Be Like Sweden

by

Image result for sweden

This is a common rallying cry among Americans (e.g., Bernie Sanders) who are disturbed by income inequality in the U.S. and the supposed excesses of capitalism. So what can the United States learn from Sweden? Swedish author Johan Norberg writes,

As a native of Sweden, I must admit this makes me Feel the Bern a bit. Sanders is right: America would benefit hugely from modeling her economic and social policies after her Scandinavian sisters. But Sanders should be careful what he wishes for. When he asks for “trade policies that work for the working families of our nation and not just the CEOs of large, multi-national corporations,” Social Democrats in Sweden would take this to mean trade liberalization—which would have the benefit of exposing monopolist fat cats to competition—not the protectionism that Sanders favors.

In fact, when President Barack Obama visited Sweden in 2013, the three big Swedish trade unions sent him a letter requesting a meeting. Their agenda: a discussion of “how to promote free trade.” The chairman of the largest Social Democratic trade union scolded the American president for his insufficient commitment to the free flow of goods.

Norberg acknowledges that Sweden is “still-high public spending and high taxes, at least compared to the U.S….The governments provide the citizens with health care, child care, free colleges, and subsidized parental and medical leave. We Scandinavians have our quarrels with these systems and how they function, but at least they have not ruined our societies; indicators of living standards and health are impressive.” So how come this amount of government services doesn’t cripple the economy? Norberg explains,

One reason is that we compensate for them with a more open economy than others. In the summary Fraser Institute rankings, Sweden and Denmark are more economically free than the United States when it comes to legal structure and property rights, sound money, free trade, business regulation, and credit market regulations. We don’t have the multitude of occupational licensing laws that block competition in the United States.

We also pay for the welfare state in a fairly brutal way, but one that doesn’t hurt production as much: by squeezing the poor and the middle class. Unlike the rich, poor and middle-class people don’t flee or dodge when they’re taxed aggressively.

The Social Democrats knew all along that they couldn’t fund such a generous government by taking from the rich and the businesses—there are too few of them, and the economy depends on them too much. So Sweden and Denmark take in lots of revenue via highly regressive value-added taxes at a normal rate of 25 percent of sales—the only tax where the rich and poor pay exactly the same amount in kronor. On the other hand, the corporate tax is just 22 and 23.5 percent respectively, compared to the U.S. rate of 35 percent.[ref]Check out this analysis of the Scandinavian tax systems at the Tax Foundation.[/ref]

In fact, rich people in Sweden enjoy several economic advantages not offered to their lower-class counterparts. Sweden always admitted very generous tax deductions for capital costs. Labor regulations are tailored to benefit big companies. To attract highly educated specialists from abroad, Sweden now has a beneficial “expert tax” for them, which shields 25 percent of their wages from taxation for a three-year period. “Sure, it is unfair, but we have no better solution,” the Social Democratic minister of finance said in 2000, when he implemented special tax exemptions for individuals and families who owned a large share of a listed company.

Unlike Sanders, Scandinavian socialists have concluded that you can have a big government or you can make the rich pay for it all, but you can’t do both.

The shape of welfare state also has roots in Swedish culture:

Two Scandinavian economists, Andreas Bergh and Christian Bjørnskov, have documented that a high degree of trust is an old legacy, and that descendants of those who emigrated from Scandinavia 100 years before the welfare state are also more trusting. Their conclusion is that trust in others and social cohesion creates the welfare state rather than the other way around, since it is more tempting to give power to politicians and money to strangers if you believe that they are decent people who would never cheat the system.

Scandinavians have always frowned on those who take money they are not entitled to. Sweden is, after all, the country where the leading candidate for prime minister in 1995 had to resign because it was revealed that she had used her official credit card to pay for some small private expenses, even though she always, every month, paid the credit card debt herself.

When asked, “Under what circumstances is one justified in accepting government benefits to which one is not entitled?” in 1991 and 1998, the Nordics led the world in saying “never.” (Only Malta says it is more upstanding, and a brief canvass of Maltese of my acquaintance suggests that they are rather likely to have lied on the survey.) Oh, and the United States is 16th, lower on the list than even the Italians.

Unfortunately, Sweden has recently seen “increased unemployment among immigrants. Now the employment gap between natives and foreign-born in Sweden is twice the European Union average, even though we express less racist and discriminatory attitudes than others. In response, Swedish politicians have recently decided to abandon liberal immigration policies and do whatever they can to scare people away. It was easier to have a one-size-fits-all approach when we were all alike, from the same background, with the same faith and attitude and a similar education. We need a more flexible model now that we are becoming a little bit more like…well, the United States.”

Economist Andreas Bergh mentioned above has documented the economic history of Sweden in hopes of answering the following questions:

  • How did Sweden become rich?
  • What explains Sweden’s high level of income equality?
  • What were the causes of Sweden’s problems from 1970 to 1995?
  • How is it possible that Sweden, since the crisis of the early 1990s, is growing faster than most EU countries despite its high taxes and generous welfare state?

His conclusions?

In many aspects, Sweden is not very different from other countries. The accelerating economic growth in Sweden around 1870 was most likely largely a result of liberalizations and well-functioning capitalist institutions. In this respect, there is no Swedish exceptionalism.

When it comes to equality, the most important conclusion is that most of the decrease in income inequality in Sweden occurred before the expansion of the welfare state. A number of seemingly unrelated reforms, such as land reforms, school reforms and the occurrence of unions and centralized wage bargaining, are likely explanations. Interestingly, at least parts of gender equality in Sweden seem to be an unintended consequence of the need to increase labor supply by using women in the workforce.

Thus, when it comes to the roots of prosperity and equality, the lessons from Sweden are not very different compared to the lessons from mainstream institutional economics: Well-functioning capitalist institutions, especially property rights and a non-corrupt state sector, promotes prosperity. Primary schooling, risk sharing social insurance schemes and labor unions contribute to a more equal distribution of income (pg. 21).

He notes that Sweden’s lagging economy between 1970 and 1995 was due to a

combination of unsuccessful macro-economic policies and a very generous welfare state…During the period of lagging behind, excessive state interventionism hampered structural adjustment and economic development in general. The economy was much less capitalist, rules were unstable, policy unpredictable, and work incentives were weakened by the design of taxes and benefits. This leads to the conclusion that to successfully combine a large welfare state with economic growth, macroeconomic factors are crucial and a high degree of economic openness may actually foster policies that promote competitiveness. Analyzing the fact that Sweden was ranked the second most competitive country in the world according to the Global Competitiveness Index 2010–2011 (just slightly behind Switzerland). Eklund et al. (2011) emphasize the role of market deregulations, inflation control and stricter budget rules – but also some lowering of taxes and benefit levels. The upshot is that the policy implications from the case of Sweden are hard to classify along a simple right-left scale: the welfare state seems to survive because it coexists with high levels of economic freedom and well-functioning capitalist institutions (pg. 22).[ref]You can read about the Swedish reforms since the 1990s here.[/ref]

So, be like Sweden. But be like it in the right ways.

On Syria and Delusions of Isolation

by

There’s a piece I’ve been meaning to write for months about the end of Pax Americana. This is not the post, but it is a prelude.

Traveling in Turkey last week, American Secretary of State Rex Tillerson said that “longer-term status of President [Bashar] Assad will be decided by the Syrian people.” This may not sound shocking, but it’s a thinly-veiled euphemism (similar to ones employed by long-time Assad ally Vladimir Putin) for a shift in American policy away from overthrowing the Assad regime and towards allowing Assad to finish suppressing the Syrian rebels and retain power.

Within a few days of that, Assad’s forces apparently launched a chemical weapon attack that killed at least 69 civilians, including women and children. It’s not hard to draw a line from the first event to the second. Although Obama infamously and catastrophically failed to back up his “red line” threat, global disapproval is the key feature that has kept the Assad regime from repeating the chemical weapons attacks of 2013. In signalling the shift in American policy, Tillerson effectively handed the Assad regime a blank check. They cashed it.

What’s fascinating to me is the reaction by American isolationists to this fairly mundane and predictable series of events. If the implacable foe of a murderous, WMD-deploying dictator suddenly decides that they’re placcable after all, it shouldn’t shock us when that murderous, WMD-deploying dictator uses his suddenly longer leash to go out and use those WMDs to murder his enemies. That is what murderous, WMD-deploying dictators do. And so this is what American non-intervention looks like.

But the isolationists–led by Ron Paul–can’t face that reality because they have been telling Americans for literally decades that the real source of all the violence in the Middle East is American meddling. If only America would back off, they say, the level of violence would diminish. In order to preserve that narrative, we suddenly get outlandish conspiracy theories about how the attack was a false flag operation at the behest of American neocons. Yes, according to Ron Paul (and a lot of his followers), it is more plausible that John McCain, the CIA, and Syrian rebels are in a conspiracy to frame Assad for using chemical weapons than that Assad himself used chemical weapons.

This is not the post where I present my full case for continued American participation on the global stage. That will come soon, I hope. This is the post where I remind everyone that extremism is almost always a symptom of absolutism. Absolutism is a natural reaction to a tragic world in which tradeoffs, ambiguity, and complexity are unavoidable. Humans hate all of these things at a visceral level. We would much rather live in a simple, black-and-white world with easy answers to all of our toughest problems.

When I was a little kid, I was viscerally upset about the Chinese crackdown of the Tiananmen Square protests.[ref]Yes, that’s the kind of thing that really bothered 8-year old Nathaniel.[/ref] I fantasized about the US sending F-15s to blow up the bad guys and save the student protesters. Real life doesn’t work that way, and it seems that some of the loudest voices calling for us to “do something” in Syria never learned that lesson. As though it was self-evident that anything we did would have a net-positive impact. That’s one kind of extremism. The other is the kind that says if the US just packs up and goes home, vicious dictators won’t take advantage of that power vacuum to drop chemical weapons on unarmed families. As though it was self-evident that anything we did would have a net-negative impact.

So let me be clear: this isn’t an argument for more or for less intervention in Syria. I don’t know the best strategy for us to take there. This is simply an argument against oversimplification and the vilification that inevitably follows. Why does oversimplification lead to vilification? Because if the world is simple and the answers are easy, then you have to come up with an explanation for why all our problems still exist. The only plausible answer is that there are really bad people who just want everyone to suffer and somehow they are in control. That is why belief in a fundamentally simplistic world leads directly to belief in astonishingly ornate conspiracy theories and cartoonish supervillains. It’s just the cost of sustaining the illusion that the world is orderly, predictable, and comprehensible.

No matter what we do in Syria, there will be costs, they will be high, and they will be borne by the most vulnerable. I hope we can try to debate with a little more good faith and sobriety what–if anything–we can do as a nation. It might not seem like the emotionally appropriate response to tragedy, but it’s the only responsible one.

Have Worker Wages Truly Stagnated?

by

It depends on how you measure it. According to a recent NBER paper by Dartmouth economist Bruce Sacerdote, most estimates use the CPI-U as a price deflator. Sacerdote instead

calculate[s] real wages using either the Fed’s preferred inflation measure of PCE (Personal Consumption Expenditures) or using simple adjustments to CPI using magnitudes suggested by the Boskin commission (Boskin et al 1996) and Costa (2001). This adjustment reverses the finding of wage stagnation. Using the PCE to deflate nominal wages suggests real wage growth of 24 percent from 1975-2015 or about .54% growth in real wages per year. Importantly that growth is significantly less than the 1.18% annual growth in real wages (using PCE inflation) seen in the earlier decade 1964-1975 and is significantly less than GDP per capita growth of 1.8 percent over the 1975-2015 period. But 24 percent growth over the 1975-2015 is substantially better than zero growth and the PCE inflation could itself still contain upward bias. Adjusting for the Hamilton (1998) and Costa (2001) estimates of CPI bias implies real wage growth of 1 percent per year during 1975-2015 and GDP per capita growth of 2.7 percent per year.

In short, “PCE adjusted wages appear to have grown at .5% per year during 1975-2015 while the de-biased CPI adjusted wages grew at 1% per year over the same time period.”

So why do so many Americans feel worse off? Sacerdote hypothesizes,

First, I am only examining consumption within very large sections of the income distribution and there may be specific groups (for example less than high school educated men) for whom consumption is actually falling. Second, it’s possible that the quality of some services such as public education or health care could be falling for some groups. Third, the rise in income inequality coupled with increased information flow about other people’s consumption may be making Americans feel worse off in a relative sense even if their material goods consumption is rising. Fourth, changes in family structure (e.g. the rise of single parent households) , increases in the prison population, or increases in substance addiction could make people worse off even in the face of rising material wealth. A deep future research agenda would be to understand how America has lost its sense of optimism about living standards and whether the problem is one of consumption, relative consumption (relative to other people) or something entirely different.

On top of this, Harvard’s Martin Feldstein points out that innovation and new products are often ignored when measuring economic growth and the state of living standards:

Ignoring the introduction of new products is therefore a serious further source of understating the real growth of output, incomes, and productivity. New products and services are potentially valuable in themselves and are also valued by consumers because they add to the variety of available options. In an economy in which new goods and services are continually created, their omission in the current method of valuing aggregate real output makes the existing measure of real output even more deficient and more of a continually increasing underestimate of true output. Hulten (2015) summarizes decades of research on dealing with new products done by the Conference on Research in Income and Wealth with the conclusion that “the current practice for incorporating new goods are complicated but may miss much of the value of these innovations.” …[T]he official statistics ignore the very substantial direct benefit to consumers when new products and services become available, causing an underestimate of the rate of increase in real output and an overestimate of the corresponding price index…The failure to take new products into account in a way that reflects their value to consumers may be an even greater distortion in the estimate of real growth than the failure to reflect changes in the quality of goods and services. There is no way to know (pgs. 11-12, 14).

Feldstein has made this argument before in more popular writing. A good number of economists agree. While growth in real wages could be better, it seems to be inaccurate to say that they have stagnated.

Threading Needles

by
The Shepherd and his Flock, c. 1905 (Public Domain)

This post is part of the General Conference Odyssey.

Whenever General Conference rolls around, we suspend the ordinary General Conference Odyssey schedule to pay attention to the current conference, and that’s what we did this past weekend as well. There were a lot of great talks from this session, but I don’t really want to go into them in great detail until I can read the text.

Instead, I just want to make a general observation.

During talks by Elders Uchtdorf and Renlund, which touched on themes that tend to be near to the heart of left-leaning Mormons (e.g. love, tolerance, refugees), there was a lot of excitement and enthusiasm. This turned to consternation when Elder Christofferson spoke, however, especially when he pulled from conservative thinkers David Brooks and Ross Douthat. I couldn’t resist joking about that on Facebook, because I knew perfectly well the effect it would have.[ref]Read through the comments if you’re curious.[/ref]

Really, though, my motivation wasn’t so much immature “neener neener” and more genuine excitement. The Douthat article in particular is one of the most important op-eds I’ve ever read, and it has had a really significant impact on my thinking. I was thrilled to hear the ideas from it over the pulpit in General Conference.

This can be dangerous, of course. One of my friends sardonically:

I go into every General Conference with faith that I’ll be provided the authoritative ammo from a commonly accepted authority so I can combat Mormons who disagree with me.

It’s really important to remember that the fundamental role of prophets is to warn. That means, pretty much by definition, that when we like to hear the least is what we need to hear the most.

I had one other thought that I wanted to share when it comes to the supposed Uchtdorf vs. Christofferson divide, and that is that our job as members is to listen to the General Authorities as a body. Of course it doesn’t hurt to have your favorites—the ones who seem to speak directly to you—but the possibility of fandom turning into factionalism is anathema to the unity of the Church.

Or, as I put it in that Facebook conversation:

Trying to convey complicated ideas to a large crowd is like herding sheep, in that you need at least two people coming from opposite sides to keep the sheep inline.

If you have some sheep veering off to the west (I’m trying to avoid left/right), then placing someone over to the west will fix that problem, but it might actually exacerbate the problem of sheep who were already headed off to far to the east. And vice-versa. So what you need is one guy on the west herding in and another guy on the east hearing in and–taken together–you can actually keep your flock together and where they’re supposed to be.

In particular, Christofferson’s talk exists so that people don’t get a little too carried away with their interpretation of Renlund’s, Holland’s, and Uchtdorf’s talk. And Renlund, Holland, and Uchtdorf’s talks exist so that people (like me) don’t get too comfortable with a talk like Christofferson’s.

We need them both.

All in all, I thought it was a great General Conference.

That being said, next week we’re going to be right back on our usual schedule with the October 1975 General Conference.

Thanks for embarking on this odyssey with us!

—

Check out the other posts from the General Conference Odyssey this week and join our Facebook group to follow along!

Absolute vs. Relative Inequality: Which Measurement is Better?

by

I’ve written about global income inequality in several past posts. As Nathaniel and I wrote in SquareTwo a few years ago,

[W]ith the continual rise of the poor out of destitute poverty, it seems logical that global inequality would also be declining. Happily, recent evidence seems to supports the logic. As former World Bank economist Branko Milanovic put it, “[P]erhaps for the first time since the Industrial Revolution, there may be a decline in global inequality…For the first time in almost two hundred years—after a long period during which global inequality rose and then reached a very high plateau—it may be setting on a downward path.” Though cautious in his conclusions, Milanovic nevertheless finds that when population is factored into the data, the evidence demonstrates that the world became a “much better (“more convergent” or more equal) place” between 1980 and 2011. When country price levels (used to determine purchasing power) are factored in, a decline in global inequality can be seen over the past decade.

Several studies over the past few years have found that as the world poverty rates plummeted, so did global inequality. As one pair of researchers explains,

We can compute not only the world poverty rates and the poverty rates of any country or region, but also other statistics related to the distribution of income. For instance, we can compute the world gini coefficient, a measure of world inequality, for every year between 1970 and 2006. We show that world inequality measured by the gini fell from 67.6 to 61.2 (Figure 3), and similar declines in inequality can be shown for other inequality statistics, such as the mean logarithmic deviation, the Theil Index, and the Atkinson family of inequality indices.

While inequality is still high and increasing within countries, global inequality (between countries) has seen an unprecedented decline. “Even though the bulk of this decline is due to the performance of China and other Asian countries,” evidence shows “that a (weaker) declining trend survives even when these countries are excluded from the analysis.” Economist and Nobel laureate Friedrich Hayek noted that “after rapid progress has continued for some time, the cumulative advantage for those who follow is great enough to en­able them to move faster than those who lead and that, in consequence, the long-drawn-out column of human progress tends to close up…[O]nce the rise in the position of the lower classes gathers speed, catering to the rich ceases to be the main source of great gain and gives place to efforts directed toward the needs of the masses. Those forces which at first make inequality self-accentuating thus later tend to diminish it.”

The above describes relative inequality. However, a more recent study shows that absolute inequality has increased.

As one of the researchers explains,

[T]ake the case of two people in Vietnam in 1986. One person had an income of US$1 a day and the other person had an income of $10 a day. With the kind of economic growth that Vietnam has seen over the past 30 years, the first person would now in 2016 have $8 a day, while the second person would have $80 a day. So if we focus on ‘absolute’ differences, inequality has gone up, while a focus on ‘relative’ differences suggests that inequality between these two people has remained the same.

Relative inequality indicators have been by far the most widely used in empirical economic analysis, but, based on economic theory and empirical evidence, it is far from clear that we should favour relative over absolute notions of inequality. The evidence suggests that many people do perceive absolute differences in incomes as being an important aspect of inequality (Amiel and Cowell 1992, 1999).

However, the authors concede,

Over the past 40 years, over one billion people around the world have been lifted out of poverty, driven largely by substantial growth in income in developing countries. While this growth has been accompanied by a striking rise in absolute inequality, it has also improved the lives of hundreds of millions of people. It is difficult to imagine how in practice such growth, and the associated poverty reduction, could have occurred without an increase in absolute inequality. There would be huge implications for the fight against global poverty if attempts were made to halt economic growth in order to appease absolute inequality. Instead, the policy emphasis should be on creating more inclusive growth with falling ‘relative’ inequality – these two goals are complementary.

Is it true, though, that it’s “far from clear that we should favour relative over absolute notions of inequality”? For example, most studies favor absolute poverty over relative poverty. Could the same case be made for absolute inequality? I’m not so sure. Branko Milanovic, one of the leading scholars on income inequality, provides the following reasons for preferring relative measurements in regards to inequality:

  • Conservatism: “[R]elative income measures are conservative because they show no change in in equality in cases where absolute measures would show an increase (when all incomes go up by the same percentage) or a decrease (when they all go down by the same percentage). On in equality, which is a topic of considerable moral and political importance, and at times a very inflammatory topic indeed, we do not want to err in the direction of inflaming it further. Conservatism (in terms of measurement, not necessarily in terms of policy) is to be preferred.”[ref]Milanovic, Global Inequality: A New Approach for the Age of Globalization (Cambridge, MA: The Belknap Press of Harvard University Press, 2016), 27.[/ref]
  • Precision: “Think of the distribution as a balloon. As the balloon expands, the absolute distance between the points on the balloon increases. Focus on absolute distances presents the disadvantage that practically every increase in the mean (blowing up the balloon) could be judged to be pro-inequality. We would lose the sharpness with which we can currently distinguish between pro-poor and pro-rich growth episodes.”[ref]Ibid.[/ref]
  • Relative Growth: “Growth is simply the relative increase in the first moment, and in equality is the relative increase in the second moment. The measures that we use to assess success or failure in economic development (relative change in GDP per capita) should be related to the measures we use to assess success or failure in distribution of resources (relative change in a measure of inequality). Focus on the absolutes in growth, as in inequality, would lead us to nearly always find that growth in rich countries, however small in percentage terms, would be greater than growth in poor countries, however huge. If the United States grew by 0.1 percent per capita annually, that growth would increase the absolute GDP per capita of each American by about $500, which is more than the GDP per capita of many African nations. Should we then deem Congo, in any given year, to have been as successful as the United States only if it doubles its per capita income— a feat that no human community has ever achieved in recorded history? So the logic of relativity that applies to growth should also apply to inequality.”[ref]Ibid., 28.[/ref]
  • Personal Utility: “[F]or a person whose income is $10,000 to experience the same increase in welfare as a person whose income is $1,000, the absolute income gain ought to be ten times greater. In other words, one additional dollar will yield less utility, or seem less important, to a rich person than to a poor person. If we think that this is a reasonable assumption, we can then also interpret the data given in the growth incidence curve as changes in utility: an 80 percent income increase around the global median adds to the utility of people there more than a 5 to 10 percent increase in real income adds to the utility of the lower middle classes in rich countries (even if the absolute dollar gains of the latter may be larger). By this route too, we come to the conclusion that relative income changes are a more reasonable metric than absolute income changes.”[ref]Ibid., 29.[/ref]

While absolute measures in inequality may have their use, relative measures do a better job of complementing analyses of growth and poverty. In short, relative inequality provides a better framework by which to gauge standards of living.

The New Bachelor’s Degree

by

According to a 2016 Fast Company article,

Nearly a third (32%) of employers are bumping up education requirements for new hires. According to a new survey from CareerBuilder, 27% are recruiting those who hold master’s degrees for positions that used to only require four-year degrees, and 37% are hiring college grads for positions that had been primarily held by those with high school diplomas.

CareerBuilder conducted a nationwide online survey that culled responses from over 2,300 hiring and human resource managers across different industries in the private sector.

Their responses revealed that employers pushing their education requirements toward higher degrees are doing so across all levels of their companies. The majority of employers (61%) say they are looking for more educated candidates at the mid-level skill level, but 46% are looking to hire better educated candidates at entry level and 43% think the same for higher levels.

This comes at a time when the cost of a four-year college degree is out of reach for the average American family. But employers argue that a tight job market and evolving need for different skills are making it necessary. For example, 60% of employers who were satisfied with hiring high school graduates in the past claimed their work requires the skills held by those who have completed higher education.

But why?

Employers told CareerBuilder that higher education not only increases an applicant’s chance of getting hired, but it helps boost the chance they’ll be promoted down the road. Thirty-six percent of employers reported that they would be unlikely to promote someone who doesn’t have a college degree.

That’s because employers have seen education make a positive impact across the board, from employees’ ability to produce better quality work, to productivity and the ability to boost customer loyalty.

This is likely why a “recent Pew Research study found that high school graduates earn about 62% of what those with four-year degrees earn. That’s evolved since 1979, when people with only high school educations earned 77% of what college graduates made.” But not all is lost:

The good news for current and future workers is that some companies are taking responsibility to bridge the skills gap and overcome the talent shortage. Over a third of employers (35%) said they trained low-skill workers and hired them for high-skill jobs in 2015, and 33% said they’ll do the same this year. A full 64% of employers said they plan to hire people who have the majority of skills they require and provide training for the rest. They’ll do this by paying for training and certifications offered outside the company or sending them back to school. Twenty-three percent said they would fund an advanced degree partially, and 12% would foot the entire bill.

Fast Company recently reported that a small, but growing number of companies are offering employees assistance to pay back their student loans.

This could be an example of business leaders compensating for what they see as a lack of preparation among new college graduates. Furthermore, it may be an argument in favor of greater collaboration between higher education institutions and businesses.

 

The Need for Competition

by

Jason Furman, the chair of the Council of Economic Advisors under President Obama and now a senior fellow at the Peterson Institute for International Economics, argues that “both microeconomic and macroeconomic evidence” point to declining competition:

On the micro level, most industries today have fewer players than before. Just think about hospitals or cellphone service providers or beer companies. Throughout our economy you see larger companies, older companies, and, in any given industry, fewer companies. Growth in international trade has been a counterweight — but only within the tradable sector. Most of our economy is not tradable, and so for most of our economy, international trade isn’t a factor.

On the macro level, companies’ rate of return on capital has stayed the same or risen, while the safe rate of return on bonds has fallen precipitously. If there were really vigorous competition, you wouldn’t see increases in return on invested capital. In addition, we see an increase in the share of national income going to capital — that is, to investors — rather than to wages. That income shift has been larger in industries that have seen bigger reductions in competition.

He believes that this lack of competition plays a role in the increasing income inequality within the United States:

Wages aren’t determined strictly by supply and demand; they also depend on institutional arrangements and bargaining power. And with greater industry concentration, the bargaining power of employers rises. If there are four hospitals in your town and you’re a nurse at one of them, you can threaten to leave and go work at another one as a way to get a raise. If there’s only one hospital, it’s a lot harder to advocate for a raise.

This insight complements Brooking’s Jonathan Rothwell’s analysis as well as a 2016 commentary from The Economist:

[O]ne problem with American capitalism has been overlooked: a corrosive lack of competition. The naughty secret of American firms is that life at home is much easier: their returns on equity are 40% higher in the United States than they are abroad. Aggregate domestic profits are at near-record levels relative to GDP. America is meant to be a temple of free enterprise. It isn’t.

…You might think that voters would be happy that their employers are thriving. But if they are not reinvested, or spent by shareholders, high profits can dampen demand. The excess cash generated domestically by American firms beyond their investment budgets is running at $800 billion a year, or 4% of GDP. The tax system encourages them to park foreign profits abroad. Abnormally high profits can worsen inequality if they are the result of persistently high prices or depressed wages. Were America’s firms to cut prices so that their profits were at historically normal levels, consumers’ bills might be 2% lower. If steep earnings are not luring in new entrants, that may mean that firms are abusing monopoly positions, or using lobbying to stifle competition. The game may indeed be rigged.

…Unfortunately the signs are that incumbent firms are becoming more entrenched, not less…A $10 trillion wave of mergers since 2008 has raised levels of concentration further…Having limited working capital and fewer resources, small companies struggle with all the forms, lobbying and red tape. This is one reason why the rate of small-company creation in America has been running at its lowest levels since the 1970s. The ability of large firms to enter new markets and take on lazy incumbents has been muted by an orthodoxy among institutional investors that companies should focus on one activity and keep margins high. Warren Buffett, an investor, says he likes companies with “moats” that protect them from competition. America Inc has dug a giant defensive ditch around itself.

What can be done?:

The first step is to take aim at cosseted incumbents. Modernising the antitrust apparatus would help. Mergers that lead to high market share and too much pricing power still need to be policed. But firms can extract rents in many ways. Copyright and patent laws should be loosened to prevent incumbents milking old discoveries. Big tech platforms such as Google and Facebook need to be watched closely: they might not be rent-extracting monopolies yet, but investors value them as if they will be one day. The role of giant fund managers with crossholdings in rival firms needs careful examination, too.

The second step is to make life easier for startups and small firms. Concerns about the expansion of red tape and of the regulatory state must be recognised as a problem, not dismissed as the mad rambling of anti-government Tea Partiers. The burden placed on small firms by laws like Obamacare has been material. The rules shackling banks have led them to cut back on serving less profitable smaller customers. The pernicious spread of occupational licensing has stifled startups. Some 29% of professions, including hairstylists and most medical workers, require permits, up from 5% in the 1950s.

A blast of competition would mean more disruption for some: firms in the S&P 500 employ about one in ten Americans. But it would create new jobs, encourage more investment and help lower prices. Above all, it would bring about a fairer kind of capitalism. That would lift Americans’ spirits as well as their economy.

Mr. Pence and Mrs. Butterworth

by

Let me start out at the outset by saying that The Onion’s spoof of the WaPo’s revelation[ref]Actually, just a mention of something Pence told the Hill back in 2002, but never mind that detail.[/ref] that Mike Pence “never eats alone with a woman other than his wife and that he won’t attend events featuring alcohol without her by his side, either” is hilarious: Mike Pence Asks Waiter To Remove Mrs. Butterworth From Table Until Wife Arrives.

Let me add, as a second point, that the issue of unequal treatment of women is very much alive today, and affects many women, especially those working in male-dominated sectors like engineering and computer science. We’ll come back to that at the end.[ref]I added this paragraph on 2017-April-01 after a Facebook discussion with a woman in one of these sectors. I hadn’t added it before then because I thought it was obvious.[/ref]

The mini-debate that has been ongoing on about Pence’s policy has been quite interesting. At least one friend on Facebook compared it to The Great Dress Debacle of 2015: conservatives found Pence’s stance perfectly normal while liberals were split between ridiculing him and accusing him of practicing Sharia. Lest you think I’m joking, here’s one example cadged from The Federalist:

So, here are a couple of thoughts.

First, some folks seem to be missing the primary point of a rule like this. It is not, as the mockers deride, because Mr. Pence’s self-control is so flimsy he is afraid that merely sitting next to a woman in a restaurant without supervision would place him in danger of fornicating right there on the spot.

This isn’t a minor confusion. It’s a fundamental misapprehension of an ancient worldview that Christians still adhere to. In religious language: we’re all weak, vulnerable, and prone to sin. In modern, secular language: we’re irrational and often behave in ways that counter our own best interests and/or confound the values and goals we think we have. Doesn’t matter if you call it “fallen nature” or “cognitive bias”, in this context we’re talking about the same thing.

So how does this play out? The most common way that Christians (or other social conservatives) might try to explain a rule like Pence’s goes something like this: Anyone who goes on a diet will start by throwing out all the tempting food in their house.

The problem is that this analogy is very easy to misunderstand. One interpretation–the wrong one–is that cheating on your wife is the same kind of momentary lapse as cheating on your diet. It’s as though absent-mindedly chomping down on a Krispy Kreme you forgot to throw out is equivalent to absent-mindedly wandering into a hotel room with a woman you’re not married too. Lots of folks get as far as this (silly) interpretation and stop there.

The actual interpretation of the metaphor is quite different. It is saying that good behavior is not just about making the right decisions in the moment. It’s about manipulating your environment to make it conducive to the kind of behavior that you want in your life. Social conservatives understand that because we’re irrational creatures with amazing abilities to rationalize our ways into following short-term desires part of being virtuous isn’t just saying no to temptation in the moment, but avoiding it altogether.

Pence’s rule doesn’t draw the line at the moment when he’s tempted to be sexually unfaithful to his wife. It draws the line much, much earlier and so prevents the first seeds of infidelity from ever having a chance to take root in the first place.

I don’t follow Pence’s rule. I think it’s overkill. I’m not interested in trying to convince anyone that his particular rule should be some kind of universal standard for everyone. But I don’t think it’s ridiculous or absurd either. After all–in addition to the concerns about compromising marital fidelity out of an initially innocent friendship–there’s also legitimate concerns about being taken advantage of. Politicians are powerful and that also makes them vulnerable. Just ask the KGB (the FSB, these days) which has employed agents to try and seduce traveling politicians and officials for decades and decades in order to blackmail their targets into betraying state secrets. This is, by the way, one of the reasons that the CIA, FBI, and many other agencies are fond of hiring Mormons.[ref]Catch up here, if that is news to you.[/ref] Not only are we extremely family-focused (I know lots of Mormons who follow Pence’s rules), but we also don’t drink. Taken together, this means observant Mormons are less likely to be compromised in this way than the average population.

In the wake of the Republicans failing to pass the AHCA, there was a nauseating avalanche of cutesy Facebook posts from liberal fans of Hamilton. Here’s one:

If you missed the reference, it’s from Cabinet Battle #1, when Madison and Jefferson taunt Hamilton. Other favorites included “Winning was easy… Governing’s harder” and “Do you know how hard it is to lead?”

The funny thing is, if Alexander Hamilton had followed a rule like Mike Pence’s, he could have avoided his part in America’s first political sex-scandal, saved his family a lot of agony, and spared Lin-Manuel Miranda a song or two.[ref]Die-hard Hamilton fans are probably not persuaded by that last one, of course.[/ref]

And that brings me to my second point. Just as liberals are happy to take very selective lessons from Hamilton, there’s an awful weird dichotomy in a town where liberals practice all kinds of non-judgmentalism for open marriages but are more than happy to ridicule and deride someone for trying to keep their marriage closed. That’s the point Jonah Goldberg made at the National Review:

Last summer, when Bill Clinton spoke about his wife at the Democratic convention (“In the spring of 1971, I met a girl . . . ”), liberals gushed at the “love story,” and the rule of the day was that marriage is complicated and the Clintons’ ability to stay married (though practically separated) was admirable. Besides, “Who are we to judge?” — no doubt Bill Clinton’s favorite maxim.

It’s a very strange place we’ve found ourselves in when elites say we have no right to judge adultery, but we have every right to judge couples who take steps to avoid it.[ref]Emphasis added.[/ref]

He’s not wrong, you know.

I do think there are some legitimate concerns. The most important being that if you’re, say, a business executive who follows these rules, does it mean that you’re creating an environment where you give preferential treatment to men? If a young, up-and-coming male executive could ask you out to lunch to seek your advice, but a young, up-and-coming female executive cannot, then we do have a legitimate problem. It’s also possible to simply take this stance too far. I don’t recall conservatives having a problem with forcing Muslim boys to shake hands with their (female) teachers in Switzerland, for example.[ref]Unsurprisingly, liberals have a double standard that cuts against traditionalist Christians while social conservatives have a double standard that cuts against traditionalist Muslims.[/ref]

So I’m not saying that it’s impossible to have questions and concerns about a position like Pence’s. But the degree of hostility and deliberate (or at least, lazy) misunderstanding of the rules that the Pences have agreed on for their own marriage are at least as concerning as the rules themselves.

The Perfect is the Enemy of Space Exploration

by

It’s hard to find a good reason to wag your finger disapprovingly at Elon Musk’s idealistic crusade to take us in to outer space, but wherever a talented individual is working hard to make the world a materially better place you will find a contrarian academic with an axe to grind and rhetorical snake oil to peddle. After all, that’s really the inevitable consequence of the ideological homogenization of American academia.[ref]See Walker’s post.[/ref] In a world where professors have substantially divergent views, there’s room for substantive arguments. But in a world where professors are all cut from the same ideological mold, the drive to differentiate oneself from the herd leads to increasingly bizarre and extreme signalling. Novelty supplants ingenuity, provocation supplants integrity, and the next thing you know space travel is racist.

That, essentially, is the point of Andrew Russell’s piece at Aeon: Whitey on Mars.[ref]You thought I was exaggerating, didn’t you?[/ref] The motivating question can be summarized this way: why throw away money on science that’s of no benefit to anyone while we’ve got real problems to solve down here on Earth?

Like much that passes for serious conversation today, the question is sheer Bulverism. Russell isn’t sincere. He doesn’t want to talk about the relative trade offs of money spent on space exploration vs. money spent fighting poverty. Nope, that would be much too old-fashioned. In the 21st century, we never make the argument we say we’re making. We just assume conclusions and skip straight to psycho-analyzing, the better to virtue-signal. Here, I’ll let C. S. Lewis explain:

You must show that a man is wrong before you start explaining why he is wrong. The modern method is to assume without discussion that he is wrong and then distract his attention from this (the only real issue) by busily explaining how he became so silly.

In the course of the last fifteen years I have found this vice so common that I have had to invent a name for it. I call it “Bulverism”. Some day I am going to write the biography of its imaginary inventor, Ezekiel Bulver, whose destiny was determined at the age of five when he heard his mother say to his father — who had been maintaining that two sides of a triangle were together greater than a third — “Oh you say that because you are a man.” “At that moment”, E. Bulver assures us, “there flashed across my opening mind the great truth that refutation is no necessary part of argument. Assume that your opponent is wrong, and explain his error, and the world will be at your feet. Attempt to prove that he is wrong or (worse still) try to find out whether he is wrong or right, and the national dynamism of our age will thrust you to the wall.” That is how Bulver became one of the makers of the Twentieth Century.

I know Russell isn’t interested in an argument on the actual merits, but I’m going to pretend that he is. Why? Because I don’t really know of any other way to respond to Bulverism, for one thing. And because the subject is actually pretty interesting, for the second. So: why should we seriously consider spending a lot of money on space travel while things are so desperately out of whack down here on Earth? I present two arguments.

The first begins with a video game analogy. Most modern multiplayer games come int two flavors: PvE and PvP. The first stands for “Player vs Environment” and the second for “Player vs. Player.” In PvP game modes, the primary action comes from players trying to kill each other. Of course, cooperation is possible. In fact, cooperation is often essential in these games. This is an age-old truth of human biology: we cooperate in order to become better at competition. As the old proverb goes: “Me against my brother, me and my brother against my cousin, me and my cousin against the stranger.”

In the alternative PvE mode, combat between human players is impossible. Cooperation is still usually required, because the the environment becomes the enemy. Players have to work together to overcome computer-controlled bad guys (in the most common arrangement) or other constraints and challenges.

My contention is that the PvE and PvP paradigms are the only two major paradigms through which human beings can confront the universe. We define ourselves in contrast to something else. In the short run, at least, that much is inevitable. Waiting around for an age of enlightenment when conflict and oppositions disappear is–at best–a kind of foolish utopianism. If you want to deal with humanity as it exists today you have to accept that these are basically you’re only oppositions. It’s either us-vs-them (PvP) or us-vs-it (PvE) where “it” is the challenge, danger, risk, and opportunity of hazardous exploration.

I do not believe that a robust space program that captivated the popular imagination would in a single stroke obviate all the political tensions dividing Americans let alone the older and deeper ethnic and national hatreds separating so many people around the globe. But I do believe there is nothing wrong with moving a little bit along the spectrum away from PvP and towards PvE. More than that, I believe it would help–in a small but meaningful way–to give Americans and humans something to root for, some opposition entity that enabled an us without relying on an otherized them. I can think of no program more amenable to this goal than a program of exploration and really our only choices in this regard are space or the ocean. Since space is both more romantic (for most people) and less hazardous to our own ecosystem, the choice seems clear.

So let’s get to the second major reason that space exploration is a worthwhile investment: survival. The reality is that as long as the human race lives exclusively on Earth, we’re literally keeping all our eggs in one basket. This is a recipe for extinction. The most likely source of this extinction will be from asteroid impact. Small rocks routinely impact the Earth, most frequently burning up in orbit and doing no harm. Here’s a map of small asteroids (1-20 meters in diameter) hitting the Earth between 1993 and 2014.

Map of 556 impacts on the Earth from 1993-2014.
Map from NASA/Planetary Science. Click for more information. (Public Domain)

These little rocks are no threat, but they illustrate that asteroids hitting the Earth are not some kind of rare event. It’s very, very common. The question is just: when are we going to get hit with a really big one? By studying impact craters on the Moon, it’s possible to come up with some basic estimates, which Wikipedia summarizes:

Asteroids with a 1 km (0.62 mi) diameter strike Earth every 500,000 years on average. Large collisions – with 5 km (3 mi) objects – happen approximately once every twenty million years. The last known impact of an object of 10 km (6 mi) or more in diameter was at the Cretaceous–Paleogene extinction event 66 million years ago.

So, these are very rare events. But they are also–over a long enough period of time–inevitable. We’re a sitting duck, and one day another one of those really big space rocks is going to come hurtling our way. With no extra-terrestrial humans and no active defenses whatsoever, that would spell the end of human civilization and possibly the end of the human species. It probably won’t happen. Not in our lifetime, not in our nation’s lifetime, maybe not in our species’ lifetime. Then again, it might.

These are the two simplest reasons I believe we shouldn’t wait to turn Earth into an egalitarian utopia before we turn our eyes to the stars. There are a couple more that I will only skim over. One is that research into space exploration has already led to lots of benefits for life on Earth. Another is just the general problem with trying to solve the world’s problems in serial instead of parallel. This is a ludicrously bad model for tackling the problems we face for the simple reason that we couldn’t all coordinate on attacking just one problem at a time even if we wanted to, and even if we agreed on what problem that would be. It makes more sense for different people and institutions to work on the problems that they are–by temperament and opportunity–most able to address. In other words: we don’t have to pick either/or. It’s always going to be “yes, and…” Let’s embrace that.

Final thought: NASA’s budget has been slowly climbing towards $20billion for the last few year, but it’s relative share of the federal budget has fallen from about 1% in the early 19990s to 0.5% today. This is significantly down from the all-time high of 3-4% in the mid 1960s when the Space Race was at its height. Throwing a few more billion NASA’s way seems like a small investment in a critically endangered resource: social unity. Of course, the most striking thing about Russell’s article is that he’s attacking Elon Musk’s privately funded space exploration efforts. It’s very, very hard to understand how one man’s quest to bring a widely-shared human dream to reality and make the world a better, safe place for humanity could draw condemnation as racism, but these are the times we live in.

 

Service & Sobriety

by

British journalist Johann Hari said, “[T]he opposite of addiction is not sobriety. The opposite of addiction is connection.” According to some research, he may be right:

[T]here might be a secret weapon in the fight against addiction: helping people.

While other researchers look for ways to improve prescription drug regimens or talk therapies, Maria Pagano of Case Western University has focused her attention on the addict’s social connections. In studies spanning over a decade, she and her colleagues have shown that having a supportive network, reducing isolation, decreasing social anxiety, and—especially—helping others can increase the chances of staying sober by up to 50 percent. Her findings suggest that addiction should not be characterized solely as a failure of individual willpower, but must be viewed through the lens of positive social connection.

…In one 2012 study, Pagano and her colleagues found that having a network of people who support one’s abstinence can significantly impact an addict’s ability to stay sober up to three years later…But finding a positive social network when you’re an addict is not that easy to do, she says. Many addicts report having social anxiety—a feeling that one is onstage and not approved of by those around them. In fact, social anxiety often leads one to try drugs or alcohol in the first place, since people think intoxicants act as social lubricants. But using drugs for anxiety control can lead to dependence and can easily get out of control, ruining one’s health, relationships, and work life.

…In a recent study in which she tested this theory, she found that many of her participants—adolescents in treatment for addiction, ages 14-18—had a deep fear of being scrutinized in social situations, while 15 percent met the diagnostic criteria for a social anxiety disorder (or SAD). While her results showed that levels of participation in a 12-step program did not differ significantly between those with an SAD diagnosis and those without one, one thing did make a difference: The adolescents with SAD who actively participated in helping had a significantly reduced risk of relapse or incarceration in the six months after their treatment finished.

…In one 2013 study, she and her colleagues recruited 226 recovering alcoholics from nine outpatient treatment programs, and they followed these patients for 10 years while measuring alcohol consumption, AA participation levels, and self-rated thoughtfulness towards other people at different points in time. They also measured whether or not participants helped others by becoming a sponsor or by completing step 12 in AA.

By using statistical analyses, Pagano and colleagues showed that those who’d attended more AA meetings and engaged in helping stayed sober longer and reported higher interest in others up to 10 years later. Helping others had a unique effect on the outcome, suggesting that helping has a special role in recovery—and should receive more attention.

The article continues with even more studies demonstrating the importance of social connections and service in combating addiction. Well worth the read.