Trust and the competition delusion: A new frontier for political and economic reform

The Griffith Review has just published a substantial essay of mine that?I’ve been working on for some time. I reproduce the introductory section below after which?you’ll have to hightail it to?their website to finish. But it would be good to see?you back here for comments which aren’t provided for on the Griffith Review website.

Designing institutions to force (or nudge) entirely self-interested individuals to achieve better outcomes has been the major goal posited by policy analysts for governments to accomplish for much of the past half century. Extensive empirical research leads me to argue that instead, a core goal of public policy should be to facilitate the development of institutions that bring out the best in humans.

Elinor Ostrom, Nobel Lecture, 2009

SINCE ADAM SMITH, economists have marvelled at competition’s capacity to improve our world – not by fostering virtue, but by harnessing the opposing self-interest of buyer and seller in a market. As Smith himself famously suggested, instead of trusting his wellbeing as a consumer to the benevolence of the butcher, baker or brewer, he’d rather rely on their regard for their own interests in competing for his custom.

There’s a lively debate today about how to inject greater competition into Australia’s notoriously oligopolistic industries – like finance, supermarkets, fuel, energy and telecommunications – not to mention our new global digital overlords like Facebook and Google. And there’s a more ideologically charged debate about whether competition will drive better or worse outcomes in sectors where non-market values are important – like health, education and social services.

Having offered some thoughts on those issues elsewhere, in this essay I discuss something more fundamental and, because of that, widely overlooked. We’re falling for the ‘competition delusion’ by which I mean this: In our embrace of private competition as a goal, we mostly pass over a prior issue – which is the terms on which that competition takes place. That’s undermining trust in a remarkably wide range of institutions in our economic and public life.

The analogy with sport is illuminating. Australian Rules football is the crucible of some of the most intense competition you can imagine. But unlike some thinkers about our economy and society, its administrators understand that competition won’t amount to a hill of beans unless the rules of the game make it the game we want to follow. Seeing things this way, it’s an obvious mistake to ask whether football should be competitive or cooperative. Competition and cooperation are inextricably entangled in the game, each defining the other.

The competition delusion sees competition and cooperation as two ends of an ideological spectrum. And it presumes that, where one has to choose, competition should be presumed preferable to cooperation. The perspective I’m sketching here suggests a new take on JK Galbraith’s argument about private affluence amidst public squalor. As he put it in 1958:

Cars are important, roads are not… Vacuum cleaners to ensure clean houses boost our standard of living, street cleaners are an unfortunate expense. Thus we end up with clean houses and filthy streets.

Whatever the validity of this critique of America’s real economy of the 1950s, it’s a remarkably and increasingly apt picture of the knowledge and ideas that govern our economy and society in the age of the competition delusion.

 

OUR LEGAL SYSTEM illustrates the issues. CONTINUED AT THE GRIFFITH REVIEW Continue reading

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Defending independence in the age of deep spin

If you know anything about the latest State of the Union Address, you know that after Donald Trump had handed Nancy Pelosi his speech as if she were his secretary when she held out her hand to him to shake hands, Pelosi tore up his speech. Didn’t look particularly well-judged politically to do that to me but there you go. What would I know?

Trump operatives have now released the video (above) of Pelosi tearing up his speech spliced interleaved with Trump’s comments praising heroes like aged soldiers. Facebook have agreed to take down the video as obviously misleading.

(Only kidding. Facebook wasn’t interested in getting in the way of its profits). On the other hand, Twitter has said that the Tweet violates policy that will be enforced when they’re ready to do so on March 2.

I can imagine it’s a scary call for Twitter to say so to the Gangster in chief. Rage will ensue and Donald Trump has a lot of power including the power of his mob. In those circumstances if I were Twitter, I’d be wanting to distance myself from this process, whilst having a decent approach.

I’d do it with a standing citizens’ assembly. If I were Twitter I’d recruit a demonstrably objective selection of ordinary American citizens using the same kinds of methods we use to recruit juries (in which I’d include random selection and representative random selection of various kinds.)

I’d then pay them to meet and deliberate on the question of what policies Twitter should adopt to be consistent with Twitter enhancing democratic deliberation whilst minimising the extent to which it harmed it. Then Twitter would have something to say to the various sides of politics who would inevitably accuse it of bias. It isn’t being biased – it has a process of integrity for determining the considered opinion of the public on this matter.

That process consists of

  1. the consideration of specific cases
  2. the deduction of policies and rules from those cases
  3. the application of those policies and rules by Twitter
  4. constant rinsing and repeating.

I expect the citizens’ assembly should be turned over relatively frequently, say every six months. But I’d also like to see the development of a cadre of the best of past citizens’ assemblies chosen in a non-competitive way, to help develop the ‘culture’ of the body as ‘elders’. The greater autonomy the body acquired through this mechanism, the more successful it would be in achieving its objectives of protecting the public – and protecting Twitter from accusations of bias.

I think this kind of thing may offer the last best hope for independence to be nurtured and protected in many other circumstances – for instance in public agencies. Existing mechanisms for nurturing independence (say of the public service from their political masters) or for ensuring ethical behaviour (as with ethics committees) are demonstrably failing. But I’ll defend that proposition on another occasion.

Posted in Cultural Critique, Democracy, Information, IT and Internet, Media, Sortition and citizens’ juries | 3 Comments

The Wage Penalty of Regional Accents

The Wage Penalty of Regional Accents
Jeffrey Grogger, Andreas Steinmayr, and Joachim Winter #26719

Abstract:

Previous work has documented that speaking one’s native language with an accent distinct from the mainstream is associated with lower wages. In this study, we seek to estimate the causal effect of speaking with a distinctive regional accent, disentangling the effect of the accent from that of omitted variables. We collected data on workers’ speech in Germany, a country with wide variation in regional dialects. We use a variety of strategies in estimation, including an instrumental variables strategy in which the instruments are based on research findings from the linguistics of accent acquisition. All of our estimators show that speaking with a distinctive regional accent reduces wages by an amount that is comparable to the gender wage gap. We also find that workers with distinctive regional accents tend to sort away from occupations that demand high levels of face-to-face contact, consistent with various occupational sorting models.

Posted in Economics and public policy, Gender | 1 Comment

Brexit is not ‘Tot ziens’ (bye bye).

I have little economic insight to add to the various projections made by other economists in Britain about the Brexit scenario that follow under various outcomes of the negotiations with the EU. Like all of them, I think severing trade ties will not work out well in the short run for the economy of the UK, though I am less convinced than others that it will necessarily all work out badly in the longer run.

Most importantly, Britain can always come back to the EU in the future, so if it doesn’t work out as you thought, you Brits can change your mind again.

Yet, I think economics is a distraction, even though all kinds of economic interest groups are tugging in various directions. Break-ups are nearly always bad for the purse, but the immediate reason is seldom money but emotions and identity.

I thus want to talk about the feelings and identity of the Brexiteers, which I think is the heart of the matter.

A large number of you were persuaded you did not belong with the rest of Europe. You were seduced by over 30 years of negative media stories that the rest of Europe looked down on you and was looking for ways to get one over you. You were constantly told and encouraged to believe that you were different, better in fact, than the rest of us Europeans. That mentality is perhaps best illustrated by the ‘Football is coming home’ anthem so popular in the UK at the time of the World Cup. That smug entitlement mentality stings us ‘other’ Europeans but we will try and keep our disdain to a minimum because you remain family. In my case, with an English mum and a Dutch dad, you are literally family.

What I want to mention is the political perspective from one of your main friends in Europe: the Netherlands, perhaps your strongest and oldest ally, sharing royal families since William and Mary, and being very close language and culture wise too. We are close cousins in the Germanic language tree, with old English very close to Frisian (a language and people in the North of the Netherlands and along that coastline into Denmark). There were also several waves of immigrants to Britain via what is now the Netherlands. And of course, we have been on the same side in the second World War when our government and Queen was seated in London.

In truth, English culture is largely a blend of the Dutch and the French. The structure of your language is largely Dutch, with massive French influences. Whilst your words for some of the animals you eat are hence the same as in Dutch (‘Cow’ is ‘Koe’, ‘Sheep’ is ‘Schaap’, and ‘Goat’ is ‘Geit’), what you call them when they are cooked is French (‘Beef’ is ‘boeuf’, ‘veal’ is ‘veal’, and ‘Pork’ is ‘porc’).

So too English culture. The class structure, with elite schools and an upper layer that has owned most of the country for centuries is quintessentially French. They got rid of their nobility in the Napoleontic Wars and in the two World Wars, whereas you were (un)lucky enough not to have yours swept out by an invader. Your nobility, which of course is largely French or other-European in origin, headed by the House of Hannover (!), never left. You have elite private schools and Oxbridge, the French have ‘Grand Ecoles’ and ‘Lycea’. Like your language is old-Dutch, your class system is old-French. Continue reading

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Effects of the Minimum Wage on Child Health

Effects of the Minimum Wage on Child Health
George Wehby, Robert Kaestner, Wei Lyu, and Dhaval M. Dave #26691

Abstract:
Effects of the minimum wage on labor market outcomes have been extensively debated and analyzed. Less studied, however, are other consequences of the minimum wage that stem from changes in a household’s income and labor supply. We examine the effects of the minimum wage on child health. We employ data from the National Survey of Children’s Health in conjunction with a difference-in-differences research design. We estimate effects of changes in minimum wage throughout childhood. We find evidence that an increase in the minimum wage throughout childhood is associated with a large improvement in child health. A particularly interesting finding is that much of the benefits of a higher minimum wage are associated with the period between birth and aged 5.

Posted in Economics and public policy | 6 Comments

Are drugs the Achilles heel of stagnant inequality?

[off the cuff research idea memo]

There is an uncanny analogy between China in the 19th century and the US this very moment: in both cases a large part of the general population could not be persuaded away from drugs by morality or prison. Opium in China then, opioids in the US now. Could it be the case that the essential mechanism is that those at the bottom of very unequal societies cannot say no to drugs and that with a stagnant society, the elites cannot say no to drugs money because growth has then come to be zero-sum? So the combination of inequality and stagnation spells great trouble with drugs? Let’s go over the core bit of this idea and how to check for it in other historical episodes.

In China, the opium offered on a large scale by foreign invaders was too seductive to the general population to ignore. China was under great strain with high inequality, no longer able to ward off foreign powers (the UK and France) or maintain efficient government. The US now too is under strain from foreign competition (from China but also the EU), has high inequality, and is subject to a quite stunning opioid crisis, one essentially engendered by corrupt insiders to the US establishment, exactly as in China the establishment was corruptible when the Opium trade came round.

Now, the US is stagnant in a very particular way: whilst its GDP is growing, the majority has seen little improvement in their lives and nearly all the growth occurs at the very top of the income and wealth distribution, so all those lowly government bureaucrats have seen their relative income and status drop the last few decades, just as was true in China when the UK pushed its opium on the people. The US is stagnation in the echelon of the elites that it needs to keep law and order functioning: in its basic bureaucratic machinery.

The EU countries are not suffering from the same opioid epidemic, where the upsurge in problems is far less than in the US. At the same time, the EU is not stagnating in its middle ground: employment levels are high, inequality is much lower than in the US, and its basic government machinery has not become corrupted to the same degree as the US’ machinery has. Perhaps most importantly, much of the EU feels it is doing well, with happiness levels up markedly in many countries (including Italy), and the Eastern countries growing in confidence and stature.

So the basic pattern fits the big power players. Let’s check some of the other drug-related knowledge history provides. Continue reading

Posted in Death and taxes, Geeky Musings, Health, History, Political theory, Politics - international, Politics - national, Race and indigenous, Society | 13 Comments

The Economic Consequences of the Peace

These are some quick notes on listening to a Libravox recording of Chapter Three of Keynes’ Economic Consequences of the Peace the text of which can be found here. I was stunned at how good it was. It was like listening to a phone message from another planet.

  • The overarching casting of the drama in terms of looking forward and the loftiness of the future which seems possible for Western Civilisation (and that this is not only the best course but also the only rational one) and looking backwards (which ends in the magical thinking of basing one’s thinking on the impossibility of recovering the past).

[Clemencau’s position] is the policy of an old man, whose most vivid impressions and most lively imagination are of the past and not of the future. … My purpose in this book is to show that the Carthaginian Peace is not practically right or possible. Although the school of thought from which it springs is aware of the economic factor, it overlooks, nevertheless, the deeper economic tendencies which are to govern the future. The clock cannot be set back. You cannot restore Central Europe to 1870 without setting up such strains in the European structure and letting loose such human and spiritual forces as, pushing beyond frontiers and races, will overwhelm not only you and your “guarantees,” but your institutions, and the existing order of your Society. Continue reading

Posted in Cultural Critique, Economics and public policy, History, Philosophy | 4 Comments