Economics, Politics, Quick Fix

Why Linking The Minimum Wage To Inflation Can Backfire

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.

I think decreasing purchasing power is a serious problem (especially because of its complicated intergenerational dynamics), but I think this is one of the worst possible ways to deal with it.

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.

Minimum wages are just one way we can do this. Wage subsidies or a Universal Basic Income are both being discussed with increasing frequency these days.

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.

Economics, Politics

Book Review: The Captured Economy

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.

Image courtesy of the St. Louis Fed. I continue to appreciate that all US Government media has no copyright.

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.

All of these trends have now stagnated or reversed. It’s hard for developed countries to get any more educated. Most of the women who want to or have to work are already in the labour force. And the Boomers are starting to retire. Therefore, we can no longer rely on strong underlying growth. We either need a lot of investment or a lot of productivity growth if we’re going to see strong overall growth. And it’s politically hard to get people to delay their consumption to invest.

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 [1]. 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.

Finance

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 [2], 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 [3]? Many (most?) people support paying authors, artists, and inventors for their creations, at least in the abstract [4]. 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 [5]); 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

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 [6].

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!

Zoning

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 [7]?

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 [8].

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.)

Zoning isn’t great anywhere, but it’s worst in the Bay Area and in New York. 75% of the economic costs of misallocated labour and lost productivity growth come from New York, San Francisco, and San Jose. Furthermore, housing might be entirely responsible for Thomas Piketty’s conclusion that we’re doomed to a spiraling cycle of inequality.

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:

Why should I get a say in whether a local commercial landlord provides the businesses in their building slightly smaller parking spots? Shouldn’t we be aiming for a walkable, decarbonized downtown where parking is irrelevant? That’s what all the plans call for. Of course, the whole thing makes sense if it isn’t about what size parking spots should be and is about making it impossible for anyone to build anything in my downtown neighbourhood.

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 [9].

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 [10]?

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.

Footnotes

[1] 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. ^

[2] 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. ^

[3] Socialists. ^

[4] The rise of streaming and torrenting suggests that this is more often held as an abstract principle than it is followed “in the breach”. ^

[5] See also his argument for why we shouldn’t retroactively grant new exclusivity on generics. ^

[6] 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. ^

[7] 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. ^

[8] 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. ^

[9] 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. ^

[10] 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. ^

Economics, History, Politics

A Cross of Gold: The Best Speech You’ve Never Heard

Friends, lend me your ears.

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.

All About Me, Politics

What I learned knocking on thousands of doors – thoughts on canvassing

“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.

All About Me, Politics

Political Views for May 2018

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.

The Results

Last year, I scored -3.25 on the economic axis and -6.56 on the authority axis.

Canadian results come from The Political Compass’s take on the 2015 Canadian election. Blog commenter Thomas Sm suggests you should take the comparison with a grain of salt and I’m somewhat inclined to believe him.

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.

But that isn’t what we do. What we do is require, by law, barbers and interior decorators to go through more training than EMTs.

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 [1]. Over the past year, I’ve read some monetary policy blogs 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!) [2] 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.

Predictions

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 [3]. They were:

  1. I will have an economic score > -2.25: 50%
  2. I will have an economic score > -4.25: 80%
  3. My top level economic identity will still be “capitalist”: 80%
  4. I will have an authority score > -7.56: 70%
  5. I will have an authority score < -5.56: 90%
  6. 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:

  1. I will still be on the left side of the graph: 80%
  2. I will move further to the right economically: 80%
  3. My position on the social axis will not change by more than 0.5 points: 90%
  4. My top level political identities will not change: 90%
  5. I will actually read an economics textbook before May 2019: 70%

I hope these predictions are more properly calibrated than my last ones!

Footnotes

[1] 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. ^ 

[2] 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. ^

[3] This is probably more evidence that I’m under-confident. ^

Literature, Politics

Book Review: Enlightenment 2.0

It is a truth universally acknowledged that an academic over the age of forty must be prepared to write a book talking about how everything is going to hell these days. Despite literally no time in history featuring fewer people dying of malaria, dying in childbirth, dying of vaccine preventable illnesses, etc., it is very much in vogue to criticise the foibles of modern life. Heck, Ross Douthat makes a full-time job out of it over at the New York Times.

Enlightenment 2.0 is Canadian academic Joseph Heath’s contribution to the genre. If the name sounds familiar, it’s probably because I’ve referenced him a bunch of times on this blog. I’m very much a fan of his book Filthy Lucre and his shared blog, induecourse.ca. Because of this, I decided to give his book (and only his book) decrying the modern age a try.

Enlightenment 2.0 follows the old Buddhist pattern. It claims that (1) there are problems with contemporary politics, (2) these problems arise because politics has become hostile to reason, (3) there is a way to have a second Enlightenment restore politics to how they were when they were ruled by reason, and (4) that way is to build politics from the ground up that encourage reason.

Now if you’re like me, you groaned when you read the bit about “restoring” politics to some better past state. My position has long been that there was never any shining age of politics where reason reigned supreme over partisanship. Take American politics. They became partisan quickly after independence, occasionally featured duels, and resulted in a civil war before the Republic even turned 100. America has had periods of low polarization, but these seem more incidental and accidental than the true baseline.

(Canada’s past is scarcely less storied; in 1826, a mob of Tories smashed proto-Liberal William Lyon Mackenzie’s printing press and threw the type into Lake Ontario. Tory magistrates refused to press charges. These disputes eventually spiralled into an abortive rebellion and many years of tense political stand-offs.)

What really sets Heath apart is that he bothers to collect theoretical and practical support for a decline in reason. He’s the first person I’ve ever seen explain how reason could retreat from politics even as violence becomes less common and society becomes more complex.

His explanation goes like this: imagine that once every ten years politicians come up with an idea that helps them get elected by short-circuiting reason and appealing to baser instincts. It gets copied and used by everyone and eventually becomes just another part of campaigning. Over a hundred and fifty years, all of this adds up to a political environment that is specifically designed to jump past reason to baser instincts as soon as possible. It’s an environment that is actively hostile to reason.

We have some evidence of a similar process occurring in advertising. If you ever look at an old ad, you’ll see people trying to convince you that their product is the best. Modern readers will probably note a lot of “mistakes” in old ads. For example, they often admit to flaws in the general class of product they’re selling. They always talk about how their product fixes these flaws, but we now know that talking up the negative can leave people with negative affect. Advertising rarely mentions flaws these days.

Can you imagine an ad like this being printed today? Image credit: “Thoth God of Knowledge” on Flickr.

Modern ads are much more likely to try and associate a product with an image, mood, or imagined future life. Cleaning products go with happy families and spotless houses. Cars with excitement or attractive potential mates.

Look at this Rolex ad. It screams: “This man is successful! Wear a Rolex so everyone knows you’re that successful/so that you become that successful.” The goal is to get people to believe that Rolex=success. Rolex’s marketing is so successful that Rolex’s watches are seen as a status marker and luxury good the world over, even though quite frankly they’re kind of ugly. Image copyright Rolex, used here for purposes of criticism.

In Heath’s view, one negative consequence of globalism is that all of the most un-reasonable inventions from around the world get to flourish everywhere and accumulate, in the same way that globalism has allowed all of the worst diseases of the world to flourish.

Heath paints a picture of reason in the modern world under siege in all realms, not just the political. In addition to the aforementioned advertising, Facebook tries to drag you in and keep you there forever. “Free to play” games want to take you for everything you’re worth and employ psychologists to figure out how. Detergent companies wreck your laundry machine by making it as hard as possible to measure the right amount of fabric softener.

(Seriously, have you ever tried to read the lines on the inside of a detergent cap? Everything, from the dark plastic to small font to multiple lines to the wideness of the cap is designed to make it hard to pour the correct amount of liquid for a single load.)

All of this would be worrying enough, but Heath identifies two more trends that represent a threat to a politics of reason.

First is the rise of Common Sense Conservatism. As Heath defines it, Common Sense Conservatism is the political ideology that elevates “common sense” to the principle political decision-making heuristic. “Getting government out of the way of businesses”, “tightening our belts when times are tight”, and “if we don’t burn oil someone else will” are some of the slogans of the movement.

This is a problem because common sense is ill-suited to our current level of civilizational complexity. Political economy is far too complicated to be managed by analogy to a family budget. Successful justice policy requires setting aside retributive instincts and acknowledging just how weak a force deterrence is. International trade is… I’ve read one newspaper article that correctly understood international trade this year and it was written by Paul fucking Krugman, the Nobel Prize winning economist.

As the built environment (Heath defines this as all the technology that now surrounds us) becomes more hostile to reason (think: detergent caps everywhere) and further from what our brains intuitively expect, common sense will give us worse and worse answers to our problems.

That’s not even to talk about coordination problems. Common Sense Conservatism seems inextricably tied to unilateralism and a competitive attitude (after all, it’s “common sense” that if someone else is winning, you must be losing). With many of the hardest problems facing us (global warming, AI, etc.) being co-ordination problems, Common Sense Conservatism specifically degrades the capacity of our political systems to respond to them.

The other problem is Jonathon Haidt. In practical terms, Haidt is much less of a problem than our increasingly hostile technology or the rise of Common Sense Conservatism, but he has spearheaded a potent theoretical attack on reason.

As I mentioned in my review of Haidt’s most important book, The Righteous Mind, Heath describes Haidt’s view of reason as “essentially confabulatory”. The driving point in The Righteous Mind is that a lot of what we consider to be “reason” is in fact post-facto justifications for our actions. Haidt describes his view as if we’re the riders on an elephant. We may think that we’re driving, but we’re actually the junior partner to our vastly more powerful unconscious.

(I’d like to point out that the case for elephant supremacy has collapsed somewhat over the past five years, as psychology increasingly grapples with its replication crisis; many studies Haidt relied upon are now retracted or under suspicion.)

Heath thought (even before some of Haidt’s evidence went the way of the dodo) that this was an incomplete picture and this disagreement forms much of the basis for recommendations made in Enlightenment 2.0.

Heath proposes a modification to the elephant/rider analogy. He’s willing to buy that our conscious mind has trouble resisting our unconscious desires, but he points out that our conscious mind is actually quite good (with a bit of practise) at setting us up so that we don’t have to deal with unconscious desires we don’t want. He likens this to hopping off the elephant, setting up a roadblock, then hopping back, secure in the knowledge that the elephant will have no choice but to go the way we’ve picked out for it.

A practical example: you know how it can be very hard to resist eating a cookie once you have a packet of them in your room? Well, you can actually make it much easier to resist the cookie if you put it somewhere inconveniently far from where you spend most of your time. You can resist it even better if you don’t buy it in the first place. Very few people are willing to drive to the store just because they have a craving for some sugar.

If you have a sweet tooth, it might be hard to resist buying those cookies. But Heath points out that there’s a solution even for this. One of our most powerful resources is each other. If you have trouble not buying unhealthy snacks at the last second, you can go shopping with a friend. You pick out groceries for her from her list and she’ll do the same for you. Since you’re going to be paying with each other’s money and giving everything over to each other at the end, you have no reason to buy sweets. Do this and you don’t have to spend all week trying not eat the cookie.

Heath believes the difference between people who are always productive and always distracted has far more to do with the environments they’ve built than anything innate. This feels at least half-true to me; I know I’m much less able to get things done when I don’t have my whole elaborate productivity system, or when it’s too easy for me to access the news or Facebook. In fact, I saw a dramatic improvement in my productivity – and a dramatic decrease in the amount of time I spent on Facebook – when I set up my computer to block it for a day after I spend fifteen minutes on it, uninstalled it from my phone, and made sure to keep it logged out on my phone’s browser.

(It’s trivially easy for me to circumvent any of these blocks; it takes about fifteen seconds. But that fifteen seconds is to enough to make quickly opening up a tab and being distracted unappealing.)

This all loops back to talking about how the current built environment is hostile to reason – as well as a host of other things that we might like to be better at.

Take lack of sleep. Before reading Enlightenment 2.0, I hadn’t realized just how much of a modern problem this is. During Heath’s childhood, TVs turned off at midnight, everything closed by midnight, and there were no videogames or cell phones or computers. Post-midnight, you could… read? Heath points out that this tends to put people to sleep anyway. Spend time with people already at your house? How often did that happen? You certainly couldn’t call someone and invite them over, because calling people after midnight doesn’t discriminate between those awake and those asleep. Calling a land line after midnight is still reserved for emergencies. Texting people after midnight is much less intrusive and therefore much politer.

Without all the options modern life gives, there wasn’t a whole lot of things that really could keep you up all night. Heath admits to being much worse at sleeping now. Video games and online news conspire to often keep him up later than he would like. Heath is a professor and the author of several books, which means he’s a probably a very self-disciplined person. If he can’t even ignore news and video games and Twitter in favour of a good night’s sleep, what chance do most people have?

Society has changed in the forty some odd years of his life in a way that has led to more freedom, but an unfortunate side effect of freedom is that it often includes the freedom to mess up our lives in ways that, if we were choosing soberly, we wouldn’t choose. I don’t know anyone who starts an evening with “tonight, I’m going to stay up late enough to make me miserable tomorrow”. And yet technology and society conspire to make it all too easy to do this over the feeble objections of our better judgement.

It’s probably too late to put this genie back in its bottle (even if we wanted to). But Heath contends it isn’t too late to put reason back into politics.

Returning reason to politics, to Heath, means building up social and procedural frameworks like the sort that would help people avoid staying up all night or wasting the weekend on social media. In means setting up our politics so that contemplation and co-operation isn’t discouraged and so that it is very hard to appeal to people’s base nature.

Part of this is as simple as slowing down politics. When politicians don’t have time to read what they’re voting on, partisanship and fear drive what they vote for. When they instead have time to read and comprehend legislation (and even better, their constituents have time to understand it and tell their representatives what they think), it is harder to pass bad bills.

When negative political advertisements are banned or limited (perhaps with a total restriction on election spending), fewer people become disillusioned with politics and fewer people use cynicism as an excuse to give politicians carte blanche to govern badly. When Question Period in parliament isn’t filmed, there’s less incentive to volley zingers and talking points back and forth.

One question Heath doesn’t really engage with: just how far is it okay to go to ensure reason has a place in politics? Enlightenment 2.0 never goes out and says “we need a political system that makes it harder for idiots to vote”, but there’s a definite undercurrent of that in the latter parts. I’m also reminded of Andrew Potter’s opposition to referendums and open party primaries. Both of these political technologies give more people a voice in how the country is run, but do tend to lead to instability or worse decisions than more insular processes (like representative parliaments and closed primaries).

Basically, it seems like if we’re aiming for more reasonable politics, then something might have to give on the democracy front. There are a lot of people who aren’t particularly interested in voting with anything more than their base instincts. Furthermore, given that a large chunk of the right has more-or-less explicitly abandoned “reason” in favour of “common sense”, aiming to increase the amount of “reason” in politics certainly isn’t politically neutral.

(I should also mention that many people on the left only care about empiricism and reason when it comes to global warming and are quite happy to pander to feelings on topics like vaccines or rent control. From my personal vantage point, it looks like left-wing political parties have fallen less under the sway of anti-rationalism, but your mileage may vary.)

Perhaps there’s a coalition of people in the centre, scared of the excess of the extreme left and the extreme right that might feel motivated to change our political system to make it more amiable to reason. But this still leaves a nasty taste in my mouth. It still feels like cynical power politics.

While there might not be answers in Enlightenment 2.0 (or elsewhere), I am heartened that this is a question that Heath is at least still trying to engage with.

Enlightenment 2.0 is going to be one of those books that, on a fundamental level, changes how I look at politics and society. I had an inkling that shaping my environment was important and I knew that different political systems lead to different strategies and outcomes. But the effect of Enlightenment 2.0 was to make me so much more aware of this. Whenever I see Google rolling out a new product, I now think about how it’s designed to take advantage of us (or not!). Whenever someone suggests a political reform, I first think about the type of discourse and politics it will promote and which groups and ideologies that will benefit.

(This is why I’m not too sad about Trudeau’s broken electoral reform promises. Mixed member proportional elections actually encourage fragmentation and give extremists an incentive to be loud. First past the post gives parties a strong incentive to squash their extremist wings and I value this in society.)

For that (as well as its truly excellent overview of all the weird ways our brains evolved), I heartily recommend Enlightenment 2.0.

Falsifiable, Physics, Politics

The (Nuclear) International Monitoring System

Under the Partial Test Ban Treaty (PTBT), all nuclear tests except for those underground are banned. Under the Non-Proliferation Treaty (NPT), only the permanent members of the UN Security Council are legally allowed to possess nuclear weapons. Given the public outcry over fallout that led to the PTBT and the worries over widespread nuclear proliferation that led to the NPT, it’s clear that we require something beyond pinky promises to verify that countries are meeting the terms of these treaties.

But how do we do so? How can you tell when a country tests an atomic bomb? How can you tell who did it? And how can one differentiate a bomb on the surface from a bomb in the atmosphere from a bomb in space from a bomb underwater from a bomb underground?

I’m going to focus on two efforts to monitor nuclear weapons: the national security apparatus of the United States and the Comprehensive Test Ban Treaty Organization (CTBTO) Preparatory Commission’s International Monitoring System (IMS). Monitoring falls into five categories: Atmospheric Radionuclide Monitoring, Seismic Monitoring, Space-based Monitoring, Hydroacoustic Monitoring, and Infrasound Monitoring.

Atmospheric Radionuclide Monitoring

Nuclear explosions generate radionuclides, either by dispersing unreacted fuel, as direct products of fission, or by interactions between neutrons and particles in the air or ground. These radionuclides are widely dispersed from any surface testing, while only a few fission products (mainly various radionuclides of the noble gas xenon) can escape from properly conducted underground tests.

For the purposes of minimizing fallout, underground tests are obviously preferred. But because they only emit small amounts of one particular radionuclide, they are much harder for radionuclide monitoring to detect.

Detecting physical particles is relatively easy. There are 80 IMS stations scattered around the world. Each is equipped with an air intake and a filter. Every day, the filter is changed and then prepared for analysis. Analysis involves waiting a day (for irrelevant radionuclides to decay), then reading decay events from the filter for a further day. This gives scientists an idea of what radioactive elements are present.

Any deviations from the baseline at a certain station can be indicative of a nuclear weapon test, a nuclear accident, or changing wind patterns bringing known radionuclides (e.g. from a commercial reactor) to a station where they normally aren’t present. Wind analysis and cross validation with other methods are used to corroborate any suspicious events.

Half of the IMS stations are set up to do the more difficult xenon monitoring. Here air is pumped through a material with a reasonably high affinity for xenon. Apparently activated charcoal will work, but more sophisticated alternatives are being developed. The material is then induced to release the xenon (with activated charcoal, this is accomplished via heating). This process is repeated several times, with the output of each step pumped to a fresh piece of activated charcoal. Multiple cycles ensure that only relatively pure xenon get through to analysis.

Once xenon is collected, isotope analysis must be done to determine which (if any) radionuclides of xenon are present. This is accomplished either by comparing the beta decay of the captured xenon with its gamma decay, or looking directly at gamma decay with very precise gamma ray measuring devices. Each isotope of xenon has a unique half-life (which affects the frequency with which it omits beta- and gamma-rays) and a unique method of decay (which determines if the decay products are primarily alpha-, beta-, or gamma-rays). Comparing the observed decay events to these “fingerprints” allows for the relative abundance of xenon nuclides to be estimated.

There are some background xenon radionuclides from nuclear reactors and even more from medical isotope production (where we create unstable nuclides in nuclear reactors for use in medical procedures). Looking at global background data you can see the medical isotope production in Ontario, Europe, Argentina, Australia and South Africa. I wonder if this background effect makes world powers cautious about new medical isotope production facilities in countries that are at risk of pursuing nuclear weapons. Could Iran’s planned medical isotope complex have been used to mask nuclear tests?

Not content merely to host several monitoring stations and be party to the data of the whole global network of IMS stations, the United States also has the WC-135 “Constant Phoenix” plane, a Boeing C-135 equipped with mobile versions of particulate and xenon detectors. The two WC-135s can be scrambled anywhere a nuclear explosion is suspected to look for evidence. A WC-135 gave us the first confirmation that the blast from the 2006 North Korean nuclear test was indeed nuclear, several days before the IMS station in Yellowknife, Canada confirmed a spike in radioactive xenon and wind modelling pinpointed the probable location as inside North Korea.

Seismic Monitoring

Given that fewer monitoring stations are equipped with xenon radionuclide detectors and that the background “noise” from isotope production can make radioactive xenon from nuclear tests hard to positively identify, it might seem like nuclear tests are easy to hide underground.

That isn’t the case.

A global network of seismometers ensures that any underground nuclear explosion is promptly detected. These are the same seismometers that organizations like the USGS (United States Geological Survey) use to detect and pinpoint earthquakes. In fact, the USGS provides some of the 120 auxiliary stations that the CTBTO can call on to supplement its fifty seismic monitoring stations.

Seismometers are always on, looking for seismic disturbances. Substantial underground nuclear tests produce shockwaves that are well within the detection limit of modern seismometers. The sub-kiloton North Korean nuclear test in 2006 appears to have been registered as equivalent to a magnitude 4.1 earthquake. A quick survey of ongoing earthquakes should probably show you dozens that have been detected that are less powerful than even that small North Korean test.

This probably leads you to the same question I found myself asking, namely: “if earthquakes are so common and these detectors are so sensitive, how can they ever tell nuclear detonations from earthquakes?”

It turns out that underground nuclear explosions might rattle seismometers like earthquakes do, but they do so with characteristics very different from most earthquakes.

First, the waveform is different. Imagine you’re holding a slinky and a friend is holding the other end. There are two mains ways you can create waves. The first is by shaking it from side to side or up and down. Either way, there’s a perspective from which these waves will look like the letter “s”.

The second type of wave can be made by moving your arm forward and backwards, like you’re throwing and catching a ball. These waves will cause moving regions where the slinky is bunched more tightly together and other regions where it is more loosely packed.

These are analogous to the two main types of body waves in seismology. The first (the s-shaped one) is called an S-wave (although the “S” here stands for “shear” or “secondary” and only indicates the shape by coincidence), while the second is called a P-wave (for “pressure” or “primary”).

I couldn’t find a good free version of this, so I had to make it myself. Licensed (like everything I create for my blog) CC-BY-NC-SA v4.0.

 

Earthquakes normally have a mix of P-waves and S-waves, as well as surface waves created by interference between the two. This is because earthquakes are caused by slipping tectonic plates. This slipping gives some lateral motion to the resulting waves. Nuclear explosions lack this side to side motion. The single, sharp impact from them on the surrounding rocks is equivalent to the wave you’d get if you thrust your arm forward while holding a slinky. It’s almost all P-wave and almost no S-wave. This is very distinctive against a background of earthquakes. The CTBTO is kind enough to show what this difference looks like; in this image, the top event is a nuclear test and the bottom event is an earthquake of a similar magnitude in a similar location (I apologize for making you click through to see the image, but I don’t host copyrighted images here).

There’s one further way that the waves from nuclear explosions stand out. They’re caused by a single point source, rather than kilometers of rock. This means that when many seismic stations work together to find the cause of a particular wave, they’re actually able to pinpoint the source of any explosion, rather than finding a broad front like they would for an earthquake.

The fifty IMS stations automatically provide a continuous stream of data to the CTBTO, which sifts through this data for any events that are overwhelmingly P-Waves and have a point source. Further confirmation then comes from the 120 auxiliary stations, which provide data on request. Various national and university seismometer programs get in on this too (probably because it’s good for public relations and therefore helps to justify their budgets), which is why it’s not uncommon to see several estimates of yield soon after seismographs pick up on nuclear tests.

Space Based Monitoring

This is the only type of monitoring that isn’t done by the CTBTO Preparatory Commission, which means that it is handled by state actors – whose interests necessarily veer more towards intelligence gathering than monitoring treaty obligations per se.

The United States began its space based monitoring program in response to the Limited Test Ban Treaty, which left verification explicitly to the major parties involved. The CTBTO Preparatory Commission was actually formed in response to a different treaty, the Comprehensive Test Ban Treaty, which is not fully in force yet (hence why the organization ensuring compliance with it is called the “Preparatory Commission”).

The United States first fulfilled its verification obligations with the Vela satellites, which were equipped with gamma-ray detectors, x-ray detectors, electromagnetic pulse detectors (which can detect the electro-magnetic pulse from high-altitude nuclear detonations) and an optical sensor called a bhangmeter.

Bhangmeters (the name is a reference to a strain of marijuana, with the implied subtext that you’d have to be high to believe they would work) are composed of a photodiode (a device that produces current when illuminated), a timer, and some filtering components. Bhangmeters are set up to look for the distinctive nuclear “double flash“, caused when the air compressed in a nuclear blast briefly obscuring the central fireball.

The bigger a nuclear explosion, the larger the compression and the longer the central fireball is obscured. The timer picks up on this, estimating nuclear yield from the delay between the initial light and its return.

The bhangmeter works because very few natural (or human) phenomena produce flashes that are as bright or distinctive as nuclear detonations. A properly calibrated bhangmeter will filter out continuous phenomena like lightning (or will find them too faint to detect). Other very bright events, like comets breaking up in the upper atmosphere, only provide a single flash.

There’s only been one possible false positive since the bhangmeters went live in 1967; a double flash was detected in the Southern Indian Ocean, but repeated sorties by the WC-135s detected no radionuclides. The event has never been conclusively proved to be nuclear or non-nuclear in origin and remains one of the great unsolved mysteries of age of widespread atomic testing.

By the time of this (possible) false positive, the bhangmeters had also detected 41 genuine nuclear tests.

The Vela satellites are no longer in service, but the key technology they carried (bhangmeters, x-ray detectors, and EMP detectors) lives on in the US GPS satellite constellation, which does double duty as its space-based nuclear sentinels.

One last note of historical errata: when looking into unexplained gamma-ray readings produced by the Vela satellites, US scientists discovered gamma-ray bursts, an energetic astronomical phenomenon associated with supernovas and merging binary stars.

Hydroacoustic Monitoring

Undersea explosions don’t have a double flash, because steam and turbulence quickly obscure the central fireball and don’t clear until well after the fireball has subsided. It’s true that radionuclide detection should eventually turn up evidence of any undersea nuclear tests, but it’s still useful to have a more immediate detection mechanism. That’s where hydroacoustic monitoring comes in.

There are actually two types of hydroacoustic monitoring. There’s six stations that use true underwater monitoring with triplets of hydrophones (so that signal direction can be determined via triangulation) which are very sensitive, but also very expensive (as hydrophones must be installed at a depth of approximately one kilometer, where sound transmission is best). There’s also five land based stations, which use seismographs on steeply sloped islands to detect the seismic waves underwater sounds make when they hit land. Land based monitoring is less accurate, but requires little in the way of specialized hardware, making it much cheaper.

In either case, data is streamed directly to CTBTO headquarters in Vienna, where it is analyzed and forwarded to states that are party to the CTB. At the CTBTO, the signal is split into different channels based on a known library of undersea sounds and explosions are  separated from natural phenomena (like volcanos, tsunamis, and whales) and man-made noises (like gas exploration, commercial shipping, and military drills). Signal processing and analysis – especially of hydrophone data – is a very mature field, so the CTBTO doesn’t lacks for techniques to refine its estimates of events.

Infrasound Monitoring

Infrasound monitoring stations are the last part of the global monitoring system and represent the best way for the CTBTO (rather than national governments with the resources to launch satellites) to detect atmospheric nuclear tests. Infrasound stations try to pick up the very low frequency sound waves created by nuclear explosions – and a host of other things, like volcanos, planes, and mining.

A key consideration with infrasound stations is reducing background noise. For this, being far away from human habitation and blocked from the wind is ideal. Whenever this cannot be accomplished (e.g. there’s very little cover from the wind in Antarctica, where several of the sixty stations are), more infrasound arrays are needed.

The components of the infrasound arrays look very weird.

Specifically, they look like a bunker that tried to eat four Ferris wheels. Each array actually contains three to eight of these monstrosities. From the CTBTO via Wikimedia Commons.

 

 

What you see here are a bunch of pipes that all feed through to a central microbarometer, which is what actually measures the infrasound by detecting slight changes in air pressure. This setup filters out a lot of the wind noise and mostly just lets infrasound through.

Like the hydroacoustic monitoring system, data is sent to the CTBTO in real time and analyzed there, presumably drawing on a similar library of recorded nuclear test detonations and employing many of the same signal processing techniques.

Ongoing research into wind noise reduction might eventually make the whole set of stations much more sensitive than it is now. Still, even the current iteration of infrasound monitoring should be enough to detect any nuclear tests in the lower atmosphere.


The CTBTO has a truly great website that really helped me put together this blog post. They provide a basic overview of the four international monitoring systems I described here (they don’t cover space-based monitoring because it’s outside of their remit), as well as pictures, a glossary, and a primer on the analysis they do. If you’d like to read more about how the international monitoring system works and how it came into being, I recommend visiting their website.

This post, like many of the posts in my nuclear weapon series came about because someone asked me a question about nuclear weapons and I found I couldn’t answer quite as authoritatively as I would have liked. Consequently, I’d like to thank Cody Wild and Tessa Alexanian for giving me the impetus to write this.

This post is part of a series on special topics in nuclear weapons. The index for all of my writing on nuclear weapons can be found here. Previous special topics posts include laser enrichment and the North Korean nuclear program.

Economics, Politics

When To Worry About Public Debt

I watch a lot of political debates with my friends. A couple of them have turned to me after watching heated arguments about public debt and (because I have a well-known habit of reading monetary policy blogs) asked me who is right. I hear questions like:

Is it true that public debt represents an unfair burden on our hypothetical grandchildren? Is all this talk about fiscal discipline and balanced budgets pointless? Is it really bad when public debt gets over 100% of a country’s GDP? How can the threat of defaulting on loans lead to inflation and ruin?

And what does all this mean for Ontario? Is Doug Ford right about the deficit?

This is my attempt to sort this all out in a public and durable form. Now when I’ve taken a political debate drinking game too far, I’ll still be able to point people towards the answers to their questions.

(Disclaimer: I’m not an economist. Despite the research I did for it and the care with which I edited, this post may contain errors, oversimplifications, or misunderstandings.)

Is Public Debt A Burden On Future Generations?

Among politicians of a certain stripe, it’s common to compare the budget of a country to the budget of a family. When a family is budgeting, any shortfall must be paid for via loans. Left unspoken is the fact that many families find themselves in a rather large amount of debt early on – because they need a mortgage to buy their dwelling. The only way a family can ever get out of debt is by maintaining a monthly surplus until their mortgage is paid off, then being careful to avoid taking on too much new debt.

Becoming debt free is desirable to individuals for two reasons. First, it makes their retirement (feel) much more secure. Given that retirement generally means switching to a fixed income or living off savings, it can be impossible to pay off the principle of a debt after someone makes the decision to retire.

Second, parents often desire to leave something behind for their children. This is only possible if their assets outweigh their debts.

Countries have to grapple with neither of these responsibilities. While it is true that the average age in many countries is steadily increasing, countries that have relatively open immigration policies and are attractive to immigrants largely avoid this problem. Look at how Canada and the United States compare to Italy and Japan in working age population percentage, for example.

Graph showing % of working age population in 4 OECD countries: Japan, Canada, USA, Italy.
After seeing this graph, I realized how hyperbolic it was to talk about Japan’s aging population. Source: OECD.

 

Even in Japan, where this is “dire”, the percentage of the population that is working age is equivalent to the percentage of the population that was working age in Canada or America in 1970. As lifespans increase, we may have to expand our definition of working age. But some combination of immigration, better support for parents, and better support for older citizens who wish to keep working will prevent us from ever getting to a point where it’s sensible to talk about a country “retiring”.

Since countries don’t “retire”, they don’t have to cope with the worry of “needing to work later to pay off that debt”. Since countries don’t have children, they don’t have to worry about having something to pass on. Countries don’t ever actually have to pay back all of their debt. They can continue to roll it over indefinitely, as long as someone is willing to continue to loan them money at a rate they’re willing to pay.

What I mean by “rolling over”, is that countries can just get a new loan for the same amount as their last one, as soon as the previous loan comes due. If interest rates have risen (either in general, or because the country is a greater risk) since their last loan, the new loan will be more expensive. If they’ve fallen, it will be cheaper. Rolling over loans changes the interest rate a country is paying, but doesn’t change the amount it owes.

Is Talk Of Discipline Pointless?

No.

Even if countries don’t really ever have to pay back the principle on their loans, they do have to make interest payments (borrowing to pay these is possible, but it isn’t a good look and can pretty quickly lead to dangerous levels of debt). The effect of these payments ranges from “it’s mildly annoying that we can’t spend that money on something better” to “we’re destroying our ecosystem growing bananas so that we have something to sell for cash to make our interest payments”. Lack of discipline and excessive debt levels can move a country closer to the second case.

In a well-integrated and otherwise successful economy with ample room in its governmental budget, interest payments are well worth the advantage of getting money early. When this money is used to create economic benefits that accrue faster than the interest payments, countries are net beneficiaries. If you take out a loan that charges 1-2% interest a year and use it to build a bridge that drives 4% economic growth for the next forty years, you’re ahead by 2-3% year on year. This is a good deal.

Unlike most talk about interest rates, where they’re entirely hypothetical, I really do mean that 1-2% figure. That’s actually higher than the average rate the US government has been paying to borrow over the last decade (Germany had it even better; they briefly paid negative interest rates). Governments – at least those with a relatively good track record around money – really have a superpower with how cheaply they can get money, so if nothing else, it’s worth keeping debt relatively low so that they don’t lose their reputation for responsibility and continue to have access to cheap money for when they really need it.

That’s the case in a moderately disciplined developed nation with adequate foreign reserves, at least. In a cash-poor or underdeveloped economy where a decent portion of any loan is lost to cronyism and waste, the case for loans being positive is much more… mixed. For these countries, discipline means “taking no loans at all”.

When discipline falls apart and debt levels rise too high, very bad things start to happen.

Is 100% of GDP The Line Beyond Which Debt Shouldn’t Rise?

There is nothing special about 100% of GDP, except that people think it is special.

Sometimes, people talk about markets like they’re these big impersonal systems that have no human input. This feels true because the scale of the global financial system is such that from the perspective of pretty much any individual person, they’re impersonal and impossible to really influence. But ultimately, other than a few high frequency trading platforms, all decisions in a market have to be made by humans.

Humans have decided that in certain cases, it’s bad when a country has more than 100% of its GDP in debt. This means that it becomes much more expensive to get new loans (and because of the constant rollover, even old loans eventually become new loans) when a country crosses this Rubicon, which in turn makes them much more likely to default. There’s some element of self-fulfilling prophecy here!

(Obviously there does have to be some point where a country really is at risk from its debt load and obviously this needs to be scaled to country size and wealth to not be useless. I think people have chosen 100% of GDP more because it’s a nice round number and it’s simple to calculate, not because it has particularly great inherent predictive power, absent the power it has as a self-fulfilling prophecy. Maybe the “objectively correct” number is in fact 132.7% of the value of all exports, or 198% of 5-year average government revenues… In either case, we’ve kind of lost our chance; any number calculated now would be heavily biased by the crisis of confidence that can happen when debt reaches 100% of GDP.)

That said, comparing a country’s debt load to its GDP without making adjustments is a recipe for confusion. While Everyone was fretting about Greece having ~125% of its GDP in debt, Japan was carrying 238% of its GDP in debt.

There are two reasons that Japan’s debt is much less worrying than Greece’s.

First, there’s the issue of who’s holding that debt. A very large portion of Japanese debt is held by its own central bank. By my calculations (based off the most recent BOJ numbers), the Bank of Japan is holding approximately 44% of the Japanese government’s debt. Given that the Bank of Japan is an organ of the Japanese Government (albeit an arm’s length one), this debt is kind of owed by the government of Japan, to the government of Japan. When 44% of every loan payment might ultimately find its way back to you, your loan payments become less scary.

Second, there’s the issue of denomination. Greek public debts are denominated in Euros, a currency that Greece doesn’t control. If Greece wants €100, it must collect €100 in taxes from its citizens. Greece cannot just create Euros.

Japanese debt is denominated in Yen. Because Japan controls the yen, it has two options for repaying ¥100 of debt. It can collect ¥100 in taxes – representing ¥100 worth of valuable work. Or it can print ¥100. There are obvious consequences to printing money, namely inflation. But given that Japan has struggled with chronic deflation and has consistently underperformed the inflation targets economists think it needs to meet, it’s clear that a bit of inflation isn’t the worst thing that could happen to it.

When evaluating whether a debt burden is a problem, you should always consider the denomination of the debt, who the debtholders are, and how much inflation a country can tolerate. It is always worse to hold debt in a denomination that you don’t control. It’s always worse to owe money to people who aren’t you (especially people more powerful than you), and it’s always easier to answer debt with inflation when your economy needs more inflation anyways.

This also suggests that government debt is much more troubling when it’s held by a sub-national institution than by a national institution (with the exception of Europe, where even nations don’t individually control the currency). In this case, monetary policy options are normally off the table and there’s normally someone who’s able to force you to pay your debt, no matter what that does to your region.

Developing countries very rarely issue debt in their own currency, mainly because no one is interested in buying it. This, combined with low foreign cash reserves puts them at a much higher risk of failing to make scheduled debt payments – i.e. experiencing an actual default.

What Happens If A Country Defaults?

No two defaults are exactly alike, so the consequences vary. That said, there do tend to be two common features: austerity and inflation.

Austerity happens for a variety of reasons. Perhaps spending levels were predicated on access to credit. Without that access, they can’t be maintained. Or perhaps a higher body mandated it; see for example Germany (well, officially, the EU) mandating austerity in Greece, or Michigan mandating austerity in Detroit.

Inflation also occurs for a variety of reasons. Perhaps the government tries to fill a budgetary shortfall and avoid austerity by printing bills. This flood of money bids up prices, ruins savings and causes real wages to decline. Perhaps it becomes hard to convince foreigners to accept the local currency in exchange for goods, so anything imported becomes very expensive. When many goods are imported, this can lead to very rapid inflation. Perhaps people in general lose faith in money (and so it becomes nearly worthless), maybe in conjunction with the debt crisis expanding to the financial sector and banks subsequently failing. Most likely, it will be some combination of these three, as well as others I haven’t thought to mention.

During a default, it’s common to see standards of living plummet, life savings disappear, currency flight into foreign denominations, promptly followed by currency controls, which prohibit sending cash outside of the country. Currency controls make leaving the country virtually impossible and make any necessary imports a bureaucratic headache. This is fine when the imports in question are water slides, but very bad when they’re chemotherapy drugs or rice.

On the kind of bright side, defaults also tend to lead to mass unemployment, which gives countries experiencing them comparative advantage in any person intensive industry. Commonly people would say “wages are low, so manufacturing moves there”, but that isn’t quite how international trade works. It’s not so much low wages that basic manufacturing jobs go in search of, but a workforce that can’t do anything more productive and less labour intensive. This looks the same, but has the correlation flipped. In either case, this influx of manufacturing jobs can contain within it the seed of later recovery.

If a country has sound economic management (like Argentina did in 2001), a default isn’t the end of the world. It can negotiate a “haircut” of its loans, giving its creditors something less than the full amount, but more than nothing. It might even be able to borrow again in a few years, although the rates that it will have to offer will start out in credit card territory and only slowly recover towards auto-loan territory.

When these trends aren’t managed by competent leadership, or when the same leaders (or leadership culture) that got a country into a mess are allowed to continue, the recovery tends to be moribund and the crises continual. See, for example, how Greece has limped along, never really recovering over the past decade.

Where Does Ontario Fit In?

My own home province of Ontario is currently in the midst of an election and one candidate, Doug Ford, has made the ballooning public debt the centrepiece of his campaign. Evaluating his claims gives us a practical example of how to evaluate claims of this sort in general.

First, Ontario doesn’t control the currency that its debt is issued in, which is an immediate risk factor for serious debt problems. Ontario also isn’t dominant enough within Canada to dictate monetary policy to the Federal Government. Inflation for the sake of saving Ontario would doom any sitting Federal government in every other province, so we can’t expect any help from the central bank.

Debt relief from the Federal government is possible, but it couldn’t come without hooks attached. We’d definitely lose some of our budgetary authority, certainly face austerity, and even then, it might be too politically unpalatable to the rest of the country.

However, the sky is not currently falling. While debt rating services have lost some confidence in our willingness, if not our ability to get spending under control and our borrowing costs have consequently risen, we’re not yet into a vicious downwards spiral. Our debt is at a not actively unhealthy 39% of the GDP and the interest rate is a non-usurious 4%.

That said, it’s increased more quickly than the economy has grown over the past decade. Another decade going on like we currently are certainly would put us at risk of a vicious cycle of increased interest rates and crippling debt.

Doug Ford’s emotional appeals about mortgaging our grandchildren’s future are exaggerated and false. I’ve already explained how countries don’t work like families. But there is a more pragmatic concern here. If we don’t control our spending now, on our terms, someone else – be it lenders in a default or the federal government in a bailout – will do it for us.

Imagine the courts forcing Ontario to service its debt before paying for social services and schools. Imagine the debt eating up a full quarter of the budget, with costs rising every time a loan is rolled over. Imagine our public services cut to the bone and our government paralyzed without workers. Things would get bad and the people who most need a helping hand from the government would be hit the hardest.

I plan to take this threat seriously and vote for a party with a credible plan to balance our budget in the short term.

If one even exists. Contrary to his protestations, Doug Ford isn’t leading a party committed to reducing the deficit. He’s publically pledged himself to scrapping the carbon tax. Absent it, but present the rest of his platform, the deficit spending is going to continue (during a period of sustained growth, no less!). Doug Ford is either lying about what he’s going to cut, or he’s lying about ending the debt. That’s not a gamble I particularly want to play.

I do hope that someone campaigns on a fully costed plan to restore fiscal order to Ontario. Because we are currently on the path to looking a lot like Greece.

Model, Politics, Quick Fix

The Awkward Dynamics of the Conservative Leadership Debates

Tanya Granic Allen is the most idealistic candidate I’ve ever seen take the stage in a Canadian political debate. This presents some awkward challenges for the candidates facing her, especially Mulroney and Elliot.

First, there’s the simple fact of her idealism. I think Granic Allen genuinely believes everything she says. For her, knowing what’s right and what’s wrong is simple. There isn’t a whole lot of grey. She even (bless her) probably believes that this will be an advantage come election time. People overwhelming don’t like the equivocation of politicians, so Granic Allen must assume her unequivocal moral stances will be a welcome change

For many people, it must be. Even for those who find it grating, it seems almost vulgar to attack her. It’s clear that she isn’t in this for herself and doesn’t really care about personal power. Whether she could maintain that innocence in the face of the very real need to make political compromises remains an open question, but for now she does represent a certain vein of ideological conservatism in a form that is unsullied by concerns around electability.

The problem here is that the stuff Granic Allen is pushing – “conscience rights” and “parental choice” – is exactly the sort of thing that can mobilize opposition to the PC party. Fighting against sex-ed and abortion might play well with the base, but Elliot and Mulroney know that unbridled social conservatism is one of the few things that can force the province’s small-l liberals to hold their noses and vote for the big-L Liberal Party. In an election where we can expect embarrassingly low turnout (it was 52% in 2014), this can play a major role.

A less idealistic candidate would temper themselves to help the party in the election. Granic Allen has no interest in doing this, which basically forces the pragmatists to navigate the tricky act of distancing themselves from her popular (with the base) proposals so that they might carry the general election.

Second, there’s the difficult interaction between the anti-rational and anti-empirical “common sense” conservatism pushed by Granic Allen and Ford and the pragmatic, informed conservatism of Elliot and Mulroney.

For Ford and Granic Allen, there’s a moral nature to truth. They live in a just world where something being good is enough to make it true. Mulroney and Elliot know that reality has an anti-partisan bias.

Take clean energy contracts. Elliot quite correctly pointed out that ripping up contracts willy-nilly will lead to a terrible business climate in Ontario. This is the sort of suggestion we normally see from the hard left (and have seen in practice in places the hard left idolizes, like Venezuela). But Granic Allen is committed to a certain vision of the world and in her vision of the world, government getting out of the way can’t help but be good.

Christine Elliot has (and this is a credit to her) shown that she’s not very ideological, in that she can learn how the world really works and subordinate ideology to truth, even when inconvenient. This would make her a more effective premier than either Granic Allen or Ford, but might hurt her in the leadership race. I’ve seen her freeze a couple times when she’s faced with defending how the world really works to an audience that is ideologically prevented from acknowledging the truth.

(See for example, the look on her face when she was forced to defend her vote to ban conversion therapy. Elliot’s real defense of that bill probably involves phrases like “stuck in the past”, “ignorant quacks” and “vulnerable children who need to be protected from people like you”. But she knew that a full-throated defense of gender dysphoria as a legitimate problem wouldn’t win her any votes in this race.)

As Joseph Heath has pointed out, this tension between reality and ideology is responsible for the underrepresentation of modern conservatives among academics. Since the purpose of the academy is (broadly) truth-seeking, we shouldn’t be surprised to see it select against an ideology that explicitly rejects not only the veracity of much of the products of this truth seeking (see, for example, Granic Allen’s inability to clearly state that humans are causing climate change) but the worthwhileness of the whole endeavour of truth seeking.

When everything is trivially knowable via the proper application of “common-sense”, there’s no point in thinking deeply. There’s no point in experts. You just figure out what’s right and you do it. Anything else just confuses the matter and leaves the “little guy” to get shafted by the elites.

Third, the carbon tax has produced a stark, unvoiced split between the candidates. On paper, all are opposing it. In reality, only Ford and Granic Allen seriously believe they have any chance at stopping it. I’m fairly sure that Elliot and Mulroney plan to mount a token opposition, then quickly fold when they’re reminded that raising taxes and giving money to provinces is a thing the Federal Government is allowed to do. This means that they’re counting on money from the carbon tax to balance their budget proposals. They can’t say this, because Ford and Granic Allen are forcing them to the right here, but I would bet that they’re privately using it to reassure fiscally conservative donors about the deficit.

Being unable to discuss what is actually the centrepiece of their financial plans leaves Elliot and Mulroney unable to give very good information about how they plan to balance the budget. They have to fall back on empty phrases like “line by line by line audit” and “efficiencies”, because anything else feels like political suicide.

This shows just how effective Granic Allen has been at being a voice for the grassroots. By staking out positions that resonate with the base, she’s forcing other leadership contestants to endorse them or risk losing to her. Note especially how she’s been extracting promises from Elliot and Mulroney whenever possible – normally around things she knows they don’t want to agree to but that play well with the base. By doing this, she hopes to remove much of their room to maneuver in the general election and prevent any big pivot to centre.

Whether this will work really depends on how costly politicians find breaking promises. Conventional wisdom holds that they aren’t particularly bothered by it. I wonder if Granic Allen’s idealism blinds her to this fact. I’m certainly sure that she wouldn’t break a promise except under the greatest duress.

On the left, it’s very common to see a view of politics that emphasizes pure and moral people. The problem with the system, says the communist, is that we let greedy people run it. If we just replaced them all with better people, we’d get a fair society. Granic Allen is certainly no communist. But she does seem to believe in the “just need good people” theory of government – and whether she wins or loses, she’s determined to bring all the other candidates with her.

This isn’t an incrementalist approach, which is why it feels so foreign to people like me. Granic Allen seems to be making the decision that she’d rather the Conservatives lose (again!) to the Liberals than that they win without a firm commitment to do things differently.

The conflict in the Ontario Conservative party ­– the conflict that was surfaced when his rivals torpedoed Patrick Brown – is around how far the party is willing to go to win. The Ontario Conservatives aren’t the first party to go through this. When UK Labour members picked Jeremy Corbyn, they clearly threw electability behind ideological purity.

In the Ontario PC party, Allen and Ford have clearly staked out a position emphasizing purity. Mulroney and Elliot have just as clearly chosen to emphasize success. Now it’s up to the members. I’m very interested to see what they decide.

Economics, Politics, Quick Fix

Cities Are Weird And Minimum Wages Can Help

[6-minute read]

I don’t understand why people choose to go bankrupt living the most expensive cities, but I’m increasingly viewing this as a market failure and collective action problem to be fixed with intervention, not a failure of individual judgement.

There are many cities, like Brantford, Waterloo, or even Ottawa, where everything works properly. Rent isn’t really more expensive than suburban or rural areas. There’s public transit, which means you don’t necessarily need a car, if you choose where you live with enough care. There are plenty of jobs. Stuff happens.

But cities like Toronto, Vancouver, and San Francisco confuse the hell out of me. The cost of living is through the roof, but wages don’t even come close to following (the difference in salary between Toronto and Waterloo for someone with my qualifications is $5,000, which in no way would cover the yearly difference in living expenses). This is odd when talking about well-off tech workers, but becomes heartbreaking when talking about low-wage workers.

Toronto Skyline
Not pictured: Selling your organs to afford a one-bedroom condo. Image Credit: Abi K on Flickr

If people were perfectly rational and only cared about money (the mythical homo economicus), fewer people would move to cities, which would bid up wages (to increase the supply of workers) or drive down prices (because fewer people would be competing for the same apartments), which would make cities more affordable. But people do care about things other than money and the network effects of cities are hard to beat (put simply: the bigger the city, the more options for a not-boring life you have). So, people move – in droves – to the most expensive and dynamic cities and wages don’t go up (because the supply of workers never falls) and the cost of living does (because the number of people competing for housing does) and low wage workers get ground up.

It’s not that I don’t understand the network effects. It’s that I don’t understand why people get ground up instead of moving.

But the purpose of good economics is to deal with people as they are, not as they can be most conveniently modeled. And given this, I’ve begun to think about high minimum wages in cities as an intervention that fixes a market failure and collective action problem.

That is to say: people are bad at reading the market signal that they shouldn’t move to cities that they can’t afford. It’s the signal that’s supposed to say here be scarce goods, you might get screwed, but the siren song of cities seems to overpower it. This is a market failure in the technical sense because there exists a distribution of goods that could make people (economically) better off (fewer people living in big cities) without making anyone worse off (e.g. they could move to communities that are experiencing chronic shortages of labour and be basically guaranteed jobs that would pay the bills) that the market cannot seem to fix.

(That’s not to say that this is all the fault of the market. Restrictive zoning makes housing expensive and rent control makes it scarce.)

It’s a collective action problem because if everyone could credibly threaten to move, then they wouldn’t have to; the threat would be enough to increase wages. Unfortunately, everyone knows that anyone who leaves the city will be quickly replaced. Everyone would be better off if they could coordinate and make all potential movers promise not to move in until wages increase, but there’s no benefit to being the first person to leave or the first person to avoid moving [1] and there currently seems to be no good way for everyone to coordinate in making a threat.

When faced with the steady grinding down of young people, low wage workers, and everyone “just waiting for their big break“, we have two choices. We can do tut-tut at their inability to be “rational” (aka leave their friends, family, jobs, and aspirations to move somewhere else [2]), or we can try to better their situation.

If everyone was acting “rationally”, wages would be bid up. But we can accomplish the same thing by simple fiat. Governments can set a minimum wage or offer wage subsidies, after all.

I do genuinely worry that in some places, large increases in the minimum wage will lead to unemployment (we’ll figure out whether this is true over the next decade or so). I’m certainly worried that a minimum wage pegged to inflation will lead to massive problems the next time we have a recession [3].

So, I think we should fix zoning, certainly. And I think we need to fix how Ontario’s minimum wage functions in a recession so that it doesn’t destroy our whole economy during the next one. But at the same time, I think we need to explore differential minimum wages for our largest cities and the rest of the province/country. I mean this even in a world where the current minimum $14/hour wage isn’t rolled back. Would even $15/hour cut it in Toronto and Vancouver [4]?

If we can’t make a minimum wage work without increased unemployment, then maybe we’ll have to turn to wage subsidies. This is actually the method that “conservative” economist Scott Sumner favours [5].

What’s clear to me is that what we’re currently doing isn’t working.

I do believe in a right to shelter. Like anyone who shares this belief, I understand that “shelter” is a broad word, encompassing everything from a tarp to a mansion. Where a certain housing situation falls on this spectrum is the source of many a debate. Writing this is a repudiation of my earlier view, that living in an especially desirable city was a luxury not dissimilar from a mansion.

A couple of things changed my mind. First, I paid more attention to the experiences of my friends who might be priced out of the cities they grew up in and have grown to love. Second, I read the Ecomodernist Manifesto, with its calls for densification as the solution to environmental degradation and climate change. Densification cannot happen if many people are priced out of cities, which means figuring this out is actually existentially important.

The final piece of the puzzle was the mental shift whereby I started to view wages in cities – especially for low-wage earners – as a collective action problem and a market failure. As anyone on the centre-left can tell you, it’s the government’s job to fix those – ideally in a redistributive way.

Footnotes

[1] This is inductive up to the point where you have a critical mass; there’s no benefit until you’re the nth + 1 person, where n is the number of people necessary to create a scarcity of workers sufficient to begin bidding up wages. And all of the people who moved will see little benefit for their hassle, unless they’re willing to move back. ^

[2] For us nomadic North Americans, this can be confusing: “The gospel of ‘just pick up and leave’ is extremely foreign to your typical European — be they Serbian, French or Irish. Ditto with a Sudanese, Afghan or Japanese national. In Israel, it’s the kind of suggestion that ruins dinner parties… We non-indigenous love to move. We don’t just see it as just good economic policy, but as a virtue. We glorify the immigrant, we hug them at the airport when they arrive and we inherently mistrust anyone who dares to pine for what they left behind”. ^

[3] Basically, wages should fall in a recession, but they largely don’t, which means inflation is necessary to get wages back to a level where employment can recover; pegging the minimum wage to inflation means this can’t happen. Worse, if the rest of the country were to adopt sane monetary policy during the next bad recession, Ontario’s minimum wage could rise to the point where it would swallow large swathes of the economy. This would really confuse price signals and make some work economically unviable (to do in Ontario; it would surely still be done elsewhere). ^

[4] I think we may have to subsidize some new construction or portion of monthly rent so that all increased wages don’t get ploughed into to increased rents. If you have more money chasing the same number of rental units and everything else remains constant, you’ll see all gains in wages erased by increases in rents. Rent control is a very imperfect solution, because it changes new construction into units that can be bought outright, at market rates. This helps people who have saved up a lot of money outside of the city and what to move there, but is very bad for the people living there, grappling with rent so high that they can’t afford to save up a down payment. ^

[5] No seriously, this is what passes for conservative among economists these days; while we all stopped looking, they all became utilitarians who want to help impoverished people as much as possible. ^