Isegoria

Despite recent disasters we are still trapped in the economists’ world:

But the moment you pull back and look at that world from a wider perspective strange things start to emerge.

When the neoliberal project first began in 1979 with Mrs Thatcher the idea was that politicians would give away power to the markets and the state would shrink. Over the past 15 years the idea of the “market” has been extended to practically every area of society — education, health, even the arts. But to make this happen those running the neoliberal project had to enforce it by creating vast and intricate performance indicators and feedback systems (which in many cases led to wide scale absurdities). And to do this they used the mighty power of the state.

The crucial thing is that these systems had practically nothing to do with the original idea of the “market”. They are actually a strange pseudo-scientific piece of planning engineered by politicians and groups of technocrats that borrowed far more from cold-war ideas of feedback engineering and cybernetics than from the risky roller coaster of the market. And to create the systems they had to greatly enlarge the state and the extent of its power, which is the very opposite of the vision of a free-market utopia.

And when you examine the roots of the neoliberal idea of the market it gets odder still. The ideas that rose up in the post-war years that captured the imagination of people like Mrs Thatcher are actually a very strange mutation of capitalism. If you listen to interviews with Friedrich Hayek he talks far more like a cold war systems engineer discussing information signals and feedback than Adam Smith with his theories of Moral Sentiment.

While the roots of the technical systems that the banks created to manage risk also lie back in the cybernetic dreams of the 1950s and 60s. Dreams not of progress through the dynamism of markets — but of using computers to create a balanced, almost frozen world. — just like in the Cold War.

Which raises the question — have we misunderstood what we have lived through since 1979?

We think it was the resurgence of capitalism. But maybe it was something very different? Something that we can’t see properly because we are still trapped in the economists’ world and their mindset.

Gregory Clark explains his research on economic mobility:

What gave you the idea to look at surname data?

Initially I was interested just in extending conventional social mobility estimates into the distant past. Estimating social mobility is very data intensive. You need to link individual parents and children. There are thus no such estimates for any society before 1850.

Tracking surname status was a convenient shortcut. In most societies, all the people with a surname such as Goodhart descended from the earlier set of Goodharts. We do not know the individual linkages, but we can ask what is happening to their status as a group across generations.

And what did you find in collecting this surname data?

I found that you get radically slower estimated mobility rates for all societies when you switch to surnames. The conventional estimates of status correlation across generations are 0.2–0.6. With surname groupings it is always 0.7–0.8.

The effect is dramatic in some countries. Modern Sweden has some of the most rapid social mobility rates estimated in the world. Yet surnames in modern Sweden show status persistence exactly in this 0.7-0.8 range. This result was completely unexpected. Understanding why that is the case is a key puzzle the book tackles.

You don’t just look at income either. You look at educational attainment, what occupation they’re in, etc.

The book mainly concentrates on measures such as education, occupational status, wealth and longevity as indicators of status. Another surprising puzzle that emerged is that with surnames, the persistence of status was the same for all these measures.

We might expect wealth to persist in a different way, since it can be transmitted across generations in a different way than education. You do not need any talent to inherit wealth. This is another regularity the book tries to account for.

Social mobility seems impervious to government intervention:

It is clear that families are very powerful determinants of children’s outcomes. But what do parents transmit to their children? Is it mainly some type of culture? Or is it mainly genetics?

The data does not exist to provide any conclusive answer to this question. But even if this is cultural transmission, it looks in all respects just the same as biological inheritance. The book performs a series of tests to see if biological transmission can be ruled out as the important link, and the empirical patterns never rule this out.

For example, if biological transmission is the most important, then elite groups will never be the product of the adoption of particular cultural traits. Instead they will always represent a selection from the upper end of abilities of a parent population. Modern Jews will not be elite because of the social and religious mores of Judaism, but because they are a selection based on ability from a larger parent Jewish population.

For all such elite groups we observe, they do indeed turn out to be a selection from a larger population. Egyptian Copts are such a social elite, for example, but they represent the descendants of the Copts rich enough at the time of the Arabian conquest to be able to afford the head tax levied on all who did not convert to Islam.

A recent book, The Triple Package [by Amy Chua and Jed Rubenfeld], argues the extreme opposite of biology in explaining social status, with the claim that successful cultural groups in the U.S. have three key features leading to success, one being impulse control.

But what is remarkable is how disparate the culturally successful groups they identify are — Jews, Chinese, Indians, Mormons, Iranians, Lebanese, Nigerians, Cubans. And it is demonstrable that most of the successful groups identified here were elites selected from the parent populations as a combined result of politics at home and immigration policy in the U.S.

[...]

Accounts that emphasize cultural transmission all have a hard time explaining why successful groups, and successful families in general, all experience regression to the mean. There is nothing to stop a cultural trait being inherited unchanged. We see the preservation of such cultural forms as religious rituals unchanged over many generations.

Only biological inheritance has an inbuilt mechanism to explain observed regression to the mean. It also has predictions about when this regression to the mean will not be observed (complete endogamy). It further implies that the rate of regression to the mean will be the same at the top of the status distribution as at the bottom.

If you look at footage of the fighting in Helmand in recent years, you might assume it takes place against an ancient background of villages and fields built over the centuries — but you’d be wrong:

If you look beyond the soldiers, and into the distance, what you are really seeing are the ruins of one of the biggest technological projects the United States has ever undertaken. Its aim was to use science to try and change the course of history and produce a modern utopia in Afghanistan. The city of Lashkar Gah was built by the Americans as a model planned city, and the hundreds of miles of canals that the Taliban now hide in were constructed by the same company that built the San Francisco Bay Bridge and Cape Canaveral.

It all starts with the Holocaust — which made Afghanistan surprisingly rich:

The fur trade in Europe which had been predominantly run by Jews was closed down. It moved to New York where there was a growing demand for astrakhan coats — made with the fur of fat-tailed sheep from Afghanistan. Here is a classic piece of Afghan promotion of their key export. And a fat tailed sheep.

As a result dollars poured into Afghanistan and by 1946 the country had $100 million in reserve. The King, Zahir Shah, decided to spend the money on a dam. His aim was to create a modern state — and with it spread the power of the Pashtun tribes. So he hired the giant American firm Morrison Knudsen who had built the Hoover Dam in the 1930s, and they began surveying Afghanistan’s biggest river — the Helmand.

But almost immediately things started to go wrong. In 1949 the first, small diversion dam was built. But it raised the level of the water table in the whole area. And that brought salt to the surface.

The American engineers realised this meant that the whole project probably wouldn’t work. But at that very moment President Truman made a speech promising to give aid to poor countries. It was the start of the Cold War and Truman was going to use development projects and American money to stop countries from becoming communist.

The Americans liked dams. They were a way of challenging the communists because they would create more fertile land — so people could be better off without having to redistribute land through a revolution. In 1952 the Helmand Valley Authority was set up. It was modelled on the Tennessee Valley Authority — the TVA — created by Roosevelt in the 1930s.

Faced with this the engineers’ doubts about the project were buried and forgotten. Massive loans poured in from America and two giant dams were built plus 300 miles of big canals.

But more problems emerged. Everything became waterlogged which led to weeds. Salt kept on suddenly appearing. And the reservoirs and the canals made the water cooler which meant that there couldn’t be any vineyards and orchards any longer. In future they could only grow grain.

But again all the doubts and worries were overwhelmed because the American technocrats and politicians had become fascinated by a new idea. It was called “Modernization Theory”. It said that there was a way of using science and technology not just to stop countries like Afghanistan going communist, but to actually transform them into democratic capitalist societies like America.

Modernization Theory had been invented by an ambitious academic at Harvard called Walt Whitman Rostow. He said that if you put the right technologies in place and educated key elites then the countries would inevitably develop into advanced capitalist societies. They would go through a series of logical stages (there were five) until you got what he modestly called “Rostovian Lift-off”.

Rostow laid out his theory in a book he called “The Stages of Economic Growth: A Non-Communist Manifesto”.

Rostow’s theories obsessed the American development agencies and they came up with all sorts of ideas about how to turn countries like Afghanistan into modern democracies.

You may have noticed that the upper classes in most “developing” countries immediately latch on to superficial signs of western-style progress:

The Afghan government and the American agencies produced books full of photographs that showed these modernised beings in their new modernised world.

The Americans gave Prime Minister Daoud what he wanted:

They would turn Helmand province into a settled Pashtun area which would consolidate the Pashtun’s powerful grip on the whole country.

It was an extraordinary project. The Americans set out to take thousands of families of Pashtun nomads who spent their time roaming the border area with Pakistan and settle them in small-holdings in Helmand. They would be turned into sedentary farmers. It was a giant piece of social engineering. Even Swiss experts were flown in to teach the Pashtuns how to use long-handle scythes to cut grass for their sheep.

The Americans liked it because it would take a lawless group of nomads who were always straying over the border into Pakistan and starting local wars and turn them into peaceful farmers.

Prime Minister Daoud liked it because it was an opportunity to increase Pashtun power — sometimes in not very nice ways. One of his political critics put it bluntly:

“He wanted to use these new settlers as a death squad to crush the uprisings of the non-Pashtun people of the southwest and central part of the country”

Out of this came not just new homesteads but a giant modern infrastructure. At its centre was the modern planned city of Lashkar Gar. As many of the engineers working there described it — like an American suburb. A model world that would help transform the warlike and unruly tribes people into democratic and achieving citizens.

Historian Arnold Toynbee visited Helmand!

Toynbee drove from Kandahar to Lashkar Gah past all the giant canals and dams. He was shocked. What he was seeing, he said, was not a new civilization but “a piece of America inserted into the Afghan landscape. The new world they are conjuring up at the Helmand river’s expense is to be an America-in-Asia”

Toynbee quoted Sophocles’ warning: “The craft of his engines surpasseth his dreams”

What he meant was that you couldn’t change history with just machines and science. Toynbee believed that what led to civilisations rise and fall was culture and religion.

A year after he returned Toynbee gave a series of lectures called “America and World Revolution” which was published as a book . In an interview with the BBC in 1962 he warns of the neglect of religion and religious values in this rush to modernity. It was the beginning of the conservative reaction to the techno-utopian dreams of progress of the 50s and 60′s.

What is fascinating is that his argument — that religion is the only real force in the west that can give meaning and purpose in life — is exactly the same as the new political Islamist ideas that were beginning to emerge on the campuses of Cairo, Kabul and Islamabad.

Toynbee was an atheist, but he believed that without such meaning social structures in western society will corrode. It is the same conservative argument that you find in the writings of Sayyid Qutb in Egypt and Mawdudi in Pakistan.

This all ties in with the Green Revolution:

There was so much water in the ground in some areas that houses and mosques were crumbling into a growing bog. Even worse, underneath the new man-made oases, the engineers had discovered hard rock which made them even more waterlogged. So they had to dig deep bore drains — which removed 10% of the area from cultivation.

Then a study showed that crop yields were steadily falling. But the academics advising the American development agencies had a new theory that explained this. It was called Dual Economic Theory. It said that you not only had to modernise the infrastructure you also had to bring agriculture up to date.

So the American planners turned to the most up to date theory. It was called The Green Revolution (as opposed to The Red Revolution the Russians were exporting). It was based on the new type of high-yield wheat that had been developed by a scientist called Norman Borlaug. And the development agenicies brought in 170 tons of the experimental dwarf wheat developed by Borlaug in Mexico.

By now many of the nomads had settled and divided the land in Helmand into small plots. The problem was that to make the green revolution work and the wheat grow effectively the area would have to be turned back into vast open spaces. In other words the whole settlement system would have to be put in reverse.

Undeterred, the US Dept of Agriculture proposed that the Helmand Valley Authority remove all the settlers. Then they would “level the whole area with bulldozers and redistribute the property in large, uniform smooth land plots”. They also said they were going to cut down all the trees.

But when they tried to do this the bulldozers and the American technocrats were confronted by the Pashtun farmers with rifles. They refused to allow their new homes to be destroyed.

The USAID reported back to Washington “this presents a very real constraint on the project”.

Much of all this had been inspired by the ideas of the American academic Walt Rostow. By now Rostow had become one of the most powerful men in America, special adviser for National Security. And he was developing these ideas even further in another country. Vietnam.

In 1969 yields were poised to take-off:

But there was a drought. The Helmand river became a trickle. The main reservoir created by the project dried up completely. Wheat yields were the lowest in the world — 4 bushels to the acre — Iowa’s yield was 180 bushels to the acre. This created a massive food crisis which began to destabilize the government and the King.

There were student strikes. Many of the student leaders came from the engineering department which was now full of communist and Maoist cells. Then one of the communist students defected to a new group of revolutionaries — the Islamists. He was called Gulbaddin Hekmatyar, and he became notorious for his violence. Some say he went round throwing acid in the faces of women without headscarves, but he denies this and says that if he lived in the west he would sue for libel. He was given a nickname — The Engineer.

In 1972 parliament was suspended and a year later the Prime Minister Daoud joined with the army to mount a coup that got rid of the King. It was the beginning of the chaos that would lead the country into anarchy and disaster. And the end of the dreams of the Helmand Valley Project. The Americans began to leave, abandoning a vast infrastructure that started to decay.

The three candidates running for president in 1912 offered three different solutions to crony capitalism, Lynn C. Rees says:

The candidate of the Progressive Party, former president Theodore Roosevelt of New York, sought to build the United States federal government into an over-awing Leviathan that could cow large concentrations of wealth by subjecting them to tight scrutiny and regulation. This Leviathan would not necessarily seek to break up these concentrations of economic power: Roosevelt was convinced bigness was the future. Furthermore, such concentrations of economic power were necessary for competing in the increasingly vicious international market for power where empires and nations struggled against other empires and nations. Some hinted that there was a possibility of Roosevelt’s Leviathan itself being bought by dollars from those great concentrations of wealth. However, Roosevelt dismissed this fear because the natural ruling class that would control the Federal government was Old Money of Impeccable Old Blood like himself and Old Money can’t be bought by New Money. Old Money would be supported by professional regulators trained in the latest science of administration, many of whom would be from the ranks of Old Money themselves.

The candidate of the Republican Party, incumbent president and former Roosevelt henchman William Howard Taft of Ohio, sought to contain large economic concentrations by using the Federal government to selectively break them down into smaller pieces and regulating them around the edges by controlling their interactions with each other. Taft’s vision was one of checks and balances where Federal-scale concentrations of economic power were checked and balanced by other Federal scale concentrations of power while Federal checks and balances on private wealth were checked by the constitutional checks and balances within the Federal government itself. As president, Taft struck a more moderate rhetorical tone about business than Roosevelt had when Roosevelt was president. But Taft more energetically pursued judicial remedies to break up or impose structural checks on the more vicious concentrations of economic power. Taft favored checks and balances through one-time restructurings of concentrated economic power and its institutional forms over continuous oversight governed by the discretion of a permanent regulatory agency. The former approach put in place firmer checks and balances on the ravages of concentrated economic power without as much possibility of the corruption of business and state by an ongoing regulatory relationship between the two.

The candidate of the Democratic Party, New Jersey Governor Thomas Woodrow Wilson, proposed breaking up large concentrations of wealth into so many tiny pieces that each tiny piece could be overawed by just one of the forty-six little leviathans of the several states of the Union. They’d be so small they could be drowned in a bathtub. This was a variation on the tradition of state’s rights and a smaller less activist Federal government that the Democratic Party had advocated with varying degrees of seriousness since Martin van Buren had formed it around the person of General Andrew Jackson after 1824. Federal attention to Federal-scale large concentrations of wealth was only necessary if there were Federal-scale large concentrations of wealth to pay attention to. Breaking them up into state-level concentrations of wealth would return responsibility for policing concentrations of wealth to the states or the people respectively.

Washington State is struggling to create a legal marijuana economy:

Early in the summer, Kleiman projected that legal cannabis in Washington will initially sell for at least forty-two dollars for an eighth of an ounce. Outdoor growing will lower that figure, but probably not enough to undercut street dealers. Ben Schroeter, who goes by Ben Jammin, has been selling pot in the Seattle area for forty years, and offers high-quality, locally grown product for twenty-eight dollars an eighth. He sells weed from California at twenty dollars an eighth. Some customers may be willing to pay a premium for the convenience, and the peace of mind, associated with buying legal pot that has been tested for impurities. But Ben Jammin says, “I assume that a lot of people are still going to come to me.”

At the city-council meeting in Seattle, Kleiman said that the tax scheme outlined in I-502 was rigid and shortsighted. Because of the state’s heavy surcharges, legal marijuana will likely be more expensive than the illicit equivalent; but, as production costs plunge, legal pot will become much cheaper. “We’re gonna have a tax that starts too high and winds up too low,” Kleiman said. He laid out a better approach: “The optimal tax system… if I were doing it on a blackboard, would have been somewhat homeostatic. You’re looking to maintain a price maybe a little bit below, or a little bit above, the current illicit price. And, therefore, you’d like to have the tax be low at the beginning… and rise as the cost in the industry falls.” The state didn’t reconsider its tax plan, however; the prospect of an immediate windfall was perhaps too tempting.

One group is definitely not coming to Washington’s legalization party: minors. Scientific evidence suggests that marijuana poses few long-term health risks to adults but can harm adolescents whose brains are still developing. The liquor-control board has made it a priority to keep people under the age of twenty-one out of I-502 stores. But, according to some studies, a quarter of marijuana consumers are underage. Kleiman told the city council that it would be better for children to get marijuana from parents or friends who buy it at I-502 stores than to obtain it through the black market, because of the testing and the quality control. Moreover, if kids keep resorting to the black market, they will sustain the criminal enterprises that I-502 was designed to eliminate. “Once you have a licensed-store system, you should expect — and in fact want — most of the pot that goes to kids to go through that system,” Kleiman said, adding, with a seditious grin, “You can’t say that out loud. But I can.” Young people who can obtain a green card already purchase pot from dispensaries. “Nineteen-year-old kids on skateboards with a medical-authorization card,” Ben Jammin told me. “That’s the cash cow now.”

I enjoyed Russ Roberts’ recent EconTalk podcast with Jonathan Haidt on The Righteous Mind, but one passage jumped out at me as quite “meta” — when Roberts and Haidt reflexively asserted that slavery was a clear exception to any kind of relativism about political morality:

Let’s look at the people who appear to be victims in this society and if they themselves think they are victims, that’s enough of a reason for us to condemn it. So, African slaves did everything they could to flee; they hated it; there is no reason to think that this was a legitimate moral order that they approved.

As I commented there, many slaves, at least at the time of Abolition, did not see themselves as victims, did not try to flee, and did not see the system as illegitimate, as you can see from the slave narratives collected by the WPA as the last living slaves were in their dotage.