The Agenda

NRO’s domestic-policy blog, by Reihan Salam.

On Puppetmasters


I was very fortunate to have been invited to appear on The Chris Matthews Show, a news roundtable hosted by journalist and MSNBC host Chris Matthews. During the program, I disagreed pretty strongly with some of my distinguished co-panelists on a number of questions. Crooks and Liars, a popular left-of-center website, has highlighted some of my remarks. I’m sorry to say that the post contains a number of distortions of my views, but I get the sense that these distortions are not deliberate. Rather, I think they reflect a sincerely held worldview. Regardless, that’s the price of doing business. 

Heather, the author of the post, was very bothered by my contention that Rupert Murdoch is not Glenn Beck’s “puppetmaster.” Here’s what she wrote:

 The part of this segment I found really irritating was the National Review’s Reihan Salam and his dismissiveness of Rupert Murdoch’s control over Glenn Beck. Glenn Beck doesn’t do anything on the air without the full approval of his station’s ownership and to pretend he doesn’t is just nonsense.

And here is the excerpt:

Matthews: This whole thing, I think it gets ethnic, I think it is tribal. I listened to Rush Limbaugh this week saying, you know, we’re not Islamaphobic, we elected Barack Obama. That proves we’re not Islamaphobic. That’s saying he’s Islamic again when the guy’s a Christian.

Salam: I don’t think that’s quite what it’s saying. I think what it’s saying is that Barack Obama is someone who comes from a very different kind of background and Americans have embraced him in large numbers. I also think the idea respectfully that Glenn Beck is… ah… you know… is being controlled by Rupert Murdoch as his puppet master gets things wrong. (crosstalk)

When you look at Glenn Beck you see someone for example, remember Louis Farrakhan and the Million Man March. What was the Million Man March about? A lot of people were terrified by that. It caused a lot of consternation among liberals and conservatives. But ultimately what you saw was an event where tons of African American men got together and it was really about identity and pride.

And I think that when you are looking at our politics right now, it’s true that in an economic downturn you see a lot of confusion, you see a lot of uncertainty and there is a decent number of people who feel like now “have nots”, but they feel like “are nots”. They feel like they’re not being respected in our public life and they want to assert themselves….

Matthews: Who are the Glenn Beck constituency?

Salam: I think that it’s a lot of folks. It’s a lot of people from smaller cities, rural areas, small towns, tend to be white, tend to be ah…

Matthews: Okay, who is their villain?

Salam: I don’t know if they necessarily have a villain…

Klein: Oh, come on!

Salam: …so much as there’s a lot of confusion and anger and resentment. [Emphasis added.]

Because I think it’s pretty obvious that “they” — the people who watch and admire Glenn Beck — are not all racists (I find the idea that Beck’s fans are necessarily racists absurd, to be blunt), I’ll focus on the highlighted section.

Note that Heather makes a crucial shift — she suggests that I’m denying that Glenn Beck’s program is “approved” by Fox News, which is of course not true. 

But I’m also aware of the fact that Rupert Murdoch is at the helm of a vast multinational business enterprise, which owns a variety of media outlets including MySpace Records, Truckin’ Life, Vogue Australia, Lifestyle Pools, The Times Literary Supplement, Bronx Times-Reporter, Papua New Guinea Post-Courier, The Geelong Advertiser, HarperCollins, Fox Searchlight Pictures, Uruguay’s Saeta TV Channel 10, Israel 10, National Geographic Channel, Fox Telecolombia, the Fijian newspaper Shanti Dut, The Wall Street Journal, and Fox News, among many, many, many others. (I haven’t read Truckin’ Life yet, but I intend to start. My guess is that it expresses a pro-truck political bias, but we’ll get to that.)

A friend of mine is an editor HarperCollins. She is a committed left-liberal — she calls herself a socialist — who has published, among otherbooks, Diary of a Very Bad Year, a collection of interviews first published in n + 1, a magazine that wears its democratic socialist convictions on its sleeve and a magazine I greatly enjoy for its sprightly cultural polemics. I’m pretty sure Rupert is okay with HarperCollins publishing left-wing books — peruse the catalogue if you’d like — as long as he makes money in the process.

One of my favorite Murdoch facts is that Rupert Murdoch’s son James Murdoch founded Rawkus Records, an independent hip-hop label that was later acquired by News Corporation. Rawkus featured a number of brilliant rappers who, suffice it to say, were not best characterized as right-of-center in their political views. Some of my favorite Rawkus artists were Mos Def, Talib Kweli, Company Flow, Pharoah Monche, Big L, and the obscure R.A. the Rugged Man, a native of Long Island’s Suffolk County. Most of these artists have left for non-Murdoch labels, but of course MySpace Records is home to a number of similarly leftish recording artists. 

I have a little theory about Rupert Murdoch’s media holdings. My theory is that his goal is to make as much money through his media holdings as possible. That is, I don’t think he’s amassed billions of dollars by accident. And I’m also guessing that he makes political donations on the basis of an assessment of his own interests as well as his political proclivities. Long-time Murdoch-watchers are aware of the role he played in Tony Blair’s political rise, and his brief flirtation with Sen. Hillary Clinton. Does this change the fact that Murdoch is most likely a conservative of some kind? Of course not. But it should complicate our understanding of the man and his motivations.

Indeed, I’d submit that his own political proclivities matter very little to the substance of the various media outlets he owns. Consider this: MTV’s political coverage, to the extent it has any, tends to be fairly left-of-center. Do you seriously believe that Sumner Redstone, the majority owner of National Amusements and, indirectly, MTV’s owner Viacom is an enthusiastic left-winger who is bitterly opposed to “The Man”? Given that Sumner Redstone can make a pretty plausible claim to being “The Man” himself, my guess is that he recognizes that MTV is a for-profit enterprise that will either flatter the sensibilities of its youthful audience or go out of business.

In a similar vein, Fox News has been a commercial success because it connected with an audience that felt underserved, and that was eager for news and information that matched its sensibilities. Murdoch did not invent Fox News. Instead, Roger Ailes came to him with the idea, and he demanded a large amount of capital and near-total autonomy. And that’s what he was given. 

In 2006, Jesse Shapiro and Matthew Gentzkow, two of my favorite economists, published a paper titled “What Drives Media Slant? Evidence From U.S. Daily Newspapers” [PDF]. The notorious right-winger Austan Goolsbee, now serving as one of President Obama’s chief economic advisors, wrote a column for the New York Times on their research


A comparison of circulation data (per capita) to the ratio of Republican to Democratic campaign contributions by ZIP code showed that circulation was strongly related to whether the newspaper matched the readers’ own ideology.

Their measure indicates that The Los Angeles Times, for example, is a liberal paper. Its circulation suffers in Southern California ZIP codes where donations to Republicans are especially high.

The authors calculated the ideal partisan slant for each paper, if all it cared about was getting readers, and they found that it looked almost precisely like the one for the actual newspaper. As Dr. Shapiro put it in an interview, “The data suggest that newspapers are targeting their political slant to their customers’ demand and choosing the amount of slant that will maximize their sales.”

On one hand that sounds a little mercenary. On the other hand, there is certainly good news in the finding. If slant comes from customers, then the views of the owners and the reporters do not matter. We do not need to fear that some partisan billionaire will buy up newspapers and use them for propaganda.

Indeed, the study found that the views of the owner had no significant effect on the slant of the newspaper. The partisanship of corporate donations from the owner had no bearing on the slant of the news coverage in the paper. The slant of a newspaper group’s other newspapers had no bearing, either. The New York Times Company’s newspaper in Spartanburg, S.C., for example, had the same slant as other newspapers in South Carolina that the company did not own.

So although politicians from both sides tend to accuse the news media of partisanship and negativity, the data suggests that they ought to blame the public. The papers basically reflect what their readers want to hear. [Emphasis added.]

That is, the fact that Rupert Murdoch owns News Corporation and Fox News most likely has no bearing on what Glenn Beck says. What does have bearing is Beck’s popularity. Popular programs are given more leeway, popular hosts are given more compensation and more deference, and that is how for-profit media generally works. 

Recall that Glenn Beck began his cable news career at CNN’s Headline News. CNN is not owned by Rupert Murdoch. 

I can’t imagine this will convince many readers of Crooks and Liars. But it’s useful for the rest of us to keep in mind. Many conservatives make the same error, attributing the political bias of various media outlets to their owners. 

If anything, I think the real media bias — which stretches across left-of-center and right-of-center outlets — is a bias towards sensationalism. Convincing your readers or viewers that people they don’t like are bigots or racists, or that they are bent on imposing tyranny, is a good way to keep them hooked. 

I like to think that my readers are capable of thinking for themselves. That’s why I try to avoid hand-waving alarmism, though I’ve definitely indulged in some, usually because I let some kooky media narrative get the better of me. 

Glenn Beck’s Rally and the Million Man March


In 1995, when Louis Farrakhan announced his “Million Man March” on Washington, D.C., conservatives and liberals were alarmed. Farrakhan, of course, is a notorious black nationalist who has made a career of spinning conspiracy theories and spreading anti-white invective. The National Park Service estimated that 400,000 individuals gathered on the National Mall, a number the organizers of the march found frustratingly small. Though there were of course many things that were odious about the Million Man March, most obviously its association with the loathsome Farrakhan, one gets the impression that most attendees were primarily interested in achieving economic and spiritual uplift for African American men. The 1980s and early 1990s saw the rise of the crack epidemic and the deindustrialization of U.S. inner cities, phenomena that led to a steady deterioration in the labor market position of African American men. That hundreds of thousands of Americans from all walks of life — working class, upper middle class, native-born, immigrants, laborers, and professionals — would want to join together in the spirit of self-assertion but also celebration strikes me as entirely defensible in itself. 

There were, of course, many potent critiques of the Million Man March, including many from the left. In December of 1995, Annalee Newitz took the March to task in Bad Subjects:

Of course, as critics such as bell hooks have pointed out, a march for blacks that deliberately excludes women is not really a march for black people, but rather a march for something like rejuvenated black patriarchy. And it is precisely for this reason, I would argue, that men’s movement supporters of all races seized upon the March as a potent symbol and rallying cry. Like many men’s movement events, such as Robert Bly’s famous “drumming” retreats, the March spoke to men’s feelings of social victimization in order to suggest that older, more spiritual, forms of male strength and bonding might be needed to change masculinity for the better. In the case of the black men who marched on Washington, social victimization takes the form of racism, and what Farrakhan called “the evil of slavery.” Strength, Farrakhan suggested to marchers, can be found in male identities associated with Judeo-Islamic patriarchal values, and the mid-century ideal of a male “head of household” role. Both identities are linked to forms of masculinity forged in the past: antiquity in the case of Biblical masculinity, and a mostly pre-feminist era in the case of the “head of household” male role. 

This leads me to today’s Glenn Beck rally, which has also caused considerable consternation among liberals. One of the central figures at the rally, at least as prominent as Beck himself, is Sarah Palin, a working mother and former governor who identifies as a both a conservative and a feminist. The rally includes women and men, and the organizers have devoted considerable attention to the legacy of Martin Luther King Jr. There has been no discussion of politics, but rather a celebration of the U.S. servicemembers and veterans.

The parallels and contrasts with the Million Man March strike me as interesting. Farrakhan was a figure almost universally despised by elite conservatives and liberals, and for good reason. Beck is often accused of crypto-fascist tendencies, yet his core message seems rooted in ideas of self-help and self-assertion that would not be unfamiliar to black nationalists.

Thinking about the rally reminded me of writer Chris Lehmann’s references to society’s “are-nots,” which he discussed in a recent interview with Mediate

 I think the phrase—which I cribbed from political scientist Marc Landy, if memory serves—invokes the idea that our incomes and wealth-holding don’t match up to our status anxieties. So, for instance, if a Tea Party protestor was absolutely convinced that the Obama stimulus plan was a tax increase—when it was in fact a tax CUT for anyone earning less than 250K a year, you sort of have to conclude that person is protesting something other than their slipping economic footing. What that is, I could only guess at—but it would seem to involve a sense of exclusion from the so-called elites who lay out the economic aims of the liberal state, the Red Army in the lamestream media, the coastal lords of the culture industries and what not. The complaint, near as I can suss out, is that there’s conspiracy afoot among these remote figures to deny, well, something to the overlooked people in the American mainstream. To the extent that something is their own status or sense of self-worth, I think it’s useful to characterize them as “are nots.”

Bracketing the question of tax cuts — it could be that Tea Party protesters understand that debt-financed spending increases are almost by definition future tax increases, a concept that not everyone seems to fully understand — it does seem as though large numbers of Americans from micropolitan and smaller metropolitan really do feel excluded. They don’t feel as though their values are reflected by the country’s economic and political elite, and they worry about losing their economic and cultural autonomy, sensing that the further centralization of power will hurt rather than help that cause, a premise we can’t expect committed social democrats to understand. 


On the Obama-is-a-Muslim Meme


As you might know, a large and growing number of Americans say that they believe that President Obama — an enthusiastic pork-eater — is a Muslim. “Say that they believe” is an important part of that last sentence.

This is the kind of story that partisans love. But interestingly, it seems that left-of-center partisans are far more drawn to this idea — my political opponents are irrational or easily misled — than right-of-center partisans. I’d go so far as to argue that this idea is a not unimportant part of the left-liberal gestalt. But as Ilya Somin noted in February, ignorant and irrational views are pervasive among Democrats as well as Republicans:

One can easily find parallel examples for Democrats. Thus, Kos makes much of the finding that 23% of Republicans in the survey say they want their state to secede. But a 2008 Zogby/Middlebury College poll found that support for secession was vastly more common among liberals than conservatives. In that poll 32% of liberals claimed that their state has a right to secede (compared to only 17% of conservatives), and a whopping 33% of African-American respondents (an overwhelmingly Democratic group), said that they would support a secession movement in their state. I suspect that supporters of the opposition party are always disproportionately likely to express support for secession when they are angry at an incumbent administration of the opposite party (as Republicans are today, and Democrats were in 2008). I don’t think that support for secession is necessarily ignorant or stupid. To the extent that it is problematic, it’s not a problem limited to Republicans.

Kos also points out the 36% of Republicans in his study who seem to endorse birtherism and the 22% who say they aren’t sure. Birtherism is indeed ridiculous. Yet a 2007 poll found that 35% of self-identified Democrats believe that Bush knew about the 9/11 attacks in advance, and 26% say they don’t know if he did. 

Other examples of ignorance and irrationality by Democratic voters are not hard to come by. For example, some 32% of Democrats believe that “the Jews” deserve a substantial amount of blame for the financial crisis (compared to 18% of Republicans). In November 2008, some 59% of Obama voters did not know that the Democrats then had control of Congress

The fact that right-of-center intellectuals don’t fixate on the fact that an extraordinary 32 percent of self-identified Democrats  ”believe that ’the Jews’ deserve a substantial amount of blame for the financial crisis” is interesting. I tend to think it’s a good thing, as a debate focused on the anti-Semitism of a non-trivial number of people who call themselves Democrats would be less edifying than a debate focused on substantive policy questions. To be sure, many on the right are concerned about anti-Semitism on the left and have written about the issue extensively. It hasn’t, however, risen to the level of an endless drumbeat magnified by Fox News. 

In May, Todd Zywicki cited an article by Zeljka Buturovic and Dan Klein on beliefs about the economy, which are arguably pretty central and important to our political debates:

* 67% of self-described Progressives believe that restrictions on housing development (i.e., regulations that reduce the supply of housing) do not make housing less affordable.

* 51% believe that mandatory licensing of professionals (i.e., reducing the supply of professionals) doesn’t increase the cost of professional services.

* Perhaps most amazing, 79% of self-described Progressive believe that rent control (i.e., price controls) does not lead to housing shortages.

Note that the questions here are not whether the benefits of these policies might outweigh the costs, but the basic economic effects of these policies.

Those identifying as “libertarian” and “very conservative” were the most knowledgeable about basic economics.  Those identifying as “Progressive” and “Liberal” were the worst.

Does this mean that progressives and liberals have been systematically misled by a media conspiracy? I don’t think so. Do a number of prominent progressives and liberals express these beliefs in public forums, alternative media channels, and the like? I’m guessing the answer is yes, but I doubt it has much of an impact, as those voices are drowned out by the larger and more prominent left-of-center media voices that accept mainstream economic views. 

But then consider Brendan Nyhan’s take on the Obama-is-a-Muslim meme:

But while pundits have been quick to blame Obama and the public, very few commentators have noted the role played by the media and political elites in misleading the public about Obama’s religious beliefs. Slate’s Dave Weigel came the closest, writing that “At some point it became acceptable to question Obama’s American-ness, which naturally begged the question of whether he was a secret Muslim… and the WorldNetDailys, tabloids, and Drudge Reports of the world were ready to keep begging that question.”

Am I questioning President Obama’s “American-ness” by observing that he had an impressively cosmopolitan background, which included a stint living abroad as a small child? As I understand it, this was once seen as one of Barack Obama’s virtues. Given that “American-ness” is inescapably subjective, I’m hard-pressed to see why it’s wrong to have a public conversation about how a politician’s cultural identity shapes his beliefs about the world. Much was written about George W. Bush’s mix of Southern and Western and New England sensibilities, with many arguing that he was heir to a noxious political tradition rooted in the extractive industries and the reactionary Bourbon aristocracy. We might not find this kind of conversation edifying — I don’t — but it’s going to happen, and I think that’s fair enough. 

Nyhan then goes on to list a long series of statements made by right-of-center writers and activists that, to my eyes, don’t seem to have much of a unifying theme. Frank Gaffney says lots of things that I don’t agree with, e.g.,

 Frank Gaffney, the right-wing apparatchik last seen suggesting that President Obama’s apparent bow to King Abdullah of Saudi Arabia was “code” telling “our Muslim enemies that you are willing to submit to them,” has written an entire column for the Washington Times arguing that “there is mounting evidence that the president not only identifies with Muslims, but actually may still be one himself” (via MM). He bases this false conclusion upon a bizarre and elaborate exegesis of Obama’s Cairo speech that would embarrass even the most paranoid conspiracy theorist.

but I wonder if Nyhan is overestimating Gaffney’s influence. Moreover, Nyhan uses terms like “apparatchik” to make his point, as though Gaffney’s statements aren’t enough to make his case. 

One of the reasons Nyhan’s litany of statements is so long is that he includes statements like the following:

December 2006: Columnist Debbie Schlussel notes that Obama’s father was a Muslim and asks ”Where will his loyalties be?”

Again, one of the sources of enthusiasm for President Obama in and outside of the United States was the notion that he would take a broader, more inclusive view of U.S. national interests, and that his cultural identity predisposed him towards a more positive attitude towards the developing world and, presumably, the Islamic world. This is one reason why President Obama’s approval ratings have declined in the Muslim world — there was a widely held belief that he would intervene more aggressively on behalf of the Palestinians, and he has not.  

May 2009: Former House Speaker Newt Gingrich alleges on “Fox News Sunday” that there is a “weird pattern” in which Obama administration officials were “prepared to take huge risks with Americans in order to defend terrorists” and suggests that the Obama administration was proposing “welfare” for terrorists. He then claims on “Meet the Press” that the Obama administration’s “highest priority” is to “find some way to defend terrorists.”

Serious question: does this not represent criticism of detainee policies that the Obama administration has essentially abandoned? Leaving aside the merits of Gingrich’s arguments — I tend to think the issue is more complicated than Gingrich allows — are we not allowed to harshly criticize our political opponents?

August 2009: On the Lou Dobbs radio show, substitute host Tom Marr says ”I have to believe that there is still an inner Muslim within this man that has some sense of sympathy towards the number one enemy of freedom and democracy in the world today, and that is Islamic terrorism.”

I’d definitely consider this out-of-bounds. Yet Nyhan is now selecting a quote from a guest host of Lou Dobbs radio show to make his point. This can’t be encouraging for his thesis, particularly if we assume that he was trying to select the strongest rather than the weakest examples to make his case.

John Sides has written an intelligent examination of Nyhan’s thesis:

If Nyhan’s hypothesis is true, we would expect to see sharper changes over time among people who are, first, predisposed to believe bad things about Obama.  This implicates Republicans, and, indeed, Pew found that Republicans registered the sharpest increase in the belief that Obama is Muslim.  Second, among Republicans, we should see especially sharp changes among those who pay attention politics and the news, because these people who would be more likely to watch, read, or hear any commentators and leaders suggesting that Obama is Muslim. 

And so Sides looks at the results by level of formal education:

The growth in this perception among Democrats is small and is consistent across education levels: a 2-4 increase within each level.  By contrast, the growth in this perception among Republicans is more notable among those with some college education (a 19-point increase) or a college degree (15 points) than among those with a high school degree or less (9 points).  In other words, better educated Republicans have changed more than the less educated Republicans. This flies in the face of the “dumb Americans” idea and provides some support for Nyhan’s hypothesis. The people most likely to hear the “Obama is a Muslim” meme are the ones whose beliefs changed most dramatically in the past 17 months.

To his great credit, Sides ends his post with the following:

Obviously, we cannot draw definitive conclusions from this analysis.  It does not prove that some media personalities and political leaders are responsible for the increasing perception that Obama is a Muslim. But it points in that direction.

There is another hypothesis that strikes me as at least equally plausible. Last August, Julian Sanchez wrote an excellent post on “Symbolic Belief,” in which he took a look at the phenomenon he called “Birther Madness”:

As my colleague at Democracy in America notes, comparable numbers of Democrats during the Bush Administration told pollsters that they thought Bush had foreknowledge of 9/11—or at any rate were uncertain about whether he did. Now, probably some of those people interpreted this in a very broad sense and were thinking about the report that summer warning, in very general terms, that Al Qaeda was “determined to strike in U.S.,” but assume a hefty chunk literally meant that they thought a sitting U.S. president deliberately allowed (if not engineered) the murder of thousands of American civilians for his own nefarious purposes. Yet I can’t help but notice that, however much people may have expressed intense disdain for Bush, you did not really see a lot of behavior consistent with millions upon millions of people being seriously convinced that their president was a treasonous mass murderer.  I mean, what would you do if you were really-and-truly convinced that something like that were true? Take up arms? Throw yourself into a quest for conclusive evidence? Move to Canada?  Something, probably—or if you wouldn’t, at any rate, some non-trivial proportion of the people who shared the belief would—or so I’d imagine. It’s obviously too stringent to make it a condition of ascribing belief that people act on all the logical and practical implications of holding it, but when the disconnect is too profound, I think we’re justified in characterizing some of these as pseudobeliefs, one subset of which is what I want to call “symbolic beliefs.”

To be sure, there is a big difference here between embracing Trutherism and believing that President Obama is a Muslim. But the next part of Julian’s argument seems to capture at least some of what is happening:

Pseudobeliefs may serve any number of functions; I’m using the phrase “symbolic belief” for the ones that either work as a public expression of some associated attitude, or play some role in defining the holder’s self-conception.

That is, embracing the symbolic belief is a form of posturing: 

Symbolic beliefs, as I’m conceiving of them, are “sincere”—in that the person holding them probably isn’t consciously or reflexively aware that they’re false,  but also shallow, insofar as a subconscious lack of commitment to the truth of the belief renders it behaviorally inert. For those who aren’t hardcore birthers, I’d hazard that the real meaning of professing either uncertainty or positive disbelief in the claim that he was born in the U.S. is something like: “I consider Obama phony, dishonest, and un-American.” It’s not, I hasten to say, that they really believe, deep-down, that Obama was born in Hawaii. It’s more that—as with H.G. Frankfurt’s definition of “bullshit”—the literal truth or falsity of the proposition is a matter of indifference; it’s not really the point.

This sounds right to me. But if this framework is right, the Obama-is-a-Muslim meme can’t be attributed to Fox News. 

The main thing I find depressing about the Obama-is-a-Muslim meme is that it reflects and potentially reinforces anti-Muslim sentiment. I like to think that conservatives would embrace an actual Muslim candidate who embraced limited government, low taxes, and a strong national defense. But just as large numbers of voters are allergic to Mormon candidates, we have good reason to believe that anti-Muslim prejudice — which is not the same thing, by the way, as objecting to Cordoba House or believing that Muslim Americans and Muslim immigrants should embrace U.S. culture — will persist for years to come.

Because Sides has written such an insightful post on this issue, I’d be interested in hearing his thoughts on the persistence of anti-Semitism. 

A Non-Demagogic Disquisition on Death Panels


I’ve received a larger-than-usual amount of email and commentary from liberal readers, responding to my earlier thoughts on Atul Gawande’s piece in The New Yorker on end-of-life care. Most of these reflect exasperation regarding the term “death panels,” which they see as dishonest and demagogic (I objected to Gawande’s characterization of conservatives as such). This post is intended to account for the epistemological gulf between liberals and conservatives on the matter of death panels. I apologize in advance for its length, but I hope you will agree that these issues merit detailed consideration.

From the conservative point of view, liberals often tend to see an injustice or inequity in the world, pass a law to fix the inequity, and move on to the next problem. Conservatives think of themselves as approaching the same policy problems with pessimism and skepticism, because they are trying to look two moves ahead: what incentives will the new law distort? What new injustices or inequities will be triggered by these reforms?

This is not to say that liberals don’t try to think about the long-term consequences of their proposed reforms. They do. But it is to say that conservatives worry much more about this problem—the problem of what laws will be written in the future to address the unanticipated problems of laws written in the present. Liberals tend to be much less concerned about unintended consequences, and are more confident in their abilities to promulgate effective government action.

Let me try to explain another way: there is a policy problem A. Activists seek to pass a law, B, to solve injustice / policy problem A. But law B doesn’t completely solve problem A, and creates unanticipated new problems of its own. So a new law is passed, law C, to solve the problems outstanding from problem A, and the new problems caused by B. Unfortunately, law C only partially fixes the outstanding problems of A, and the new problems caused by B, and creates new problems of its own. So, now, there are calls for a new law, D, that will finally solve all the outstanding problems.

The above scenario is almost always what happens with complex new legislation, especially when that legislation substantially expands the role of government, in an unprecedented fashion, in what was previously private economic activity. In the case of Medicare, for example, official projections about the long-term costs of the program were off by a factor of 10, and various attempts to solve that problem (e.g. price controls) have created new ones (fraud).

When the British National Health Service was founded on July 5, 1948, expectations were sky-high. The NHS, in the words of one official, would be the “envy of the world.” 62 years later, by all objective measures, the NHS is the worst health-care system in the developed world. Costs have exploded. The NHS uses the most aggressive price controls and rationing procedures in the West, going so far as to assign a price to the “quality-adjusted life year” that is required to extend it. And yet, from 1996 to 2008, national health care expenditures in the U.K. have grown at 6.7% a year, compared to 5.5% in the U.S. over the same period.

Let us, at this point, recall what Sarah Palin said in her notorious Facebook note, dated August 7, 2009, that started the “death panel” brouhaha:

The Democrats promise that a government health care system will reduce the cost of health care, but as the economist Thomas Sowell has pointed out, government health care will not reduce the cost; it will simply refuse to pay the cost. And who will suffer the most when they ration care? The sick, the elderly, and the disabled, of course. The America I know and love is not one in which my parents or my baby with Down Syndrome will have to stand in front of Obama’s “death panel” so his bureaucrats can decide, based on a subjective judgment of their “level of productivity in society,” whether they are worthy of health care. Such a system is downright evil.

Health care by definition involves life and death decisions. Human rights and human dignity must be at the center of any health care discussion.

These comments were not made solely with end-of-life care in mind. But they were made with the NHS in mind: a system in which treatments that don’t extend life by £20,000-30,000 per quality-adjusted life year are not paid for by the government. And if you choose to buy that forbidden treatment on your own, you are kicked off the NHS for life.  Here are some other problems with the NHS, pulled from my previous post on the subject:

  • NHS doctors routinely conceal from patients information about innovative new therapies that the NHS doesn’t pay for, so as to not “distress, upset or confuse” them.
  • Terminally ill patients are incorrectly classified as “close to death” so as to allow the withdrawal of expensive life support.
  • NHS expert guidelines on the management of high cholesterol are intentionally out-of-date, putting patients at serious risk, in order to save money.
  • When the government approved an innovative new treatment for elderly blindness, the NHS initially decided to reimburse for the treatment only after patients were already blind in one eye—using the logic that a person blind in one eye can still see, and is therefore not that badly off.
  • While most NHS patients expect to wait five months for a hip operation or knee surgery, leaving them immobile and disabled in the meantime, the actual waiting times are even worse: 11 months for hips and 12 months for knees.
  • One in four Britons with cancer are denied treatment with the latest drugs proven to extend life.
  • Those who seek to pay for such drugs on their own are expelled from the NHS system, for making the government look bad, and are forced to pay for the entirety of their own care for the rest of their lives.
  • Britons diagnosed with cancer or heart attacks are more likely to die, and more quickly, than those of most other developed nations. Britain’s survival rates for these diseases are “little better than [those] of former Communist countries.”

The attack on Sarah Palin has been: “Palin is lying. There is nothing in this bill that is a death panel” (death panel being defined as a panel of bureaucrats who decides whether or not you can continue receiving care). But this is exactly what happens in Britain. Those who are in their last years of lives are expected to do their part for the national budget, which is to die inexpensively. That is to say, if Palin had been born 60 years earlier, and made the same criticisms of the NHS at its founding, she would have disparaged as a paranoid lunatic demagogue. “Sarah, old girl, there’s no death pansies, or panzers, or panels around here. The bill clearly states: ‘Her Majesty’s funds shall not be used to ration care for the sick.’ After the war, we’re done with all that rationing nonsense!”

However, Britain discovered that it wasn’t that simple. In the decades after the war, health care costs continued to rise, and inexorably, the government had to step in and do something about it.  After all, in Britain, the government owns all the hospitals, the clinics, and the insurers. So in 1999 they came up with a rationing board whose sole purpose was to identify those treatments that were medically cost-effective, and agree to reimburse for those. (Law D solving the problems originally caused by Law A.)

The Quality-Adjusted Life Year (QALY) methodology that the British use is precisely oriented at reducing care for the elderly, and steering it to younger patients, for whom effective therapies will lead to a longer, fuller life. For those in their 80s, in Britain, the NHS offers little. Recent studies have shown that Britons have the worst survival rates in the developed world after being diagnosed with a disease, like cancer, or a chronic condition, like heart disease. Britain may have the best tennis courts in the world, but it has a broken health care system. When you’re young and healthy, it’s great.  You go to do the doctor (if you can get an appointment), and you don’t have to think of any financial considerations.  But if you’re old and unhealthy, watch out.

The NHS, for American conservatives, is the paradigm of how state control of the health care system plays out. Palin’s logic is irrefutable: once the government is spending the money, the government has an obligation to the taxpayer to use those dollars as efficiently as possible. What does that entail? From the government’s point of view, that involves not wasting money on end-of-life care.

So this brings us to the issue of end-of-life counseling. What I think liberals misunderstand about the conservative position is that conservatives don’t object to end-of-life counseling per se. Indeed, as I argued in my previous piece on the subject, end-of-life counseling should long ago have been incorporated into the standard of medical care.

What conservatives are objecting to is the involvement of the state in end-of-life counseling. It comes down to this: if the government is funding health care, and simultaneously funding end-of-life counseling, the government has a conflict of interest. The government has a financial incentive to encourage people to “pull the plug on granny,” regardless of whether or not that is consistent with granny’s, or her family’s, wishes. It is, at bottom, the same reason we insist on a free, independent press (and free speech in general): when the government controls the media, it has a conflict of interest; i.e., an incentive to promote journalism that is favorable to the government.

This is not merely a theoretical concern. It has played out in the Veterans Administration health system. The VA’s guide to end-of-life planning, “Your Life, Your Choices,” was written by a prominent advocate of physician-assisted suicide, and steers veterans into feeling guilty about keeping themselves alive at others’ expense. Here is a detailed account from Jim Towey, the man who first brought this problem to public attention in the Wall Street Journal:

I discovered the existence of “Your Life, Your Choices” in September 2007 by accident. Then–VA secretary Jim Nicholson had arranged a meeting for me with officials from the VA National Center for Ethics in Health Care so that I could share with them a living will I created — “Five Wishes” — and see if the agency headquarters might be interested in using it. (A living will is written instructions on the kind of medical care  you want when you can’t speak for yourself. Together with a form designating a person who has legal authority to speak for you when you can’t speak for yourself, it constitutes an “advance directive.”)

My background as a lawyer who once lived as a full-time volunteer in Mother Teresa of Calcutta’s home for people with AIDS had enabled me to develop “Five Wishes.” In less than a decade it had become America’s most popular living will, with over 13 million copies in circulation throughout the country. It seemed like it might be of use to these top VA officials.

It wasn’t. “Five Wishes” was dead on arrival with the VA’s top advance-care-planning official, Dr. Ellen Fox, director of the Center for Ethics in Health Care. She told me that the agency had completed the regulatory review process for a different document, “Your Life, Your Choices,” and was about to unveil it as a system-wide online offering on MyHealtheVet. She handed me this 100-page document, which was marked as “Second Edition, June 11, 2007.”

My first reaction was: How in the world would senior citizens navigate a document that was nearly an inch thick and contained dozens of pages of worksheets? But after I left the meeting and carefully read “Your Life, Your Choices” for the first time, I concluded that the unmanageable size of the document was the least of its defects. Taken as a whole, “Your Life, Your Choices” seemed to subtly steer individuals toward refusing care.

Page 8 asked, “Have you ever heard anyone say, ‘If I’m a vegetable, pull the plug’? What does ‘being a vegetable’ mean to you? You can’t take care of yourself now and you’ll never be able to in the future…” Centered on the page were two photos of middle-aged men. One was of an unshaven man named Mr. Santini, with a furrowed brow and a quote next to him that read, “Life is sacred and has meaning, no matter what its quality.” The other photo was of a smiling, handsome man named Mr. Johnson, and his quote said, “I’ve lived a long and full life. I don’t want anything done just to keep me alive.”

Towey cites many more examples. It’s worth reading the whole article. The bottom line is, the American experience with state-sponsored end-of-life counseling is not reassuring.

I think the most understandable criticism of my earlier piece was that “time is money;” that if physicians aren’t reimbursed by Medicare for taking the time to discuss end-of-life issues with their patients, those discussions won’t take place.

I’d make a couple of points in response: First, this argument ignores the many ways in which end-of-life planning can take place without the involvement of physicians. Again, I refer to Atul Gawande’s citation of the practice in La Crosse, Wisc., of requiring anyone admitted to a hospital, nursing home, or assisted-living facility to fill out an end-of-life planning form. Specialists in end-of-life counseling can spend their time discussing these issues with patients and families, without placing a burden on physicians’ much more expensive time. Second, there’s little reason why an initial discussion of end-of-life issues can’t accompany the physician’s initial interview of the patient (in medical parlance, the “history and physical”). By taking all of these steps, the burden of follow-up conversations requiring the physician’s time are kept to a minimum. Third, the criticism itself calls attention to the key problem: that state funding of health care inevitably leads to calls for state-sponsored end-of-life counseling.

So, in 2,400 words, I’ve tried to explain what conservatives mean when they worry about death panels. Whether you agree or disagree with conservatives on the question, I hope we can all agree that these concerns are reasonable, and are not merely the province of frothy lunatics and demagogues.

Both liberals and conservatives value of end-of-life counseling. Where we part ways is on the degree to which government involvement in the matter is appropriate.

I’ve Barely Scratched the Surface of What I’d Like to Blog About Today


I’ll be traveling tomorrow and I have to finish a few big tasks, but I’m hoping to post a bit tomorrow afternoon and over the weekend. 

Before I leave you for the day, I want to briefly address a post by Simon Johnson:


This deeper critique is posed probably in its sharpest form by Arianna Huffington in her new book, “Third World America” (in the spirit of disclosure, let me note that I am a contributing business editor at The Huffington Post). Her point is that we should not think of the last financial crisis in isolation, but rather as the outcome of a longer-run pattern of behavior.

Excessive consumer debt is an outcome of prolonged inequality – in trying to remain middle class, too many people borrowed too much, while unscrupulous lenders were only too willing to take advantage of such people.

Remember that: Arianna Huffington is, in Simon Johnson’s view, a sage, and the U.S. middle class is heading for Third World immiseration.


The financial crisis may be behind us, but the link to the likely intense debate this fall regarding fiscal policy is direct. We are told that fiscal austerity requires outright and immediate further cuts in the benefits previously promised to people at the federal, state and local level.

The benefits promised to people at the federal, state, and local level — understand that Johnson is attacking those who advocate pension reform for employees of state and local governments, who won concessions through a combination of effective collective bargaining and using taxpayer-funded salaries to shape the political process, as well as those who are calling for reforming Medicare and Social Security.

Never mind that this is simply not true — at least in the form currently presented (here are a primer on short-term issues and another on the longer-term perspective). A vocal class of people — including some at the upper end of the income distribution – incessantly insist that entitlements must be cut while refusing to address the real causes of both our recent surge in government debt (the financial crisis, caused by perverse incentives in the financial system) and the genuine longer-term issues we face (which are about controlling the future increase in health care costs, not cutting the level of benefits today).

A vocal class of people — including some at the upper end of the income distribution — incessantly insist that medical providers, public research universities, K-12 schools, and a wide range of other institutions not be subject to any kind of fiscal discipline. Many in this vocal class are direct beneficiaries of taxpayer largesse, and organizational discipline would have a direct and deleterious impact on their personal bottom lines. Others are ideologically motivated. Among social service providers, there is a tendency to favor indirect over direct transfers to the poor, thus preserving a role for relatively well-compensated middlemen. 

The refusing to address long-term problems point is a fair criticism of Republican members of Congress. Of course, it is also a fair criticism of Democratic members of Congress. We’ve discussed the cost containment mechanisms in PPACA at length. The main upshot of the legislation seems to be that medical providers will receive large amounts of taxpayer dollars, which takes us back to an earlier point, without any expectation of fiscal discipline, apart from pilot programs that can easily be strangled in the crib — indeed, that were legislatively designed to be easily strangled, contra efforts by the Obama White House to create stronger cost controls.

The self-described fiscal conservatives really cannot be taken seriously. In the financial reform debate, they either didn’t show up or preferred to keep the existing system in place, and they refuse to put serious health cost control measures on the table.

I think that Johnson has made valuable contributions to the policy conversation, and I profit from reading his thoughts on domains in which he has specialized knowledge that I definitely lack. But it’s not obvious to me that Johnson can be taken seriously when he operates at this level of political abstraction. 


A Better Economic Policy Debate?


My friend Dylan Matthews is about to leave D.C., and he’s written a last Research Desk of the summer as a parting gift. I think Dylan has been doing a terrific job, despite my disagreements with him on a number of issues. After noting that the CBO’s projected revenues and outlay for the 2000s did not reflect actual revenues and outlays, he writes:


The discrepancy here does not prove that the CBO is wrong or bad at making these kinds of predictions. It just shows that they don’t know what Congress is going to do over the course of the decade. For one thing, the outlays estimates assume that discretionary spending will grow at the rate of inflation, which they obviously did not.

But more important, the CBO in 2000 did not know that we were going to invade and occupy two foreign countries. They did not know two major tax cuts representing trillions in lost revenue would be passed. They did not know Medicare would start covering prescription drugs. They definitely did not know that the financial sector would collapse in upon itself, leading to a dramatic drop in revenues and necessitating trillions in spending to fuel a recovery. Policymaking is messy and unpredictable, and those sorts of thing just can’t be factored in ahead of time.

I’m a critic of the Bush tax cuts. I favor a sustainable tax reform that places a heavy emphasis on flatter consumption taxes. But I think Dylan is missing some important parts of the story.

Keith Hennessey, in describing the budget outlook in 2000, writes:

It is true that 10 years ago we had a budget surplus of more than $200 billion, and that CBO projected surpluses “stretching out toward the horizon.”  When CBO built its budget baseline for 2001, they had not yet accounted for the bursting of the late 90’s tech stock market bubble and the effect it would have on federal revenues.  Like families, businesses, and investors, CBO made a mistake:  they projected future revenue growth that was never going to occur.  Critics of the Bush Administration hinge their comparative argument on this single mistaken budget projection which in hindsight analysts from both parties acknowledge was wildly inaccurate. [Emphasis added.]

That is not an inexcusable error. But it is an error: the tech bubble wasn’t going to swell capital gains tax revenues forever. Moreover, Dylan writes that the CBO did not know that Medicare would start covering prescription drugs. That is a fair point in that the CBO had no reason to adjust its baseline on that assumption. It is also true, however, that everyone believed that Medicare would start covering prescription drugs as both Republicans and Democrats endorsed expanding Medicare along those lines, as Keith has also explained:


It is also true that President Bush proposed, and in 2003 the Congress passed and President Bush signed into law, a Medicare drug benefit that was not offset by other spending cuts or tax increases.  It is true that this benefit significantly increased the already large unfunded liabilities of Medicare.

What the Democratic critics fail to mention is that the Democratic alternative proposal cost significantly more than the Bush proposal and the enacted law.  (This predates Mr. Obama’s time in the Senate.)

This shouldn’t let the Bush administration off the hook. It does raise the question of the Democratic alternative: did they want a more expansive and expensive prescription drug entitlement funded by higher taxes? That is an entirely fair view. But let’s be explicit about it.

My Economics 21 colleague Christopher Papagianis writes:

Had government spending grown at just the rate of inflation over this period, the federal government would have run a $414 billion surplus in 2007. Allowing government spending to grow at three times the inflation rate from 2000 to 2002 (as actually occurred) and then slowing spending growth to the rate of inflation thereafter would have resulted in a $250 billion surplus in 2007. 

I’m happy to endorse the view that we should not have expanded Medicare without making offsetting spending cuts and that we should have spent more time thinking through the costs and benefits of invading Iraq. But keeping the total tax take in light with the post-war historical average doesn’t seem like a crazy thing to do.

If we tried to keep spending in line with tax revenues, perhaps we’d see a more constructive debate in which liberals and conservatives would debate the relative merits of spending on early childhood education or increasing our military footprint in Central Asia and sub-Saharan Africa, understanding that raising taxes, in the present or in the future (i.e., deficit spending), is not desirable. 

Our Brain Health, Ourselves



To take things in a totally different direction, I wonder about the extent to which loss and risk aversion are related to intelligence. A few years ago, Jesse Shapiro, Daniel Benjamin, and Sebastian Brown wrote a paper on an intriguing subject:

In this paper, we ask whether variation in preference anomalies is related to variation in cognitive ability. Evidence from a new laboratory study of Chilean high school students shows that small-stakes risk aversion and short-run discounting are less common among those with higher standardized test scores, although anomalies persist even among the highest-scoring individuals. The relationship with test scores does not appear to result from differences in parental education or wealth. A laboratory experiment shows that reducing cognitive resources using a cognitive load manipulation tends to exacerbate small-stakes risk aversion, with similar but statistically weaker effects on short-run impatience. Explicit reasoning about choice seems to reduce the prevalence of these anomalies, especially among the less skilled. Survey evidence suggests that the role of cognitive ability may extend to adult behaviors that are related to small-stakes risk preference and short-run time preference. [Emphasis added.]

In describing his research agenda, Garett Jones, an economist at GMU, writes:

A two standard deviation rise in an individual person’s IQ predicts only about a 30% increase in her wage.  But the same rise in a country’s average IQ score predicts a 700% increase in the average wage in that country.  I want to understand why IQ appears to have such a large social multiplier. 

The story is much the same for math and science scores: A person’s individual score predicts little about how she’ll do in the job market, but the richest and fastest-growing countries in the world tend to do much better on math and science tests.  If the IQ multiplier is even half as large as it appears to be, then health, nutrition, and education policies in developing countries should be targeted at raising the brain health of the world’s poorest citizens.

My suspicion is that while loss aversion is very common among the very brainy, they might have an easier time getting over this “irrational quirk” in the course of repeated trials. And that’s yet another reason we should collectively invest in raising our own brain health. Indeed, that’s one reason why I’m more concerned about environmental pollutants than some of my ideological allies. In November of 2009, Scientific American published a short piece on pollution’s toll on the brain:

The most recent of these studies found that New York City five-year-olds who were exposed to higher levels of urban air pollutants known as polycyclic aromatic hydrocarbons (PAH) while in the womb exhibited an IQ four points lower than those subjected to less PAH. Alarmingly, “the drop was similar to that seen in exposure to low levels of lead,” says epidemiologist Frederica Perera, director of the Columbia Center for Children’s Environ mental Health and head author of the study, in which mothers wore personal air monitors during their pregnancy. The IQ change was enough of a dip to affect school performance and scores on standardized tests.

“These weren’t even superimpressively high levels of pollution,” Perera says. “The levels we measured in our study are comparable to those in other urban areas.” Most PAH pollutants come from motor vehicle emissions, especially diesel- and gas-powered cars and trucks, and from the burning of coal.

This has definitely shaped by thinking about carbon pricing. While I’m convinced by Jim Manzi’s arguments against an economy-wide carbon price as a tool against climate change, I do think it’s vitally important that we sharply reduce our reliance on coal-burning plants, particularly in light of the impact of mercury emissions. 

How Loss Aversion Explains the World


Jonah Lehrer has a very useful post at Wired that views the dysfunctional housing market through the lens of loss aversion:

The phenomenon was first identified by Daniel Kahneman and Amos Tversky in the mid-70s, after they gave their students at Hebrew University a simple survey asking them whether or not they’d accept a variety of different bets. The psychologists noticed that, when people were offered a gamble on the toss of a coin in which they might lose $20, they demanded an average payoff of at least $40 if they won. The pain of a loss was approximately twice as potent as the pleasure generated by a gain. Furthermore, our decisions seemed to be determined by these feelings. As Kahneman and Tversky put it, “In human decision making, losses loom larger than gains.”

After explaining how loss aversion has shaped the housing market in past busts, Lehrer ends his post with the following:

The housing market will only recover when we get over our collective bias, and realize that home prices have fallen and aren’t coming back (at least not anytime soon). Our irrationality got us into this mess – we binged on credit cards and took out unreasonable loans and mistook a bubble for a boom – and the only way we’re going to get out of it is to see through a new set of irrational quirks, which prevent us from fully equilibrating to our new financial reality. Sometimes, the wisest thing to do is cut our losses and run.

Everyone is susceptible to loss aversion. But my sense is that some are less susceptible than others. It is unlikely that we will get over our collective bias all at once. Rather, some are already over it — some Americans have already cut their losses, and they’re preparing themselves for the next phase of life. This is part of how inequality is reproduced over time.

Rethinking Jerry Brown


Last year, Joe Matthews, an expert on California politics with a knack for storytelling, wrote a fascinating article on Jerry Brown, the former governor of California who is running for that office again this year for The American Prospect. During the 1970s, Brown was a quirky thinker who embraced some aspects of libertarian thinker, as Matthews makes clear:

His governorship, beginning in 1975, was built around the idea that politics was a dubious enterprise. Brown spoke in aphorisms that were part Confucius, part Chauncey Gardiner. He made a virtue of inaction. “You don’t have to do things. Maybe by avoiding doing things you accomplish quite a lot,” he declared in his early days as governor. His favorite reply to questions about his policy plans? “What we need is a flexible plan for an ever-changing world.”

This sounds very appealing to me. Yet there was a serious contradiction in Brown’s thinking:

To supporters, Brown was fashioning a new form of low-impact liberalism, emphasizing caution and the wisdom of breaking from the Great Society ’60s. He appointed progressives to California’s sea of boards and commissions, championed wind and solar power before it was popular, and expanded collective-bargaining rights, most memorably for farm workers. His youth (he was 36 when he took office) and appealing biography (the governor’s son who spent time in seminary and practiced Zen meditation and thus learned to think differently) offered some cover for his more conservative economic views. [Emphasis added.] 

In essence, Brown’s “more conservative economic views” were about expanding the power of government in opaque domains — unaccountable boards that impose costly regulations — while shrinking it in those transparent, easy-to-understand domains, like highway construction. And most importantly, he dramatically empowered the state’s public employees. 

Progressives, both then and now, argue that Brown’s brand of anti-government liberalism fueled the Prop. 13 fire. If government isn’t all that important, what does it matter if you cut taxes? Brown had frozen highway construction, criticized funding for adult education and food stamps, and slashed social services. “I am going to starve the schools financially until I get some educational reforms,” he said in one encounter with reporters.

What reforms, governor?

“I don’t know yet.”

What reforms would survive the power of unions that will defend generous compensation over structural changes designed to improve the quality of construction? Brown was right to want to impose spending discipline, as operational discipline tends to follow. But operational discipline can’t follow if administrators don’t have the autonomy they need to engage in the trial-and-error process of improving efficiency. Public sector unions as currently constituted stymie that trial-and-error process. 

To be sure, Brown advocated capping raises and, after a revenue shortfall, a wage freeze for public employees during his tenure. But collective bargaining rights made such efforts all but impossible.

One gets the impression that Brown’s economic conservatism, if you can call it that, was based on faulty premises:

As it happens, the only thing worse than Prop. 13 itself was its implementation. Brown and the legislature bailed out cities and counties that lost revenues under the law — and thus established the dysfunctional system of budgeting that plagues California to this day. Tax and spending decisions once made by city councils and school boards were centralized in Sacramento. The state Capitol became a giant piggy bank, with interests on the right and left using lobbying muscle — and the initiative process — to carve out special protections for their funds, leaving less for broad public investments. At the rare moments when Democrats tried to make such investments, Prop. 13′s two-thirds requirement for taxes allowed Republicans, even when they were in the minority, to block them. [Emphasis added.]

This kind of centralization has been the real legacy of Prop 13, not some kind of cataclysmic reduction in revenues. As William Voegeli has explained, the average property-tax rate in California is 11 percent lower than the U.S. average. And other taxes are much higher:

A recent article in the California Journal of Politics and Policy by Colin McCubbins and Mathew McCubbins shows that, adjusted again for population growth and inflation, total state and local tax revenues in California were higher ten years after Proposition 13’s enactment than they were just before—and that they were half again as high in 2000 as in 1978. Census Bureau data show that California ranked tenth in the nation in 2007 in terms of per-capita receipts from all state and local taxes (property, income, sales, and excise taxes) paid by individuals and corporations. Per-capita receipts from individual and corporate income taxes were 64 percent higher in California than they were in the rest of the country: $1,764 in California, $1,077 elsewhere. All told, California’s governments received $4,731 per resident from all taxes, 14 percent more than the $4,160 average outside California.

One gets the impression that as governor, Jerry Brown married the worst ideas of the right and the left. Brown reduced “spending” while increasing the centralization of authority in Sacramento and regulation through unaccountable boards and commissions, raising the effective burden of government on Californians while concealing it. 

And now, as Jerry Brown runs for governor, he’s actually celebrating the fact that he enacted collective bargaining rights for public school teachers.

These thoughts are prompted by David Ragsdale’s recent op-ed in the Los Angeles Times about the California gubernatorial race, which I strongly recommend. Depressingly, Ragsdale explains why Meg Whitman and Jerry Brown will both have an extraordinarily difficult time taming public sector unions. 

Justin Fox on Paul Otellini on the American Economy


Justin Fox, editorial director of Harvard Business Review, is fast becoming one of the writers I enjoy most. Apart from being a very smart guy, Justin is a genial and constructive liberal who is open to pro-market insights. And he’s also done wonders with HBR, a magazine that’s become a must-read. Recently, he wrote a post on remarks by Intel CEO Paul Otellini:

“I think they’re flummoxed by their experiment in Keynesian economics not working,” Otellini said of Washington Democrats. Um, really? The experiment in Keynesian economics undertaken in the U.S. over the past couple of years — and it was well under way in 2008, before Obama was elected — has almost certainly worked in the sense of preventing even bigger job losses, as Dylan Matthews explained earlier today. It just hasn’t worked miracles.

But that’s not quite what Dylan explained. Rather, he linked to the CBO’s latest estimates of the impact of the stimulus, which, as Peter Suderman noted in March, aren’t an independent test:


In response to a question at a speech earlier this month, CBO director Doug Elmendorf laid out the CBO’s methodology pretty clearly, describing the his office’s frequent, legally-required stimulus reports as “repeating the same exercises we [already] did rather than an independent check on it.” CBO tweaks its models on the input side, he says—adjusting, for example, how much money the government has spent. But the results the CBO reports—like the job creation figures—are simply a function of the inputs it records, not real-world counts.

Following up, the questioner asks for clarification: “If the stimulus bill did not do what it was originally forecast to do, then that would not have been detected by the subsequent analysis, right?” Elmendorf’s response? “That’s right. That’s right.” 

This shouldn’t imply that the stimulus hasn’t improved short-term GDP performance at the margin. It just tells us that the CBO’s analysis isn’t quite as useful as Justin suggests. 

Fox then goes on to highlight other remarks by Otellini that he found more sensible:

But some of Otellini’s other, less of-the-moment arguments made sense. The U.S. corporate income tax rate — at 39 percent, it’s the second highest in the developed world after Japan’s, and Japan’s may be about to drop – is counterproductively high. It’s probably the only tax in the U.S. these days that’s conceivably on the wrong side of the Laffer curve; if we lowered the rate, we might take in more money. Our immigration laws are ridiculously unfriendly to talented workers from overseas (actually, that was Carly Fiorina’s argument at the same event, but I’m sure Otellini would agree). As a nation, we sometimes seem to be actively discouraging R&D and locating manufacturing facilities here. But none of that’s new to the Obama presidency, or even to the 2000s. I think it’s been going on since at least the 1980s, when Washington policymakers and corporate chieftains began to fall under the thrall of financial markets and the financial sector (book recommendation of the day: Gerald Davis’s “Managed by Markets: How Finance Re-Shaped America).” Got a plan for what to do about that, Mr. Otellini?

I’m sympathetic to everything Justin says up until the end. Justin has written a very well-regarded book — The Myth of the Rational Market — so I don’t disagree with him lightly. Many of the pathologies that plague the financial markets do have their origins in the 1980s, as Nicole Gelinas argues in her wonderful book After the Fall.

But the capital markets were also a constructive force of change, a case Jim Manzi made in “Factory Man” in National Review last year. Jim begins his article by describing his experiences “as one small part of a self-conscious movement to rescue American manufacturing from its projected obsolescence.” After deriding New York finance-types, he came to see them as allies:

As a general rule, people resist change in business. There are good reasons for this: It is easy to theorize about improvements, but the law of unintended consequences applies to all complicated organizations, not just governments. But there are also less-good reasons for it: predominantly, that change is hard, human beings are lazy, and it’s hard to get incentives aligned properly so that the necessary people are willing to act.

The power of capital markets to force change was revealed to me when a large manufacturing company where I was consulting was confronted by a leveraged-buyout offer. The financial wolf was at the door, and I was placed on a small team tasked with figuring out the changes that would have to be made to meet the new financial targets and avoid losing the company to the raiders. Suddenly, in the face of crisis, much of the previous resistance melted away. In the end, the company did pretty much what the buyout group would have done. It was sloppy and painful, but the company emerged healthier and growing. It turns out those finance guys in New York were doing something important to prevent the decline of American manufacturing into mediocrity and irrelevance after all. 

Repeated application of the process of financial pressure followed by operational response has paid off. The U.S. has a very productive manufacturing sector. It just looks much different from what most of us imagined it would be. One of the most important differences is that it doesn’t employ many more people than it did in 1947.

That’s a long excerpt, but an important one. “Financial pressure followed by operational response” is an important idea to keep in mind, as it is one of the key reasons for public sector underperformance in many domains. Not every financial innovation of the post-1980 era has been beneficial, as Gelinas and Amar Bhidé have explained. (I believe Justin edited Amar’s piece.) But the financial sector also made great contributions in that era. 

Keith Hennessey on Deficit Effects



Keith Hennessey has done us all a great service by highlighting the CBO’s summer baseline update:

While I disagreed with some of the judgment calls CBO made during the health care debate, on the whole I think they did a good job under difficult circumstances.  This missing information, however, was and is a significant failing by the CBO.  Unlike with other major legislation, CBO’s scoring of the health laws blended spending increases and tax cuts into a single measure of deficit effects. The final scoring showed that these two bills combined would reduce the budget deficit over the next ten years.

As Keith explains, this single measure of deficit effects masked the relative role of spending cuts and tax increases. What we now know is that the CBO estimates that PPACA will increase federal entitlement spending by $401 billion while raising taxes by $525 billion. I’m not necessarily averse to a $525 billion tax increase given our deteriorating fiscal position. It is not obvious that a large permanent increase in federal entitlement spending was the best way to reduce the deficit. This could be why leading Democratic strategists are recommending a shift in tactics:

Key White House allies are dramatically shifting their attempts to defend health care legislation, abandoning claims that it will reduce costs and the deficit and instead stressing a promise to “improve it.”

This is shrewd. It’s not terribly inspiring, however. 

Stray Links for 26 August 2010


* Yonah Freemark on the politics of mode choice:


The fundamental question for proponents of better transit stuck asking themselves what transportation technology to support is this: Is it more important to argue for a mode that is more technically efficient or one that is emotionally appealing? Could Mayor Villaraigosa have found enough support for his plan had it promoted a series of busways? Is Mayor Iorio’s argument in favor of light rail a response to her recognition that only it will be exciting enough to appeal to voters?

More directly: If it is necessary to intrigue both politicians and the public about a new transit system in order to get it funded, the necessary corollary must sometimes be choosing the wrong transportation mode from a technical perspective in order to satisfy political demands.

I can’t stand this idea. I hate the thought of embracing transit systems that aren’t cost-effective and technically efficient simply because they don’t resonate with politicians. The public is another matter. My sense is that the public will tend to favor lower-cost options, if they have skin in the game, and that this is generally a good thing. Transit advocates thus find themselves overpromising to persuade voters to break with the transportation status quo. And this, in turn, reinforces public cynicism.

* Will Wilkinson has written an outstanding post for The Economist’s Democracy in America blog on inequality as a driving force behind the financial crisis:


If we insist on seeing the problem as poorer people having too little money, then the problem is that poorer people have too little money, not that they have too little money compared to extremely rich people. As it happens, the forces that pushed, and continue to “push people at the bottom of the ladder toward choices that put the financial system at risk” are policies intended to reduce wealth inequality by making it easier for lower-income Americans to buy large depreciating assets with two and a half baths.

I look forward to reading more of Will’s work at DiA. Will is one of the best, most trenchant libertarian critics of U.S. conservatives and conservatism. He’s the kind of thinker who keeps you on your toes by identifying and dismantling muddled thinking. I happen to think there’s something to be said for incompletely theorized agreements and muddling through, which is why we don’t always see eye to eye. But I know that engaging with Will’s work has made me sharper. With enemies like Will, who needs friends? 

* The NYT has a Room for Debate on housing and the recover. I found Sherle Schwenninger’s take particularly interesting:

The best way to create jobs and support economic growth would not be another stimulus program heavy on tax cuts but a multi-year infrastructure investment program that gives businesses the confidence they need to expand their work forces and to make long-term new investments in plant and equipment.

I’m all for it if we make offsetting cuts in entitlement spending and, if prudent, military expenditures. 

* Casey Mulligan is making sense on the costs of war:

Part of the deal for volunteer military personnel is that they and their family will receive retirement benefits and help with medical expenses for the rest of their lives. In this regard, expenditures on the Iraq war could continue for more than 100 years, although presumably at a reduced rate (the last Civil War veteran’s widow died in 2004!).

* Ross DeVol’s case for economic optimism seems perfectly reasonable:


So why is our economic outlook more sanguine than the current consensus? For one, robust (albeit moderating) economic growth in developing countries, particularly in Asia, will provide support for U.S. exports. Look no further than Caterpillar, which reported a doubling of its earnings in the second quarter of 2010 and whose product line is sold out for the rest of the year.

Improved business confidence is already spurring strong investment in equipment and software. Record-low U.S. long-term interest rates are supporting the recovery. And the benign inflationary environment allows the Fed to keep short-term interest rates near zero until late this year, or even into 2011 if it desires.

I guess we’ll see. DeVol suggests at the end of the piece that the markets will demand a credible plan to reduce the deficit. I’m pessimistic about the prospects of Democrats and Republicans working together to create such a plan. Republicans are accused of irrational opposition to tax increases, yet a quasi-religious aversion to spending cuts among Democrats, and many Republicans, is at least as big a problem, though it’s rarely characterized as such. 

The Distribution of Dual-Earner Families



Dylan Matthews discusses the distribution of high-earners across the states:

About 3.96 percent of American households make over $200,000 a year. Thirty-eight states have lower percentages than that, and twelve and the District of Columbia have higher ones. Seven states have a percentage of less than 2 percent (West Virginia is lowest with 1.36 percent), 21 have a percentage between 2 and 3 percent, 11 have one between 3 and 4 percent, and four have one between 4 and 5 percent. New York and Virginia are both at about 5.6 percent, and California and Massachusetts are around 6.2 percent. Maryland is at 6.8 percent, New Jersey at 7.46 percent, Connecticut at 7.95 percent, and D.C. tops the list with 8.37 percent.

One thing that is crucially important for people to understand is the importance of the changing demographic composition in households in increasing household income dispersion. As Scott Hodge of The Tax Foundation observed in a 2007 report, the rise in the number of single taxpayers has had a predictable effect:

(1) There are vastly more single taxpayers than ever before and they comprise the majority of the populations of the first three quintiles.

(2) Because of the rise in dual-earner families, married couples are mostly found in the two highest quintiles.

(3) A greater percentage of taxpayers in the top two quintiles are married couples without dependents; no doubt many are “empty-nest” Baby Boomers nearing their peak earning years.

The landscape Hodge describes is the impetus for Rob Stein’s family-friendly reform of the income tax, which promises to dramatically reduce the tax burden on households with dependent children.

The $200,000 plus set is disproportionately composed of dual-earner families living in high cost metropolitan areas.Assortative mating plays a crucial role as well: in the age of consumption complementarity, high-earners are more likely to marry other high-earners. 

Check out this wonderful map from CNNMoney, which I found via a Gothamist post by Jen Carlson. The lifestyle that would cost $250,000 in Salt Lake City would cost $545,000 in Manhattan, $261,750 in Miami-Dade, and $405,250 in San Francisco.

To be sure, there is a reason that Manhattanites aren’t moving in Utah. They are consuming what they consider to be a valuable amenity. Yet when we’re talking about upper-middle-class taxpayers, it is important to have a sense of what headline income numbers actually mean. I’d submit that there is a tremendous value to having economic agglomerations of talented workers, and that we want people to choose cities and neighborhoods on the basis of their preferences and needs, not tax arbitrage. This is a big reason why I’m opposed to beggar-thy-neighbor state industrial policies.

Ben Schulman on the Magic of Failure


Richard Florida points us to a wonderful piece at Gapers Block that captures a lot of my own inchoate thoughts. Ben Schulman describes how Pittsburgh’s success reflects a legacy of failure:


The steel collapse decimated Pittsburgh and its region, taking with it nearly 1 out of every 10 jobs there. Entire towns surrounding the city became obsolete. But it is because of that failure, that absolute bottoming-out, that Pittsburgh has been able to cast aside its past and emerge as a unique showcase of what a small, bustling, connected American city can eventually become. The example of Pittsburgh is to fail on the failures and invest in the attributes- granted, of which the ‘Burgh had many, in its beautiful architecture, old establishment money, intact communities and ethnic organizations, and cultural trusts and universities- that a place already has. It is a tale not so much for cities facing similar problems to the Pittsburgh of 30 years past, as it is for the country as a whole in this stage of national transmogrification.

Like Pittsburgh did, the country needs to realize that failure is an option. Failure can be a catalyst for movement and for action. Failure can be a paradoxical assertion of American greatness. It is time for great structural changes that reinvest in our national attributes- granted, of which America has many, in its beautiful architecture, old establishment money, intact communities and ethnic organizations, and cultural trusts and universities- rather than band-aiding failed foreclosure prevention policies.

I don’t agree with all of Schulman’s prescriptions:

The current crisis could be used to rewrite the rules in regards to short-sales, allowing underwater homeowners to sell their properties without being penalized, as they are now by having the forgiven loan amount treated as taxable income. By freeing sellers from this penalty, in effect, the mobility of individuals to go where opportunities are increases, and the housing market loosens. As the aforementioned Richard Florida has mentioned, perhaps now is the time to get rid of the tax deduction for mortgage interest and enable the country to settle into new modes of habitation. Let’s let Detroit shrink. Bring back the Public Option. We could radically alter the political landscape of the country for the benefit of all by adopting Neil Freeman from’s Electoral Reform Map

I’m okay with reforming short-sales, I obviously love the idea of axing the mortgage interest deduction, and I’m all for letting cities shrink. Redrawing the states is a bit pie-in-the-sky, and I sure as heck don’t think bringing back the Public Option is the right recipe for successful national transmogrification. But Schulman’s thinking is interesting all the same. He is the left-of-center version of what Virginia Postrel memorably called a “dynamist,” a person who embracing the disorderly, decentralized, innovative future, rather than a “stasist,” a person who instinctively defends the old and familiar. One could call a stasist as conservative, but that doesn’t do justice to America’s distinctive conservative tradition, which has a far more dynamist cast. 

I’d much rather have a political debate in which Schulmanism defines the mainstream left and not the AFL-CIO’s version of homegrown social democracy. But Schulman is speaking for a relatively small number of college-educated professionals, and the same is probably true of me as well. Dynamism is a tough sell in a country of homeowners panicked about losing their nest eggs. It is a far easier sell in a country in which a large majority people feel prosperous and upwardly mobile. But a defensive politics of loss aversion is a recipe for economic stagnation. This is a vexing chicken and egg problem.  

Note on the State of the Housing Market


When my colleague Christopher Papagianis and I wrote about the housing sector for NR a few weeks ago, we called for ending the tangle of subsidies that props up homeownership, knowing fully well that this would lead to a steep correction in still-inflated housing prices. As Frank Ahrens of the Washington Post makes clear, the correction is coming soon, now that the homebuyer’s tax credit, a subsidy of minor importance when stacked against the mortgage interest deduction, has expired: 

The bottom line is this: Government-subsidized programs that prop up troubled industries help for as long as they exist, but rarely create any lasting demand. It’s like a car with a bad battery that won’t hold a charge. You can use another car to jump the battery, and the car will run for awhile, but once that charge runs out, your car will stop again.

Ahrens believes that we’re on the verge of steep declines in housing values:

You’ve probably already seen the value of your home drop 20, 30, 40 percent over the past four years. That’s painful, especially because it’s the largest purchase most Americans will make in their lives. But today’s number – combined with the general economic malaise – tells us that home prices probably still have not hit bottom.

This is bad news for homeowners, and the U.S. homeownership rate in just under 67 percent. It is hardly surprising that there is a clamor for intervention. Last month, Calculated Risk offered thoughts on the demographics of homeownership in the U.S. He tracked homeownership levels in 1989, 1999, 2005, and Q2 2010, making the obvious but important point that middle-aged workers were bearing the brunt of the housing collapse.

This does shows that the most impacted cohorts are currently in the 30 to 60 age groups, with the 30 to 35 year old cohort the hardest hit group (in their mid to late 20s during the bubble). The next hardest hit groups are the 45 to 59 cohorts — probably because some people were moving up to more home than they could afford.

This helps explain why we’re likely to see intensifying political pressure for a government bailout of homeowners, most likely from both political parties.

I’m inclined to see the upside of the coming correction. Young families who would have had a hard time getting on the housing ladder at the peak of the bubble find themselves in a stronger position. But under-30s are not a powerful political constituency.

The truly bad news, as Neil Irwin of the Post points out, is that the housing news is part of a larger pattern:


Virtually every major economic indicator to come out in the past two months has been disappointing in one way or another. Retail salesInternational trade.Weekly jobless claims. The monthly employment reportHousing starts.

Though Irwin had been reluctant to draw conclusions, he seems increasingly convinced that the recovery is sputtering out:

But as the third straight month of weaker data comes to a close, the brutal reality is that all the indicators are pointing in one direction. The data are all either coming in in line with diminished expectations, or surprising in a negative direction. It’s not an uneven recovery– it’s not much of a recovery at all.

Suffice it to say, we will all interpret this through our various ideological lenses. The left will argue that we needed more fiscal stimulus, many on the left and right will argue that we need a more aggressive monetary policy, and the right is split between those who believe that the downturn needs to do its work of liquidating malinvestment and those who see tax cuts as a cure-all. 

I’ll end by pointing to a terrific post by Daniel Indiviglio on “the mortgage of the future.” Assuming we do pare back homeownership subsidies as aggressively as we should, the mortgage market will look very different. Indiviglio offers his own clever alternative to having banks rely solely on high down payments to protect their interests:

Enter the Declining Jackhammer Interest mortgage. A jackhammer starts at ground level, then digs deeper and deeper as it breaks through layers of rock until you hit the level you’re aiming for. That’s how this mortgage product’s interest rate would work. As new levels of principal are reached, the rate would decline.

I’m no expert, but this makes sense to me. 

Sebastian Mallaby on the Rise of Hedge Funds


After reading Felix Salmon and Noam Scheiber on Sebastian Mallaby’s More Money Than God, I purchased and started reading the book last night. (I was also reading The Power of Pull. More on that to come.) Thus far, Mallaby is making an excellent case for hedge fund contrarianism, for reasons Salmon makes clear:


Hedge funds, especially big hedge funds, need more regulation than they get right now, as Mallaby readily admits. They might not have caused this crisis, but they still pose a potential systemic risk, and someone needs to be looking not only at the risks that individual funds take, but also the risks that they pose collectively. After all, given their extreme secrecy, they simply don’t know when they’re entering a crowded trade — as many of them discovered painfully during the quant meltdown of 2007.

But in general there’s one thing that the hedge fund system does well, and that’s confine hedge fund losses to the investors in those funds. Hedge funds will blow up occasionally, and that’s fine; the investors in those funds will lose money, and people betting against those funds will make money, and there will be few if any systemic repercussions. Even if the losses exceed the amount invested in the fund, those excess losses will be borne with few systemic implications by the fund’s prime broker.

Apart from offering an intelligent explanation a sector that is not well understood, least of all by me, Mallaby offers lots of highly entertaining mini-portraits of quirky hedge fund innovators. 

Jim Manzi on the Stimulus and Epistemic Humility


I take great pleasure in reading Jim Manzi engage with his critics. When you compare Jim’s writing to that of his interlocutors, you soonn realize that he is taking part in a very different kind of intellectual exercise. My impression is that Jim is less interested in political combat than in getting the questions and, to the extent possible the answers, right. 

In his latest post at TNR, Jim also links to his thoughts on fiscal stimulus from February of last year, which I enthusiastically endorse. Briefly, Jim endorsed Alice Rivlin’s call for a targeted stimulus effort that leave long-term public investment to a separate bill; he called for off-setting entitlement reforms and cuts in military commitments and expenditures; a deregulation effort focused on enhancing economy-wide productivity; and, most interestingly, a very tough program of conditional transfers to state governments:

The U.S. government should have authority to seize sales tax and other tax revenues until the debtis repaid. In order to prevent this from simply becoming a driver of yet more state deficits, the federal government should also have the authority to hire, fire and make all spending cuts that it chooses in California’s budget until the debt is repaid. Ultimately, the debtshould have recourse to state assets. You don’t want the taxpayers of the other 49 states to start selling oil drilling rights to the area off your cost, or selling off your state beaches to build condos? Then pay back your debt. If you don’t want these conditions, then don’t come to me with your begging bowl. This would have the effect of mitigating the moral hazard of this part of bailout in a very direct way: by humiliating the governors and legislators of states who have gotten themselves into this position.

We’ve talked about conditional transfers to the states before, but this is the first time I’ve encountered the idea of such stiff penalties. I like it.

The Washington Monthly on the State of Higher Education


There is much to like in Washington Monthly’s latest college issue.

Kevin Carey has written a terrific piece on the University of Minnesota’s new campus in Rochester, which has embraced a highly unconventional model of undergraduate instruction. 


The UMR experience is highly structured at the beginning, a marked contrast to universities that hand freshmen a huge course catalog and expect them to fend for themselves. UMR faculty from different disciplines carefully map out the sequences of their courses together, coordinating topic areas week by week. But the curriculum will be much less structured at the end. The plan is for these undergraduates to have a senior year devoted entirely to a personalized “capstone experience” like getting an allied health certificate at Mayo, taking graduate classes, or working with professors on new research.

The groundbreaking UMR model could not have been created at an established college or university. Stephen Lehmkuhle was only able to make all the right connections, hire all the right people, and build the right organizational culture by starting a new university from scratch.

Traditional research universities defend their departments, vice chairs, and classically tenured professors on the grounds that autonomy is vital for research. The point is arguable, but also largely irrelevant. According to the Carnegie Foundation, there are only 167 public research universities in America, out of nearly 1,700 public colleges and universities nationwide. Only sixty-three qualify as top-tier research institutions. The vast majority of students enroll somewhere else.

Carey’s work, including a brilliant, non-Pollyannaish piece last year on the potential of for-profit personalized higher education published in the Monthly last year, is always insightful. I don’t always agree with him, but I always learn something, particularly on the subject of ground-level educational innovation.

I found Daniel Luzer’s piece on George Washington University fascinating, cynical, and occasionally overdrawn:


The former president gambled that students who couldn’t quite get into the nation’s most exclusive colleges—and who would otherwise overlook a workmanlike school like the old GW—would flock to a university that at least had a price tag and a swank campus like those of the Ivy Leagues. “It serves as a trophy, a symbol,” he says. “It’s a sort of token of who they think they are.”

What’s amazing is that this strategy worked. 

Now, Luzer is doing middle-class parents a service by puncturing some of the pretensions that surround a university like GW. Yet given the growth in the number of upper-middle-class households, it’s hardly surprising that we’d see positional competition in this space. Of course a handful of enterprising schools would try to increase their prestige and engage in high-priced empire-building.

What’s more depressing, as Luzer notes, are the heavy debt loads taken on by students from middle and working class households:

Many GW students come from families that can’t afford high tuition. As a result, students borrow—a lot. The average borrower leaves Foggy Bottom with $31,299 worth of debt, among the highest levels in the country. That’s thousands more than the average at nearby Georgetown. Some students, like Greg Godfrey, graduate owing $100,000 or more. The son of a Cleveland single mother, Godfrey spent years living hand to mouth after graduating with a business degree in 2006, and still owes more than $75,000. “You just don’t know what you’re doing when you sign up for this stuff,” Godfrey says. 

I still wonder if we should fret about the GWs of the world. After acknowledging that the quality of a GW education might one day catch up to the school’s ambitions, Luzer follows with the most biting line of the piece:

But it seems just as likely that GW could turn out to be one more overleveraged artifact of our gilded age.

Ouch. And the conclusion also packs a punch:

But above all, GW seems vulnerable to a potential change in the way we thinkabout higher education. What if we actually started measuring how much students learn at their colleges and universities? How would that change the competition among institutions? Would the schools with the blue-chip price tags and high average debt loads fall from the top ranks? Would it spell an end to the era in which a forbidding set of entrance standards and a few stone facades are enough to tell us that a school is doing a great job? Let’s hope so. It would be great if more universities competed to be excellent. What we have now is schools that spend a lot of money—students’ money, taxpayers’ money—merely to look that way.

The future Luzer outlines is obviously appealing. The thought that kept crossing my mind while reading the piece was that our tax dollars massively subsidize Trachtenberg’s empire-building, and that doesn’t seem like a very sound way to distribute what is essentially a large public investment. 

Quick Thought on Japan


Matt Yglesias points to a recent talk by Adam Posen of the Peterson Institute on Japan:

Japan’s new economic leadership in the early 2000s, Prime Minister Junichiro Koizumi, Cabinet Office and later Financial Services Minister Heizo Takenaka, and Bank of Japan Governor Toshihiko Fukui, turned matters around. They reversed monetary policies that contributed to deflation, turned the fiscal impulse to average net zero (see figure 5), and forced bad loan write-offs and recapitalization by the Japanese banks (figure 6).10 What few seem to appreciate, either inside or outside of Japan, is just how strong the resulting Japanese recovery from 2002-2008 was. It was the longest unbroken recovery of Japan’s postwar history, and, while not as strong as pre-bubble Japanese performance, was in fact stronger than the growth in comparable economies even when fuelled by their own bubbles.

As Matt observes, Japan’s strong performance was masked by demographic change. The size of the workforce was shrinking throughout this period, thus creating a powerful drag on overall output.

Posen does not go into great detail about the Koizumi reform effort, but it’s worth remembering that Koizumi liberalized the labor market. Since Koizumi’s departure from the political scene, he has been attacked as a “free market fundamentalist,” as The Economist noted last August:

Mr Koizumi is playing a big role in this election too. He is not on the ballot, after shamelessly betraying his own anti-dynastic principles by bequeathing the right to run for his seat to his son. But he still looms large—these days, as a target for both Mr Hatoyama and Mr Aso. Both men appear more intent on laying into his legacy of free-market reforms, though some predated his rule from 2001-06, than on attacking each other. They blame his removal of a ban on temporary workers in manufacturing for soaring inequality and high rates of poverty in a country that used to pride itself on being almost universally middle-class.

Among other things, Koizumi also privatized the postal banking system, trimmed the public sector, and dramatically pared back wasteful infrastructure spending. In a 2006 retrospective, The Economist gave a sense of the extraordinary sweep of Koizumi’s free market reforms. 

To be sure, Koizumi’s reforms also coincided with a sharp increase in income inequality in Japan. Some will see this as an indictment of the Koizumi era. As I’ve noted in an earlier post, I tend to think that wage dispersion is closely tied to the rise of digital organizations in advanced economies. Restraining wage dispersion through labor market regulation and high marginal tax rates seems to have the unhappy consequence of restraining potential productivity gains that flow from trial-and-error organizational innovation. The explosion of upper-tail inequality is driven in part by political choices. But the alternatives were less attractive than critics of “free market fundamentalism” fully understand.

If anything, I don’t think the Koizumi project went far enough. That will surprise no one. 

In the Wall Street Journal, Michael Auslin of AEI adds some thoughts on Japan’s modern-day dilemmas:

The real problem in Japan may be a social one, not governmental or industrial, and therefore much harder to resolve. Every society develops according to its own logic (or illogic), and Japanese society, with all its depth and complexity, has evolved to fit the particular needs of the Japanese themselves. The question is whether these societal structures are too rigid for a globalized economic world, where capital must flow freely, ideas must circulate and consumers must be given a wide menu of choices. Japanese society continues to place strong if not overwhelming emphasis on hierarchy and consensus, which unintentionally dampens the entrepreneurial spirit that drives modern capitalism. In part because of that, the creative energy of many Japanese is diverted into a rich world of personal interests, separate from economic activity.

This bent towards hierarchy and consensus has traditionally restrained economic inequality, as we recently discussed. The country now finds itself in an awkward middle ground. Too unequal to be harmonious, too rigid to be economically dynamic.

On Copyright in Fashion


Mike Masnick does a beautiful, concise job of explaining why copyright protection is a bad idea in fashion:

The lack of copyright in fashion does a few useful things: (1) it actually helps disseminate concepts faster, creating important trends that drive the industry forward (2) it helps create important customer segmentation in the market, which actually increases the value of top designers (3) it drives fashion designers to be more innovative and to keep innovating. And all of it works. The fashion industry is highly dynamic, rapidly innovating and highly competitive. 

In my opinion, copyright protection is a necessary evil at best, but I recognize that this is not a widely shared view. It is, however, fashionable. (Drum roll, please.) Ezra Klein adds a more sober perspective in his Newsweek column:


“Intellectual property is legalized monopoly,” says James Boyle, a professor at Duke Law School. “And like any monopoly, its tendency is to raise prices and diminish availability. We should have a high burden of proof for whether it’s necessary.”

We should agree on that at the very least.

If you’re interested in these issues, I strongly recommend checking out Against Intellectual Monopoly, a book by economists Michele Boldrin and David K. Levine. You can read it for free. To get a hint of the myth-shattering that follows, the following is from the Introduction:

In most histories, James Watt is a heroic inventor, responsible for the beginning of the industrial revolution. The factsabove suggest a different interpretation. Watt is one of many clever inventors working to improve steam power in the second half of theeighteenth century. After getting one step ahead of the pack, heremained ahead not by superior innovation, but by superiorexploitation of the legal system. The fact that his business partnerwas a wealthy man with strong connections in Parliament, was not aminor help.

And it was only after the expiration of Watt’s patents that the steam engine really took off.


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