politics. What is “enough” when someone is hurting in front of you? I like cold equations and cost-benefit analyses. It’s the type of person I am. But when you see someone hurting, all of that flies out of your head and you want to shake the system until someone helps them.
Or at least, I wanted to.
The great political theorist Hannah Arendt once said: “And the first thing I’d like to say, you see, is that going along with the rest—the kind of going along that involves lots of people acting together—produces power. So long as you’re alone, you’re always powerless, however strong you may be. This feeling of power that arises from acting together is absolutely not wrong in itself, it’s a general human feeling. But it’s not good, either. It’s simply neutral. It’s something that’s simply a phenomenon, a general human phenomenon that needs to be described as such. In acting in this way, there’s an extreme feeling of pleasure.”
When I read this, the first time, I skimmed over it. To me, the important thing was what she said next, about “merely functioning” and how thinking is a vehicle to doing good, the concerns that defined her work.
But after my second time canvassing, I read this again and I teared up. “How did she know?”, I wondered.
The answer, of course, is that she participated in politics and knew the joys of acting as a group, of organizing, of working together for a common goal, a common good. And I feel so incredibly privileged that I now know that joy, that “extreme pleasure” too.
For that, I’d like to thank everyone in Catherine Fife’s campaign and everyone in Waterloo who put up with me on their doorstep. Thank you, all of you, for being part of what makes politics and representative democracy work.
I like to keep track of my life over time. I’m an obsessive journaler (and, as this blog can attest, a fairly regular blogger). At the end of every day, I track my mood, my sleep, my productivity, my social life, and how well I did in spaced repetition exercises. Last May, I decided to track one more thing about myself and start a tradition of publishing my Political Compass results yearly.
I’m a bit late this year (I kept the title because I started the post in May) because there’s actual politics happening; I’ve been volunteering for my local MPP’s re-election campaign. Of explanations for being late with a politics related blog post, that might be the best one I ever give.
Last year, I scored -3.25 on the economic axis and -6.56 on the authority axis.
This year I scored -2.0 on the economic axis and -6.46 on the authority axis, leaving me in the left libertarian camp, although continuing a seemingly inexorable trend towards economic centrism.
While my position on authority has remained virtually unchanged (I’m sure the difference was random fluctuation in how I might answer borderline questions), I do think I have meaningfully (although not largely) different views on economics than I did a year ago and I think there were two key object level updates that drove this change.
The first was the overview of rent-seeking in The Captured Economy (review forthcoming). I was already skeptical of regulation in 2017. The Captured Economy turned this up to 11 when it showed how a lot of regulation actually results in redistribution of wealth from people who are struggling to people who are affluent.
To take just one example, let’s talk about occupational licensing.
Many areas have occupational licensing. You have to complete training and apply to a licensing board in order to practice certain professions. In some cases, this makes sense. You want to know that the person building the bridge you drive across or removing your appendix really does know what they’re doing.
For other professions, the stakes are somewhat lower. There are certainly consequences if your barber doesn’t know what they’re doing. These consequences can even be quite severe if, say, improper sterilization techniques lead you to catch a blood borne disease. It would be reasonable to require all barbers to take a blood borne disease safety course every two years and have them post a proof of completion in their shops.
There is no conceivable world in which interior designers need to be held to higher regulatory standards than EMTs. None!
This isn’t a knock on barbers. I have seen just how much difference a good haircut can make. I could never in a million years do the job that interior decorators do. What I probably could do is pass a certification course on either subject. Aesthetics, the true marker of a master in either field can rarely be taught or properly judged in a classroom. But that is exactly what a lot of occupational licensing boils down to.
Really, it seems that all most occupational licensing does is raise barriers to many relatively well compensated and respected positions for people who are unlucky enough to have no education beyond a high school diploma or GED. I can see why people already in those professions would want this. Lower supply means that they can charge higher prices. They’re padding their margins at the cost of everyone who doesn’t have the free time or energy to take the necessary licensing classes (like people who work exhausting jobs or lack reliable work schedules).
If there was no occupational licensing, or if licensing was restricted to minimal courses on necessary safety for an occupation, many more people would have access to careers like hairdressing or interior decorating, careers that often pay better and afford more respect than minimum wage jobs; careers where you can be your own boss (if you’re into that sort of thing).
I know of at least one person who found out they were good at giving haircuts, but just couldn’t sit through all the schooling that was needed for a license. So now they’re giving illegal haircuts. They advertise with word of mouth, because they’re good illegal haircuts, but the whole situation, the whole idea that we can have illegal haircuts is ridiculous.
Long ago, I used to think that regulation was mostly about stopping manufacturers from dumping industrial waste in every nearby pristine forest. But now my sense is that the majority of regulation is like the rules making it illegal to give haircuts if you don’t first drop more than $3,500 on school.
The second object level update was learning just how important monetary policy was to the economy.
For a long time, I had accepted the liberal pseudo-Keynesian economical orthodoxy: we need to spend lots of money when times are rough in order to stimulate aggregate demand . Over the past year, I’ve read some monetarypolicyblogs and have started to understand that things are rather more complicated than the simple concepts I used to parrot.
I still don’t have as rigorous a grounding in economics as I would like (that’s one of the things I’d like to work on this year), but as I begin to learn more, I do find myself shifting to the economic centre because that seems to be where the truth is to be found.
I remain committed to a society that ensures enough for everyone. But I think over the past year I’ve become more disillusioned with the general level of economic literacy on the left (even in relation to myself!)  and more skeptical of the left’s ability to create the sort of plenty I still think we’re going to need to ensure human flourishing.
Last year, I made six predictions about how my political views would change over the coming year and all of them turned out to be correct . They were:
I will have an economic score > -2.25: 50%
I will have an economic score > -4.25: 80%
My top level economic identity will still be “capitalist”: 80%
I will have an authority score > -7.56: 70%
I will have an authority score < -5.56: 90%
My top level social identity will still be “libertarian”: 90%
I like this as a concept, so I’m going to try it again. My predictions for this year are:
I will still be on the left side of the graph: 80%
I will move further to the right economically: 80%
My position on the social axis will not change by more than 0.5 points: 90%
My top level political identities will not change: 90%
I will actually read an economics textbook before May 2019: 70%
I hope these predictions are more properly calibrated than my last ones!
 The common liberal take on this is different from pure Keynesian economics, because they don’t restrict “times are tough” to recessions and depressions. For a lot of modern people who say they just “support Keynesian economics” (and I was one of them), it’s always tough times for someone. ^
 I basically never see monetary policy even mentioned on the left. My guess is this is because the left largely views this as simple bean counting that is nowhere near as interesting or important as making sure we have lots of spending on social programs. Reality seems to be different, especially when you get it wrong. ^