Isegoria

Gregory Clark discusses The Son Also Rises with Prospect:

One of the things that will make this book controversial is that it’s claiming that all the standard methods for measuring social mobility in fact miss the mark, and are likely to find differences in social mobility across societies and time periods that are in fact just spurious. People look at income correlations across generations and extrapolate from that. What this book says is that although there’s a lot of random fluctuation in terms of people’s income or occupation, there’s a much greater underlying persistence. And only by looking at things like surnames do you see that feature.

If you look at England, for example, what we measure is whether you were at Oxford or Cambridge; how long you live, which is another good indicator of social status; occupational status; are you a member of parliament? Now one of the interesting findings here is that it doesn’t really matter which measure you use. For the families we’re looking at, all these things are actually highly correlated. The wealthy at any time are also the educated, members of parliament, those who live long. What the book shows is that there’s an underlying physics of social mobility which all of our political efforts seem to have no effect upon. And the startling conclusion is that we may never be able to change social mobility rates.

No doubt people will read this as a gloomy book. But the title, The Son Also Rises, was deliberately chosen to emphasise that there are some very positive elements in it. One of the things it emphasises is that the current data, which finds rapid social mobility in Sweden and slower social mobility in Britain and the US, and slower mobility still in South America, seems to suggest that you have massive social failures going on in a bunch of societies. The book finds no evidence of these failures because it finds very similar social mobility rates everywhere. Another implication is that if even in meritocratic Sweden you get very slow mobility, then it must be based largely on people’s abilities, aptitudes and drive. All that we’re discovering here is that we’re living in a surprisingly fair world—one in which, at birth, we could predict a surprising amount about your prospects. Is that a gloomy fact about the world?

Then he goes off the deep end…

One of the strong conclusions of the book is that if it really is the case that more than half of people’s outcomes are predictable, then we really have to rethink the idea that it’s OK in a society to make the rewards or penalties from the accident of [who] your parents [are] as large as the market is going to throw up. I started off my life as a free-market economist. But studies such as these have these have convinced me that, in some sense, the Scandinavian or Nordic model has many attractions. If you’re going to be at the bottom of the social order, it’s better to be at the bottom in somewhere like Sweden than somewhere like the United States. That’s a decision that societies have to make. You don’t need to give that much incentive to the upper group in society to still get educated, to achieve and to maintain their status. The incentives are very low, in monetary terms, in countries like Denmark and Sweden. It doesn’t change who succeeds.

When you look at social status across centuries, Gregory Clark finds, social mobility is much slower than many of us believe, or want to believe:

This is true in Sweden, a social welfare state; England, where industrial capitalism was born; the United States, one of the most heterogeneous societies in history; and India, a fairly new democracy hobbled by the legacy of caste. Capitalism has not led to pervasive, rapid mobility. Nor have democratization, mass public education, the decline of nepotism, redistributive taxation, the emancipation of women, or even, as in China, socialist revolution.

To a striking extent, your overall life chances can be predicted not just from your parents’ status but also from your great-great-great-grandparents’. The recent study suggests that 10 percent of variation in income can be predicted based on your parents’ earnings. In contrast, my colleagues and I estimate that 50 to 60 percent of variation in overall status is determined by your lineage. The fortunes of high-status families inexorably fall, and those of low-status families rise, toward the average — what social scientists call “regression to the mean” — but the process can take 10 to 15 generations (300 to 450 years), much longer than most social scientists have estimated in the past.

Clark studied surnames, and his findings on US doctors are fascinating:

How cash would be described in the press if it were invented today:

Bizarre Shadowy Paper-Based Payment System Being Rolled Out Worldwide

New York, February 17, 2014

World governments announced a plan today to allow citizens to anonymously carry parts of their wealth on their person and exchange it with others using small pieces of colorful paper printed with nationalistic and Masonic imagery along with numbers that purportedly represent the amount of wealth each piece of paper represents (if the paper is not a counterfeit). These pieces of paper are formally a “note” from each nation’s central bank, but they are also called “cash” by many – this is a technical matter that is too complex to cover in our basic primer; Suffice it to say, that it is representative of the complexity and user-unfriendliness of this new system.

‘Bills’ – A complex construct

These pieces of papers (also known as “bills”, “dollar bills”, “George Washingtons” or “Dead Presidents” among the shadowy community of anti-banking libertarians who have been the primary users of cash to date) will differ from country to country and are not redeemable outside national borders.

In what will come as a surprise to generations who have grown up with calculators and computers, ‘bills’ only come in fixed denominations, requiring users to maintain a large number of these pieces of paper that must be aggregated to execute a transaction and then re-aggregated to ‘make change,’ a complex process of returning to the payee the excess of the payment using yet other bills. (Don’t worry if this sounds complex, we had trouble understanding it ourselves at first and it is certainly not ready for the average consumer in its current form.)

Mike Smith, VP of Employee Training at Sears has said: “I cannot imagine training tens of thousands of our employees to use cash, verify that it is genuine and learn to ‘make change’ without making errors. This is going to require a wholesale installation of special change-making hardware – the so-called ‘cash registers’ – and millions of dollars of employee training, while creating long lines and delays for consumers. Furthermore, we would need to adopt new security procedures and armed guards to avoid theft of the physical bills while in the store or during transport to our bank. We can’t see ourselves adopting cash under these conditions.”

Perfect for Criminals

The launch of cash has provoked an immediate reaction from law-enforcement agencies worldwide that universally condemned the development.

“Cash is a 100% anonymous and untraceable payments technology. It is like a weapon of mass destruction launched against law enforcement,” said Mike Smith, the recently confirmed FBI Director. “It is the perfect payment mechanism for criminals, drug cartels, terrorists, prostitution rings and money launderers. We don’t know how we will be able to combat such a technology and fully expect that a new generation of super-criminals will emerge, working in the shadows of a world where they can conduct their illicit affairs without leaving a trace.”

Banking Superintendent of New York State, Mike Smith had the following to say: “I can’t think of any reason that a law-abiding individual would want to use cash. At a bare minimum, we believe there should be a licensing procedure for individuals or businesses that plan to use cash, a ‘Cash-License’ as it were. This license will limit ‘cash’ to trust-worthy individuals who keep detailed auditable records of all their cash transactions in order to keep New York safe from criminals.”

Others have concerns about forgery and counterfeiting. “Ultimately, even with all the fancy inks, cash is just a piece of paper. We fully expect criminal groups and rogue nation states to print fake cash in order to profit or to disrupt the economies of their enemies,” said Mike Smith, an analyst at Stratfor. “In the interim, we are certain that cash will trade a discount in the real-world, given the risk to a counterparty of accepting a forged piece of paper; no doubt cash is a huge step back from the modern cryptography in place throughout our current financial system.”

No Consumer Protection

Though hard to imagine, cash operates with no consumer protection at all. If your ‘bills’ are stolen or lost, they are gone forever.

“I just don’t understand why there is nobody that I can call to reinstate my cash if I lose it,” says Mike Smith, a businessman from Toledo. “What type of idiotic wealth and payment system doesn’t maintain transaction and ownership records?”

Moreover, there appears to be no authentication mechanism associated with cash payments or transfers, let alone one that matches modern security standards. Once someone has gained physical control of your ‘bills’, they are free to spend or use them as they wish and there is no way to reverse the transaction, stop them or even identify who has stolen them.

Even simple destruction of the bill, which, as you recall, is just a piece of paper, could result in losses. According to the Director of the newly founded “Bureau of Engraving and Printing,” mutilated ‘bills’ that are more than 51% destroyed must be mailed in for a special investigation that will determine if they will be replaced or not.

Nations do not feel the same competitive pressures as corporations, Richard Posner notes, and so they aren’t managed as efficiently:

Even a small, miserable, effectively bankrupt nation like Greece does not disappear, as large corporations not infrequently do, because of its inefficiency. Because corporations are simpler and smaller and also more constrained by competition than nations, we can expect them to be managed more efficiently, and specifically to adopt an organizational structure that minimizes agency costs. So let’s glance at the structure of the typical large corporation and compare it to our federal government structure. There will be a board of directors to exercise a general but loose supervision over the corporation (and in turn subject to very loose control by the shareholders), intervening decisively only in crisis situations or where there is vacancy in the office of the Chief Executive Officer. The CEO will be the dominant figure in the corporation, exercising something close to dictatorial power, assisted by a small personal staff. Often he will overshadow the chairman of the board of directors—he may even double as chairman and CEO. There will be a Chief Operating Officer, exercising day to day management, while the CEO, as the public face of the corporation, will formulate policy, provide overall guidance, inspiration, and “vision,” appoint the major subordinate corporate officials (general counsel, chief information officer, chief financial officer, etc.), and maintain personal relations with important investors, customers, competitors, and regulatory officials. The corporation will have several or many operating divisions, reporting to the COO or CEO, each headed by a vice president or equivalent. The employees in each division will serve at the pleasure of their superiors; no one will have fixed tenure.

Compare the federal government. The closest to a board of directors is the Congress, but it differs mainly in having a good deal of policy responsibility, and, since it does not appoint and is not appointed by the President (corresponding to a corporate CEO), there is no presumption that its policy preferences will coincide with the President’s. The President’s exercise of his own policymaking powers will often work at cross-purposes with Congress’s exercise of its powers; nor can he appoint senior officials without the concurrence of a division of the Congress, namely the Senate. A further dilution of presidential power results form the existence of an independent federal judiciary, headed by the Supreme Court. Federal judges and Justices have lifetime tenure, can invalidate legislative and executive action both federal and state, and rarely (because of that tenure) will a President be able to appoint a majority of the Supreme Court Justices or other federal judges.

The President has a personal staff (officially the “Executive Office of the President”) that numbers more than 2000. The staff assists him in overseeing the large number of “divisions” (executive departments, such as State and Defense and free-standing agencies such as the Environmental Protection Agency) into which the federal government is divided. The heads of these divisions, however, do not have hiring or firing authority, as a practical matter, over most of the employees, who are tenured civil servants. The heads serve short terms, and often are appointed for political reasons unrelated to experience or competence. The brevity of their terms and frequent lack of relevant skills or knowledge create tense relations with the tenured bureaucrats. As a result, the President’s control over the more than 4 million federal employees (of whom about 40 percent are military) is as a practical matter quite limited.

A further division of government is brought about by federalism: the division of the nation into 50 states, each with quasi-sovereign powers. The federal government has considerable power over the states, but far less than a CEO or COO would have over the operating divisions of their corporation.

The structure of the federal government reflects the state of the nation in the eighteenth century. The population was roughly 1 percent of what it is today, there were only 13 states and as a result the Congress was small, and the federal government was tiny. It is doubtful that starting over in today’s circumstances a constitutional convention would create a similar system.

The most glaring deficiency is the limited authority of the President and the absence of an official corresponding to the Chief Operating Officer of a private corporation. From an efficiency standpoint the President should be able to promulgate laws (not just regulations), subject to override by supermajorities of Congress; appoint subordinate officials without the concurrence of the Senate; and create a position analogous to that of a COO; this would result in a structure analogous to that of France, which has both a President and a prime minister, the latter being in charge of day to day governmental operations (though France is not an example of a well-governed country). The President should also be authorized to control the finances of the states, alter their boundaries, appoint their principal officials, and veto their laws. And no civil servants should have tenure. The result of all these changes would be to conform American government to the “government” of a large private corporation.

Maybe the President would become the “outside” partner and his Chief Operating Officer the “inside” partner, the former dealing with relations with foreign countries (in the broadest sense, comprehending not only foreign relations in the conventional sense, but also immigration, trade, and military assistance and intervention), the latter with the formulation and implementation of domestic policies.

Of course these are not feasible reforms. Anything that strengthens the President weakens other sources of power, not only in the government itself (legislators, civil servants) but also in the private sector, which through campaign donations and other forms of political activity exert a powerful and self-interested influence on governmental action, resulting in enormous waste and perversity.

Darkness is the norm, Jim points out:

Copper production shows three peaks: The Roman Empire in the west, the Song Dynasty, and modernity.

The Roman Empire in the west and the Song Dynasty had about seven times the preceding and following level of copper production, thus while those civilizations were going concerns, they had far more production and wealth than the rest of the world put together.

When the Roman Empire in the West fell, its GDP dropped about a hundred fold.

So, looking at the past few thousand years, the norm has been relatively brief periods of civilization in relatively small parts of the world.

I would guess the problem is that the state lacks the cohesion and self discipline necessary to refrain from devouring civil society, and anarchy lacks the cohesion necessary to keep the roads safe and property rights secure. Technology can advance during anarchic periods, often quite rapidly, but the amount of wealth, as indicated by copper production, shipwrecks, and such, tends to be very low indeed during such periods. Despotic states, on the other hand, have higher wealth, probably because they can make the roads safe over a large area, but are apt to end technological progress, and often reverse it.