Public goods are non-excludable (so anyone can access them) and non-rival (I can use them as much as I want without limiting the amount you can use them). Broadcast television, national defense, and air are all public goods.
Common-pool resources are non-excludable but rival (if I use them, you will have to make do with less). Iron ore, fish stocks, and grazing land are all common pool resources.
Private goods are excludable (their access is controlled or limited by pricing or other methods) and rival. My clothes, computer, and the parking space I have in my lease but never use are all private goods.
Club goods are excludable but (up to a certain point) non-rival. Think of the swimming pool in an apartment building, a large amusement park, or cellular service.
Club goods are perhaps the most interesting class of goods, because they blend properties of the three better understood classes. They aren’t open to all, but they are shared among many. They can be overwhelmed by congestion, but up until that point, it doesn’t really matter how many people are using them. Think of a gym; as long as there’s at least one free machine of every type, it’s no less convenient than your home.
Club goods offer cost savings over private goods, because you don’t have to buy something that mostly sits unused (again, think of gym equipment). People other than you can use it when it would otherwise sit around and those people can help you pay the cost. It’s for this reason that club goods represent an excellent opportunity for the right entrepreneur to turn a profit.
I currently divide tech start-ups into three classes. There are the Googles of the world, who use network effects or big data to sell advertising more effectively. There are companies like the one I work for that take advantage of modern technology to do things that were never possible before. And then there are those that are slowly and inexorably turning private goods into club goods.
I think this last group of companies (which include Netflix, Spotify, Uber, Lyft, and Airbnb) may be the ones that ultimately have the biggest impact on how we order our lives and what we buy. To better understand how these companies are driving this transformation, let’s go through them one by one, then talk about what it could all mean.
When I was a child, my parents bought a video cassette player, then a DVD player, then a Blu-ray player. We owned a hundred or so video cassettes, mostly whatever movies my brother and I were obsessed with enough to want to own. Later, we found a video rental store we liked and mostly started renting movies. We never owned more than 30 DVDs and 20 Blu-rays.
Then I moved out. I have bought five DVDs since – they came as a set from Kickstarter. Anything else I wanted to watch, I got via Netflix. A few years later, the local video rental store closed down and my parents got an AppleTV and a Netflix of their own.
Buying a physical movie means buying a private good. Video rental stores can be accurately modeled as a type of club good, because even if the movie you want is already rented out, there’s probably one that you want to watch almost as much that is available. This is enough to make them approximately non-rival, while the fact that it isn’t free to rent a movie means that rented videos are definitely excludable.
Netflix represents the next evolution in this business model. As long as the Netflix engineers have done their job right, there’s no amount of watching movies I can do that will prevent you from watching movies. The service is almost truly non-rival.
Movie studios might not feel the effects of Netflix turning a large chunk of the market for movies into one focused on club goods; they’ll still get paid by Netflix. But the switch to Netflix must have been incredibly damaging for the physical media and player manufacturers. When everyone went from cassettes to DVDs or DVDs to Blu-rays, there was still a market for their wares. Now, that market is slowly and inexorably disappearing.
This isn’t just a consequence of technology. The club good business model offers such amazing cost savings that it drove a change in which technology was dominant. When you bought a movie, it would spend almost all of its life sitting on a shelf. Now Netflix acts as your agent, buying movies (or rather, their rights) and distributing such that they’re always being played and almost never sitting on the shelf.
Spotify is very similar to Netflix. Previously, people bought physical cassettes (I’m just old enough that I remember making mix tapes from the radio). Then they switched to CDs. Then it was MP3s bought online (or, almost more likely, pirated online). But even pirating music is falling out of favour these days. Apple, Google, Amazon, and Spotify are all competing to offer unlimited music streaming to customers.
Music differs from movies in that it has a long tradition of being a public good – via broadcast radio. While that hasn’t changed yet (radio is still going strong), I do wonder how much longer the public option for music will exist, especially given the trend away from private cars that I think companies like Uber and Lyft are going to (pardon the pun) drive.
A car you’ve bought is a private good, while Uber and Lyft are clearly club goods. Surge pricing means that there are basically always enough drivers for everyone who wants to go anywhere using the system.
When you buy a car, you’re signing up for it to sit around useless for almost all of its life. This is similar to what happens when you buy exercise equipment, which means the logic behind cars as a club good is just as compelling as the logic behind gyms. Previously, we hadn’t been able to share cars very efficiently because of technological limitations. Dispatching a taxi, especially to an area outside of a city centre, was always spotty, time consuming and confusing. Car-pooling to work was inconvenient.
As anyone who has used a modern ride-sharing app can tell you, inconvenient is no longer an apt descriptor.
There is a floor on how few cars we can get by on. To avoid congestion in a club good, you typically have to provision for peak load. Luckily, peak load (for anything that can sensibly be turned into a club good) always requires fewer resources than would be needed if everyone went out and bought the shared good themselves.
Even “just” substantially decreasing the absolute number of cars out there will be incredibly disruptive to the automotive sector if they don’t correctly predict the changing demand for their products.
It’s also true that increasing the average utilisation of cars could change how our cities look. Parking lots are necessary when cars are a private good, but are much less useful when they become club goods. It is my hope that malls built in the middle of giant parking moats look mighty silly in twenty years.
Airbnb is the most ambiguous example I have here. As originally conceived, it would have driven the exact same club good transformation as the other services listed. People who were on vacation or otherwise out of town would rent out their houses to strangers, increasing the utilisation of housing and reducing the need for dedicated hotels to be built.
Airbnb is sometimes used in this fashion. It’s also used to rent out extra rooms in an otherwise occupied house, which accomplishes almost the same thing.
But some amount of Airbnb usage is clearly taking place in houses or condos that otherwise would have been rental stock. When used in this way, it’s taking advantage of a regulatory grey zone to undercut hotel pricing. Insofar as this might result in a longer-term change towards regulations that are generally cheaper to comply with, this will be good for consumers, but it won’t really be transformational.
The great promise of club goods is that they might lead us to use less physical stuff overall, because where previously each person would buy one of a thing, now only enough units must be purchased to satisfy peak demand. If Airbnb is just shifting around where people are temporary residents, then it won’t be an example of the broader benefits of club goods (even if provides other benefits to its customers).
When Club Goods Eat The Economy
In every case (except potentially Airbnb) above, I’ve outlined how the switch from private goods to club goods is resulting in less consumption. For music and movies, it is unclear if this switch is what is providing the primary benefit. My intuition is that the club good model actually did change consumption patterns for physical copies of movies (because my impression is that few people ever did online video rentals via e.g. iTunes), whereas the MP3 revolution was what really shrunk the footprint of music media.
This switch in consumption patterns and corresponding decrease in the amount of consumption that is necessary to satisfy preferences is being primarily driven by a revolution in logistics and bandwidth. The price of club goods has always compared favourably with that of private goods. The only thing holding people back was inconvenience. Now programmers are steadily figuring out how to make that inconvenience disappear.
On the other hand, increased bandwidth has made it easier to turn any sort of digitizable media into a club good. There’s an old expression among programmers: never underestimate the bandwidth of a station wagon full of cassettes (or CDs, or DVDs, or whatever physical storage media one grew up with) hurtling down the highway. For a long time, the only way to get a 1GB movie to a customer without an appallingly long buffering period was to physically ship it (on a 56kbit/s connection, this movie would take one day and fifteen hours to download, while the aforementioned station wagon with 500 movies would take 118 weeks to download).
Change may start out slow, but I expect to see it accelerate quickly. My generation is the first to have had the internet from a very young age. The generation after us will be the first unable to remember a time before it. We trust apps like Uber and Airbnb much more than our parents, and our younger siblings trust them even more than us.
While it was only kids who trusted the internet, these new club good businesses couldn’t really affect overall economic trends. But as we come of age and start to make major economic decisions, like buying houses and cars, our natural tendency to turn towards the big tech companies and the club goods they peddle will have ripple effects on an economy that may not be prepared for it.
When that happens, there’s only one thing that is certain: there will be yet another deluge of newspaper columns talking about how millennials are destroying everything.
[Warning: Contains spoilers for The Sunset Mantle, Vorkosigan Saga (Memory and subsequent), Dune, and Chronicles of the Kencyrath]
For the uninitiated, Sanderson’s Law (technically, Sanderson’s First Law of Magic) is:
An author’s ability to solve conflict with magic is DIRECTLY PROPORTIONAL to how well the reader understands said magic.
Brandon Sanderson wrote this law to help new writers come up with satisfying magical systems. But I think it’s applicable beyond magic. A recent experience has taught me that it’s especially applicable to fantasy cultures.
Sunset Mantle is what’s called secondary world fantasy; it takes place in a world that doesn’t share a common history or culture (or even necessarily biosphere) with our own. Game of Thrones is secondary world fantasy, while Harry Potter is primary world fantasy (because it takes place in a different version of our world, which we chauvinistically call the “primary” one).
Secondary world fantasy gives writers a lot more freedom to play around with cultures and create interesting set-pieces when cultures collide. If you want to write a book where the Roman Empire fights a total war against the Chinese Empire, you’re going to have to put in a master’s thesis worth of work to explain how that came about (if you don’t want to be eviscerated by pedants on the internet). In a secondary world, you can very easily have a thinly veiled stand-in for Rome right next to a thinly veiled analogue of China. Give readers some familiar sounding names and culture touchstones and they’ll figure out what’s going on right away, without you having to put in effort to make it plausible in our world.
When you don’t use subtle cues, like names or cultural touchstones (for example: imperial exams and eunuchs for China, gladiatorial fights and the cursus honorum for Rome), you risk leaving your readers adrift.
Many of the key plot points in Sunset Mantle hinge on obscure rules in an invented culture/religion that doesn’t bear much resemblance to any that I’m familiar with. It has strong guest rights, like many steppes cultures; it has strong charity obligations and monotheistic strictures, like several historical strands of Christianity; it has a strong caste system and rules of ritual purity, like Hinduism; and it has a strong warrior ethos, complete with battle rage and rules for dealing with it, similar to common depictions of Norse cultures.
These actually fit together surprising well! Reiss pulled off an entertaining book. But I think many of the plot points fell flat because they were almost impossible to anticipate. The lack of any sort of consistent real-world analogue to the invented culture meant that I never really had an intuition of what it would demand in a given situation. This meant that all of the problems in the story that were solved via obscure points of culture weren’t at all satisfying to me. There was build up, but then no excitement during the resolution. This was common enough that several chunks of the story didn’t really work for me.
Here’s one example:
“But what,” asked Lemist, “is a congregation? The Ayarith school teaches that it is ten men, and the ancient school of Baern says seven. But among the Irimin school there is a tradition that even three men, if they are drawn in together into the same act, by the same person, that is a congregation, and a man who has led three men into the same wicked act shall be put to death by the axe, and also his family shall bear the sin.”
All the crowd in the church was silent. Perhaps there were some who did not know against whom this study of law was aimed, but they knew better than to ask questions, when they saw the frozen faces of those who heard what was being said.
(Reiss, Alter S.. Sunset Mantle (pp. 92-93). Tom Doherty Associates. Kindle Edition.)
This means protagonist Cete’s enemy erred greatly by sending three men to kill him and had better cut it out if he doesn’t want to be executed. It’s a cool resolution to a plot point – or would be if it hadn’t taken me utterly by surprise. As it is, it felt kind of like a cheap trick to get the author out of a hole he’d written himself into, like the dreaded deux ex machina – god from the machine – that ancient playwrights used to resolve conflicts they otherwise couldn’t.
(This is the point where I note that it is much harder to write than it is to criticize. This blog post is about something I noticed, not necessarily something I could do better.)
I’ve read other books that do a much better job of using sudden points of culture to resolve conflict in a satisfying manner. Lois McMaster Bujold (I will always be recommending her books) strikes me as particularly apt. When it comes time for a key character of hers to make a lateral career move into a job we’ve never heard of before, it feels satisfying because the job is directly in line with legal principles for the society that she laid out six books earlier.
The job is that of Imperial Auditor – a high powered investigator who reports directly to the emperor and has sweeping powers – and it’s introduced when protagonist Miles loses his combat career in Memory. The principles I think it is based on are articulated in the novella Mountains of Mourning: “the spirit was to be preferred over the letter, truth over technicalities. Precedent was held subordinate to the judgment of the man on the spot”.
Imperial Auditors are given broad discretion to resolve problems as they see fit. The main rule is: make sure the emperor would approve. We later see Miles using the awesome authority of this office to make sure a widow gets the pension she deserves. The letter of the law wasn’t on her side, but the spirit was, and Miles, as the Auditor on the spot, was empowered to make the spirit speak louder than the letter.
Wandering around my bookshelves, I was able to grab a couple more examples of satisfying resolutions to conflicts that hinged on guessable cultural traits:
In Dune, Fremen settle challenges to leadership via combat. Paul Maud’dib spends several years as their de facto leader, while another man, Stilgar, holds the actual title. This situation is considered culturally untenable and Paul is expected to fight Stilgar so that he can lead properly. Paul is able to avoid this unwanted fight to the death (he likes Stilgar) by appealing to the only thing Fremen value more than their leadership traditions: their well-established pragmatism. He says that killing Stilgar before the final battle would be little better than cutting off his own arm right before it. If Frank Herbert hadn’t mentioned the extreme pragmatism of the Fremen (to the point that they render down their dead for water) several times, this might have felt like a cop-out.
In The Chronicles of the Kencyrath, it looks like convoluted politics will force protagonist Jame out of the military academy of Tentir. But it’s mentioned several times that the NCOs who run the place have their own streak of honour that allows them to subvert their traditionally required oaths to their lords. When Jame redeems a stain on the Tentir’s collective honour, this oath to the college gives them an opening to keep her there and keep their oaths to their lords. If PC Hodgell hadn’t spent so long building up the internal culture of Tentir, this might have felt forced.
It’s hard to figure out where good foreshadowing ends and good cultural creation begins, but I do think there is one simple thing an author can do to make culture a satisfying source of plot resolution: make a culture simple enough to stereotype, at least at first.
If the other inhabitants of a fantasy world are telling off-colour jokes about this culture, what do they say? A good example of this done explicitly comes from Mass Effect: “Q: How do you tell when a Turian is out of ammo? A: He switches to the stick up his ass as a backup weapon.”
(Even if you’ve never played Mass Effect, you now know something about Turians.)
At the same time as I started writing this, I started re-reading PC Hodgell’s The Chronicles of the Kencyrath, which provided a handy example of someone doing everything right. The first three things we learn about the eponymous Kencyr are:
They heal very quickly
They dislike their God
Their honour code is strict enough that lying is a deadly crime and calling some a liar a deathly insult
There are eight more books in which we learn all about the subtleties of their culture and religion. But within the first thirty pages, we have enough information that we can start making predictions about how they’ll react to things and what’s culturally important.
When Marc, a solidly dependable Kencyr who is working as a guard and bound by Kencyr cultural laws to loyally serve his employer lets the rather more eccentric Jame escape from a crime scene, we instantly know that him choosing her over his word is a big deal. And indeed, while he helps her escape, he also immediately tries to kill himself. Jame is only able to talk him out of it by explaining that she hadn’t broken any laws there. It was already established that in the city of Tai-Tastigon, only those who physically touch stolen property are in legal jeopardy. Jame never touched the stolen goods, she was just on the scene. Marc didn’t actually break his oath and so decides to keep living.
God Stalk is not a long book, so that fact that PC Hodgell was able to set all of this up and have it feel both exciting in the moment and satisfying in the resolution is quite remarkable. It’s a testament to what effective cultural distillation, plus a few choice tidbits of extra information can do for a plot.
If you don’t come up with a similar distillation and convey it to your readers quickly, there will be a period where you can’t use culture as a satisfying source of plot resolution. It’s probably no coincidence that I noticed this in Sunset Mantle, which is a long(-ish) novella. Unlike Hodgell, Reiss isn’t able to develop a culture in such a limited space, perhaps because his culture has fewer obvious touchstones.
Sanderson’s Second Law of Magic can be your friend here too. As he stated it, the law is:
The limitations of a magic system are more interesting than its capabilities. What the magic can’t do is more interesting than what it can.
Similarly, the taboos and strictures of a culture are much more interesting than what it permits. Had Reiss built up a quick sketch of complicated rules around commanding and preaching (with maybe a reference that there could be surprisingly little theological difference between military command and being behind a pulpit), the rule about leading a congregation astray would have fit neatly into place with what else we knew of the culture.
Having tight constraints imposed by culture doesn’t just allow for plot resolution. It also allows for plot generation. In The Warrior’s Apprentice, Miles gets caught up in a seemingly unwinnable conflict because he gave his word; several hundred pages earlier Bujold establishes that breaking a word is, to a Barrayaran, roughly equivalent to sundering your soul.
It is perhaps no accident that the only thing we learn initially about the Kencyr that isn’t a descriptive fact (like their healing and their fraught theological state) is that honour binds them and can break them. This constraint, that all Kencyr characters must be honourable, does a lot of work driving the plot.
This then would be my advice: when you wish to invent a fantasy culture, start simple, with a few stereotypes that everyone else in the world can be expected to know. Make sure at least one of them is an interesting constraint on behaviour. Then add in depth that people can get to know gradually. When you’re using the culture as a plot device, make sure to stick to the simple stereotypes or whatever other information you’ve directly given your reader. If you do this, you’ll develop rich cultures that drive interesting conflicts and you’ll be able to use cultural rules to consistently resolve conflict in a way that will feel satisfying to your readers.
[Epistemic Status: Written more harshly than my actual views for persuasive effect. I should also point out that all views expressed here are my own, not my employer’s; when I’m hiring, my first commitment is complying with the relevant Federal, Provincial, and local legislation. My second commitment is to finding the best people. Ideology doesn’t come into it. Serendipitously, I think everything I’ve argued for here helps me discharge both duties.]
In my capacity as a senior employee at Alert Labs (it’s easy to be senior when the company is only three years old), I do a lot of hiring. Since I started, I’ve been involved in interviews for four full time hires and five interns. Throughout all of this, I’ve learned a lot about what to look for in a resume.
I’ve also gotten in the occasional disagreement about what we should look for in in people we’re (potentially) hiring.
There’s a curious double vision in the profession about programming projects. We all tell ourselves people do them only for fun. Yet we also look for them on resumes.
The second fact means that the first cannot always be true. My projects partially exist for my resume. I’ve enjoyed working on them. But if there wasn’t a strong financial motive to have worked on them, I probably wouldn’t have. Or I’d have done them differently.
As a someone who hires, I can’t claim that programming projects aren’t useful. They give, perhaps better than anything else (e.g. the much-derided whiteboard interview), an idea of what sort of code someone would write as an employee. I’ve called people – especially people without any formal education in CS – in for interviews largely on the strengths of their personal projects. Seeing that someone can use the languages that they say they can, that they can write unit tests and documentation, and that they can lay out a large project makes me have more faith that they can do the job.
When programming projects are used as a complement to employment and educational history, I think they help the field.
But I’ve also argued stringently against treating personal projects as a key part of any hiring process. While I like using them as a supplement, I think there are four good reasons not to rely on them as any sort of primary criteria.
First, not everyone has time for projects. Using them as a screen sifts out people with caregiving responsibilities, with families, or with strong commitments in their personal life. When you’re only hiring from people without other commitments, it becomes easier for a team to slip into a workaholic lifestyle. This is bad, because despite what many people think, studies consistently show no productivity benefits from working more than 40 hours per week for prolonged periods. All long hours do is deprive people of personal time.
(In a world where people with caregiving responsibilities are more likely to be female, overreliance on personal projects can also become a subtle form of hiring discrimination.)
I’m incredibly grateful that I work at a company founded by people with both management experience and children. Their management experience means they know better than to let their employees burn out from overwork, while their children mean that the company has always had a culture of taking time for other commitments. This doesn’t mean that I’m never in for sixty hours in a week, or that I never have to deal with a server failure at midnight. Work-life balance doesn’t mean that I don’t take my work seriously; it just means I don’t conflate being in the office for 12 hours at a time with that seriousness.
Second, requiring people to have programming hobbies sifts out a lot of interesting people. I understand that there exist people that only want to live code, only want to talk about code, and want to be surrounded by people who are also in that mode, but that isn’t me. I joined Alert Labs because I wanted to solve real-life problems, not make tools for people just like me. Having a well-rounded team means that people spontaneously generate ideas for new projects. It means they take ownership for features (like ensuring everything on our website follows accessibility guidelines) that would never percolate to the top of my mind. It makes our team stronger and more effective.
Outside of a few other oddball professions (lawyers, I’m looking at you), no one else is expected to treat their work as their hobby. People can make their hobbies into their work (look at webcomic artists or bloggers who make it big) and this was one of the initial purposes of personal programming projects. It’s not at all unusual to find something you like enough that you’d make a full-time job of it if you could. But then you normally get new hobbies.
People who fall in love with programming are lucky in that they often can turn it into a full-time job. Writers… are somewhat less lucky. I haven’t monetized my blog because I’d find the near-impossibility of making money off of discursive posts about political economy disheartening. Keeping my blog as a vanity project keeps it fun.
But we programmers shouldn’t let our economic fortune turn what has always been the path that a minority of people take into our field into a bona fide requirement.
Third, I dislike what an overemphasis on programming projects can do to resumes. I frequently see interesting hobbies shunted aside to make room for less-than-inspired programming projects. I’ve seen people who got the memo that they needed a profile full of projects, but not the memo that it had to be their projects. This leads to GitHub pages full of forks of well-known projects. I don’t know who this is supposed to fool, but it sure doesn’t work on me.
When students send in resumes, they all put the same four class projects on them, in the somewhat futile hope that we won’t notice and we’ll consider them adequately dedicated. I wish the fact that they were paying $8500 per term to learn about CS could be taken as proof enough of their dedication and I wouldn’t have to read about pong sixty times a semester, but that is apparently not the world I live in.
My final beef with an overemphasis on programming hobbies is that many important skills can’t be learned in front of a computer. Not all hobbies teach you how to work together with a disparate team, respectfully navigate disagreements with other people, and effectively address co-worker concerns, but those that do are worth their weight in gold. Software is becoming ever more complex and is having ever more capital thrown at it. We’ve exhausted what we can do with single brilliant loners, which means that we now need to turn to functional teams.
This isn’t meant to conjure up negative and insulting stereotypes about people who spend all their spare time programming. Many of these people are incredibly kind and very devoted to mentoring new members of our community.
I don’t want people who program in their spare time and love it with all their hearts to be tarred with negative stereotypes. But I also don’t want people with other interests to be considered uncommitted dilettantes. And I hope we can build a profession that believes neither myth.
Last week I explained how poor decisions by central bankers (specifically failing to spur inflation) can make recessions much worse and lead to slower wage growth during recovery.
(Briefly: inflation during recessions reduces the real cost of payroll, cutting business expenses and making firing people unnecessary. During a recovery, it makes hiring new workers cheaper and so leads to more being hired. Because central bankers failed to create inflation during and after the great recession, many businesses are scared of raising salaries. They believe (correctly) that this will increase their payroll expenses to the point where they’ll have to lay many people off if another recession strikes. Until memories of the last recession fade or central bankers clean up their act, we shouldn’t expect wages to rise.)
Now I’d like to expand on an offhand comment I made about the minimum wage last week and explore how it can affect recovery, especially if it’s indexed to inflation.
The minimum wage represents a special case when it comes to pay cuts and layoffs in recessions. While it’s always theoretically possible to convince people to take a pay cut rather than a layoff (although in practice it’s mostly impossible), this option isn’t available for people who make the minimum wage. It’s illegal to pay them anything less. If bad times strike and business is imperiled, people making the minimum wage might have to be laid off.
I say “might”, because when central bankers aren’t proving useless, inflation can rescue people making the minimum wage from being let go. Inflation makes the minimum wage relatively less valuable, which reduces the cost of payroll relative to other inputs and helps to save jobs that pay minimum wage. This should sound familiar, because inflation helps people making the minimum wage in the exact same way it helps everyone else.
Because of increasingly expensive housing and persistently slow wage growth, some jurisdictions are experimenting with indexing the minimum wage to inflation. This means that the minimum wage rises at the same rate as the cost of living. Most notably (to me, at least), this group includes my home province of Ontario.
When the minimum wage is tied to inflation, recessions can become especially dangerous and drawn out.
With the minimum wage rising in lockstep with inflation, any attempts to decrease payroll costs in real terms (that is to say: inflation adjusted terms) is futile to the extent that payroll expenses are for minimum wage workers. Worse, people who were previously making above the minimum wage and might have had their jobs saved by inflation can be swept up by an increasingly high minimum wage.
This puts central bankers in a bind. As soon as the minimum wage is indexed to inflation, inflation is no longer a boon to all workers. Suddenly, many workers can find themselves in a “damned if you do, damned if you don’t” situation. Without inflation, they may be too expensive to keep. With it, they may be saved… until the minimum wage comes for them too. If a recession goes on long enough, only high-income workers would be sparred.
In addition, minimum wage (or near-minimum wage) workers who are laid off during a period of higher inflation (an in this scenario, there will be many) will suffer comparatively more, as their savings get exhausted even more quickly.
Navigating these competing needs would be an especially tough challenge for certain central banks like the US Federal Reserve – those banks that have dual mandates to maintain stable prices and full employment. If a significant portion of the US ever indexes its minimum wage to inflation, the Fed will have no good options.
It is perhaps darkly humorous that central banks, which bear an unusually large parcel of the blame for our current slow wage growth, stand to face the greatest challenges from the policies we’re devising to make up for their past shortcomings. Unfortunately, I think a punishment of this sort is rather like cutting off our collective nose to spite our collective face.
There are simple policies we could enact to counter the risks here. Suspending any peg to inflation during years that contain recessions (in Ontario at least, the minimum wage increase due to inflation is calculated annually) would be a promising start. Wage growth after a recession could be ensured with a rebound clause, or better yet, the central bank actually doing its job properly.
I am worried about the political chances (and popularity once enacted) of any such pragmatic policy though. Many people respond to recessions with the belief that the government can make things better by passing the right legislation – forcing the economy back on track by sheer force of ink. This is rarely the case, especially because the legislation that people have historically clamoured for when unemployment is high is the sort that increases wages, not lowers them. This is a disaster when unemployment threatens because of too-high wages. FDR is remembered positively for his policy of increasing wages during the great depression, even though this disastrous decision strangled the recovery in its crib. I don’t expect any higher degree of economic literacy from people today.
To put my fears more plainly, I worry that politicians, faced with waning popularity and a nipping recession, would find allowing the minimum wage to be frozen too much of a political risk. I frankly don’t trust most politicians to follow through with a freeze, even if it’s direly needed.
Minimum wages are one example of a tradeoff we make between broad access and minimum standards. Do we try and make sure everyone who wants a job can have one, or do we make sure people who have jobs aren’t paid too little for their labour, even if that hurts the unemployed? As long as there’s scarcity, we’re going to have to struggle with how we ensure that as many people as possible have their material needs met and that involves tradeoffs like this one.
But when we’re making these kind of compassionate decisions, we need to look at the risks of whatever systems we choose. Proponents of indexing the minimum wage to inflation haven’t done a good job of understanding the grave risk it poses to the health of our economy and perhaps most of all, to the very people they seek to help. In places like Ontario, where the minimum wage is already indexed to inflation, we’re going to pay for their lack of foresight next time an economic disaster strikes.
When you’re noticing that you’re talking past someone, what does it look like? Do you feel like they’re ignoring all the implications of the topic at hand (“yes, I know the invasion of Iraq is causing a lot of pain, but I think the important question is, ‘did they have WMDs?'”)? Or do you feel like they’re avoiding talking about the object-level point in favour of other considerations (“factory farmed animals might suffer, but before we can consider whether that’s justified or not, shouldn’t we decide whether we have any obligation to maximize the number of living creatures?”)?
I’m beginning to suspect that many tense disagreements and confused, fruitless conversations are caused by differences in how people conceive of and process the truth. More, I think I have a model that explains why some people can productively disagree with anyone and everyone, while others get frustrated very easily with even their closest friends.
The basics of this model come from a piece that Jacob Falkovich wrote for Quillette. He uses two categories, “contextualizers” and “decouplers”, to analyze an incredibly unproductive debate (about race and IQ) between Vox’s Ezra Klein and Dr. Sam Harris.
Klein is the contextualizer, a worldview that comes naturally to a political journalist. Contextualizers see ideas as embedded in a context. Questions of “who does this effect?”, “how is this rooted in society?”, and “what are the (group) identities of people pushing this idea?” are the bread and butter of contextualizers. One of the first things Klein says in his debate with Harris is:
Here is my view: I think you have a deep empathy for Charles Murray’s side of this conversation, because you see yourself in it [because you also feel attacked by “politically correct” criticism]. I don’t think you have as deep an empathy for the other side of this conversation. For the people being told once again that they are genetically and environmentally and at any rate immutably less intelligent and that our social policy should reflect that. I think part of the absence of that empathy is it doesn’t threaten you. I don’t think you see a threat to you in that, in the way you see a threat to you in what’s happened to Murray. In some cases, I’m not even quite sure you heard what Murray was saying on social policy either in The Bell Curve and a lot of his later work, or on the podcast. I think that led to a blind spot, and this is worth discussing.
Klein is highlighting what he thinks is the context that probably informs Harris’s views. He’s suggesting that Harris believes Charles Murray’s points about race and IQ because they have a common enemy. He’s aware of the human tendency to like ideas that come from people we feel close to (myside bias) – or that put a stick in the eye of people we don’t like.
There are other characteristics of contextualizers. They often think thought experiments are pointless, given that they try and strip away all the complex ways that society affects our morality and our circumstances. When they make mistakes, it is often because they fall victim to the “ought-is” fallacy; they assume that truths with bad outcomes are not truths at all.
Harris, on the other hand, is a decoupler. Decoupling involves separating ideas from context, from personal experience, from consequences, from anything but questions of truth or falsehood and using this skill to consider them in the abstract. Decoupling is necessary for science because it’s impossible to accurately check a theory when you hope it to be true. Harris’s response to Klein’s opening salvo is:
I think your argument is, even where it pretends to be factual, or wherever you think it is factual, it is highly biased by political considerations. These are political considerations that I share. The fact that you think I don’t have empathy for people who suffer just the starkest inequalities of wealth and politics and luck is just, it’s telling and it’s untrue. I think it’s even untrue of Murray. The fact that you’re conflating the social policies he endorses — like the fact that he’s against affirmative action and he’s for universal basic income, I know you don’t happen agree with those policies, you think that would be disastrous — there’s a good-faith argument to be had on both sides of that conversation. That conversation is quite distinct from the science and even that conversation about social policy can be had without any allegation that a person is racist, or that a person lacks empathy for people who are at the bottom of society. That’s one distinction I want to make.
Harris is pointing out that questions of whether his beliefs will have good or bad consequences or who they’ll hurt have nothing to do with the question of if they are true. He might care deeply about the answers of those questions, but he believes that it’s a dangerous mistake to let that guide how you evaluate an idea. Scientists who fail to do that tend to get caught upin thereplication crisis.
When decouplers err, it is often because of the is-ought fallacy. They fail to consider how empirical truths can have real world consequences and fail to consider how labels that might be true in the aggregate can hurt individuals.
When you’re arguing with someone who doesn’t contextualize as much as you do, it can feel like arguing about useless hypotheticals. I once had someone start a point about police shootings and gun violence with “well, ignoring all of society…”. This prompted immediate groans.
When arguing with someone who doesn’t decouple as much as you do, it can feel useless and mushy. A co-worker once said to me “we shouldn’t even try and know the truth there – because it might lead people to act badly”. I bit my tongue, but internally I wondered how, absent the truth, we can ground disagreements in anything other than naked power.
Throughout the debate between Harris and Klein, both of them get frustrated at the other for failing to think like they do – which is why it provided such a clear example for Falkovich. If you read the transcripts, you’ll see a clear pattern: Klein ignores questions of truth or falsehood and Harris ignores questions of right and wrong. Neither one is willing to give an inch here, so there’s no real engagement between them.
This doesn’t have to be the case whenever people who prefer context or prefer to deal with the direct substance of an issue interact.
My theory is that everyone has a window that stretches from the minimum amount of context they like in conversations to the minimum amount of substance. Theoretically, this window could stretch from 100% context and no substance to 100% substance and no context.
But practically no one has tastes that broad. Most people accept a narrower range of arguments. Here’s what three well compatible friends might look like:
We should expect to see some correlation between the minimum and maximum amount of context people want to get. Windows may vary in size, but in general, feeling put-off by lots of decoupling should correlate with enjoying context.
Klein and Harris disagreed so unproductively not just because they give first billing to different things, but because their world views are different enough that there is absolutely no overlap between how they think and talk about things.
I’ve found thinking about windows of context and substance, rather than just the dichotomous categories, very useful for analyzing how me and my friends tend to agree and disagree.
Some people I know can hold very controversial views without ever being disagreeable. They are good at picking up on which sorts of arguments will work with their interlocutors and sticking to those. These people are no doubt aided by rather wide context windows. They can productively think and argue with varying amounts of context and substance.
Other people feel incredibly difficult to argue with. These are the people who are very picky about what arguments they’ll entertain. If I sort someone into this internal category, it’s because I’ve found that one day they’ll dismiss what I say as too nitty-gritty, while the next day they criticize me for not being focused enough on the issue at hand.
What I’ve started to realize is that people I find particularly finicky to argue with may just have a fairly narrow strike zone. For them, it’s simultaneously easy for arguments to feel devoid of substance or devoid of context.
I think one way that you can make arguments with friends more productive is explicitly lay out the window in which you like to be convinced. Sentences like: “I understand what you just said might convince many people, but I find arguments about the effects of beliefs intensely unsatisfying” or “I understand that you’re focused on what studies say, but I think it’s important to talk about the process of knowledge creation and I’m very unlikely to believe something without first analyzing what power hierarchies created it” are the guideposts by which you can show people your context window.
The Economist wonders why wage growth isn’t increasing, even as unemployment falls. A naïve reading of supply and demand suggests that it should, so this has become a relatively common talking point in the news, with people of all persuasions scratching their heads. The Economist does it better than most. They at least talk about slowing productivity growth and rising oil prices, instead of blaming everything on workers (for failing to negotiate) or employers (for not suddenly raising wages).
But after reading monetary policyblogs, the current lack of wage growth feels much less confusing to me. Based on this, I’d like to offer one explanation for why wages haven’t been growing. While I may not be an economist, I’ll be doing my best to pass along verbatim the views of serious economic thinkers.
When people talk about stagnant wage growth, this is what they mean. Average weekly wages have increased from $335 a week in 1979 to $350/week in 2018 (all values are 1982 CPI-adjusted US dollars). This is a 4.5% increase, representing $780/year more (1982 dollars) in wages over the whole period. This is not a big change.
More recent wage growth also isn’t impressive. At the depth of the recession, weekly wages were $331 . Since then, they’ve increased by $19/week, or 5.7%. However, wages have only increased by $5/week (1.4%) since the previous high in 2009.
This doesn’t really match people’s long run expectations. Between 1948 and 1973, hourly compensation increased by 91.3%.
I don’t have an explanation for what happened to once-high wage growth between 1980 and 2008 (see The Captured Economy for what some economists think might explain it). But when it comes to the current stagnation, one factor I don’t hear enough people talking about is bad policy moves by central bankers.
To understand why the central bank affects wage growth, you have to understand something called “sticky wages“.
Wages are considered “sticky” because it is basically impossible to cut them. If companies face a choice between firing people and cutting wages, they’ll almost always choose to fire people. This is because long practice has taught them that the opposite is untenable.
If you cut everyone’s wages, you’ll face an office full of much less motivated people. Those whose skills are still in demand will quickly jump ship to companies that compensate them more in line with market rates. If you just cut the wages of some of your employees (to protect your best performers), you’ll quickly find an environment of toxic resentment sets in.
This is not even to mention that minimum wage laws make it illegal to cut the wages of many workers.
Normally the economy gets around sticky wages with inflation. This steadily erodes wages (including the minimum wage). During boom times, businesses increase wages above inflation to keep their employees happy (or lose them to other businesses that can pay more and need the labour). During busts, inflation can obviate the need to fire people by decreasing the cost of payroll relative to other inputs.
But what we saw during the last recession was persistently low inflation rates. Throughout the whole the thing, the Federal Reserve Bank kept saying, in effect, “wow, really hard to up inflation; we just can’t manage to do it”.
It’s obviously false that the Fed couldn’t trigger inflation if it wanted to. As a thought experiment, imagine that they had printed enough money to give everyone in the country $1,000,000 and then mailed it out. That would obviously cause inflation. So it is (theoretically) just a manner of scaling that back to the point where we’d only see inflation, not hyper-inflation. Why then did the Fed fail to do something that should be so easy?
According to Scott Sumner, you can’t just look at the traditional instrument the central bank has for managing inflation (the interest rate) to determine if its policies are inflationary or not. If something happens to the monetary supply (e.g. say all banks get spooked and up their reserves dramatically ), this changes how effective those tools will be.
After the recession, the Fed held the interest rates low and printed money. But it actually didn’t print enough money given the tightened bank reserves to spur inflation. What looked like easy money (inflationary behaviour) was actually tight money (deflationary behaviour), because there was another event constricting the money supply. If the Fed wanted inflation, it would have had to do much more than is required in normal times. The Federal Reserve never realized this, so it was always confused by why inflation failed to materialize.
This set off the perfect storm that led to the long recovery after the recession. Inflation didn’t drive down wages, so it didn’t make economic sense to hire people (or even keep as many people on staff), so aggregate demand was low, so business was bad, so it didn’t make sense to hire people (or keep them on staff)…
If real wages had properly fallen, then fewer people would have been laid off, business wouldn’t have gotten as bad, and the economy could have started to recover much more quickly (with inflation then cooling down and wage growth occurring). Scott Sumner goes so far to say that the money shock caused by increased cash reserves may have been the cause of the great recession, not the banks failing or the housing bubble.
What does this history have to do with poor wage growth?
Well it turns out that companies have responded to the tight labour market with something other than higher wages: bonuses.
Bonuses are one-time payments that people only expect when times are good. There’s no problem cutting them in recessions.
Switching to bonuses was a calculated move for businesses, because they have lost all faith that the Federal Reserve will do what is necessary (or will know how to do what is necessary) to create the inflation needed to prevent deep recessions. When you know that wages are sticky and you know that inflation won’t save you from them, you have no choice but to pre-emptively limit wages, even when there isn’t a recession. Even when a recession feels fairly far away.
More inflation may feel like the exact opposite of what’s needed to increase wages. But we’re talking about targeted inflation here. If we could trust humans to do the rational thing and bargain for less pay now in exchange for more pay in the future whenever times are tight, then we wouldn’t have this problem and wages probably would have recovered better. But humans are humans, not automatons, so we need to make the best with what we have.
One of the purposes of institutions is to build a framework within which we can make good decisions. From this point of view, the Federal Reserve (and other central banks; the Bank of Japan is arguably far worse) have failed. Institutions failing when confronted with new circumstances isn’t as pithy as “it’s all the fault of those greedy capitalists” or “people need to grow backbones and negotiate for higher wages”, but I think it’s ultimately a more correct explanation for our current period of slow wage growth. This suggests that we’ll only see wage growth recover when the Fed commits to better monetary policy , or enough time passes that everyone forgets the great recession.
In either case, I’m not holding my breath.
 I’m ignoring the drop in Q2 2014, where wages fell to $330/week, because this was caused by the end of extended unemployment insurance in America. The end of that program made finding work somewhat more important for a variety of people, which led to an uptick in the supply of labour and a corresponding decrease in the market clearing wage. ^
 Under a fractional reserve banking system, banks can lend out most of their deposits, with only a fraction kept in reserve to cover any withdrawals customers may want to make. This effectively increases the money supply, because you can have dollars (or yen, or pesos) that are both left in a bank account and invested in the economy. When banks hold onto more of their reserves because of uncertainty, they are essentially shrinking the total money supply. ^
 Scott Sumner suggests that we should target nominal GDP instead of inflation. When economic growth slows, we’d automatically get higher inflation, as the central bank pumps out money to meet the growth target. When the market begins to give way to roaring growth and speculative bubbles, the high rate of real growth would cause the central bank to step back, tapping the brakes before the economy overheats. I wonder if limiting inflation on the upswing would also have the advantage of increasing real wages as the economy booms? ^
There are many problems that face modern, developed economies. Unfortunately, no one agrees with what to do in response to them. Even economists are split, with libertarians championing deregulation, while liberals call for increased government spending to reduce inequality.
Or at least, that’s the conventional wisdom. The Captured Economy, by Dr. Brink Lindsey (libertarian) and Dr. Steven M. Teles (liberal) doesn’t have much time for conventional wisdom.
It’s a book about the perils of regulation, sure. But it’s a book that criticizes regulation that redistributes money upwards. This isn’t the sort of regulation that big pharma or big finance wants to cut. It’s the regulation they pay politicians to enact.
And if you believe Lindsey and Teles, upwardly redistributing regulation is strangling our economy and feeding inequality.
They’re talking, of course, about rent-seeking.
Now, if you don’t read economic literature, you probably have an idea of what “rent-seeking” might mean. This idea is probably wrong. We aren’t talking here about the sorts of rents that you pay to landlords. That rent probably includes some economic rents (quite a lot of economic rents if you live in Toronto, Vancouver, San Francisco, or New York), but does not itself represent an economic rent.
An economic rent is any excess payment due to scarcity. If you control especially good land and can grow wheat at half the price of everyone else, the rent of this land is the difference between how much it costs you to grow wheat and how much it costs everyone else to grow wheat.
Rent-seeking is when someone tries to acquire these rents without producing anything of value. It isn’t rent-seeking when you invent a new mechanical device that cuts your costs in half (although your additional profit will represent economic rents). It is rent-seeking when you use some of those profits as “campaign contributions” to get the government to pass a law that requires all future labour-saving devices need to be “tested” for five years before they can be introduced. Over that five-year period, you’ll reap rents because no one else can compete with you to bring the price of the goods you are producing down.
How could we know if rent-seeking is happening in the US economy (note: this book is written specifically about the US, so assume all statements here are about the US unless otherwise noted) and how can we tell what it’s costing?
Well, one of the best signs of rent-seeking is increased profits. If profits are increasing and this can’t be explained by innovation or productivity growth or any other natural factor, then we have circumstantial evidence that profits are increasing from rent-seeking. Is this the case?
Lindsey and Teles say yes.
First, it seems like profits for US firms are increasing, from a low of 3% in the 1980s to a high of 11% currently. These are average profits, so they can’t be swayed by one company suddenly becoming much more efficient – as something like that should be cancelled out by a decline in profits at somewhere less efficient.
At the same time, however, the majority of these new profits have been going to companies that were already very profitable. If being very profitable makes corrupting the political process easier, this is exactly what we’d expect to see.
In addition, formation of new companies has slowed, concentration has increased, the ratio of intangible assets to tangible assets has increased, and yet spending on intangible assets (like R&D) has dropped. The only intangibles you get without investing in R&D are better human capital (but then why should profits increase if this is happening everywhere?) and tailor-made regulation.
Lindsey and Teles go on to cite research by Dr. James Bessen that show that most of the increases in profits since the start of the 21st century is heavily correlated with increasing regulation, a result that remained robust even when accounting for reverse causation (e.g. a counter-factual where profits causing regulation).
This circumstantial evidence is about all we can get for something as messy as real-world economics, but it’s both highly suggestive and fits in well with what keen observers have noted in individual industries, like the pharmaceutical industry.
An increase in rent-seeking would explain a whole bunch of the malaise of the current economy.
Economists have been surprised by the slow productivity growth since the last recession. If there was significantly more rent-seeking now than in the past, then we would expect productivity growth to slow.
In a properly functioning economy, productivity growth is largely buoyed up by new entrants to a field. The most productive new entrants thrive, while less productive new entrants (and some of the least productive existing players) fail. Over time, this gradually improves the overall productivity of an industry. This is the creative destruction you might hear economists talking glowingly about.
Productivity can also be raised by the slow diffusion of innovations across an industry. When best practices are copied, everyone ends up producing more with fewer inputs.
Rent-seeking changes the nature of this competition. Instead of competing on productivity and innovation, companies compete to see who can most effectively buy the government. Everyone who fails to buy off the government will eventually fail, leaving an increasingly moribund economy behind.
Lindsey and Teles believe that we’re more likely to see the negative effects of rent-seeking today than in the past because the underlying economy has less favourable conditions. In the 1950s, women started to enter the workforce. In the 60s, Boomers began to enter it. In addition, many returning soldiers got university educations after World War II, making college graduates much more common.
Therefore, rent-seeking, as a force holding down productivity growth, would be a serious problem in political economy even if it didn’t lead to increased inequality and all of the problems that can cause.
But that’s where the other half of this book comes in; the authors suggest that our current spate of rent-seeking policies are fueling income inequality as well as economic malaise . Rent-seeking inflates stock prices (which only helps people who are well-off enough that they own stocks) or wages at the top of corporations. Rents from rent-seeking also tend to accrue to skilled workers, to people who own homes, and people in regulated professions. All of these people are wealthier than average and increasing their wealth increases inequality.
That’s the theory. To show it in practice, Lindsey and Teles introduce four case studies: finance, intellectual property, zoning, and occupational licensing.
Whenever I think about finance, I am presented with a curious double image. There are the old-timey banks of yore, that I see in movies, the ones that provided smiling service to their local customers. And then there are the large financial entities that exist today, with their predatory sales tactics and “too big to fail” designations. Long gone are the days when banks mostly made money by collecting interest on loans, loans made possible by paying interest on deposits.
Today’s banks also have an excellent racket going on. They decry taxes and regulation on one hand, while extracting huge rents from governments on the other.
To understand why, we first need to talk about leverage. Bank profits can be increased many times over via the magic of leverage – basically borrowing money to buy assets. If you believe, for example, that the price of silver is going to skyrocket tomorrow, you could buy $100 of silver. If silver goes up by 20%, you’ll pocket a cool $20 for 20% profit. If you borrow an extra $900 from friends and family at 1% interest and buy silver with that too, you’ll pocket a cool $191 once it goes up (20% of $1000 less 1% of $900), for 191% profit.
Leverage becomes a problem when prices fall. If the price goes down by 10% instead of going up, you’ll be left with $90 if you didn’t leverage yourself – and $1 if you did. Because it leads to the potential of outsized losses, leverage presents problems with downside risks, the things that happen when your bet is wrong.
One of the major ways banks extract rents is by forcing the government to hold onto their downside risks. In America, this is accomplished several ways. First, deposits are insured by the government. This is good, in that it prevents bank runs , which were a significant problem in the 19th and 20th century, but bad because it removes most incentive for consumers to care about the lending practices of their bank. Insurance removes the risk associated with picking a bank with risky lending practices, so largely people don’t bother to see if their bank is responsible or not. Banks know this, so feel no pressure to be responsible, especially because shareholders love the profits irresponsibility brings in good times.
Second, the government (especially in America, but also recently in Ireland) seems unable to resist insulating bondholders from the consequences of backing a bank with bad standards. The bailouts after the financial crisis mean that few bondholders were punished for their failure to do due diligence when providing the credit banks used to make leveraged bets. As long as no one is punished for lending to the banks that make risky bets, things won’t get better.
(Interestingly, there is theoretical work that shows banks can accomplish everything they currently do with debt using equity at the same cost. This isn’t what we see in real life. Lindsey and Teles suggest this is because debt is kept artificially cheap for banks by repeated bailouts. Creditors don’t demand extra to lend to an indebted bank, because they know they won’t have to pay if things go south.)
Third, there’s mortgage debt, which is often insured or bought by the Federal Government in America. This makes risky lending much more palatable for many banks (and much more profitable as well). This whole process is really opaque and largely hidden from the US population. When times are good, it’s a relatively cheap way to make housing more affordable (although somewhat regressive; it favours the already wealthy). When times are bad it can cost the government almost $200 billion.
The authors suggest that this sort of “public program by kluge” is the perfect vehicle for rent-seeking. The need to do the program in a klugey way so that taxpayers don’t complain is anathema to accountability and often requires the support of businesses – which are happy to help as long as they get to skim off the top. Lindsey and Teles suggest that it would be much better for the US just to provide straight up housing subsidies in a means-tested way.
Being able to extract all these rents has probably increased the size of the US financial sector. Linsey and Teles argue that this is a very bad thing. They cite data that show decreased economic growth once the financial sector grows beyond a certain size, possibly because an outsized financial sector leads to misallocation of resources.
Beyond a certain point, the financial sector is just moving money around to no productive aim (this is different than e.g. loans to businesses; I’m talking about highly speculative bets on foreign currencies or credit default swaps here). The financial sector also aggressively recruits very bright people using very high salaries. If the financial sector were smaller and couldn’t compensate as highly, then these people would be out doing something productive, like building self-driving cars or curing malaria. Lindsey and Teles suggest that we should happily make a trade-off whereby these people can’t get quite as high salaries but do actually produce things of value.
(Remember: one of the pair here is a libertarian! Like “worked for Cato Institute for years” libertarian. If your caricature of libertarians is that “they hate poor people”, I suggest you consider the alternative: “they think the free market is the best way to help disadvantaged people find better circumstances”. Here, Lindsey is trying to correct market failures and misallocations caused by big banks getting too cozy with the government.)
Intellectual Property Law
If you don’t follow the Open Source or Creative Commons movements, you probably had mostly positive things to say about copyright until a few years ago when the protests against SOPA and PIPA – two bills designed to strengthen copyright enforcement – painted the internet black in opposition.
SOPA and PIPA weren’t some new overreach. They are a natural outgrowth of a US copyright regime that has changed radically from its inception. In the early days of the American Republic, copyrights required registering. Doing so would give you a fourteen-year term of exclusivity, with the option to extend it once for another fourteen years. Today all works, even unpublished ones, are automatically granted copyright for the life of the author… plus 70 years.
Penalties have increased as well; previously, copyright infringement was only a civil matter. Now it carries criminal penalties of up to $250,000 in fines and 1-5 years of jail time per infringement.
Patent protections have also become onerous, although here the fault is judicial action, not statute. Appeals for patent cases are solely handled by the United States Court of Appeals for the Federal Circuit. This court is made up of judges who are normally former patent lawyers and who attend all the same conferences as patent lawyers – and eat the food paid for by the sponsors. I don’t want to claim judicial corruption, but it is perhaps unsurprising that these judges have come to see the goals of patent holders as right and noble.
Certainly, they’ve broken with past tradition and greatly expanded the scope of patentability while reducing the requirements for new patents. Genes, business methods, and most odiously, software, have been made patentable. Consequently, patents filed have increased from approximately 60,000 yearly in 1983 to 300,000 per year by 2013. If this represented a genuine increase in invention, then it would be a cause for celebration. But we already know that R&D spending isn’t increasing. It would be very surprising – and the exact opposite of what diminishing returns would normally suggest – if companies managed to come up with an additional 240,000 patents per year with no additional real spending.
What if these patents just came from increased incentives for rent-seeking via the intellectual property system?
“Intellectual property” conjures a happy image. Who doesn’t like property ? Many (most?) people support paying authors, artists, and inventors for their creations, at least in the abstract . Lindsey and Teles argue that we should instead take a dim view of intellectual property; to them, it’s almost entirely rent-seeking.
They point out that many of supposed benefits of intellectual property never manifest. It’s unclear if it spurs invention (evidence from World Fairs suggest that it just moves invention towards whatever types of inventions are patentable, where payoff is more certain). It’s unclear if it incentivizes artists and writers (although we’ve seen music revenue fall, more people than ever are producing music). My personal opinion is that copyright doesn’t encourage writers; most of us couldn’t stop if we wanted to.
When it comes to software patents, the benefits are even less clear and the harms even greater. OECD finds that software patents are associated with a decrease in R&D spending, while Vox reports that costs associated with software patent lawsuits have now reached almost $70 billion annually. The majority of software patent litigation isn’t even launched by the inventors. Instead, it’s done by so called “patent trolls”, who buy portfolios of patents and then threaten to sue any company who doesn’t settle with them over “infringement”.
When even a successfully-defended lawsuit can cost millions of dollars (not to mention several ulcers), software patents (often for obvious ideas and assuredly improper) held by trolls represent a grave threat to innovation.
All of this adds up to a serious drag on the economy, not to mention our culture. While “protecting property” is seen as a noble goal by many, Lindsey and Teles argue that IP protections go well beyond that. They acknowledge that it makes sense to protect a published work in its entirety. But protecting the setting? The characters? The right to make sequels? That’s surely too much. How is George Lucas hurt if someone can sell their Star Wars fanfiction? How is that “infringing” on what he has created?
They have less sympathy for patents, which grant a somewhat ridiculous monopoly. If you patent something three days before I independently invent it, then any use or sale by me is still considered infringement even though I am assuredly not ripping you off.
Lindsey and Teles suggest that IP laws need to be rolled back to a more reasonable state, when copyright was for 14 years and abstract ideas, software implementation, and business methods couldn’t be patented. About the only patents they really approve of are pharmaceutical patents, which they view as necessary to protect the large upfront costs of drug development (see also Scott Alexander’s argument for why this is the case); I’d like to add that these upfront costs would be lower if the rent-seeking by pharmaceutical companies hadn’t supported rent-seeking regulation that has made the FDA an almost impenetrable tar-pit.
Occupational licensing has definitely become more common. It’s gone from affecting 10% of the workforce (1970) to 30% of the workforce today. It no longer just affects doctors, teachers, lawyers, and engineers. Now it covers make-up artists, auctioneers, athletic trainers, and barbers.
Now, there are sometimes good reasons to license professionals. No one wants to drive across a bridge built by someone who hasn’t learned anything about physics. But there’s good reason to suspect that much of the growth of occupational licensing isn’t about consumer protection, despite what proponents say.
First of all, there’s often a quite a bit of variability in how many days of study these newly licensed professions require. Engineering requirements tend to be similar from country to country because it’s governed by international treaty. On the other hand, manicurist requirements vary wildly by state; Alaska requires three days of education, while Alabama requires 163. There’s no national standards at all. If this was for consumer protection, then presumably some states are well below what’s required and others are well above it.
Second, there’s no allowance for equivalencies. Engineers can take their engineering degrees anywhere and can transfer professional status with limited hassles. Lawyers can take the bar exam wherever they want. But if you get licensed as a manicurist in Alabama, Alaska won’t respect the license. And vice versa.
(Non-transferability is a serious economic threat in its own right, because it makes people less likely to move in search of better conditions. The section on zoning further explains why this is bad.)
Several studies have shown that occupational licenses do nothing to improve services to customers. Randomly sampled floral arrangements from licensed and unlicensed states (yes, some states won’t let you arrange flowers without a license) are judged the same when viewed by unsuspecting judges. Roofing quality hasn’t fallen after hurricanes, when licensing restrictions are lifted (and if there’s ever a time you’d expect quality to fall, it’s then!).
Despite the lack of benefits, there are very real costs to occupational licensing. Occupational licensing is associated with consumers paying prices between 5% and 33% above unlicensed areas, which translates to an average 18% increase in wages for licensed professionals. The total yearly cost to consumers for this price gouging? North of $200 billion. Unfortunately, employment growth is also affected. Licensed professions see 20% slower employment growth compared to neighbouring unlicensed jurisdictions. Licensing helps some people make more money, but they make this money by, in essence, pulling up the ladder to prosperity behind them.
Occupational licensing especially hurts minorities in the United States. Many occupational licenses require a college degree (black and Latino Americans are less likely to have college degrees) and they often exclude anyone with a criminal record of any sort (disproportionately likely to be black or Latino). It may make sense to exclude people with criminal records from certain jobs. But from manicuring? I don’t see how someone could do worse damage manicuring then they could preparing fast food, and that isn’t regulated at all.
Licensing boards often protect their members against complaints from the public. Since the board is composed only of members of the profession, it’s common for them to close ranks around anyone accused of bad conduct. The only profession I’ve seen that doesn’t do this is engineers. Compare the responses of professional boards to medical and engineering malpractice in Canada.
Probably the most interesting case of rent-seeking Lindsey and Teles identify are lawyers in the United States. While they accuse lawyers of engaging in the traditional rent-seeking behaviour of limiting entry to their field (and point out that bar exam difficulty is proportional to the number of people seeking admittance, which suggests that its main purpose it to keep supply from rising), they also claim that lawyers in the United States artificially raise demands for their services.
Did you know that lawyers made up 41% of the 113th Congress, despite representing only 0.6% of the US population? I knew the US had a lot of lawyers in politics, but I hadn’t realized it was that high. Lindsey and Teles charge these lawyers with writing the kind of laws that make sense to lawyers: abstruse, full of minutia, and fond of adversarial proceedings. Even if this isn’t a sinister plot, it certainly is a nice perk .
I do wish this chapter better separated what I think is dual messages on occupational licensing. One strand of arguments goes: “occupational licensing for jobs like barbers, manicurists, etc. is keeping disadvantaged people, especially minorities out of these fields with slightly better than average wages and making everyone pay a tiny bit more”. The other is: “professionals are robbing everyone else blind because of occupational licensing; lawyers and doctors make a huge premium in the United States and are disproportionately wealthy compared to other countries and make up a large chunk of the 1%”.
I’d like them separated because they seem to call for separate solutions. We might decide that if we could fix the equality issues (for example, by scrapping criminal records checks and college degree requirements where they aren’t needed), it might make sense to keep occupational licensing to prevent a race for the bottom among occupations that have never represented a significant fraction of individual spending. One thing I noticed is that the decline among union membership is exactly mirrored by the increase in occupational licensing. In a very real way, occupational licensing, with some tweaks, could be the new unions.
On the other hand, we have doctors and lawyers (and maybe even engineers, although my understanding is that they do far less to restrict supply, especially foreign supply) who are making huge salaries that (in the case of lawyers) might be up to 50% rents from artificially low supply. If we undid some of the artificial barriers to entry they’ve thrown up, we could lower their wages and improve income equality while at the same time improving competition and opening up these fields (which should still pay reasonably well) to more people. Many of us probably know people who’d make perfectly fine doctors that have been kept out of medical school by the overly restrictive quotas. Where’s the harm in having two doctors making $90,000/year instead of one doctor making $180,000/year? It’s not like we couldn’t find a use for twice as many doctors!
The weirdest thing about the recent rise in housing prices is that building houses hasn’t really gotten any more expensive. Between 1950 and 1970, housing prices increased 35% above inflation (when normalized to size) and construction costs increased 28% above inflation. Between 1970 and 2000, construction prices rose 6% slower than inflation – becoming cheaper in real terms – and overall housing costs increased 72% above inflation.
Maybe house prices have gone up because house quality has improved? Not so say data from repeat house sales. When analyzing these data, economists have determined that increased house quality can account for at most 25% of the increase in prices.
Maybe land is just genuinely running out in major cities? Well, if that were the case, we’d see a strong relationship between density and price. After all, density would surely emerge if land were running out, right? When analyzing these data, economists have found no relationship between city density and average home price.
The final clue comes from comparing the value of land houses can be built on with the value of land houses cannot be built on. When you look at how much the size of a lot affects the sale price of very similar homes and compare that with the cost of the land that goes under a house (by subtracting construction costs from the sale prices of new homes), you’ll find that the land under a house is worth ten times the land that simply extends a yard.
This suggests that a major component of rising house prices is the cost of getting permission to build a house on land – basically, finding some of the limited supply of land zoned for actually building anything. This is not land value per se, but instead a rent imposed by onerous zoning requirements. In San Francisco, San Jose, and Manhattan, this zoning cost is responsible for approximately half of house worth.
The purpose of zoning has always been to protect the value of existing homes, by keeping “undesirable” land usage out of a neighbourhood. Traditionally, “undesirable” has been both racist and classist. No one in a well-off neighbourhood wanted any of “those people” to move there, lest prospective future buyers (who shared their racial and social prejudices) not want to move to the neighbourhood. Today, zoning is less explicitly racist (even if it still prices minorities out of many neighbourhoods) and more nakedly about preserving house value by preventing any increase in density. After all, if you live in a desirable neighbourhood, the last thing you want is a large tower bringing in hundreds of new residents at affordable prices. How will you be able to get a premium on your house then? The market will be saturated!
Now if there were no real benefits to living in a city, Lindsey and Teles probably wouldn’t care about zoning. But there definitely are very good reasons why we want more people to be able to live in cities. First: transportation. Transportation is easier when people are densely packed, which makes supplies cheaper and reduces negative externalities from carbon intensive travel. Second: choice. Cities have enough people to allow people to make profits off of weird things, to allow people to carefully choose their jobs, and to allow employers choice in employees. All of these are helpful to the economy. Third: ineffable increases in human capital. There’s just something about cities (theorized to be “information spillover” between people in unrelated jobs) that make them much more productive per capita than anywhere else.
This productivity is rewarded in the form of higher wages. Lindsey and Teles claim that the average income of a high school graduate in Boston is 40% higher than the average income of a college graduate in Flint, Michigan. I’ll buy these data, but I’m a bit skeptical that this results in any more take-home pay for the Bostonian, because wages in Boston have to be higher if people are to live there. Would this hold true if you looked at real wages accounting for differences in cost of living ?
If wages are genuinely higher in places like Boston in real terms, then this spatial inequality should be theoretically self-correcting. People from places like Flint should all move to places like Boston, and we’ll see a sudden drop in income inequality and a sudden jump in standard of living for people who only have high school degrees. Lindsey and Teles believe this isn’t happening because the scarcity of housing drives up the initial price of moving far beyond what people without substantial savings can pay – the same people who most need to be able to move .
Remember, many apartments require first and last month’s rent, plus a security deposit. I looked up San Francisco on PadMapper and the median rent looks to be something like $3300, a number that agrees with a cursory Google. Paying first and last on that, plus a damage deposit would cost you over $7,000. Add to that moving expenses, and you can see how it could be impossible for someone without savings to move to San Francisco, even if they could expect a relatively well-paid job.
(Lack of movement hurts people who stay behind as well. When people move away in search of higher wages, businesses must eventually raise wages in places seeing a net drain of people, lest the whole workforce disappear. This effect probably led to some of the convergence in average income between states that occurred from 1880 to 1980, an effect that has now markedly slowed.)
Out of all of these examples of rent-seeking, the one I feel least optimistic about is zoning. The problem with zoning is that people have bought houses at the prices that zoning guaranteed. If we were to significantly loosen it, we’d be ruining many people’s principle investment. Even if increasing home wealth represents one of the single greatest sources of inequality in our society and even if it is exacting a terrifying toll on our economy, it will be extremely hard to build the sort of coalition necessary to break the backs of municipalities and local landowners.
Until we figure out how to do that, I’m going to continue to fight back tears every time I see a sign like this one:
How do we fight rent-seeking?
Surprisingly, most of the suggestions Lindsey and Teles put forth are minor, pro-democratic, and pro-government. There isn’t a single call in here to restrict democracy, shrink the size of the government, or completely overhaul anything major. They’re incrementalist, pragmatic, and give me a tiny bit of hope we might one day even be able to conquer zoning.
Rent-seeking is easiest when democracy is opaque, when it is speedy, when it is polarized, and when it is difficult for independent organizations to supply high-quality information to politicians.
One of the right-wing policies that Lindsey and Teles are harshest on are efforts to slash and burn the civil service. They claim that this has left the civil service unable to come up with policies or data of its own. They’re stuck trusting the very people they seek to regulate for any data about the effects of their regulations.
Obviously, there are problems with this, even though it doesn’t seem to extend to outright horse-trading or data-manipulation. It’s relatively easy to nudge peoples’ decision making by choosing how data is presented. Just slightly overstate the risks and play down the benefits. Or anchor someone with a plan you know they’re primed to like and don’t present them any alternatives that would hurt your bottom line. No briefcases of money change hands, but government is corrupted nonetheless .
To combat this, Lindsey and Teles suggest that all committees in the US House and Senate should have a staffing budget sufficient to hire numerous staffers, some of whom would work for the committee as a whole and others who would work for individual members. Everything would get reshuffled every two years, with a rank-match system used to assign preferences. Employee quality would be ensured by paying market-competitive salaries and letting go anyone who was too-consistently ranked low.
(Better salaries would also end the practice of staffers going to work for lobbyists after several years, which isn’t great for rent-seeking.)
Having staff assigned to committees, rather than representatives on a permanent basis prevents representatives from diverting these resources to their re-election campaigns. It also might build bridges across partisan divides, because staff would be free from an us vs. them mentality.
The current partisan grip on politics can actually help rent-seeking. Lindsey and Teles claim that when partisanship is high, party discipline follows. Leaders focus on what the party agrees on. Unfortunately, neither party is in any sort of agreement with itself about combatting rent-seekers, even though fighting rent-seeking offers a compelling way to spur economic growth (ostensibly a core Republican priority) and decrease economic inequality (ostensibly a core Democratic priority).
If partisanship was less severe and the coalitions less uniform, leaders would have less power over their caucuses and representatives would search for ways to cooperate across the aisle whenever doing so could create wins for their constituents. This would mark a return to the “strange-bedfellows” temporary coalitions of bygone times. Perhaps one of these coalitions could be against rent-seeking ?
Lindsey and Teles also call for more issues to be decided in general jurisdictions where public interest and opportunity for engagement are high. They point to studies that show teachers can extract rents when budgets are controlled by school boards (which are obscure and easily dominated by unions). When schools are controlled by mayors, it becomes much harder for rents to be extracted, because the venue is much broader. More people care about and vote for municipal representatives and mayors than attend school board meetings.
Similarly, they suggest that we should very rarely allow occupation licensing to be handled by the profession itself. When a professional licensing body stacked with members of the profession decides standards, they almost always do it for their own interest, not for the interest of the broader public. State governments, one the other hand, are better at considering what everyone wants.
Finally, politics cannot be too quick. If it’s possible to go from drafting a bill to passing it in less time than it takes to read it, then it’s obviously impossible to build up a public pressure campaign to stop any nastiness in it. If bills required one day of debate for every hundred pages in them and this requirement (or a similar one) was inviolable, then if someone buried something nasty in it (say, a repeal of a nation’s prevailing currency standards), people would know, would be able to organize, and would be able to make the electoral consequences of voting for it clear to their representatives.
To get to a point where any of this is possible, Lindsey and Teles suggest building up a set of policies on the local, state, and national levels and working to build public support for them. With these policies existing in the sidelines, it will be possible to grab any political opportunity – the right scandal or outrage, perhaps – and pressure representatives to stand up against entrenched interests. Only in these moments when everyone is paying attention can we make it clear to politicians that their careers depend most on satisfying our desires than they do on satisfying the desires of the people who fund their campaign. Since these moments are rare, preparation for them is key. It isn’t enough to start looking for a solution when an opportunity presents itself. If we don’t move quickly, the rent-seekers will.
This book is, I think, the opening salvo in this war. Its slim and its purpose is to introduce people from across the political spectrum to the problem of rent-seeking and galvanize them to prepare for when the time is right. Its’ authors are high profile economists with major backing. Perhaps this is also a signal that similar backing might be available for anyone willing to innovate around anti-rent-seeking policy?
For my part, I had opposed rent-seeking because I knew it hurt economic growth. I hadn’t understood just how much it contributed to income inequality. Rent-seeking increases corporate profits, making capitalists far wealthier than labourers can ever hope to be. It inflates the salaries of already wealthy professionals at the cost of everyone else and locks people without college degrees out of all but the most moribund or dangerous parts of the job market. It leads bankers to speculate wildly, in a way that occasionally brings down the economy. And it makes the humble home-owners of last generation the millionaires of this one, while pricing millions out of what was once a rite of passage.
Lindsey and Teles convinced me that fighting rent-seeking is entirely consistent with my political commitments. Municipal elections are coming up and I’m committed to finding and volunteering for any candidate who is consistently anti-zoning. If none exists, then I’ll register myself. Winning almost isn’t the point. I want to be one of those people getting the word out, showing that alternatives to the current broken system is possible.
And when the time is right, I want to be there when those alternatives supplant the rent-seekers.
 Rent-seeking doesn’t necessarily have to lead to increased inequality. Strict immigration controls, monopolies, strong unions, and strict tariffs all extract rents. These rents, however, tend to distribute down or sideways, so don’t really increase inequality. ^
 Banks don’t keep enough money on hand to cover deposits entirely, because they need to lend out money to make money. If banks didn’t lend money, you’d have to pay them for the privilege of parking your money there. This means that banks run into a problem when everyone tries to withdraw their money at once. Eventually, there will be no more money and the bank will fail. This used to happen all the time.
Before deposits were insured, it was only rational to withdraw your money if you thought there was even a small chance of a bank run. If you didn’t withdraw your money from a bank without deposit insurance and a bank run happened, you would lose your whole deposit.
Bank architecture reflects this risk. Everything about the imposing facades of old banks is supposed to make you think they’re as stable as possible and so feel comfortable keeping your money there. ^
 I wonder if this generalizes? Would a parliament full of engineers be obsessed with optimization and fond of very clear laws? Would a parliament full of doctors spend a lot of time running a differential diagnosis on the nation? Certainly military dictators excel at seeing everyone as an enemy on whom force can be justifiably used. ^
 College graduates in the wealthiest cities make 61% more money than college graduates in the least wealthy cities, while people with only high school degrees make 137% more in the richest cities compared to the poorest cities. This suggests that it’s possible high school graduates are much better off in wealthy cities, but it could also be true that college graduates fall prey to money illusions or are willing to pay a premium to live in a place that provides them with many more opportunities for new experiences. ^
 I think there will also always be social factors preventing people from moving, but perhaps these factors would weigh less heavily if real wage differences between thriving cities and declining areas weren’t driven down by inflated real estate prices in cities. ^
 This is perhaps the most invidious – and unintended – consequence of Stephen Harper’s agenda for Canada. Cutting the long form census made it harder for the Canadian government to enact social policies (Harper’s goal), but if these sorts of actions aren’t checked, reversed, and guarded against, they also make rent-seeking much more likely. ^
 In Canadian politics, I have hope that some sort of housing affordability coalition could form between some members from left-leaning parties and some principled free-marketers. Michael Chong already has a plan to lower housing prices by getting the government out of the loan securitization business. No doubt banks wouldn’t enjoy this, but I for one would appreciate it if my taxes couldn’t be used to bail out failing banks. ^
I write today about a speech that was once considered the greatest political speech in American history. Even today, after Reagan, Obama, Eisenhower, and King, it is counted among the very best. And yet this speech has passed from the history we have learned. Its speaker failed in his ambitions and the cause he championed is so archaic that most people wouldn’t even understand it.
I speak of Congressman Will J Bryan’s “Cross of Gold” speech.
William Jennings Bryan was a congressman from Nebraska, a lawyer, a three-time Democratic candidate for president (1896, 1900, 1908), the 41st Secretary of State, and oddly enough, the lawyer for the prosecution at the Scopes Monkey Trial. He was also a “silver Democrat”, one of the insurgents who rose to challenge Democratic President Grover Cleveland and the Democratic party establishment over their support for gold over a bimetallic (gold plus silver) currency system.
The dispute over bimetallic currency is now more than a hundred years old and has been made entirely moot by the floating US dollar and the post-Bretton Woods international monetary order. Still, it’s worth understanding the debate about bimetallism, because the concerns Bryan’s speech raised are still concerns today. Once you understand why Bryan argued for what he did, this speech transforms from dusty history into still-relevant insights into live issues that our political process still struggles to address.
When Alexander Hamilton was setting up a currency system for the United States, he decided that there would be a bimetallic standard. Both gold and silver currency would be issued by the mint, with the US Dollar specified in terms of both metals. Any citizen could bring gold or silver to the mint and have it struck into coins (for a small fee, which covered operating costs).
Despite congressional attempts to tweak the ratio between the metals, problems often emerged. Whenever gold was worth more by weight than it was as currency, it would be bought using silver and melted down for profit. Whenever the silver dollar was undervalued, the same thing happened to it. By 1847, the silver in coins was so overvalued that silver coinage had virtually disappeared from circulation and many people found themselves unable to complete low-value transactions.
Congress responded by debasing silver coins, which led to an increase in the supply of coins and for a brief time, there was a stable equilibrium where people actually could find and use silver coins. Unfortunately, the equilibrium didn’t last and the discovery of new silver deposits swung things in the opposite direction, leading to fears that people would use silver to buy gold dollars and melt them down outside the country. Since international trade was conducted in gold, it would have been very bad for America had all the gold coins disappeared.
Congress again responded, this time by burying the demonetization of several silver coins (including the silver dollar) in a bill that was meant to modernize the mint. The logic here was that no one would be able to buy up any significant amount of gold if they had to do it in nickels. Unfortunately for congress, a depression happened right after they passed the bill.
Some people blamed the depression on the change in coinage and popular sentiment in some corners became committed to the re-introduction of the silver dollar.
The silver supplies that caused this whole fracas hadn’t gone anywhere. People knew that re-introducing silver would have been an inflationary measure, as the statutory amount of silver in a dollar would have been worth about $0.75 in gold backed currency, but they largely didn’t care – or viewed that as a positive. The people clamouring for silver also didn’t conduct much international trade, so they didn’t mind if silver currency drove out gold and made trade difficult.
There were attempts to remonetize the silver dollar over the next twenty years, but they were largely unsuccessful. A few mine owners found markets for their silver at the mint when law demanded a series of one-off runs of silver coins, but congress never restored bimetallism to the point that there was any significant silver in circulation – or significant inflation. Even these limited silver-minting measures were repealed in 1893, which left the United States on a de facto gold standard.
For many, the need for silver became more urgent after the Panic of 1893, which featured everything a good Gilded Age panic normally did – bank runs, failing railways, declines in trade, credit crunches, a crash in commodity prices, and the inevitable run on the US gold reserves.
The commodity price crash hit farmers especially hard. They were heavily indebted and had no real way to pay it off – unless their debts were reduced by inflation. Since no one had found any large gold deposits anywhere (the Klondike gold rush didn’t actually produce anything until 1898 and the Fairbanks gold rush didn’t occur until 1902), that wasn’t going to happen on the gold standard. The Democrat grassroots quickly embraced bimetallism, while the party apparatus remained supporters of the post-1893 de facto gold standard.
This was the backdrop for Bryan’s Cross of Gold speech, which took place during summer 1896 at the Democratic National Convention in Chicago. He was already a famed orator and had been petitioning members of the party in secret for the presidential nomination, but his plans weren’t well known. He managed to go almost the entire convention without giving a speech. Then, once the grassroots had voted out the old establishment and began hammering out the platform, he arranged to be the closing speaker representing the delegates (about 66% of the total) who supported official bimetallism.
The convention had been marked by a lack of any effective oratory. In a stunning ten-minute speech (that stretched much longer because of repeated minutes-long interruptions for thunderous applause) Bryan singlehandedly changed that and won the nomination.
And this whole thing, the lobbying before the convention and the carefully crafted surprise moment, all of it makes me think of how effective Aaron Swartz’s Theory of Change idea can be when executed correctly.
Theory of Change says that if there’s something you want to accomplish, you shouldn’t start with what you’re good at and work towards it. You should start with the outcome you want and keep asking yourself how you’ll accomplish it.
Bryan decided that he wanted America to have a bimetallic currency. Unfortunately, there was a political class united in its opposition to this policy. That meant he needed a president that favoured it. Without the president, you need to get 66% of Congress and the Senate onboard and that clearly wasn’t happening with the country’s elites so hostile to silver.
Okay, well how do you get a president who’s in favour of restoring silver as currency? You make sure one of the two major parties nominates a candidate in favour of it, first of all. Since the Republicans (even then the party of big business) weren’t going to do it, it had to be the Democrats.
That means the question facing Bryan became: “how do you get the Democrats to pick a presidential candidate that supports silver?”
And this question certainly wasn’t easy. Bryan on his own couldn’t guarantee it, because it required delegates at least sympathetic to the idea. But there was a national backdrop such that that seemed likely, as long as there was a good candidate all of the “silver men” could unite around.
So, Bryan needed to ensure there was a good candidate and that that candidate got elected. Well, that was a problem, because neither of the two leading silver candidates were very popular. Luckily, Bryan was a Democrat, a former congressman, and kind of popular.
I think this is when the plan must have crystalized. Bryan just needed to deliver a really good speech to an already receptive audience. With the cachet from an excellent speech, he would clearly become the choice of silver supporting Democrats, become the Democratic party presidential candidate, and win the presidency. Once all that was accomplished, silver coins would become money again.
The fantastic thing is that it almost worked. Bryan was nominated on the Democratic ticket, absorbed the Populist party into the Democratic party to prevent a vote split, and came within 600,000 votes of winning the presidency. All because of a plan. All because of a speech.
So, what did he say?
Well, the full speech is available here. I do really recommend it. But I want to highlight three specific parts.
A Too Narrow Definition of “Business”
We say to you that you have made the definition of a business man too limited in its application. The man who is employed for wages is as much a business man as his employer; the attorney in a country town is as much a business man as the corporation counsel in a great metropolis; the merchant at the cross-roads store is as much a business man as the merchant of New York; the farmer who goes forth in the morning and toils all day—who begins in the spring and toils all summer—and who by the application of brain and muscle to the natural resources of the country creates wealth, is as much a business man as the man who goes upon the board of trade and bets upon the price of grain; the miners who go down a thousand feet into the earth, or climb two thousand feet upon the cliffs, and bring forth from their hiding places the precious metals to be poured into the channels of trade are as much business men as the few financial magnates who, in a back room, corner the money of the world. We come to speak of this broader class of business men.
In some ways, this passage is as much the source of the mythology of the American Dream as the inscription on the statue of liberty. Bryan rejects any definition of businessman that focuses on the richest in the coastal cities and instead substitutes a definition that opens it up to any common man who earns a living. You can see echoes of this paragraph in almost every presidential speech by almost every presidential candidate.
Think of anyone you’ve heard running for president in recent years. Now read the following sentence in their voice: “Small business owners – like Monica in Texas – who are struggling to keep their business running in these tough economic times need all the help we can give them”. It works because “small business owners” has become one of the sacred cows of American rhetoric.
Bryan added this line just days before he delivered the speech. It was the only part of the whole thing that was at all new. And because this speech inspired a generation of future speeches, it passed into the mythology of America.
Trickle Down or Trickle Up
Mr. Carlisle said in 1878 that this was a struggle between “the idle holders of idle capital” and “the struggling masses, who produce the wealth and pay the taxes of the country”; and, my friends, the question we are to decide is: Upon which side will the Democratic party fight; upon the side of “the idle holders of idle capital” or upon the side of “the struggling masses”? That is the question which the party must answer first, and then it must be answered by each individual hereafter. The sympathies of the Democratic party, as shown by the platform, are on the side of the struggling masses who have ever been the foundation of the Democratic party. There are two ideas of government. There are those who believe that, if you will only legislate to make the well-to-do prosperous, their prosperity will leak through on those below. The Democratic idea, however, has been that if you legislate to make the masses prosperous, their prosperity will find its way up through every class which rests upon them.
Almost a full century before Reagan’s trickle-down economics, Democrats were taking a stand against that entire world-view. Through all its changes – from the party of slavery to the party of civil rights, from the party of the Southern farmers to the party of “coastal elites” – the Democratic party has always viewed itself as hewing to this one simple principle. Indeed, the core difference between the Republican party and the Democratic party may be that the Republican party views the role of government to “get out of the way” of the people, while the Democratic party believes that the job of government is to “make the masses prosperous”.
A Cross of Gold
Having behind us the producing masses of this nation and the world, supported by the commercial interests, the laboring interests, and the toilers everywhere, we will answer their demand for a gold standard by saying to them: “You shall not press down upon the brow of labor this crown of thorns; you shall not crucify mankind upon a cross of gold.
This is perhaps the best ending to a speech I have ever seen. Apparently at the conclusion of the address, dead silence endured for several seconds and Bryan worried he had failed. Two police officers in the audience were ahead of the curve and rushed Bryan – so that they could protect him from the inevitable crush.
Bryan turned what could have been a dry, dusty, nitty-gritty issue into the overriding moral question of his day. In fact, by co-opting the imagery of the crown of thorns and the cross, he tapped into the most powerful vein of moral imagery that existed in his society. Invoking the cross, the central mystery and miracle of Christianity cannot but help to put (in a thoroughly Christian society) an issue on a moral footing, as opposed to an intellectual one.
This sort of moral rather than intellectual posture is a hallmark of any insurgency against a technocratic order. Technocrats (myself among them!) like to pretend that we can optimize public policy. It is, to us, often a matter of just finding the solution that empirically provides the greatest good to the greatest number of people. Who could be against that?
But by presupposing that the only moral principle is the greatest good for the greatest number, we obviate moral contemplation in favour of tinkering with numbers and variables.
(The most cutting critique of utilitarianism I’ve ever seen delivered was: “[These problems are] seen in the light of a technical or practical difficulty and utilitarianism appeals to a frame of mind in which technical difficulty, even insuperable technical difficulty, is preferable to moral unclarity, no doubt because it is less alarming.”, a snide remark by the great British ethicist Sir Bernard Williams from his half of Utilitarianism for and against.)
This avoiding-the-question-so-we-can-tinker is a policy that can provoke a backlash like Bryan. Leaving aside entirely the difficulty of truly knowing which policies will have “good” results, there’s the uncomfortable truth that not every policy is positive sum. Even positive sum policies can hurt people. Bryan ran for president because questions of monetary policy aren’t politically neutral.
The gold standard, for all the intellectual arguments behind it, was hurting people. Maybe not a majority of people, but people nonetheless. There’s a whole section of the speech where Bryan points out that the established order cannot just say “changes will hurt my business”, because the current situation was hurting other people’s businesses too.
It is very tempting to write that questions of monetary policy “weren’t” politically neutral. After all, there’s a pretty solid consensus on monetary policy these days (well, except for the neo-Fisherians, but there’s a reason no one listens to them). But even (especially) a consensus among experts can be challenged by legitimate political disagreements. When the Fed chose to pull interest rates low as stimulus for the economy after 2008, it put the needs of people trying to find jobs over those of retired people who held their savings in safe bonds.
If you lower speed limits, you make roads safer for law abiding citizens and less safe for people who habitually speed. If you decriminalize drugs, you protect rich techies who microdose on LSD and hurt people who view decriminalization as license to dabble in opiates.
Even the best intentioned or best researched public policy can hurt people. Even if you (like me) believe in the greatest good for the greatest number of people, you have to remember that. You can’t ever let hurting people be easy or unthinking.
Even though it failed in its original aim and even though the cause it promotes is dead, I want people to remember Bryan’s speech. I especially want people who hold power to remember Bryan’s speech. Bryan chose oratory as his vehicle, his way of standing up for people who were hurt by well-intentioned public policy. In 1896, I might have stood against Bryan. But that doesn’t mean I want his speech and the lessons it teaches to be forgotten. Instead, I view it as a call to action, a call to never turn away from the people you hurt, even when you know you are doing right. A call to not forget them. A call to try and help them too.
“Hi I’m Zach. I’m out here canvasing for Catherine Fife, Andrea Horwath, and the NDP. I was wondering if Catherine could count on your support this election…” is now a sentence I’ve said hundreds of times.
Ontario had a provincial election on June 7th. I wasn’t fond of the Progressive Conservative (PC) Party’s leader, one Doug Ford, so I did what I could. I joined the PC party to vote for his much more qualified rival, Christine Elliot. When that failed, I volunteered for Waterloo’s NDP Member of Provincial Parliament (MPP), Catherine Fife.
As a volunteer, I knocked on more than a thousand doors and talked to more than two hundred people. I went out canvassing eight times. According to Google Maps and its creepy tracking, I walked about 24 kilometers while doing this (and have still-sore feet to prove it).
Before I started canvassing, I knew basically nothing about it. I knew I’d be knocking on people’s doors, but beyond that, nadda. Would I be trying to convince them? Handing out signs? Asking for money?
The actual experience turned out to be both scarier and more mundane than I imagined, so I’ve decided to document it for other people who might be interested in canvassing but aren’t sure what it entails.
The first thing you need to know about canvassing by foot is that it can be physically draining. Water was a must, as some of the days I canvassed featured 31ºC (88ºF) temperatures, full sunlight, and 70% humidity. I sweated more canvassing than I did hiking in Death Valley a few weeks before. Death Valley was hotter, but as anyone who has experienced a summer in Ontario can attest, humidity is what really makes heat miserable. From what I’ve heard, even the worst summer heat and humidity still beats canvassing in the winter.
The campaign helpfully supplied sunscreen and water bottles. They didn’t provide anything to carry all the leaflets in though. After the first day, I brought a messenger bag along. It turns out carrying hundreds of leaflets for several hours without resting can leave your arms hurting for a week. I only made that mistake once.
(Plus, as the campaign wore on, we switched to smaller literature. Literally every canvasser I talked to was very, very excited by the switch.)
The second thing you need to know about canvassing is that it’s an emotional rollercoaster. Not because of the people, but because of the lack of people.
Depending on the time of day and the neighbourhood, I spoke to somewhere between one person for every five doors I knocked on and one person for every fifteen doors I knocked on. I’d get myself psyched up, mentally rehearse my speech, double check the house number, walk up to it, press the doorbell… then wait foolishly while nothing happened.
Sometimes I suspected the doorbell was broken. When I was pretty sure it was, I’d knock as well. Sometimes the knocking did indeed result in someone answering the door, but most of the time the house was just empty. I did have one person hide behind some equipment in their kitchen as I walked up to the door. They ignored the doorbell and my soft, confused knock. I saw them checking if the coast was clear as I trudged away from the front step.
The constant build-up of energy, followed by the all-to-common let down and dejected walk back to the sidewalk exhausted me more than talking with people did. More than half of the people we talked to were supporting our candidate or leaning towards her (she won the vote with 51% support, a crushing margin in a system where many candidates win with support just over 40%) so a majority of my conversation were energizing. It’s fun to discover shared purpose with strangers.
I can’t tell you how much I was grateful to all of the strangers I talked to. I know intellectually that some people really dislike the NDP and don’t like anything it stands for, but you wouldn’t know it from telling more than 200 random people whose dinner you just interrupted that you support the NDP. Not one single person said a mean thing to me.
Many were annoyed by the state of politics. Some didn’t like the party’s policies. Some weren’t interested in politics. But everyone heard me out politely. Some quickly asked me to leave, but no one slammed a door in my face. One man did close his door in my face, but not even the most uncharitable person couldn’t call it a slam. Besides, he said bye and made sure I wasn’t going to be hit by the door.
Many people followed up “sorry, I’m voting for the conservatives”, with “but good luck out there”. Several people asked if I needed a break, some shade, some water. Maybe things would have been different if I’d been out for the Liberals (who were deeply unpopular after 15 years governing) or the Conservatives (with their polarizing leader), but as it was I was impressed by the kindness and politeness of my fellow citizens.
(If you see a canvasser on your doorstep and don’t agree with their party’s positions, please be nice to them. They’re doing what they’re doing out of a sincere desire to make the world a better place. Even if you think they’re misguided, you aren’t going to change anything by being nasty to them. On the flip side, if you find yourself canvassing, it will never be in your interest to be nasty to anyone. I learned that someone high up in the campaign started volunteering for the NDP when a Conservative candidate was rude and patronizing to him at the door. “Be nice” was the very first rule of canvassing.)
Canvassing really isn’t about convincing people. We had scripts for that, but as far as I know, most people didn’t use them much. The doorstep really isn’t the best place to try and change someone’s political views and the time we would spend trying to convince people was normally considered better spent knocking on more doors.
Our actual objective was to figure out who our supporters were and who was open to being convinced. After each conversation, we’d jot down a level of support, any alternative parties being considered, and any issues the person cared about. We had specific shorthands for common occurrences, like people who were ineligible to vote, who had moved, or who didn’t want to talk to us (if you tell a canvasser not to bother you, they will stop coming to your house; this is a corollary of “be nice”, as the last thing we want is to annoy someone into helping our opponents). We’d also offer people literature about our platform. If no one was home, we’d leave it in the mailbox. I was told the notes we took could influence future phone calls (e.g. if we said “hospitals”, people might be talked with about healthcare policy) or help Catherine when she went canvassing
We were working from lists provided by Elections Ontario and augmented by the party databases. We knew what people had told past canvassers about their support for the NDP, going all the way back to 2012. These lists were correct about 80-90% of the time. Most often, mistakes were the fault of Elections Ontario; they were particularly bad at telling us when people were actually permanent residents and ineligible to vote. Beyond “not home” and “won’t say”, “ineligible to vote” become my third most common annotation.
Part of our job was to update these lists for the next election. That entailed asking for names, if someone new was living there and verifying phone numbers. I hated verifying phone numbers. I understand the necessity behind it, I really do, but it was far and away the most awkward part of canvassing. Right when every social instinct I had was telling me my interaction with someone was over, I had to ask for a piece of information they probably didn’t want to give me. I’m sure I’ll get used to it – the experienced canvasser who taught me the ropes was particularly adept at asking for numbers – but it was far and away my least favourite part.
Much easier to ask about was advanced polling, signs, and volunteering. These questions only got asked to our strongest supporters, so we knew we were getting a friendly audience. I had three people agree to take signs over my eight days of canvassing, which is less than the experienced canvasser who showed me the ropes got in our first night out. I hope one day to be as good at getting people to show support as he was.
What else? Kids are the best part. I got to watch as a father explained to his little girl that the NDP wasn’t the type of party that had cake. I got to watch a little girl jump up and down with enthusiasm for Catherine. She had seen her at a school visit and thought she was the coolest thing ever. This really struck home the importance of representation in politics to me. Maybe that girl will never lose her admiration and will grow up to seek office herself someday. Would as many girls be able to imagine themselves as MPPs if they only ever saw men in that role?
There were less happy moments. I met a woman who quizzed me in depth on our healthcare platforms before telling me that if that’s what we stood for, we had her vote. Her husband was in the hospital. I saw a notation on a canvassing sheet that said “do not bother – funeral”. I talked with a man who had been turned away at a poll, despite the fact that he was a citizen. I met a mother who relied on the Hydro tax credit to make ends meet.
Their voices were important and I did what I could to make sure they’d be heard, but I can see how people can lose themselves in politics. What is “enough” when someone is hurting in front of you? I like cold equations and cost-benefit analyses. It’s the type of person I am. But when you see someone hurting, all of that flies out of your head and you want to shake the system until someone helps them.
Or at least, I wanted to.
The great political theorist Hannah Arendt once said: “And the first thing I’d like to say, you see, is that going along with the rest—the kind of going along that involves lots of people acting together—produces power. So long as you’re alone, you’re always powerless, however strong you may be. This feeling of power that arises from acting together is absolutely not wrong in itself, it’s a general human feeling. But it’s not good, either. It’s simply neutral. It’s something that’s simply a phenomenon, a general human phenomenon that needs to be described as such. In acting in this way, there’s an extreme feeling of pleasure.”
When I read this, the first time, I skimmed over it. To me, the important thing was what she said next, about “merely functioning” and how thinking is a vehicle to doing good, the concerns that defined her work.
But after my second time canvassing, I read this again and I teared up. “How did she know?”, I wondered.
The answer, of course, is that she participated in politics and knew the joys of acting as a group, of organizing, of working together for a common goal, a common good. And I feel so incredibly privileged that I now know that joy, that “extreme pleasure” too.
For that, I’d like to thank everyone in Catherine Fife’s campaign and everyone in Waterloo who put up with me on their doorstep. Thank you, all of you, for being part of what makes politics and representative democracy work.
I like to keep track of my life over time. I’m an obsessive journaler (and, as this blog can attest, a fairly regular blogger). At the end of every day, I track my mood, my sleep, my productivity, my social life, and how well I did in spaced repetition exercises. Last May, I decided to track one more thing about myself and start a tradition of publishing my Political Compass results yearly.
I’m a bit late this year (I kept the title because I started the post in May) because there’s actual politics happening; I’ve been volunteering for my local MPP’s re-election campaign. Of explanations for being late with a politics related blog post, that might be the best one I ever give.
Last year, I scored -3.25 on the economic axis and -6.56 on the authority axis.
This year I scored -2.0 on the economic axis and -6.46 on the authority axis, leaving me in the left libertarian camp, although continuing a seemingly inexorable trend towards economic centrism.
While my position on authority has remained virtually unchanged (I’m sure the difference was random fluctuation in how I might answer borderline questions), I do think I have meaningfully (although not largely) different views on economics than I did a year ago and I think there were two key object level updates that drove this change.
The first was the overview of rent-seeking in The Captured Economy (review forthcoming). I was already skeptical of regulation in 2017. The Captured Economy turned this up to 11 when it showed how a lot of regulation actually results in redistribution of wealth from people who are struggling to people who are affluent.
To take just one example, let’s talk about occupational licensing.
Many areas have occupational licensing. You have to complete training and apply to a licensing board in order to practice certain professions. In some cases, this makes sense. You want to know that the person building the bridge you drive across or removing your appendix really does know what they’re doing.
For other professions, the stakes are somewhat lower. There are certainly consequences if your barber doesn’t know what they’re doing. These consequences can even be quite severe if, say, improper sterilization techniques lead you to catch a blood borne disease. It would be reasonable to require all barbers to take a blood borne disease safety course every two years and have them post a proof of completion in their shops.
There is no conceivable world in which interior designers need to be held to higher regulatory standards than EMTs. None!
This isn’t a knock on barbers. I have seen just how much difference a good haircut can make. I could never in a million years do the job that interior decorators do. What I probably could do is pass a certification course on either subject. Aesthetics, the true marker of a master in either field can rarely be taught or properly judged in a classroom. But that is exactly what a lot of occupational licensing boils down to.
Really, it seems that all most occupational licensing does is raise barriers to many relatively well compensated and respected positions for people who are unlucky enough to have no education beyond a high school diploma or GED. I can see why people already in those professions would want this. Lower supply means that they can charge higher prices. They’re padding their margins at the cost of everyone who doesn’t have the free time or energy to take the necessary licensing classes (like people who work exhausting jobs or lack reliable work schedules).
If there was no occupational licensing, or if licensing was restricted to minimal courses on necessary safety for an occupation, many more people would have access to careers like hairdressing or interior decorating, careers that often pay better and afford more respect than minimum wage jobs; careers where you can be your own boss (if you’re into that sort of thing).
I know of at least one person who found out they were good at giving haircuts, but just couldn’t sit through all the schooling that was needed for a license. So now they’re giving illegal haircuts. They advertise with word of mouth, because they’re good illegal haircuts, but the whole situation, the whole idea that we can have illegal haircuts is ridiculous.
Long ago, I used to think that regulation was mostly about stopping manufacturers from dumping industrial waste in every nearby pristine forest. But now my sense is that the majority of regulation is like the rules making it illegal to give haircuts if you don’t first drop more than $3,500 on school.
The second object level update was learning just how important monetary policy was to the economy.
For a long time, I had accepted the liberal pseudo-Keynesian economical orthodoxy: we need to spend lots of money when times are rough in order to stimulate aggregate demand . Over the past year, I’ve read some monetarypolicyblogs and have started to understand that things are rather more complicated than the simple concepts I used to parrot.
I still don’t have as rigorous a grounding in economics as I would like (that’s one of the things I’d like to work on this year), but as I begin to learn more, I do find myself shifting to the economic centre because that seems to be where the truth is to be found.
I remain committed to a society that ensures enough for everyone. But I think over the past year I’ve become more disillusioned with the general level of economic literacy on the left (even in relation to myself!)  and more skeptical of the left’s ability to create the sort of plenty I still think we’re going to need to ensure human flourishing.
Last year, I made six predictions about how my political views would change over the coming year and all of them turned out to be correct . They were:
I will have an economic score > -2.25: 50%
I will have an economic score > -4.25: 80%
My top level economic identity will still be “capitalist”: 80%
I will have an authority score > -7.56: 70%
I will have an authority score < -5.56: 90%
My top level social identity will still be “libertarian”: 90%
I like this as a concept, so I’m going to try it again. My predictions for this year are:
I will still be on the left side of the graph: 80%
I will move further to the right economically: 80%
My position on the social axis will not change by more than 0.5 points: 90%
My top level political identities will not change: 90%
I will actually read an economics textbook before May 2019: 70%
I hope these predictions are more properly calibrated than my last ones!
 The common liberal take on this is different from pure Keynesian economics, because they don’t restrict “times are tough” to recessions and depressions. For a lot of modern people who say they just “support Keynesian economics” (and I was one of them), it’s always tough times for someone. ^
 I basically never see monetary policy even mentioned on the left. My guess is this is because the left largely views this as simple bean counting that is nowhere near as interesting or important as making sure we have lots of spending on social programs. Reality seems to be different, especially when you get it wrong. ^