Their bloated administrations are the shock troops of the culture war

Monday, July 25th, 2022

There are two kinds of revolutionaries, Balaji Srinivasan argues, technological and political, and there are two kinds of backers, venture capitalists and philanthropists. There aren’t term sheets between philanthropists and political revolutionaries, with “exits” to the tune of billions of dollars, but impact certificates could fix that, Scott Alexander suggests.

Arnold Kling doesn’t want that “fixed”:

Profit-seeking investment is driven ultimately by what consumers want. Philanthropy is driven ultimately by what donors want. Unless you think that donors are morally superior to the rest of us, you should not be rooting for more philanthropy.

One can speculate that one of the causes of increased social tension is the rise in philanthropy. Our “cold civil war” is funded by George Soros, Peter Thiel, Tom Steyer, and the like. Universities are among the most popular “charitable causes,” and their bloated administrations are the shock troops of the culture war.

We are better off with Soros speculating on currencies and Thiel trying to take businesses from zero to one. We are better off when university alumni invest their money in search of profit.

[…]

A lot of philanthropy goes to colleges and universities. Much of this goes to fancy new buildings. I think that Scott would agree that this does not help poor people. But were the donors who funded buildings trying to help the poor but lacking skills at effective altruism? Obviously not.

The challenge is not to make philanthropists more efficient at getting performing-arts centers and sports complexes built on campus. The challenge is to change the focus of donors toward something more worthwhile.

On the other hand, over the years Wal-Mart has hired many low-skilled workers and lowered the cost of living in many poor rural areas. Wal-Mart did not set out to help poor people, but that was the result.

More generally, markets have been shown over time and across countries to reduce poverty. The market does not produce the results of a benevolent omniscient quasi-deity. But donors themselves are neither benevolent, omniscient, nor quasi-deities.

I think that there is too much money to be made nowadays in non-profits dedicated to causes. Think of people making money as “activists.” I worry that “impact markets” could lead to even greater investment in arms races between opposing advocacy groups.

Libertarianism in the United States is an awkward alliance

Sunday, July 24th, 2022

Virginia Postrel notes that libertarianism in the United States is an awkward alliance between nasty “leave me alone” types and nice “don’t dictate to others” types, Arnold Kling reports:

She invoked David Hackett-Fischer’s classic Albion’s Seed. That might be a good book to discuss at some point. The nasties are the descendants of the Scotch-Irish “borderers.” The nice are the descendants of the Quaker migration. The former are Trump supporters. The latter are more likely to be #neverTrumpers.

There were standards of politeness that people followed

Saturday, July 23rd, 2022

One factor driving Wokeness, Virginia Postrel notes, is a desire on the part of young people to be polite, and Arnold Kling doesn’t quite agree:

Calling people by their preferred pronouns and avoiding micro-aggressions can be seen as an attempt to be polite. Of course, by my standards these forms of politeness are not admirable, and the activists on Twitter are anything but polite.

Some more of my thoughts:

If you go back to the 1950s, there were standards of politeness that people followed. You were not supposed to use four-letter words. Men went to baseball games in white dress shirts. Nobody went to the theater or went on a plane trip in blue jeans.

We boomers treated these norms of politeness as at best unnecessary and at worst hypocritical. We threw out the whole concept.

But maybe there is a human longing for standards of politeness.

I’m reminded of Neal Stephenson’s defense of the (Neo-)Victorians against accusations of hypocrisy in The Diamond Age:

“We take a somewhat different view of hypocrisy,“ Finkle-McGraw continued. “In the late-twentieth-century Weltanschauung, a hypocrite was someone who espoused high moral views as part of a planned campaign of deception — he never held these beliefs sincerely and routinely violated them in privacy. Of course, most hypocrites are not like that. Most of the time it’s a spirit-is-willing, flesh-is-weak sort of thing.”

Zoom and Amazon fed on the carcasses of mom-and-pop businesses

Monday, April 11th, 2022

When COVID hit, the stock market took a deep dive, but it subsequently recovered:

Why did it recover? Because we used the Internet as a substitute for activities that were curtailed by COVID. And the Internet services we used were provided by corporations with shares traded on Wall Street. The economy shifted in the direction of bits, and this redistributed profits toward shareholder-owned companies. Zoom and Amazon fed on the carcasses of mom-and-pop businesses, so to speak. So even though overall wealth declined, the share of wealth accounted for by large corporations increased, and this buoyed stock prices.

As with COVID, the Russia-Ukraine war and the responses to that war are disrupting the economy. As I write this, though, the stock market seems to be relatively unconcerned. It is as if speculators are saying, “Corporate America thrived on the virus. It can thrive on the war, too.”

But the economic adaptation to the virus was to substitute bits for other means of getting goods and services. You used Amazon to get stuff delivered to you instead of going to the store to get it. You used Zoom to meet with work colleagues or out-of-town friends and relatives instead of going to the office or engaging in travel.

Instead, Zeihan predicts that the war will result in a scarcity of food. It’s not easy to see how we substitute bits for food. I cannot point to a corporation that is positioned to profit from mass starvation the way that Zoom or Amazon were positioned to profit from social distancing.

Is financial innovation a good thing?

Wednesday, April 6th, 2022

Is financial innovation a good thing?

In the context of a free market, innovation is a positive-sum game. The innovations that survive — most don’t — are the ones that conserve resources and improve quality. In the case of financial innovation, improving quality could mean better risk management.

But financial innovation does not take place in the context of a free market. Our financial system is permeated with government guarantees. Some guarantees, like deposit insurance or pension guarantees, are explicit. Other guarantees, like “too big to fail,” are implicit.

These guarantees can be exploited by firms that take on excessive risk. If a gamble pays off, the gains go to owners and managers of the firm. If the gamble turns out badly, some of the losses go to taxpayers. Even though managers might not consciously be searching for ways to game the system, the competition for returns will push them in the direction of doing so.

Innovative financial instruments and practices can facilitate gaming the system, without regulators realizing it. Clever innovations can enable a bank to comply with the letter of a regulation while violating its spirit. Sometimes, even the executives of the bank are fooled. They do not realize that their profits are coming from this “regulatory arbitrage,” rather than from real business skill.

This insurance was supposed to pay off in case those bonds lost value

Tuesday, March 22nd, 2022

Many money managers who had bought Russian bonds in the past had purchased credit insurance from other companies:

This insurance was supposed to pay off in case those bonds lost value, which they clearly have as a result of sanctions.

Under terms of some of these contracts, some money managers have been able to collect insurance claims. But other insurance contracts stated that in order to be paid, the money manager had to transfer the bonds to the insurer. But the sanctions will not allow the bonds to be transferred! Once again, innovative financial instruments proved to be fragile in ways that were not anticipated.

People perceive government bonds as wealth

Tuesday, March 15th, 2022

Arnold Kling thinks that people perceive government bonds as if they were wealth:

The government borrows $1 from me and spends it on you. You have a new dollar. And I think I still have a dollar, because the government owes me a dollar. Neither of us thinks that we will have our taxes raised next year, when the government has to pay me the dollar.

[…]

I assume that people are myopic and just look around and say “I got paid $x by the government” or “I lent $y to the government and got a $y bond in return” without thinking about what comes next.

The traditional yeomanry is losing out

Tuesday, January 18th, 2022

The working class may have suffered the most in the past decades, but the angriest class in America may be the small business and property-owning class, Joel Kotkin says:

National chains and online services are replacing many traditional Main Street businesses — the insurance and travel agencies, the local banks, the High Street retailers and restauranteurs. To make matters worse, local smallholders increasingly find themselves dependent on what analyst Mike Lind calls “toll booth” companies like Facebook, Google, and Amazon, tech megaliths which are able to coerce small businesses to give up their data. Amidst the supply chain crisis, firms like Amazon and the big box stores use their bargaining power to minimize delays in deliveries in ways not available to smaller businesses.

The traditional yeomanry — like the “kulaks” or wealthy peasants in Stalin’s day — is losing out. As executive compensation reached the stratosphere at the big tech and finance firms, small businesses faced what Harvard Business Review described as “an existential threat.” Experts are warning that one-third of small businesses, which comprise the majority of U.S. companies and employ nearly 50 percent of all workers, could ultimately shut down for good.

Perhaps, Arnold Kling suggests, we are now living in the New Servants economy:

Tyler Cowen has a series called “those new service-sector jobs.” My favorites include Coffin Whisperer and Wedding Hashtag Composer. The demand for such services can only come from people with excess wealth, and the supply comes from people who realize that their best source of income is to cater to those with excess wealth. This is very different from the age of mass consumption, when Henry Ford tried to manufacture cars that his workers could afford.

Actually, I think that the biggest engine of the trickle-down economy is the nonprofit sector. I don’t have data on this, but I suspect that if you ask the next 10 young professionals you meet where they work, at least 3 of them will reply that they work for nonprofits.

[...]

I would much rather see billionaires invest in businesses in minority communities than fund nonprofits that donate to BLM.

Voters tend not to be impressed by either strategy

Sunday, November 14th, 2021

Rather than outline one or two serious national problems that they proposed to take on, the Democrats projected an amount of money to spend, Yuval Levin says, and then stuffed everything that every Democratic interest group desired into one package until they reached that number:

They never gave the public any sense of what mattered to them. And the internal debates about the scope and contents of the package almost all involved arguments about its overall size — about how much to spend and tax rather than what to do or how to do it.

This is just one example of a broader failure to prioritize that is endemic to our politics now. Neither party can quite explain what it wants, except to keep the other party from power. That problem is vastly overdetermined, but three reasons for it do stand out among the rest.

[...]

Throughout his career, Joe Biden has tried to position himself near the center of the Democratic coalition and be a kind of generic Democrat. This is not a bad strategy for a senator with a safe seat, and it obviously worked for him. But it’s not as good a strategy for a president with an internally divided party. A president’s strength as an executive can often be measured by whether his mid-level political appointees know what he would do in their place — whether an assistant secretary in one department or another can say “If the president had my job, I know how he would make the decision I’m now facing.” This was obviously impossible on most issues in the Trump era, since President Trump’s implacable ignorance, pathological amorality, and blinding narcissism made him reactive and unpredictable. This was part of why he was such a weak president and achieved so little that will endure. But it is also practically impossible in the Biden era, because President Biden has generally refused to identify himself with any side of any dispute within the Democratic coalition. Given his history, he would seem to represent the more moderate wing of the party, but that’s not really evident in anything his administration has done, or any role he has played in any legislative process. It’s hard to say what he wants, so he isn’t helping his party tell the public what it wants either.

[...]

The habits of polarization, which have evolved over the past generation in Washington, involve party leaders in Congress asserting themselves rather than party factions negotiating. This helps the parties confront one another more starkly, but it doesn’t help the parties negotiate internal differences. Leaders in this polarized era want to mask and submerge internal divisions, rather than to work them out, and that makes bargaining within each party pretty difficult, as both parties have learned when they have held power. The Democrats tend to respond to this problem by proposing to do everything at once — stuffing every idea they’ve ever had into one big bill. Republicans tend to respond to the same problem by proposing to do nothing — just simply nothing whatsoever. That is basically what Republicans ran on in 2020, for instance. Voters tend not to be impressed by either strategy. And this problem will only become more serious as the internal differences within the parties grow.

[...]

Both parties are changing as the American elite is changing, and a lot of their internal fractures look like tensions between their past and their future. The Democrats are gradually taking the shape of something like a fun-house mirror version of the Eisenhower coalition — upscale whites plus many black voters. (Obviously the black vote was much more divided at mid-century than now, and it was also much more suppressed by Southern racism, but those were key elements of the self-understanding of Eisenhower’s coalition.) Republicans are gradually taking the shape of a fun-house mirror version of the FDR coalition — blue-collar whites and some blue-collar ethnic minorities who will eventually be considered white. (The latter described some ethnic European Catholic minorities for FDR, it describes some Hispanic voters for today’s GOP). Both analogies are lacking, to be sure, but they suggest something about the general course of things.

[...]

The key economic-policy battleground of the immediate future is likely to be the challenge of rising living costs, and if the BBB legislation is any sign, Democrats are not well equipped to fight on that front. They remain committed to addressing high costs through a combination of subsidizing demand and restricting supply. This is essentially the left’s approach to health care, higher education, housing, and now (in this new bill) child-care. Increased demand and reduced supply is, broadly speaking, a recipe for higher prices and therefore higher costs. If the new swing voters are suburban parents, a program that risks drastic increases in child-care costs is a way to lose the future.

Arnold Kling is tempted to write “subsidize demand and restrict supply™,” since he introduced the phrase in Specialization and Trade.

We need to adjust to the technology that puts our intimate world and our remote world on the same screen

Tuesday, October 19th, 2021

Before the Internet and smart phones, there was a clear difference between what Arnold Kling calls the intimate world and the remote world:

The intimate world included the people with whom you interacted regularly — family, friends, neighbors, co-workers, the bowling team. The remote world was the world of celebrities, sports stars, politicians, criminals (am I repeating myself?). You followed them on television and in magazines.

On our smart phone, these two realms are indistinguishable. Your friends show up like celebrities, as they show off on social media. Swipe or scroll down, and now someone in the remote world is sharing a tweet with you.

Somehow, we need to adjust to the technology that puts our intimate world and our remote world on the same screen. Either we have to develop the instinct to keep these worlds separate from one another or else we have to adopt a set of cultural norms that allows us to live comfortably in a world in which the intimate world and the remote world are blended.

If the process is meritocratic, it is a good idea to trust the people at the top

Monday, September 6th, 2021

Humans are social learners, Arnold Kling reminds us:

We have to trust other people in order to gain knowledge and to make decisions. Our social epistemology will not get better by simply showing less deference to people who have a reputation for expertise.

I believe that the fundamental issue in social epistemology is the process by which people climb the status hierarchy. If the process is meritocratic, as in a chess tournament, it is a good idea to trust the people at the top. If the process is corrupted, by rules that are unfair or easily gamed. then the high-status people are not so worthy of our trust. But the solution to corruption is to improve the process, not (just) to belittle high-status people.

[…]

How do I determine that you are knowledgeable in a field? If I knew enough to independently verify your knowledge, then I would not need your expertise. Since I cannot personally evaluate your knowledge, I rely on a signal. The fundamental social challenge is to make sure that these signals are accurate.

Incumbents with high status in a field usually participate in setting up and operating the signaling system in their field. To at least some degree, this is desirable. You want doctors involved in the system that decides the qualification for who becomes a doctor.

But you also need a system that is open to innovation and capable of discarding conventional views that turn out to be wrong. If there is insufficient competition, an entire field can decay. I saw this happen in macroeconomics in the 1980s, as Stanley Fischer all but monopolized the placement at prestige universities of young macroeconomic specialists. Students who did not want to conform to Fischer’s approach ended up avoiding macroeconomics and/or accepting low-status placements. The result, in my opinion, was the atrophy of macroeconomics.

Affirmative action in higher education is supposed to be a free lunch

Wednesday, March 24th, 2021

Arnold Kling discusses the academic corruption from affirmative action:

Taking the pool of high school graduates as given, it is very hard to give African-Americans the comfort of being fully qualified for admission to a selective college as part of a large cohort of qualified African-American students. They can either be part of a small cohort or part of a large cohort that includes less-qualified students.

[...]

But my view is that college is not the place to try to fix racial inequalities. The attempt to fix these inequalities has to take place much earlier in young people’s lives, so that more black students graduate high school with strong educational backgrounds.

Affirmative action in higher education is supposed to be a free lunch. You can reduce social inequality and improve race relations without corrupting our standards. My guess is that you corrupt your standards without reducing social inequality, and you make race relations worse. If I am correct, then the unintended consequences of affirmative action have been severely adverse.

College no longer helps men to make the transition to adulthood

Monday, March 22nd, 2021

One source of academic corruption, Arnold Kling notes, is our emasculated culture, which Joyce F. Benenson and Henry Markovits discuss in Warriors and Worriers: The Survival of the Sexes:

She and Roy Baumeister are the rare social scientists who see that (a) men and women differ on average in their behavioral tendencies and (b) male tendencies are not all bad.

Her book is grounded in observations of young boys and girls. My memories of my boyhood align perfectly with her picture of boys, and with the song lyrics above. We played team sports without supervision, put a lot of effort into setting rules, and competed to demonstrate skill. When we weren’t playing sports, we imagined ourselves fighting the “bad guys,” either in the Old West or in World War II.

One of her ideas is that men have a social strategy that works well in war: organize unrelated males, fight other groups overtly according to rules, then reconcile after battle. Women have a social strategy that works well for protecting their individual health and the health of their children: emphasize safety, covertly undermine the status of unrelated females, and exclude rivals rather than reconcile with them.

This leads me to speculate on the consequences of adding a lot of women to formerly male domains. Over the past several decades, a number of important institutions that were formerly almost exclusively male now include many women: academia, journalism, politics, and management positions in organizations. These institutions increasingly are discarding the values that sustained them when the female presence was less.

1. The older culture saw differential rewards as just when based on performance. The newer culture sees differential rewards as unjust.

2. The older culture sought people who demonstrate the most competence. The newer culture seeks to nurture those who are at a disadvantage.

3. The older culture admires those who seek to stand out. The newer culture disdains such people.

4. The older culture uses proportional punishment that is predictable based on known rules. The newer culture suddenly turns against a target and permanently banishes the alleged violator, based on the latest moral fashions.

5. The older culture valued open debate. The newer culture seeks to curtail speech it regards as dangerous.

6. The older culture saw liberty as essential to a good society. The newer culture sees conformity as essential to a good society.

7. The older culture was oriented toward achievement. The newer culture is oriented toward safety. Hence, we cannot complete major construction projects, like bridges, as efficiently as we used to.

[...]

College no longer helps men to make the transition to adulthood. It keeps them sheltered and controlled, and after graduation they end up living with their parents.

Teaching is emotionally rewarding only if your students want to learn

Saturday, March 20th, 2021

Government money has played a role in the decline of quality in academia, Arnold Kling argues:

Programs like the GI bill and student loan programs have swelled the ranks of college students. Programs like the National Science Foundation and the National Endowment for the Humanities have dumped huge amounts of money into higher education. The net effect has been harmful.

The conventional wisdom, which comes from college professors, is the exact opposite. They argue that we should be putting more young people through higher education than we do. That funding for research produces great positive externalities and we should do more of it. The same with funding for the humanities.

Average returns to higher education have gone up. But some of this has been due to government-engineered regulations that require firms to be bureaucratized for compliance purposes. Both the regulators and the corporate bureaucrats have college degrees.

More important, at the margin, we are sending people to college who do not belong there. This is demonstrated by low graduation rates as well as a significant number of graduates working at jobs that do not use anything they learned in college. Credentialism is out of control. Somebody could learn to be a physical therapist as an apprentice, but instead many states require a Ph.D for new PT’s.

The expansion of higher education increased the demand for professors. In the 1960s and 1970s, graduate schools cranked up the volume of post-graduate degrees. The results were excessive, in two senses. A lot of mediocre intellects acquired advanced degrees. And a lot of people with advanced degrees could not obtain full-time academic positions.

Expansion also lowered the quality of classrooms at all but the very top colleges. Teaching is emotionally rewarding only if your students want to learn. But most of the students that we send to college these days are not highly motivated learners. Below the top tier in higher education (the best 150 colleges, plus or minus), a typical class has poorly motivated students in a class taught by disappointed professors.

If W. Bentley MacLeod and Miguel Urquiola are correct that the U.S. already had the leading research universities before World War II, then the postwar government programs were not necessarily responsible for the growth of research. Instead, it is plausible that government money bureaucratized and homogenized research. Of course, now that government provides so much of the funding for research, professors are loathe to bite the hand that feeds them.

We should avoid the nirvana fallacy

Monday, January 11th, 2021

We are nowhere close to utopia, Arnold Kling reminds us, and we cannot see how to get there:

A major reason for this is lack of knowledge. We know today much more than we knew one hundred years ago. It seems reasonable to expect that in another hundred years, today’s level of knowledge will seem low. If we look at all of the past beliefs that today seem wrong-headed, we should be hesitant to commit to what we believe now.

[...]

1. We should be humble about predicting the consequences of public policies. In an economics textbook, a single “market imperfection” is shown in isolation, with the implicit assumption that everything else is perfect. Under those assumptions, the right tax, subsidy, or regulation can reliably produce improvement.

Most economists are familiar with the “theory of the second best,” which points out that trying to fix one problem, when there are other problems or constraints, can make things worse. This is a useful concept, but it only scratches the surface of strong imperfection.

2. We should welcome trial-and-error learning. The economic and social progress we have made is largely due to trial and error, not central planning. Because of strong imperfection, we know that many flaws and problems still exist. It is likely that solutions will come from trial and error going forward, just as in the past.

3. We should try to limit the number of personal flaws that we see as inexcusable. Both as a society and as individuals we should try to extend tolerance and forgiveness. Given our current state, I do not think we can do away with prisons, but I think we should be aiming in the direction of limiting their use. I also think that we should be reducing the number of “firing offenses” in the work place, not adding to them. As individuals, we should aim to reduce the set of excuses for cutting people off as friends.

4. We should avoid the “nirvana fallacy,” which involves comparing the current state to a perfect state. The most realistic change is likely to be from an imperfect current state to another imperfect state.

5. We should resist becoming Manichean. The motives of opponents are usually not as bad as we are inclined to make them out to be.