No, Economics Is Good for Lots of Things

Survey Research at Work

Perhaps the greatest intellectual casualty of the 2008 financial crisis was the credibility of economics as a science. "Why didn't economists foresee the crisis?" people asked, and this lingering suspicion came to a head in a recent NYT editorial blasting economics as a scientific discipline. On first pass, I thought it was just one of those silly articles that crops up on occasion, but the more that I thought about the editorial, and compared it with some of the economic insights I have absorbed as a student, the more I was angered. And thus, I felt compelled to rant.

What should be kept in mind is that, like engineering, economics is a broad discipline that covers many different fields. Just as some engineers study computers and others study nuclear reactors, some economists study taxes, other study financial markets, and still others study how psychological biases should change the design of policy. So to use the chaos in financial markets as a reason to discredit all of economics is analogous to discrediting all of engineering on the count of a Fukushima disaster. While portions of macroeconomics may be made up of smoke, mirrors, and misleading standard errors, even a brief introspection can reveal why that is not representative of economics as a whole.

In economic models, people do whatever maximizes their self interest. However, this leaves no room for intellectual growth -- any new insight or strategy would have already been discovered by the omniscient agents! But people are of finite intelligence. As a result, their self-interest can be up for reinterpretation.

In this area, economists play the important role of introducing new *ideas* about policy. Precisely because people are not as omniscient as the agents in economic models, it's important that governments have a solid foundation on ideas to conceptualize and defend policies from critics. By introducing a new framework or a new empirical fact, economists can cast policy into a different light and redirect the conversation and agenda.

Let us first consider the canonical example of auction theory. Game theorists have been remarkably effective at designing auction mechanisms. The late Ronald Coase famously argued that the U.S. should auction off spectrum rights. Yet in his Congressional testimony, he was met with disbelief, with a congressman asking "is this a joke"? Later on, when the FCC changed its mind, it fell to economists (game theorists, no less!) to design the details of the auction. Designing such an auction is not a trivial task. Since it's advantageous to have radio frequencies in geographically contiguous areas, what a company is willing to bid on one spectrum in an area is dependent on whether it can win in other areas. Moreover, there are a host of protections you need to design. How do you stop firms from colluding? How do you make sure firms can't manipulate the bids to pay extremely low prices? When these issues were ignored in the Australian and New Zealand auctions, many hundreds of millions of dollars were lost.

Economists have also managed to change the way we talk about poverty policies in the United States. A common misconception is that impoverished people are just lazy, and that nothing can be done for them. And as a result, welfare just represents an unproductive transfer from the makers to the takers. However, survey data from the Survey Research Center at the University of Michigan has shown that poverty is most often a transitory phenomenon, and that no, welfare is not about Cadillac queens or subsidizing sloth, but rather about providing insurance for a wide range of people who live on the threshold of poverty. The fact that the national conversation sometimes forgets this point is a reminder that economists do have an important role to play in shaping the welfare policy debate, and that neglecting this can have serious human impact.

And when we take a look at the the role of economists in analyzing aid and development, the impact is even larger. The foundations of international finance and the study of capital flows explains what kinds of aid are better than others, and why it's important not only to provide money but also personnel and expertise. On a micro level, pioneering experimental work, as popularized by Esther Duflo and Abhijit Banjeree in their book titled "Poor Economics", has added an additional subtlety to the design of development policy. By integrating insights from psychology and political science, development economists like them have gone on to revise how to better provide fertilizers to farmers or how to limit the extent of patronage politics. These are all critical issues in the task of economic development, and it has fallen to economists to address them.

So far, I have focused on micro topics. But there are actually a surprisingly robust set of results about how emerging markets should handle capital flows. Stephen Salant (who is teaching me applied micro modeling this fall!) laid the foundation for speculative attacks on stockpiles of resources, such as oil or food. His model later led to Krugman's pioneering work on how currency crises happen, and the lessons from the literature on currency crises showed why external debt could be so harmful for developing economies. Anton Korinek has also made great contributions outlining the welfare arguments for avoiding external debt and currency crises. Indeed, those economies who had large stocks of external debt relative to foreign reserves were precisely the ones who suffered the most during the financial crisis. While it may not be a direct result, it is now clear to all emerging markets that a combination of external debt and exchange rate pegs can be extremely dangerous. And the absence of those two fault lines has put the emerging markets on much more stable footing during the current sell-off.

Even in the controversial field of monetary policy we're doing better. Back in the 1920's, it was thought that monetary policy should ease during the boom and tighten during the bust. This was called the Real Bills Doctrine, and ended up amplifying the business cycle. Doubt about the effect of Quantitative Easing is not equivalent to ignorance about money's effect on the macroeconomy. We might not be clear on magnitudes, but we at least know which way goes up and which goes down.

From a methodological standpoint, economists are valuable because we are trained to think about social issues through a quantitative and empirical framework. While other social sciences such as sociology and psychology are also known for their increasingly quantitative measures, economists are special because the variables we are interested in -- income, prices, population -- are easily measured and interpreted quantitative measures.

(As a digression, I was surprised that this notion of economics as socially applied statistics was completely missing from the conversation about economath. Without the work in mathematical statistics, economists would have been unable to do the measurements that we do, and the empirical studies that I describe above would not have been possible. I remember Miles Kimball joking with me that empirical macro is all about interpreting measurement error, yet without the work of generations of econometricians, we would not know of how to do that kind of analysis.)

From a personal standpoint, I will also be contributing towards this kind of research this year. Since University of Michigan is a state school, we are of course very concerned about how all of our students -- across socioeconomic classes -- are doing. And therefore I will be heading a project to design a survey instrument and analysis methodology to measure how students are doing in the off campus housing markets and to identify the potential severity of this kind of socioeconomic segmentation. (See picture). While it may be true that my project will have various flaws, I still think of it as representative of the power of empirical economics. Identify problems. Collect data. Make lives better. Wash, rinse, repeat. And at least from personal experience, this mode of analysis -- of looking at bivariate relationships, of thinking about longitudinal effects -- is not as common among my fellow social scientists from psychology or political science.

This explicitly empirical tack built into modern economics is important because the alternative to a world with economists is not some non-partisan paradise. Rather, it will be filled by the Keith Olbermanns and Sean Hannities of the world, who rely instead on cheap rhetorical tricks instead of well grounded theory and empirics.

Yet in spite of my strong conviction that economists do create value for society, I do recognize that economics, on the most part, is not an experimental science. But that should not necessarily be seen as a flaw. Economists are tasked with evaluating policies that can play such a large role in the welfare of the masses. And once you know that a certain policy is harmful, it would be a profound breach of ethics to repeatedly apply such failed policy so that you could "replicate" and make the results "scientific".

I want to wrap up this post with a joke.

A physicist, a chemist and an economist are stranded on an island, with nothing to eat. A can of soup washes ashore. The physicist says, "Lets smash the can open with a rock." The chemist says, "Let’s build a fire and heat the can first." The economist says, "Lets assume that we have a can-opener..."

The punchline suggests that instead of solving problems, economists just assume them away. But the real work of economics actually comes after the initial assumption. A real economist goes "..then if we had a can opener, we would be set. So let's go make a can opener." The joke misrepresents the work of economists by focusing on "opening a can" -- a task that has neither ambiguity nor great subtlety. On these issues, of course the hard sciences will be superior. But what if we asked a different question such as "how should we reduce carbon dioxide emissions"? In this case, there is no clear answer. But the economist would go "let's assume there were a price to carbon. Then the first welfare theorem means there's no inefficiency. So let's go price carbon!"

The big social problems of our day -- long term poverty, global warming, the middle income trap -- have few direct solutions, and any solution will affect portions of society in largely differing ways. And without economists to help work out the theory and empirics, how do you plan on tackling such dilemmas?

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Update: Indeed, long term unemployment is a more severe problem than just an intellectual scruffle. But it really does seem that after the Great Recessions, economists are (perhaps rightly) viewed with more skepticism.

Why is Liu Xiaobo China's first Nobel prize winner?

Last week, Chinese dissident Liu Xiaobo won the Nobel Peace Prize for his work on Charter 08, a document that calls for democratic reforms and greater political freedoms in the People's Republic of China. He is currently in jail for writing that document. When the prize was announced, China's state-controlled media and security apparatus began an all-out campaign to censor the story, blocking Web access to information about the award, arresting people who gathered to celebrate, and promptly imprisoning Liu's wife.

I should mention at this point that Liu Xiaobo is the first resident of China to win any Nobel Prize. Ever.

I cannot help but think that this is no coincidence.

Name a well-known piece of technology invented in China since the year 1400. Or name an important scientific discovery made in China since that year. If you can, you're a better Google hound than I, because I find absolutely nada. Nothing. In 600 years. China's technological and scientific underachievement is not a figment of Swedish/Norwegian bias.

What could cause a country with 20% of the world's population - twice as many as all of Europe! - to be the world's most spectacular scientific and technological dunce for six centuries?

Racist and Eurocentric theories that East Asians are less creative than Caucasians are patently false, as both historical and modern facts demonstrate. Japan, for example, has plenty of Nobel prizes and great scientific discoveries to its name, and is the birthplace of inventions such as (deep breath) the digital camera, the hand calculator, the floppy disk, flash memory, pluripotent stem cells, B-vitamins, the camcorder/VCR/VHS, and the compact disc (not to mention MSG, high-fructose corn syrup, methamphetamine, and karaoke). People of Chinese descent have made huge numbers of landmark contributions to science and technology...outside China. And, as everyone knows, pre-1400 China was the birthplace of paper, gunpowder, the compass, movable type, the horse collar, the astrolabe, compartmentalized ship hulls, and a long list of other awesome things that rivaled (and, during the Middle Ages, far exceeded) anything in Europe. It is clear that China's underachievement has been due to collective deficiencies, not individual ones.

Similarly, China's turbulent history in the 19th and 20th centuries, though undoubtedly a contributing factor, is hardly an excuse. Russia, which lost a far larger percentage of its population to wars and famines than did China during the same time period, and suffered under an equally blinkered communist regime, managed to put the first man in space and clean up plenty of Nobels. And the upheavals of the modern age cannot explain the so-called "Great Divergence" of 1400-1870, in which Europe took over from China as the locus of global innovation long before British warships showed up pushing opium.

Nor is this simply a case of China's inevitable catch-up. The U.S. was the birthplace of inventions like the steamboat and the airplane long before it caught up to European levels of per capita GDP. Even if China now starts to produce some innovations, it will still have 600 years of stasis to explain.

So what is China's problem? As I said before, I believe that the fact that China's first Nobel winner is an imprisoned dissident is telling. Liu Xiaobo is not the first Chinese citizen to be imprisoned by the state for calling for intellectual freedom; he joins a long and hallowed line of such persecuted thought-criminals, stretching back at least to Li Zhi of the Ming Dynasty.

Glib theories cannot easily explain the broad sweep of history, but my guess as to the cause of China's technological underachievement goes something like this: the act of trying to keep together a nation as large and diverse as China has come at the cost of intellectual, scientific, and technological progress. After 1400, as Mongol domination of China ended, the rulers of the Ming Dynasty soon found themselves in charge of an empire vastly more populous (thanks to new rice-farming techniques) than the earlier Han and T'ang dominions. Controlling and stabilizing this mega-nation required more government intervention in daily economic life than in most countries. China stayed together where European and Indian empires of comparable population crumbled, but the cost was constant suppression of potentially disruptive technologies.

The Ming began this unfortunate tradition by banning private shipping (just as European explorers were gearing up for world conquest), by purging science from the civil service examinations, and by sending a bunch of (basically) lawyers called the "Confucian Scholar-Gentry" into the countryside to regulate economic activity. Mechanical inventions comparable to, and centuries ahead of, the textile machinery that kicked off Europe's Industrial Revolution languished in obscurity and were forgotten.

European countries, of course, would have loved to do the same thing, but they couldn't. Although European nations were arguably more despotic than China during the Early Modern period, they were forced to fight each other in a series of endless wars; this not only spurred them to allow their scientists and inventors to do their thing (in order to gain a military edge over the neighbors), but it allowed visionaries like Columbus to shop around for patrons among the cornucopia of European rulers. China, with one Emperor - even a benign one - could afford to sacrifice progress in favor of stability. This is basically Jared Diamond's theory of "optimal fragmentation."

Even in the modern day, the absolute priority that China places on internal stability ("harmony," in their favored terminology) has contributed to the aforementioned bloody and chaotic history that delayed China's industrial revolution until 1979. The Chinese Civil War (really, wars), the Great Leap Forward, the Cultural Revolution, Tiananmen Square - all of these were overkill on the part of Chinese rulers desperate to keep the far-flung empire as a single, unified, homogeneous nation-state. Excessive government control of academia has led to a culture of fraud and fear that continues to hamstring Chinese science. Meanwhile, Chinese splinter nations Hong Kong and Taiwan, and smaller East Asian neighbors like Japan, Korea, and Singapore, sped ahead while massive, monolithic Mainland China languished.

Far from being the champion of the Chinese race, as it has always claimed, the Chinese Empire - and its successor, the People's Republic of China - has been the greatest force preventing 80% of East Asians from finding new and better ways to live.

If my theory is right, it is no surprise that China's first Nobel laureate is not a scientist, but a would-be reformer. China's high-speed economic growth primarily relies on foreign technology and on brute accumulation of physical capital; the people who are doing the most new and revolutionary things in that country are those who are trying to reform a society hobbled by 600 years of excessive government enforcement of "harmony."

I think there is great hope for China to change. Modern communications and transportation technology has made it more possible than ever to hold together a large, diverse nation without sacrificing intellectual dynamism - the U.S. and India are cases in point. But cultural change is no sure thing. It seems to me that until and unless China Liu Xiaobo's succeed in their attempts at societal innovation, China's scientists will continue to lag behind those of Japan, Korea, Taiwan, Hong Kong, Singapore, and the West.

Rise of the machine-owners

In recent years, more and more credence has been given to the scary notion of "skill-biased technological change" - the idea that technology is no longer usable by everyone, and so is causing an increase in inequality. Basically, the theory says that thinking machines have begun to replace some of us, but not yet all of us; those who own the thinking machines (capitalists) and those who are smart enough to operate them (tech workers) will get more and more of what our automated society produces. I'm not convinced this theory describes our current world, but it certainly seems like it could happen sometime, as computers get smarter but human capabilities don't improve. What do we do if 70% or 80% of humanity becomes no more employable than dogs?

Matt Yglesias suggests that the rich people make the poor people their pets:

One way to think about the skill-biased technological change issue that I think is useful is to construct for yourself an exaggerated hypothetical in which SBTC is definitely driving a big increase in inequality...what would be the correct policy response? I say—higher taxes to finance more and better public services, the exact same thing that’s the correct policy response to the actual world.

Note that he's not exactly saying that rich people should give their wealth to the poor. He's saying that rich people should give their wealth to an organization that provides services for the poor. In Yglesias' ideal world, not only will the poor depend on the (willing or forced) largesse of the rich for their daily bread, but they won't get to decide how to spend that bread; instead, they will live in a playground that is crafted and shaped for them by others, receiving their livelihood indirectly in the form of "public services."

In other words, they will be pets.

Why do humans keep pets? Because the pets are cute, lovable, companionable, etc., which is just another way of saying because we like them. We pay pets to live in a world that we prepare and create for them, simply because it makes us feel good to do so. Yglesias' solution to skill-biased technological change is to do the same for obsolete human beings.

This sounds nightmarish. But in fact there is no easy solution to the problem of SBTC, as the most obvious alternative - simply ban the technology that makes humans obsolete - is utterly unworkable in practice. What are we to do, then? Will the rise of thinking-machines inevitably force us to choose between "pet-owner socialism" and "ditch-digger socialism"?

It is my opinion that the only acceptable, workable long-term solution to the SBTC problem is to use society's resources to focus on inventing technologies that augment human capabilities - things like intelligence enhancement and cyborg modification for human-machine interface. Furthermore, we should use the government to redistribute not wealth, but inborn capability (much as we try to do now with public education), making sure that things like heightened intelligence and human-machine interface are available equally to even the poorest citizens. In other words, we must battle skill-biased technology by creating and disseminating skill-boosting technology.

I know that sounds really weird, but isn't that better than having a society that's divided between those who own and operate thinking-machines, and those who live as pets for the former? Someday, this will be the choice we face.

Why our country is going down the tubes, and what you can do about it

America is caught in a spiral of decline and stagnation.

Why? The most immediate cause is that we refuse to spend money on public goods:

The lights are going out all over America — literally. Colorado Springs has made headlines with its desperate attempt to save money by turning off a third of its streetlights, but similar things are either happening or being contemplated across the nation...

Meanwhile, a country that once amazed the world with its visionary investments in transportation, from the Erie Canal to the Interstate Highway System, is now in the process of unpaving itself: in a number of states, local governments are breaking up roads they can no longer afford to maintain, and returning them to gravel.

And a nation that once prized education — that was among the first to provide basic schooling to all its children — is now cutting back. Teachers are being laid off; programs are being canceled; in Hawaii, the school year itself is being drastically shortened. And all signs point to even more cuts ahead...

In effect, a large part of our political class is showing its priorities: given the choice between asking the richest 2 percent or so of Americans to go back to paying the tax rates they paid during the Clinton-era boom, or allowing the nation’s foundations to crumble — literally in the case of roads, figuratively in the case of education — they’re choosing the latter.

It’s a disastrous choice in both the short run and the long run...

[E]verything we know about economic growth says that a well-educated population and high-quality infrastructure are crucial. Emerging nations are making huge efforts to upgrade their roads, their ports and their schools. Yet in America we’re going backward.

How did we get to this point? It’s the logical consequence of three decades of antigovernment rhetoric, rhetoric that has convinced many voters that a dollar collected in taxes is always a dollar wasted, that the public sector can’t do anything right...

Krugman knows, of course - and has said in other columns - that antigovernment rhetoric never really convinced many Americans to give up public goods and public services. What really happened was that the conservative movement told white people that all the cost of public goods would be borne by them, while all the benefits would go to blacks and Hispanics. This is the argument that was successful. This is the argument that destroyed our government's ability to provide the economic foundations of a successful nation-state.

Surely, now that our economy is going down the tubes, white conservative Americans are going to wake up and realize that they need public goods too...right?

Except that people's minds don't quite work that way. Instead of convincing people of the need for public goods, economic downturns often lead people to switch to an "every tribe for itself" crisis mode. This is what Matt Yglesias is talking about when he says that economic insecurity breeds mass scapegoating, prejudice, racial tribalism, and paranoia:

Last year we had town halls gone wild, fueled by the threat of death panels pulling the plug on Grandma. This year, us-vs.-them controversies are proliferating, linked by a surge in xenophobia. This is our summer of fear.

So far, the summer of fear has featured a charge, led by Newt Gingrich, Sarah Palin and former New York congressman Rick Lazio, to block the construction of the Cordoba House Islamic cultural center (which is to include a mosque) a few blocks from the site of the World Trade Center. Meanwhile, with frightening speed, we've gone from discussing the prospects for comprehensive immigration reform to watching congressional Republicans call for hearings to reconsider the 14th Amendment's guarantee of citizenship to anyone born in the United States...

Fear, in essence, begets fear. The loss of a job, or the worry that one might be lost, raises anxiety. This often plays out as increased suspicion of people who look different or come from different places. While times of robust growth and shared prosperity inspire feelings of interconnectedness and mutual gain, in times of worry, the picture quickly reverses. Views of the world turn zero-sum: If he wins, what do I lose? Any kind of change looks like decline -- the end of a "way of life."...

Benjamin Friedman, an economist at Harvard whose 2005 book "The Moral Consequences of Economic Growth" argued that growth tends to foster liberal sentiments and open societies, whereas slowdowns undermine them, says this summer's events "are predictable consequences of this kind of sustained economic downturn."

"Manifestations like these have appeared in the U.S. at such times before," he told me, "most obviously in the 1880s and early 1890s," when a sustained period of economic stagnation coincided with the abandonment of the Reconstruction-era commitment to civil rights, the widespread adoption of anti-Chinese legislation and a nationwide wave of lynchings directed not only at blacks, but also Catholics and immigrants...

The lesson is simple: The current controversies are ultimately byproducts of our economic morass. To really dispel the atmosphere of suspicion, what's needed are ideas about how to boost the economy to bring unemployment down and earnings up. Finding policies that do all this will not be easy, but it is the only way to turn the national mood around.

This is a very common idea, and it is supported by a number of lab experiments.

So, America is trapped in a vicious circle: Underinvestment in public goods causes economic decline, which causes prejudice and tribalism, which causes underinvestment in public goods.

How can this cycle be broken? I believe that the only people who can break it are conservatives. If Republican voters realize that government is not the enemy, and that investment in public goods is crucial to their own children's futures, we can arrest the cycle of decline, and set ourselves back on the upward path of economic growth and greater social integration. If you vote Republican, the power to save the country is in your hands.

But for us liberals, there is just not much that we can do, other than to try persuade our conservative friends that roads and bridges and public education are not just a scheme to steal their money and give it to the brown people. If we fail to make that case, America has a hard, dark road ahead.

Democrats have many good ideas. Republicans have no ideas whatsoever.

This is a partisan post. Which is not to say I'm writing this because I like Democrats better in general. I just like Democrats better right now, because they have ideas to fight our country's problems. Republicans do not.

Note that this was not always the case. In the Reagan era, Republicans had a lot of ideas, and Democrats largely promised more of the same. Voters seemed to realize this when they made their choice. but Republicans dropped the mantle of the "party of ideas" about a decade ago, and show no signs of picking it back up.

What are the main problems facing our country today? Well, there's the ongoing depression. Republicans' best idea has been to cut unemployment benefits, which reduces structural unemployment slightly but raises cyclical unemployment a lot. We are not in a recession because people have suddenly decided that they don't want to work; people are looking for jobs, and simply not finding ones that match their skills.

Then there's that long-term deficit. A simple breakdown shows that most of that deficit comes as a result of the Bush tax cuts; reversing these cuts would help stabilize our public finances (though in the long run, big cuts in Medicare are needed as well). But Republicans absolutely refuse to rescind those unsustainable tax cuts. Instead, if they are in power, they will probably just threaten to shut down the government unless Obama comes up with ideas for big spending cuts; then, if Obama capitulates (and he is kind of a capitulating sort of dude), the GOP will slam him for the very same spending cuts they forced him to make.

And then there's health care. Republicans have essentially no ideas for how to cut healthcare costs, unless they decided to support Medicare cuts, which they are afraid to do. When pressed, Republicans suggest tort reform and "allowing people to buy health insurance across state lines"; the former is a good idea but a drop in the bucket, and the latter is basically a meaningless red herring.

Financial reform? Republicans recognize the moral hazard problem - the idea that implicit government promises of bailouts encourage banks to take crazy risks - but they have no solution to this other than to have the government say, very sternly, "We won't bail you out the next time!" Which is a laugh, because yes you will, and you know it.

And finally, there's energy. Republicans have nothing on this. "Drill here drill now"? Not a solution, since that oil can and will be sold anywhere. What else? Deafening silence.

Compare this to the Democrats.

On the depression: Democrats are split on additional stimulus spending, but they definitely favor rebuilding our infrastructure, which is important in the short-term (because it adds to demand) and the long-term (because it improves our competitiveness). They favor having the Fed do more quantitative easing (printing money and buying stuff), although legislators cannot tell the Fed what to do. These ideas are good, although the other thing I think we need to do - pressure China to immediately revalue its currency - is unlikely to happen.

On the deficit: Democrats favor rescinding the Bush tax cuts. This is the right thing to do, since those tax cuts were unsustainable. In the short and medium terms that will make a huge difference, but in the long term we'll need to contain health care costs and cut health care spending a lot. This, sadly, is something Democrats are not yet talking about much.

On health care, Democrats finally switched us to a universal coverage nation. That was an important first step - it removed the division of the country into health-care "haves" and "have-nots," which should make future cost-cutting measures more politically possible. It implemented various small cost-control measures, any of which could be ramped up hugely in a few years if it is found to work. This is almost certainly the best health care fix that we could expect in the short term; it remains to be seen if the Dems will come through with serious cost-control ideas in the future.

On financial reform, the Democrats have had a bunch of good ideas, many of which - a resolution authority to reduce the moral hazard problem, a consumer protection agency to reduce lending scams, rules on derivative trading to cut unnecessary complexity from the system - are in the process of being put into law, thanks to Dems and no thanks to the GOP. And on energy, Democrats are correctly investing in alternative energy technology.

Now, I am not saying that I agree with all of the Democrats' ideas. A cap-and-trade system, for example, seems pretty pointless to me (especially since U.S. emissions are falling anyway). And on some issues (China trade, health cost control) they need to go much farther. Nor is having a lot of ideas automatically good; Chairman Mao had a whole little red book full of bad ideas.

But the point is that the Democrats' ideas are mostly good ones. They are a clear improvement over the status quo - ballooning deficits, a collapsing health care system, a bloated unproductive financial sector, vulnerability to peak oil. The Republicans offer no such improvement. They have no ideas whatsoever.

For this reason, stumping for the Democrats in the fall elections is not partisan, and it is not ideological. It is simply patriotic. A vote for a Republican is, at this juncture, a vote for sclerosis and decline.

Country profiling for immigrants is a GREAT idea

In this article in MacLean's, Charlie Gillis worries that Canada is engaging in too much "country profiling" in its immigration policy - letting in Asians at the expense of Caribbeans and Latin Americans. This gives me an opportunity to stand up for country profiling in immigration, which I think is a great and underappreciated idea.

My reasoning for country profiling has little to do with the likelihood that some immigrant groups are more likely to succeed than others. I think if we want immigrants who are likely to succeed - which we do - we should simply bias our immigration policy toward admitting lots of highly skilled people, regardless of their country of origin (another thing Canada does, I might point out). This will have the effect of boosting our economy while lowering inequality.

Country profiling, on the other hand, is useful for purely political reasons.

Reason 1: Country profiling can help solve America's long-standing race problems. Admitting - soliciting! - lots of talented, motivated Africans is, I believe, our best bet for healing the seemingly indelible rift between white and black Americans. African immigrants, who come here willingly, do not possess the cultural memory of slavery, and thus lack the tendency to see whites as a historical oppressor. This is good; holding ethnic groups accountable for their ancestors' (or their ancestors' look-a-likes') sins is counterproductive, but it's a very difficult habit to kick. African immigrants' positive attitudes will (hopefully) slowly diffuse throughout the American black community. Additionally, high-skilled African immigrants in large numbers will help erase the achievement gap between blacks and whites (as an anecdotal example of this observe that our president is the son of an African immigrant).

So, high-skilled Africans should be our top priority for immigration.

Reason 2: Country profiling can ease Americans' fears over Mexican immigration. Mexican immigration is unpopular in America, despite these immigrants' low crime rate, rapid English adoption, and high rates of intermarriage. My guess is that this fear is less about race, and more about the simple size of the Mexican ethnic bloc. When immigrants are a polyglot, there is little danger - real or imagined - of one ethnic group replacing the dominant culture with its own language and institutions. But when a plurality of an area's population hails from a single country of origin - as Germans did in parts of the Midwest long long ago - there is naturally a feeling of unease among the native-born. Will the new super-bloc declare Spanish to be its natural language? Will they want to secede and return the Southwest to Mexico? These fears, routinely expressed in conservative circles, may be unfounded, but they represent American culture's instinctive desire to be a polyglot, patchwork nation.

Biasing immigration away from Spanish-speaking countries and toward other language groups can ease these fears and increase immigration's overall popularity.

Reason 3: Country profiling can help cement our overseas alliances. Immigration creates a two-way exchange of people, ideas, and capital between the source country and the host country. With the geopolitical situation turning decisively against American hegemony, our best bet for continuing to protect our country's interests lies in strong alliances, especially in Asia. Large numbers of immigrants from India, Japan, Vietnam, Thailand, Indonesia, etc. will deepen business, cultural, and political ties between the U.S. and those nations, helping us build a coalition of Asian states wary of China's rise. Immigration from China, additionally, can help provide a refuge and a platform for dissident voices in that authoritarian country. And immigration from Brazil can cement our ties with that large and growing democracy.

So, in sum: if we're smart, we'll use country profiling. Done right, it can restore immigration's popularity, ameliorate America's racial divisions, and improve our international relations.

Open the gates!!

A quick, clean intellectual shower in the cold, pure waters of discredited bullshit

Albert Einstein claimed that "God does not play dice" with the interactions of subatomic particles. Actually, as it turned out, He does. So there's plenty of precedent for very smart people to believe stubbornly in very silly ideas, even in direct contradiction of all evidence. Thus, maybe we shouldn't be too hard on Ed Glaeser, who is really a very brilliant economist, but who remains wedded to an outmoded and discredited intellectual religion:

It is both the best and worst of times for libertarians. On the plus side, real, live politicians who might conceivably get elected call themselves libertarians. On the negative side, true libertarians have lost their ancient luxury of being able to avoid any responsibility for the gaffes and errors of political leaders.

Libertarianism rests on two bedrock beliefs: human freedom is a great good and the public sector tends to screw things up. The first belief is based more on faith than empirical result; the second derives from millennia of human experience. The increased appeal of libertarianism today reflects a nonpartisan view that the public sector has been deeply problematic under either party. It is a backlash against President Bush as well as President Obama. (Ron Paul was, after all, the only Republican to vote against the 2002 Iraq war resolution). Libertarians tend to think that the Bush years taught that all governments were flawed, not that everything would be better with a new leader who would expand the public sector.

Showing a remarkable sense of timing, my colleague Jeffrey Miron has just published an excellent primer on libertarian thought: “Libertarianism, From A-Z,” an engaging arrangement of brief essays illustrating one libertarian’s view on everything from abortion to zoos. Professor Miron’s libertarian mix of love of liberty and skepticism toward the state leads to his view that “radical reductions in government make sense for any plausible assessment of the effect of most policies.”...

I always find it refreshing to take a quick, clean intellectual shower in the cold, pure waters of libertarian thought...

The problem with dogmatic thinking, of course, is that it always falls victim to teleology; when you decide your conclusions first and then go looking for evidence in support of them, you'll see what you want to see. Thus, Glaeser looks at the Bush administration and sees proof not that good government is necessary and important, but that government itself is inherently inefficient. As Mark Thoma notes, this is more than a bit ridiculous:

Bush made his ideological belief about government self-fulfilling -- he stacked the deck in their favor (e.g. hiring incompetent people to head agencies like FEMA, filling regulatory agencies with people opposed to regulation, etc., etc.). Drawing general conclusions from an outcome that was forced by design, as libertarians have apparently done with Bush, does confirm preexisting biases, but it doesn't tell you much beyond that.

The lesson of the Bush administration is not that "all governments were flawed." We learned about an extreme, i.e. how bad things can be when a president sabotages government agencies by appointing cronies -- people who provided important political support -- to head important agencies rather than qualified, competent administrators...

The Bush administration was deeply flawed, no doubt about that, and it was partly (though not entirely) by design. But there is no general lesson here about all governments, only the particulars of an administration that did it's very best to validate libertarian beliefs about government.

In a word, yes.

More generally, though, Glaeser seems to be straining at the intellectual confines of his chosen dogma. He points out the problem posed to libertarianism by events like the BP oil spill. He proposes using the court system - one of the few government institutions that libertarians generally accept - to put things right, but is dissatisfied with this solution.

But he does not yet see the rot at the heart of libertarianism. Its two bedrock beliefs - that "human freedom is a great good and the public sector tends to screw things up" - are deeply flawed. The moral belief is ill-defined and the empirical belief is factually false.

"Human freedom is a great good." Sounds good to me! But which human freedom? The freedom to murder? The freedom to dump pollution on your neighbor's land? The freedom to scream profanity in public? The fact is, different freedoms tend to be mutually exclusive; what we end up doing is choosing those freedoms we think lead to a better society - free speech, freedom from violence - and exalting those above the others, so that those "freedoms" become "good" by definition, while the opposing freedoms - the freedom not to hear ideas you disagree with, the freedom to punch annoying people in the head - get ignored and swept under the rug. Libertarians, sadly, rarely if ever acknowledge this. They merely pretend that all the murky, confusing cases - for example, smoking bans, or pollution regulations - don't exist, or else they go with their gut and pretend they're following a high moral principle.

As for the idea that "the public sector tends to screw things up," it's just not right. There is strong evidence that the public sector has done a GREAT job with roads, research, national defense, clean air regulations, and other public goods. And there is the nagging fact that every single rich country on the planet spends over a third of its GDP through the government. Libertarians, following the teleological imperative of their assumed conclusions, simply pick the examples of government failure - the Soviet Union's ham-handed economic planning, or the dysfunctionality of European labor markets - and claim that these constitute all the available evidence.

So both pillars of libertarian thought are made of Jell-O. But this does not stop libertarians from believing in them, and only gives pause to the very smartest among them (like Glaeser). Ideologies are attractive because they are "quick," "clean," "cold," and "pure." But those are just synonyms for "easy," "comforting," "rigid," and "simplistic."

Hamas is OK, You're OK

When I was seven, my dad taught me about the Viet Cong. Although they were very brutal, he said - torture, murdering civilians, terrorism, and all that - they were defending their homeland, and so they couldn't be called "bad guys." He likened the Viet Cong to the Ewoks - plucky low-tech tribalists who weren't afraid to eat a little human flesh, but who in no way deserved to have their forest stomped on by the death machines of the Galactic Empire (it's interesting that, when he made this analogy, my dad had no idea that this had in fact been George Lucas' intent).

I suppose this is what made me a defender of Hamas from an early age. I have dim recollections of arguments during my early teenage years, when someone would say to me "Hamas kills innocent people, so anyone in Hamas is evil," and me replying "No, they're just fighting a war and trying to get a country for themselves." I certainly never approved of Hamas' methods; blowing up schoolbuses is hardly sporting, and nonviolent resistance is the best of all possible strategies for national liberation. And neither did I approve of Hamas' goal of destroying Israel. But I had - and have - a hard time blanketly condemning a group of stateless people fighting for a country of their own.

So it's no surprise that I think this column by Shmuel Rosner is totally wrongheaded, and is in fact exemplary of the totally wrongheaded approach taken by Israel toward the Gaza strip since the withdrawal of 2005. Rosner writes:

Since 2007, the policy of the International Quartet has been to isolate the government that controls Gaza after Hamas forces ousted the forces loyal to the official representative of Palestinians from the Strip in a coup. An ugly and violent coup...

So, there were very good reasons for isolating Hamas and attempting to contain the Gaza Strip. True, the government in charge of Gaza is a headache for Israel. But it is no less of a nuisance to the legitimate representative of the Palestinians—the Palestinian Authority, headed by Mahmoud Abbas. Those who want to strengthen the parties of peace have a choice to make: Recognizing Hamas would signal that the Palestinian Authority could no longer claim to represent the people of Gaza. It would signal that the world is willing to work with a bully, with a group refusing to commit—even rhetorically—to the cause of peace, that it has given up on a better life for the Palestinians of Gaza.

The premises of this argument are that 1) Israel and the international community should act to weaken Hamas vis-a-vis Fatah (the Palestinian Authority) in Gaza, and 2) it is possible to actually do so.

The second of these is obviously wrong. Hamas has triumphed in Gaza - decisively, permanently. It is no longer possible for anyone to bring Fatah back to power there; the key piece of evidence in support of this fact is that Fatah itself is making no effort whatsoever to reestablish control over Gaza. Therefore, there is no alternative to Hamas in the strip. Any successful weakening of Hamas would necessarily leave chaos in its wake, which would lead directly to the rise of even more radical groups like Islamic Jihad.

The first premise - that it is a good idea to weaken Hamas via external pressure - goes against the Westphalian system of national sovereignty. Unless Israel claims Gaza as part of the Israeli nation - which the 2005 withdrawal makes it clear it does not - then Israel has absolutely no right to decide who rules in Gaza. Some have argued for counter-Westphalian interventions on humanitarian grounds, but even those who allow such exceptions must admit that Hamas is not brutalizing the people in the territory under its control.

Thus, the appropriate response to both the withdrawal of 2005 and Hamas' civil war triumph in 2007 is for Israel and the international community to recognize Gaza as an independent state, and to treat Hamas as the legitimate government in Gaza. This is the Westphalian solution, and it is the correct one, for several reasons.

First of all, if Hamas is recognized as a legitimate government, then it has something to lose, because it knows that if peace were established it would be guaranteed continued power. This will make Hamas more willing to recognize Israel sometime in the future, just as the Palestinian Authority (and Israel itself!) abandoned their terrorist roots once they found themselves ruling some territory.

Second of all, recognizing Gaza as an independent nation-state would immeasurably improve Israel's moral standing in the international community, because anti-Hamas actions would then become anti-Gaza actions - a simple war between opposing nation-states, rather than Israel's brutalization of its own non-citizen subjects. If Gazan independence is recognized, and if Israel then retaliates with force for Hamas rocket attacks, then it is simply a case of Country A attempting to destroy Country B, and Country B defending itself with force. The same goes for the Israeli blockade; after all, Britain's historic use of naval blockades against its hostile neighbors was key to its survival for hundreds of years.

But in order to legitimize its attacks on and blockades of Gaza, Israel must make it clear that if Hamas recognizes Israel and stops attacking Israel, then Israel will leave Gaza alone, end its own attacks, and end the blockade. If Israel demands peace, recognition, and respect from Gaza, it must be willing to provide exactly the same thing in return, and to regard Hamas - or any Gazan group that subsequently wrests power from Hamas! - as the political entity with the right to make such a deal.

In other words, "being willing to work with a bully" is what makes the world go 'round. Nation-states almost always begin as brutal gangs, but with recognition and respect, they become quite benign entities. If you don't believe me, examine the history of the UK, with its successive waves of bloody conquest, or America, with its ethnic cleansing of the Native Americans, or Turkey, which began as a foreign army from Central Asia. What pacifies nation-states is not irredentist rejection of once-terrorist governments, but the Westphalian system of national sovereignty and the inviolability of national borders. The Hamas-rejectionists' refusal to recognize Hamas is as idiotic as refusing to recognize the UK because the Normans terrorized the Saxons.

Rosner concludes:

The people who come on ships, who confront the Israeli blockade, who supposedly believe in a better life for the people of Gaza—a better life that they deserve—are signaling to Hamas that with a little more patience, their first goal will be achieved: Hamas' rule in Gaza will be legitimized and Hamas' government will receive aid, material support, visits from world dignitaries, and invitations to attend summits and gatherings.

Yes. And that goal should be not only Hamas', but Israel's and the international community's as well.

Libertarianism - just another bankrupt utopian 20th-century ideology

Rand Paul on Obama's criticism of BP:

"What I don't like from the president's administration is this sort of 'I'll put my boot heel on the throat of BP.' I think that sounds really un-American in his criticism of business," he said. "I've heard nothing from BP about not paying for the spill. And I think it's part of this sort of blame game society in the sense that it's always got to be someone's fault instead of the fact that sometimes accidents happen."

This quote illustrates the fundamental um...for lack of a better word, dumbness...of the libertarian ideology for which Rand Paul is an unthinking foot soldier. Think about his statement for a minute. How did BP get access to the particular piece of the ocean floor that it was drilling when the spill happened? Answer: the government sold it the rights to use that land. Of course, BP bid for the rights to the land. But its bid was not just money; implicit in its bid was that it would work to minimize accidents that would hurt the citizens who elect and employ the government that sold it the land. And yet BP reportedly did just the opposite, using its political clout to minimize safety regulations. If the government had known the true probability of a spill, it very well might not have sold BP the land; thus, BP fleeced the government. And now the government has every right to criticize the company that fleeced it.

But libertarianism does not admit the possibility that natural resources are different from other types of property. The libertarian ideology holds that profit is earned by the effort and the inventiveness of the person who earns it, and therefore deserves to remain in the hands of the earner. But land is not created by the sweat of a man's brow or the ingeniousness of his ideas; it is pre-existent in the world, and its allocation comes about not as a result of efficiency but as a result of power. The land goes not to Jon Galt, but to the guy with the most guns.

Now, in order to make the most efficient use of land, we try to use market mechanisms to sell it to the highest bidder. But due to information asymmetries - like the fact that BP engaged in skullduggery to minimize safety regulations after it had already won the land rights - the market mechanism doesn't always work.

Libertarians crafted their ideology to be simple and internally self-consistent. But in philosophy, consistency always comes at the price of realism. In order to preserve the beautiful simplicity of their worldview, libertarians are forced to deny the existence of persistent information asymmetries, public goods, incomplete markets, and externalities - things that most obviously exist in the real world, and whose existence shows that libertarianism cannot be a blanket answer to the questions of economics. But libertarians are so eager to cry "This is it, boys! Man is saved!" that, like the communists before them, they have become devoted to squelching every piece of scientific evidence that pokes holes in their beautiful facade.

In the 20th century, the United States managed to avoid falling into the ideological pits of communism, fascism, and theocracy - and thank God we did. But at the end of the century, we stumbled halfway into the pothole of libertarianism, an ideology perhaps slightly less pernicious but no less blinkered and ignorant than the others. As a result, we are sliding toward a collapse of the basic functions of government, a nightmare scenario that in other countries has been fertile ground for takeovers by even more baleful ideologies (visit a Tea Party website to see that this is already happening). Ayn Rand and her many fellow-travelers convinced us to close our eyes to inconvenient reality, and close our minds to doubt and questioning, and we (temporarily, at least) lost access to the only advantage Western civilization has ever really had: adaptability.

It is time for libertarianism to follow communism into the intellectual dustbin of history. It has become an empty exercise in self-deception.


Updates:

Blogger tristero agrees with me.

Salon writer Gabriel Winant agrees with me.

Immigration: THE most important issue

As Congress struggles to pass a financial reform bill, I think we should start looking past finance to a far, far more important issue: immigration reform.

Much has been made of America's short-term decline relative to other countries. But in the long run, America's future looks much brighter than China's or anyone else's, for one simple reason: immigration. Our ability to draw in and assimilate the world's population is a strength no other country on this planet (except Canada and Australia) possesses. In addition to keeping our population eternally young (while other countries struggle with aging societies and overburdened pensions), we get to skim off the cream of the crop - the most entrepreneurial, the smartest, the hardest-working. Immigration is America's ultimate trump card.

There are two big problems with our immigration system. the first is that, for reasons entirely unknown, we have made it much harded for super-talented people to work here. Increasing numbers of international grad students are going home. That means that we pay foreign people to get a world-class education, and they walk away and go apply their skills in other countries.

Why in Yahweh's name are we doing this public service for China and India when we could put those people to work inventing technologies and starting companies that give the rest of us Americans jobs? Massively increasing the number of H1-B visas is only the start; we must expand our green card quota and bias the system toward people who have studied here. In fact, we should give every single foreign grad student a green card upon completion of their studies.

The second immigration problem is, of course, illegals. Not that they are here, but that they are illegal. This means that they don't assimilate fast, and faster assimilation is better. If illegals have to be afraid of getting deported, they won't put their kids in public schools, they won't get jobs at companies where English is the first language, and they won't meet (and marry) a lot of people who speak English as their first language. In other words, they will stay foreigners forever, and only their native-born children will become true Americans.

We cannot afford this permanent-foreigner underclass. Not if we don't want to become France. So when reactionary anti-immigrant jerks make laws like the one just passed in Arizona, it hurts all of America. The only thing that can stop states from cracking down on illegals is a federal amnesty, like the one Reagan passed in 1986.

The constituency for immigration reform - basically, everyone except the hysterical nativists - is diffuse and disunited. This presents a formidable barrier to taking any kind of collective political action. But, however slowly, the word must spread - immigration reform is THE policy we need to pull our nation out of the (temporary) decline in which we currently find ourselves.