World Bank economist Harun Onder has a post over at the Brookings Institution on his brand new study on rising nationalism and older generations:
Much ink has been spilled against such premises of rising nationalism. But a curious observation remains to be explained: Why do nationalist arguments tend to resonate with old people? Take the recent case of Brexit. Only a quarter of youth (ages 18-24) voted for the “leave” camp. In comparison, six out of ten old people (ages 65+) wanted to leave. The youth were quick to announce the stark contrast in social media and clarify their position! So, what is it that the old know about globalization that the young fail to see?
In a recent study, my colleagues Richard Chisik and Dhimitri Qirjo and I tried to explain how demographic aging—an increase in the share of old people in the country—could shift the economic policy preferences in an economy. Because nationalist sentiments often involve objections to free trade and migration, we paid particular attention to those policies. We came up with three interesting results that may help us understand how aging and nationalism are linked.
These results include:
An aging population is more dependent on imports: “To see this, note that the old consume more services like long-term care and the young consume more goods like smartphones. Therefore, the higher the share of old people in the population, the higher the demand for services, which cannot be imported, and the lower the demand for goods that can be imported.”
When aging occurs, more firms move overseas if trade barriers are low: “If…the aging country imposes egregiously high tariffs on imports, smartphone producers might rethink their relocation decisions.”
Nationalists may have a point about free trade at first glance, but more in-depth analysis proves otherwise: “From the nationalist point of view, erecting barriers at the border, be it made of concrete or import tariffs, may appear to make sense economically. However, this logic is terribly shortsighted: It is based on a static view of a world where actions cause no reactions. More specifically, it fails to recognize that when one country erects barriers its partners will do the same in response. In the end, a trade war may be triggered, only to be accompanied by a rising wave of protectionism, which would hurt the aging country more than the partner.”
The Wall Street Journal reported on a new IMF study analyzing Piketty’s hypothesis “that income inequality has risen because returns on capital—such as profits, interest and rent that are more gleanings of the rich than the poor—outpaced economic growth.” IMF economist Carlos Góes
tested the thesis against three decades of data from 19 advanced economies. “I find no empirical evidence that dynamics move in the way Piketty suggests.” In fact, for three-quarters of the countries he studied, inequality actually fell when capital returns accelerated faster than output. Those findings support previous work by Daron Acemoglu of the Massachusetts Institute of Technology and political scientist James Robinson, now of the University of Chicago, suggesting Mr. Piketty’s thesis was far too simplistic for the complexities of real-world economies that are affected by politics and technology. Mr. Góes says his study also provides evidence that Mr. Piketty’s assumption that saving rates remain stable is flawed. Rather, the data shows changes in the savings rate are likely to offset most of the effects of an increase in capital share of national income.
“Is Poland’s government right-wing or left-wing?” asks a recent article in The Economist.
Its leaders revere the Catholic church, vow to protect Poles from terrorism by not accepting any Muslim refugees and fulminate against “gender ideology” (by which they mean the notion that men can become women or marry other men).
Yet the ruling Law and Justice party also rails against banks and foreign-owned businesses, and wants to cut the retirement age despite a rapidly ageing population. It offers budget-busting handouts to parents who have more than one child. These will partly be paid for with a tax on big supermarkets, which it insists will somehow not raise the price of groceries.
This represents a new kind of political divide; one that is “less and less between left and right, and more and more between open and closed. Debates between tax-cutting conservatives and free-spending social democrats have not gone away. But issues that cross traditional party lines have grown more potent. Welcome immigrants or keep them out? Open up to foreign trade or protect domestic industries? Embrace cultural change, or resist it?” As the British head of YouGov noted, the political ideologies are either “drawbridge up” or “drawbridge down.” The American context of all this is particularly depressing:
In America the traditional party of free trade and a strong global role for the armed forces has just nominated as its standard-bearer a man who talks of scrapping trade deals and dishonouring alliances. “Americanism, not globalism, will be our credo,” says Donald Trump. On trade, he is close to his supposed polar opposite, Bernie Sanders, the cranky leftist who narrowly lost the Democratic nomination to Hillary Clinton. And Mrs Clinton, though the most drawbridge-down major-party candidate left standing, has moved towards the Trump/Sanders position on trade by disavowing deals she once supported.
The two main forces driving the “drawbridge up” view “are economic dislocation and demographic change.” In turns out that “many mid- and less-skilled workers in rich countries feel hard-pressed. Among voters who backed Brexit, the share who think life is worse now than 30 years ago was 16 percentage points greater that the share who think it is better; Remainers disagreed by a margin of 46 points. A whopping 69% of Americans think their country is on the wrong track, according to RealClearPolitics; only 23% think it is on the right one.” It’s also true that
Rich countries today are the least fertile societies ever to have existed. In 33 of the 35 OECD nations, too few babies are born to maintain a stable population. As the native-born age, and their numbers shrink, immigrants from poorer places move in to pick strawberries, write software and empty bedpans. Large-scale immigration has brought cultural change that some natives welcome—ethnic food, vibrant city centres—but which others find unsettling. They are especially likely to object if the character of their community changes very rapidly.
This does not make them racist. As Jonathan Haidt points out in the American Interest, a quarterly review, patriots “think their country and its culture are unique and worth preserving”. Some think their country is superior to all others, but most love it for the same reason that people love their spouse: “because she or he is yours”. He argues that immigration tends not to provoke social discord if it is modest in scale, or if immigrants assimilate quickly.
There is an optimistic side to all this:
Although the drawbridge-uppers have all the momentum, time is not on their side. Young voters, who tend to be better educated than their elders, have more open attitudes. A poll in Britain found that 73% of voters aged 18-24 wanted to remain in the EU; only 40% of those over 65 did. Millennials nearly everywhere are more open than their parents on everything from trade and immigration to personal and moral behaviour. Bobby Duffy of Ipsos MORI, a pollster, predicts that their attitudes will live on as they grow older.
As young people flock to cities to find jobs, they are growing up used to heterogeneity. If the Brexit vote were held in ten years’ time the Remainers would easily win. And a candidate like Mr Trump would struggle in, say, 2024.
But in the meantime, the drawbridge-raisers can do great harm. The consensus that trade makes the world richer; the tolerance that lets millions move in search of opportunities; the ideal that people of different hues and faiths can get along—all are under threat. A world of national fortresses will be poorer and gloomier.
A number of terrorist incidents have taken place in this year alone. This doesn’t even begin to cover the controversies over police shootings (both of civilians and officers) or the number of violent episodes that go unnoticed by the public and unreported by the media. With the constant news of blood and horror on this earth, it is easy to think that the world is ready to implode. However, here is a little data-based pick-me-up on the state of violence in the world. In response to Hannity’s disbelief over President Obama’s speech at the White House Summit on Global Development toward the end of July, Reason writes,
Obama has made similar remarks before, and what he’s talking about is the fact, documented by Steven Pinker in his book The Better Angels of Our Nature, that humans are, broadly speaking, less likely to die violent deaths than ever before in recorded history. Contrary to what Hannity apparently thinks, that long-term trend—which includes deaths by war, genocide, terrorism, and other forms of mass killing as well ordinary homicide—is unaltered by whatever Fox News report happens to be uppermost in Hannity’s mind at any given moment. Updated graphs that Pinker published last year show, among other salutary trends, that the U.S. murder rate has fallen sharply since the early 1990s, that the worldwide death rate from genocide and other mass killings fell from 10 per 1 million people in 1996 to 1 in 2013, that the number of battle deaths per 100,000 people in 2013 was close to the all-time low since 1945, and that the number of civil wars worldwide, although up since 2010, was far lower in 2013 than in the ’90s.
Looking specifically at deaths from terrorist attacks in Western Europe, which Hannity sees as a refutation of Obama’s claim, there was a spike last year, but the total was still lower than in 2004 and far lower than the averages for the 1970s and ’80s. Worldwide, according to a 2015 report from the Institute for Economics and Peace, the total number of deaths from terrorism has been rising since 2011, with five countries—Iraq, Nigeria, Afghanistan, Pakistan, and Syria—accounting for 78 percent of those deaths in 2014. But deaths from terrorism represent a small percentage of all deaths by homicide: less than 3 percent worldwide in 2012, based on data from the United Nations and the National Center for Counterterrorism. They represent an even smaller share of all deaths, and for Americans the risk of dying in a terrorist attack pales beside the risk of dying from a host of quotidian causes that get much less attention from Fox News.
So, the next time you feel an overwhelming sense of despair regarding the direction of the world, check the numbers. You might feel better.
Want to increase production among low-output workers? Place them among high-output workers. From a new NBER paper:
Workers respond to the output choices of their peers. What explains this well documented phenomenon of peer effects? Do workers value equity, fear punishment from equity-minded peers, or does output from peers teach them about employers’ expectations? We test these alternative explanations in a series of field experiments. We find clear evidence of peer effects, as have others. Workers raise their own output when exposed to high-output peers. They also punish low-output peers, even when that low output has no effect on them. They may be embracing and enforcing the employer’s expectations. (Exposure to employer-provided work samples influences output much the same as exposure to peer-provided work.) However, even when employer expectations are clearly stated, workers increase output beyond those expectations when exposed to workers producing above expectations. Overall, the evidence is strongly consistent with the notion that peer effects are mediated by workers’ sense of fairness related to relative effort.
The internet and digital media have created the impression of limitless knowledge at our fingertips. But, by making us lazy, they have opened up a space that ignorance can fill. On the Edge website, the psychologist Tania Lombrozo of the University of California explained how technology enhances our illusions of wisdom. She argues that the way we access information about an issue is critical to our understanding – and the more easily we can recall an image, word or statement, the more likely we’ll think we’ve successfully learned it, and so refrain from effortful cognitive processing.
This lack of intellectual humility often leads to the trolling we see in online discussions:
Intellectually humble people don’t repress, hide or ignore their vulnerabilities, like so many trolls…People who are humble by nature tend to be more open-minded and quicker to resolve disputes, since they recognise that their own opinions might not be valid. The psychologist Carol Dweck at Stanford University in California has shown that if you believe intelligence can be developed through experience and hard work, you’re likely to make more of an effort to solve difficult problems, compared with those who think intelligence is hereditary and unchangeable.
One of the more exciting portions of the article is its discussion of the
Thrive Center for Human Development in California, which seeks to help young people turn into successful adults, is funding a series of major studies about intellectual humility. Their hypothesis is that humility, curiosity and openness are key to a fulfilling life. One of their papers proposes a scale for measuring humility by examining questions such as whether people are consistently humble or whether it depends on circumstances. Acknowledging that our opinions (and those of others) vary by circumstance is, in itself, a significant step towards reducing our exaggerated confidence that we are right.
The key takeaway, however, is the following:
Intellectual humility relies on the ability to prefertruth over social status. It is marked primarily by a commitment to seeking answers, and a willingness to accept new ideas – even if they contradict our views. In listening to others, we run the risk of discovering that they know more than we do. But humble people see personal growth as a goal in itself, rather than as a means of moving up the social ladder. We miss out on a lot of available information if we focus only on ourselves and on our place in the world (bold mine).
Most of my anxieties when it comes to research, writing, and learning are ultimately anxieties over my place in the social pecking order. I have a long way to go when it comes to learning intellectual humility.
I’ve been hearing a lot lately about how important it is to vote. Supposedly, if you vote for alternative Candidate X, then it is a de facto vote for Candidate Y. This Candidate Y could be either Trump or Clinton depending on the ideology of the one spewing this rhetorical nonsense. Nevermind that this line of argument places way too much stock in the value of a single vote. As political philosopher Jason Brennan points out, the disutility of driving to cast your ballot (i.e., the risk of harming others via an automobile accident) is higher than the actual utility of your single vote (i.e., the chance it has of changing the election outcome).[ref]See The Ethics of Voting, pgs. 19-20.[/ref] The value of a single vote is vanishingly small, even in swing states. You have a better chance of winning the Powerball jackpot 100+ times in a row than you do of casting the tiebreaker in a presidential election.
But when only 9% of the American public is behind the nominations of Trump and Clinton, shouldn’t we encourage more people to vote? I suppose that depends on how your political preferences match up with that of non-voters. So what are the preferences of non-voters? According to a 2014 Pew study, non-voters are a largely younger, poorer, uneducated, racially diverse group. More important, however, are their political affiliations and views: while the largest portion identified as Independents (45%), 29% identified as Democrats, leaving only 18% for Republicans. Furthermore, 51% indicated that they “lean Democrat” with only 30% “lean[ing] Republican” (20% said they had “no lean”). Fifty-three percent of non-voters held unfavorable views of Republicans (35% favorable), while only 40% held unfavorable views of Democrats (48% favorable). Their views on the Affordable Care Act were mixed (44% approved, 49% disapprove). Their views on government efficiency (54% think government is almost always inefficient, 43% think the government deserves more credit) and aid to the poor (44% said it did more harm than good, 51% said the opposite) were a bit more divided.
A 2012 Pew study highlighted the policies preferred by non-voters. At that time, Obama held a favorable view among non-voters (64%), 59% of which said they preferred him as their presidential candidate. The majority of non-voters believed that government should do more to solve problems (52%), should raise tax rates for incomes above $250,000, remove troops from Afghanistan ASAP (67%), allow same-sex marriage (49%), and legalize abortion in all/most cases (54%). They were more mixed on the United States’ stance toward Iran’s nuclear program (45% said take a firm stand, 40% said to avoid military conflict) and the growing population of immigrants (27% said it is a “change for the better,” 34% said it is a “change for the worse,” 34% said it “hasn’t made much of a difference”).
In 2013, the political scientists Jan Leighley, of American University, and Jonathan Nagler, of New York University, published the results of a study that compared, among other things, the political views of voters and non-voters, dating back to 1972. On most social issues (abortion, L.G.B.T. rights), there was no measurable difference between them. Non-voters were more inclined toward isolationism. (Leighley and Nagler thought this might be because non-voters knew more soldiers than voters, and were more reluctant to see them sent into conflict.) The difference on economic matters was much more dramatic. Non-voters, Leighley and Nagler found, favored much more progressive economic policies than voters did. They preferred higher taxes, and more spending on schools and health care, by margins that hovered around fifteen per cent. “The voters may be representative of the electorate on some issues,” Leighley and Nagler wrote, “but they are not representative of the electorate on issues that go to the core of the role of government in modern democracies.” That non-voters had the same partisan preferences as voters only seemed to strengthen the finding—they wanted more redistribution regardless of whether they were Democrats or Republicans.
These results have been substantiated elsewhere. As reported in The Atlantic,
Four questions from the American National Elections Studies (ANES) data show a stark divide on issues related to economic inequality. Nonvoters tend to support increasing government services and spending, guaranteeing jobs, and reducing inequality—all policies that voters, on the whole, oppose. Both groups support spending on the poor, but the margin among nonvoters is far larger. Across all four questions, nonvoters are more supportive of interventionist government policies by an average margin of 17 points.
Similar results were found with numbers from Pew and YouGov comparing “registered voters with the non-registered population. These polls were not taken close to elections, so registration can serve as a rough proxy for the voting and nonvoting population. The polls show the same dramatic differences. In every instance, net support for greater government intervention in economic affairs was higher for the non-registered populations—sometimes dramatically so. For instance, while net support for free community college was 7 points for the registered population, it was 46 points within the non-registered population.”
In short, non-voters tend to be more ideologically liberal than voters.
Positive numbers indicate that nonvoters are more liberal than voters. (Source: Griffin and Newman, 2005)
If you’re wanting to galvanize non-voters, you should know your audience. Liberals may have a more vested interest in doing so than conservatives. Libertarians will likely have mixed feelings.
I’ve mentioned the populist trade problem before. GMU economist Bryan Caplan has published on the irrationality of voters, demonstrating that voters tend to suffer from biases that disagree with the findings of actual economists. Given our current political climate, consider what he calls “anti-foreign bias”:
Harvard’s Greg Mankiw writes in The New York Times,
Voters clearly aren’t listening to economists. In a recent poll, an overwhelming number of leading economists agreed that Brexit would most likely lower incomes both in Britain and in the rest of the European Union.
Similarly, in the United States, most top economists agree that “past major trade deals have benefited most Americans” and that “trade with China makes most Americans better off.” But those aren’t sentiments we will be hearing anytime soon from Mr. Trump or Mrs. Clinton.
In one respect, it is easy to understand why. According to a CBS News/New York Times poll conducted last month, only 35 percent of registered voters thought the United States gained from globalization, while 55 percent thought it lost. On issues of international trade, the current crop of candidates is following public opinion. (Henceforth the president, rather than being our elected leader, may be called our elected follower.)
So why are voters so out of touch with the evidence? Mankiw explains,
In particular, Edward Mansfield and Diana Mutz, professors in the political science department of the University of Pennsylvania, have written a pair of research papers exploring attitudes toward free trade and offshore outsourcing. This work gives some clues about what may be happening inside the minds of today’s voters.
…In actuality…people’s attitudes about free trade and offshore outsourcing are unrelated to the characteristics of the industry in which they are employed. After analyzing their survey data on individuals’ attitudes and attributes, these political scientists conclude that voters embrace policies based on the broader national interest…The data analysis of Mr. Mansfield and Ms. Mutz suggests that skepticism about trade and outsourcing is closely related to three other sets of beliefs.
These beliefs are:
Isolationism: the belief that “the United States should stay out of world affairs and avoid getting involved in foreign conflicts. They are not eager for the United States to work with other nations to solve global problems like hunger and pollution.”
Nationalism: the belief that “the United States is culturally superior to other nations. They say the world would be better if people elsewhere were more like Americans.”
Ethnocentrism: the belief that the world is divided “into racial and ethnic groups and think that the one they belong to is better than the others. They say their own group is harder-working, less wasteful and more trustworthy.”
Mankiw concludes,
As Mr. Mansfield and Ms. Mutz put it, “trade preferences are driven less by economic considerations and more by an individual’s psychological worldview.” They also report that this isolationist, nationalist, ethnocentric worldview is related to one’s level of education. The more years of schooling people have, the more likely they are to reject anti-globalization attitudes…In the long run, therefore, there is reason for optimism. As society slowly becomes more educated from generation to generation, the general public’s attitudes toward globalization should move toward the experts’.
This book got off to a kind of rough start for some of the same reasons that Harry Markopolos had such a hard time getting the SEC to investigate Bernie Madoff in the decade leading up to Madoff’s enormous Ponzi scheme finally publicly immolating: he’s kind of an abrasive character who comes across as arrogant, confrontational, and self-promoting. I’m glad I stuck with the book, however, for two reasons. First of all, the grating tone is smoothed out substantially as you realize that–while perhaps a little melodramatic–Markopolos seems to be entirely sincere in his intentions and oblivious to his abrasiveness. Second, because–as far as I could tell from the book, which is laden with supporting material and testimony–he was exactly right. He did determine early on that Madoff was a fraud, he did everything in his power to bring it to the SEC, and the SEC did absolutely nothing to follow up on his claims, even though there were incredibly quick and easy ways for the fraud to be validated.
In Political Order and Political Decay, Francis Fukuyama makes a vibrant, international case for the importance of strong state institutions. Although he is associated with the American right, Fukuyama eschews the conventional more/less government for an emphasis on quality rather than quantity of state institutions. He spends a lot of time looking at what is required to make state institutions effective: a delicate balance of autonomy and accountability. It’s impossible to have read that book recently and not see connections again and again to the SEC as described by Markopolos.
For example, Fukuyama emphasizes the importance of professionalism–often accomplished through objective, standardized testing–in helping state institutions retain independence (because rigorous testing confounds political appointments) and high morale (because the testing acts as a kind of filter to create a cohesive social group within the institution) in addition to the more obvious benefits of competence and knowledgeability.
Markopolos makes the exact same points although–lacking Fukuyama’s framework and context–he doesn’t quite connect all the dots. He notes that the SEC is staffed primarily by lawyers with no quantitative expertise or practical industry experience and that this makes the incompetent and overly deferential to the businesses. He also faults the SEC for being far too deferential to industry and afraid to do its job and go after major fraud and abuse. He doesn’t quite make the connection between the two, however, noting that the low standards for SEC employees not only lead to inexperience workers, but also foster the subservience and passivity of the SEC directly.
Francis Fukuyama Professor of International Political Economy at the KUB University of Braband at Tilburg Netherlands Photo: Robert Goddyn/UPA Photo
One of Fukuyama’s broader points is that, in the arena of modern liberal democracies, the United States has always lagged behind in terms of quality of state infrastructure. This is mostly because our democracy emerged before our institutions modernized, which historically is a recipe for disaster. The US was able to right the ship in the second half of the 19th century when a wave of progressive reforms professionalized the federal civil service and we ended up with fairly respectable institutions, although still nowhere near the quality (in terms of professionalism and efficiency) of states like Germany or Japan that modernized before they liberalized or states like the UK that–due to unique class structure–were able to fairly painlessly push through reforms in a matter of years that took the US a major national movement and decades to emulate.
The SEC was not one of the agencies that Fukuyama chose to focus on, but it could have been. His analysis would have fit perfectly with Markopolos’s, both in terms of the content and also in terms of the conclusion: America’s national institutions are once again in a period of deep corruption, inefficiency, and impotence.
One of the key points that Michelle Alexander makes in The New Jim Crow is that mass incarceration is primarily the result of the War on Drugs (rather than violent crime):
As numerous researchers have shown, violent crime rates have fluctuate over the years, and bear little relationship to incarceration rates, which have soared during the past three decades regardless of whether violent crime was going up or down. Today, violent crime rates are at historically low levels, yet incarceration rates continue to climb.
Moreover, whites and blacks violate drug laws at basically equal rates, but it is the black population that bears the overwhelming burden of suspicion, policing, prosecution, incarceration, and life with a criminal record while the white population–equally as likely to consume drugs–is blissfully ignorant and immune to the pointy end of the War on Drugs.
The question is: why? The laws and policies that constitute the War on Drugs are colorblind, not racist. One possible explanation is sheer racial animus: the police and prosecutors and legislators who enact and define the War on Drugs hate black people, and they deliberately–but covertly–use the War on Drugs to attack them. This is not plausible, however, and instead Alexander focuses on unconscious racism and incentives.
For example, the federal government–in an effort to win points by looking to be tough on crime–through massive resources into encouraging the War on Drugs by offering money to police departments that showed high numbers of drug convictions. And so:
It is impossible for law enforcement to identify and arrest every drug criminal. Strategic choices must be made about whom to target and what tactics to employ. Police and prosecutors did not declare the War on Drugs, and some initially opposed it, but once the financial incentives for waging the war became too attractive to ignore, law enforcement agencies had to ask themselves, if we’re going to wage this war, where should it be fought and who should be taken prisoner? That question was not difficult to answer, given the political and social context.
Miller Center of Public Affairs flickr page, Charlottesville, VA
The incentives made it clear that arrests would happen. The question was just: where would they take place? And the answer, inevitably, was “among populations with the least ability to fight back politically.” Thus, the War on Drugs is not an effect of pre-existing racism as much as it is a cause of racism. This does not make the War on Drugs unique, however. If there’s one thing I’ve come to learn from studying the history of racism in the US, it’s that racism is always instrumental. The first consideration is always power. Racism is a servant of that quest for power. And this goes back to the very beginning. The slave trade was initially not very racist, in that the gap between white indentured servants and black slaves was fairly minimal. Slavery was, for example, not hereditary. A black child was born free, not slave. After Bacon’s Rebellion, however, when white servants and black slaves rose up together to fight against the elites, slavery was reformed as an institution to make it racially defined. Why? Because that allowed elites to split the coalition of poor whites and poor blacks. So: the quest for power created the racial aspect of slavery which, in turn, created race.
The point is that power and class warped the War on Drugs so that affluent (predominantly white) neighborhoods are left in peace and poor (predominantly black) neighborhoods are treated like warzones. There’s crime everywhere, but it only gets enforced where it makes political sense to do so.
White collar crime is the mirror image of the War on Drugs, and that’s where the connection to No One Would Listen comes in. Markopolos makes it clear that Madoff was far from unique: the entire financial sector is riven with dishonest and blatant criminality. Here’s one example:
My younger brother had had similar experiences. At one point he was hired by a respected brokerage firm in New Jersey to run its trading desk. On his first morning there he walked into the office and discovered that the Bloomberg terminals that supposedly had been ordered hadn’t arrived. Then he found out that the traders didn’t have their series 7 licenses, meaning they weren’t allowed to trade. And then he learned that the CEO had some regulation 144 private placement stock which legally is not allowed to be sold. But the CEO had insider information that bad news was coming, and he wanted to sell the stock. My brother explained to the CEO, “You can’t sell this stock. It’s a felony.” The CEO assured him he understood. My brother went out to lunch with the Bloomberg rep to try to get the terminals installed that he needed to start trading. By the time he returned to the office, the unlicensed traders had illegally sold the private placement stock based on insider information. My brother had walked into a perfect Wall Street storm.
He called me in a panic, “What do I do?” I said, “These are felonies. The first thing to do is write your resignation letter. The second thing you do is get copies of all the trade tickets. Get all the evidence you can on your way out the door. And the third thing you do is go home and type up everything and send it to the NASD.” That’s exactly what he did. The NASD did absolutely nothing. These were clear felonies, and the NASD didn’t even respond to his complaint.
So Markopolos’s brother witnesses felonies, gathers the evidence, and alerts the NASD and then… nothing. Just as Markopolos realized what Madoff was doing, gathered the evidence, and alerted the SEC and then… nothing. He sent them at least three or four major document dumps over a decade. Later on, he put together 20 other whistleblower cases, tied them up with a bow, and delivered them to the SEC for prosecution and again: nothing. Every one was rejected.
Poor blacks are convenient targets. Police departments and municipal governments essentially extort them by unequal application of laws. Rich white investment bankers are inconvenient targets. Gov’t agencies assigned to regulate and monitor them essentially act as their servants by unequal application of laws. As Markopolos points out, the SEC and other agencies would go after fraud cases now and again, but only small fish. They’d never touch the big guys, the rich guys, the influential guys.
Putting together Markopolos, Fukuyama, and Alexander doesn’t lead to a cheery or rosy view of the state of the United States, but I do think it’s a useful view. And besides, one lesson of Fukuyama is that political decay can be reversed. Institutions can be revitalized. One lesson of the Civil Rights is that human dignity can be broadened and justice can move forward. And–while Markopolos did not succeed in convincing the SEC to stop Madoff before he his scheme had ballooned from $7B to $60B, he did become a professional fraud-fighter after that, and so even in his case there is the potential for good to come out of bad situations. I think we all sense that the nation is not in a good place, but having an accurate understanding of what is wrong is the first step to finding truly effective solutions, and these books–to me–seem to work together to provide a substantial piece of that understanding.
For example, Fukuyama emphasizes the importance of professionalism–often accomplished through objective, standardized testing–in helping state institutions retain independence (because rigorous testing confounds political appointments) and high morale (because the testing acts as a kind of filter to create a cohesive social group within the institution) in addition to the more obvious benefits of competence and knowledgeability.
