The Trap

The proponents of economic ideologies are seldom embarrassed when their ideas are put into practice and fail. Instead of reconsidering their ideas, they insist that the theory is correct but has yet to be put in practice with sufficient purity. For most of the history of the old Soviet Union, for example, the party reacted to the shortcomings of a demand economy by making the demands for efficiency and production more strident and backing them up with threats and violence. Fortunately, the story of the Conservative ascendancy has been less dramatic. For forty plus years now we’ve been following a neo-liberal program of decreased taxes (especially on the wealthy), privatization, free trade, government hostility to organized labor, and the weakening of the social safety net. None of these measures has restored us to the robust growth we enjoyed before 1970. Median wages have performed very poorly, and finance has become an unhealthily large proportion of our economy. Deregulation may not have caused the disaster of 2008, but it surely exacerbated it. The response to these disappointments has been to suggest that all will be well if we only reduce the government’s role in the economy still further, stop worrying about economic inequality, and finish off the unions.

There’s a political version of this sort of thing. Conservatives have been afraid of democracy for hundreds of years and spend a great of effort figuring out how to neutralize it. From John Adams to Fareed Zakaria, the same story is retailed. The mob will overturn the proper order of things if the great unwashed get power for unscrupulous demagogues will rouse them against their betters, thus resulting in legalized looting, economic collapse, and the wrong kind of dictators, i.e. Chavez rather than Pinochet. Thing is, though, over and beyond the recent evidence that oligarchs and their technical advisers aren’t very good at economics themselves, the Burkean vision of politics is self defeating in another way. If you design your political system as a series of bulwarks against the interests of the many to the point that ordinary politics is unavailing for them, you guarantee the emergence of unordinary politics. When Venezuela was securely in the control of the plutocrats, much of the population regarded elections with indifference since things had been arranged so that no outcome would alter the balance between haves and have nots. That’s how we got hurricane Hugo.

You’ve got a lot of nerve to complain about the menace of mob, when you’ve been working for so many years to create the mob. And if elections are set up to be heads I win, tails you lose, it will be small wonder if people stop believing in elections and begin to consider other means of making their point.

What’s Heard

St. Francis preached to the animals, but it is not recorded whether they understood much of what he was talking about. The other day I walked past a group of teenagers who were talking about Keynesian economics. They were agreeing with one another that he had a point with his “in the long run we’re all dead” business. “After all,” one explained, “If you keep passing your debts from one bank to another until after you’re gone, you’ll never have to pay anything! That’s pretty smart.”

 

The Extent to which it is Possible to Tell Death to Fuck Off

Sonnet 18

Shall I compare thee to a summer's day?
Thou art more lovely and more temperate:
Rough winds do shake the darling buds of May,
And summer's lease hath all too short a date:
Sometime too hot the eye of heaven shines,
And often is his gold complexion dimmed,
And every fair from fair sometime declines,
By chance, or nature's changing course untrimmed:
But thy eternal summer shall not fade,
Nor lose possession of that fair thou ow'st,
Nor shall death brag thou wander'st in his shade,
When in eternal lines to time thou grow'st,
   So long as men can breathe, or eyes can see,
   So long lives this, and this gives life to thee.

Noisy Channel Coding Theorem (Don Johnson’s version of Claude Shannon’s Theorem)

           

Let E denote the efficiency of an error-correcting code: the ratio of the number of data bits

to the total number of bits used to represent them. If the efficiency is less than the capacity of the digital channel, an error-correcting code exists that has the property that as the length of the code increases, the probability of an error occurring in the decoded block approaches zero.

          

    

for Val

The Good News

On the evidence, political anger and cultural pessimism are pleasurable. Presumably that’s why rage and gloom appeal to us even when the situation isn’t objectively unpromising at all. The hand wringing about the national debt is a case in point. The large deficits of the last four years were largely a consequence of the Great Recession and are diminishing now even though the economic recovery has been extremely slow. We aren’t going broke, and interest rates remain remarkably low. This simply isn’t Greece or Zimbabwe and isn’t going to become Greece or Zimbabwe. The debt is not a present catastrophe, and the political groups that are making the most noise about it are using it to promote quite different goals than fiscal propriety. None of this slows the manufacture of panic, however, even on the part of people who ought to know better. If they recognize that the Republicans are acting cynically, they insist that there is a real long-term problem on the far side of the largely invented immediate crisis. They figure that if better economic times will improve the deficit situation, the implacable rise of the cost of entitlements, essentially medical entitlements, will nevertheless eventually overwhelm us.  To which I answer. No, they won’t; or, at least, no, they shouldn’t.

In cartoons, the hapless coyote just stands there motionless as the Acme safe hurtles towards him from the cliff above. In real life, you figure, he’d just move to the side a little way as the shadow of the safe got bigger and bigger. Thus it is perfectly true that if you simply extrapolate the increase in the cost of medical care, it appears we’ll be squashed in a couple of decades. Thing is though, although I seem to be the only guy who has noticed this, there is simply no reason why the costs should increase. I can understand a Frenchman or an Englishman or a Japanese succumbing to despair about medical inflation, but we should not. And the reason we should not is because we aren’t Frenchmen, Englishmen, or Japanese, who already have a reasonably efficient health care system. The good news is that we’ve got a dreadfully inefficient medical system that costs almost twice as much per capita as the systems in other countries. We spend $8,000 per person to get results comparable to countries that at worse spend $4,000 per person. Even in our own hemisphere, Canada spends 11.3% of its GPD on health care. We spend 17.9%.  If we reform our health care system to roughly match the performance of everybody else’s system, our medical cost disaster goes away. And if medical costs don’t blow up, neither will the budget.  Let me rephrase this dreadful good news in its own paragraph:

We know we can reduce the amount of wealth we spend on health care drastically because almost every other country shows that we can.  And if we don’t have a health care cost problem, we don’t have a long-term budget problem.

I call this good news dreadful, not only because it will be disappointing to those who get off on despair, but because it doesn’t actually ensure that we won’t have a disaster. It simply means that we won’t have a disaster unless we act with truly epic stupidity. If the safe lands on us, it will be our fault. Unfortunately, it’s perfectly possible that we will not rationalize our health care system. In lieu of doing something sensible like moving to a single payer insurance scheme or some equivalent approach, we may even dismantle the minor efficiency improvements that go along with the ACA. In that case, even if we avoid a fiscal disaster by privatizing everything in sight, we still will have an economic disaster as more and more of everybody’s income is pissed away on health care that costs twice as much as it should and American economic competitiveness is decisively crippled. 

What we should really do is not merely match the efficiency of the health care systems of other nations, but develop a system that is more efficient than theirs and sell it to them at a profit.  Unfortunately, such a program of economic nationalism would violate the free market principles of conservative politicians and injure the material interests of their supporters.  

Breaching the Pomerium

The Pomerium was the sacred boundary of ancient Rome. Some of the inscribed stones that marked if off are still in place around the city. Inside the Pomerium, weapons were not allowed; and, except on the very day of their triumphs, even generals could only cross it in civilian dress. I was reminded of this bit of lore when the children were murdered in Connecticut and the NRA called for arming the kindergarten teachers. 

I guess we have different ideas of what ought to be sacred.

Perhaps its peculiar to allude to a Roman institution when insisting that our country or at least some part of our country should be a zone of peace. The Romans were remarkably brutal people, for whom conquest and domination were the essence of foreign policy and staged homicides the national pastime. Still, the ancients understood something important about civilization, perhaps because they were so familiar with its absence. Justice and peace are not natural at all; they are artifacts of human effort.

Where the will to maintain the Pomerium falters, the result is a reversion to the regime of strong men facing each other down: Goths and Vandals, Dodge City, Crips and Bloods. (One of capital ironies of the day is that the gang-related murder epidemic in contemporary Chicago reflects the honor-based ethic that black emigrants absorbed from the white culture of the old South.) The essence of modern reaction is a resentment of central power and a hankering for the manly world of face-to-face local authority where private revenge takes the place of law and order and any more comprehensive justice is God’s business. If the American right triumphs, in fact, a future historian will be able to reuse Gibbon’s summary of his Decline and Fall of the Roman Empire: “I have described the triumph of barbarism and religion.”

They Don’t Owe Us, We Owe Them

Whatever their actual motives, when Ronald Reagan and Tip O’Neil made their celebrated deal to save Social Security, what they actually set in motion was a slow motion raid on the nation’s pension system. The increase in the payroll tax did not pay for current benefits; instead, it kept the Federal budget afloat during an era of lower and lower tax rates on the higher brackets. The net effect was a transfer of wealth and income from bottom to top. The deal didn’t even safeguard the long term health of the system because those who have always despised it have never counted the Federal bonds the system have accumulated during the long period of surplus as a legitimate investment.  Now that we face the prospect that some of the accrued savings may actually have to be paid back at some point, we’re hearing anguished screams. Hence the calls for raising the retirement age and lowering benefits by fudging the inflation adjustment.

What’s going on is not so different from what often happens in the private sector when CEOs and CFOs figure out ways of getting their hands on pension funds and using them to finance enormous executive pay packages just before their companies go bankrupt. Or what is happening in many state and local government systems where pension benefits that were negotiated in lieu of pay hikes never get paid out, presumably because a deal's a deal doesn’t count when the deal’s with a labor union. The sanctity of contracts only applies between parties of comparable power: otherwise, a contract is just another treaty with the Indians.

The peculiar thing about the current proposals to weaken Social Security is that they don’t make economic sense, at least if, perhaps quaintly, you think that the point of economic policy is not merely to increase inequality.  Lowering the incomes of retirees is bad for the economy in a period of inadequate demand; and raising the retirement age has the effect of increasing the pool of unemployed people at just the wrong time, with the predictable effect of lowering wages—when Social Security was first proposed, one of the arguments in its favor was that it would take many people out of the labor pool. Far from representing an unsustainable fiscal indulgence, the current system is already stingy beyond reason. Wonky debates about the best way to make it even stingier simply reinforce the false premises upon which our politics are currently constructed.

Default and Defeat

You can and, indeed, must compromise with people who disagree with you about the best way to accomplish shared goals. The problem with accommodation comes when core principles are at issue. The current depressing debate about changing the way that inflation is accounted for in Social Security is a case in point. The argument here isn't about ways and means. Technocratic debates about econometrics are beside the point, though they wouldn’t be in a less polarized political situation. The plain fact is that Republicans want to destroy Social Security, and switching to chained CPI is simply an incremental step in that direction. A legitimate compromise would be between measures that make Social Security more generous and others that tend in the opposite direction. As it is, the only options on the table are more or less drastic ways to weaken the system and make it less popular. Under these circumstances, compromise is inevitably defeat.

Policy wonks often make the mistake of evaluating particular measures as if they existed in isolation and weren't part of a larger struggle. In the long run, what matters are values. So far the Republicans have been successful in framing the Social Security and Medicare debate as if these programs were embarrassing legacies from a bygone era instead of concrete embodiments of a national will to ensure a decent life for everybody who plays by the rules. The sad fact is that a great many establishment Democrats actually share the Republican view of things or have decided, as perhaps Obama has, that the majority of the Americans can't really have rights because they don't really have power.  Since the government hasn’t been of the people or by the people for quite a while now, it’s a little unrealistic to expect it to be for the people.

A Stretch?

According to Suetonius, the emperor Caligula wished that the Roman people had only one neck. I’m less demanding than “Little Boots.” Reading the latest news about how the Feds were fining UBS $1.5 billion for rate fixing, I found myself wishing that the corporations who crashed the economy had at least one neck. The regulators probably give each other high fives over the giant fines they impose, but the actual perpetrators escape responsibility when the fictional person of the corporation and the stock holders get flogged.  

The Occupy Wall Street folks bitch about corporatism, but it seems to me that this diagnosis is wrong. It isn’t the legal person of the corporation that commits the crimes; but the group of individuals who control corporations, usually the CEOs and their henchmen. The limited liability that the official owners of corporations enjoy is not the fundamental problem—the greatest malefactors don’t necessarily have much of a stake in the companies they rip off in the course of ripping us off.  Plutocracy and its abuses are not about fictional persons but about real persons with real necks.  The limited liability that keeps these necks safe is not a legal loophole, but the political and cultural power of wealth concentrated in a few absurdly rich families.