Friday, March 25, 2011

Why Liberals Go On About Inequality

Here's a cute little item in The Atlantic. It's a map about inequality, The 12 States of America, showing the change in per-capita income in the United States between 1980 and 2010. It takes the US county by county and shows which have experienced increasing real per-capita income and which have been experiencing declining real per-capita income. The counties are divided into twelve categories, such as "Immigration Nation," primarily Hispanic, where real per-capita income has gone down, and "Monied Burbs" where income has gone up.

The subtext is obvious. The rise in income inequality is unjust and requires a political response.

This is, of course, the classic view of the "unconstrained vision" discussed by Thomas Sowell in A Conflict of Visions. If there is inequality, say our liberal friends, then the presumption is that it is unjust and that political means must be deployed to correct the imbalance. Thus it is unjust that the counties in "Immigrant Nation" show a declining real per-capita income from $42,800 in 1980 to $38,900 in 2010.

Conservatives, who generally believe in a "constrained vision," and worry more about the fairness of the process than the results, would take a different line. We would say: well, of course the new immigrant counties are going to show reduced per-capita income. Immigrants from Latin America typically show low skills and thus cannot command high-paying jobs. The question is whether the process allows the immigrants to better themselves and create a better life for their children.

Since per-capita income has increased across the board from about $2-3 per capita per day in 1800 to $100 per capita per day in 2010 it would seem that inequality is not a bar to opportunity. Nearly everyone has running water, TV, and indoor heat today, and the poor are fatter than the rich.

The question for the future is whether it is the political system that creates inequality. Let us make a "constrained" vision argument on inequality. Chances are, says the conservative, that if there is persisting inequality then it is a product of the political system, that some people are denied fair access to the economic system. For instance, people on welfare are encouraged by the political system to divest themselves of jobs and spouses because you need to do that to qualify for benefits. But studies show that unmarried, jobless people are typically more likely to be poor than married people with jobs. To what extent, then, does the welfare state create inequality rather than fight it?

In simple terms, let us look at the situation of Hispanic immigrants who by all measures are less wealthy than native-born Americans. All people, presumably, would agree that we want to help them become part of America. The question is, shall we help them by working on the process, observing how the economic and political system helps them or hurts them? For instance, many Hispanics work off the books, because of illegal immigration status, or because of high payroll taxes. Or should we provide Hispanics with government benefits: welfare and health benefits to boost up their incomes directly?

Conservatives need to be very clear about these issues, because the crisis in government finances will permit a nation conversation on the efficiency and the justice of the pervasive welfare state programs. We've spent a century trying to solve inequality by direct subsidy and providing benefits to the low income community. Now we have an opportunity to change the conversation and work on the economic process and remove the unjust taxes and regulations that make working in the formal sector difficult for the low paid. It helps, of course, that there is no more money for more government programs.

On the level of rhetoric, of course, it's OK to accuse the liberals of using inequality to increase their political power. Bigger government benefits to low-income families increases liberal political power whereas process improvements don't benefit anyone except ordinary unorganized Americans.

Thursday, March 17, 2011

Springtime for Freeloaders

The big problem for humans, indeed all social animals, is freeloading. Whenever you have a society, there is always a temptation for the individual to lie, cheat, or steal. It's the nature of society that the benefits are spread widely and can be enjoyed by all, even those that don't contribute much, or perhaps, anything.

In the society of the great apes, the freeloading problem is solved by the dictatorship of the alpha males. But ancient human society in the hunter-gatherer groups, evolved, we believe, from the great apes, was egalitarian. So how did the hunter gatherers deal with the free-rider problem? The answer is: religion. Instead of a real life alpha male forcing the freeloaders up to the mark, they discovered that the gods were willing to do this job, thus avoiding the need for overbearing alpha males. And, as a special bonus, even if the gods didn't get around to punishing evildoers in this life, they would punish them in the next one.

Every society must deal with freeloaders; the question is how? Clearly, there is a spectrum of response, from a pure this-worldly alpha male model to a pure other-worldly alpha male model.

In our society we seemed to have developed a different approach, and I suspect that it is a consequence of the rise of capitalism.

Capitalism relies upon a network of trust. Capitalist actors, consumers, producers, and middle-men, build up long-term relationships of trust, backed up by a legal system that deals with the egregious defaulters. Science backs up this model with the Prisoners Dilemma concept, where it turns out that the best strategy is to trust people that act in a trustworthy manner towards you, and have nothing to do with people who demonstrate untrustworthiness.

But there has been, since the beginnning of capitalism, an opposing meme, that the capitalist trust network is fundamentally unjust because it creates unequal results. Hard workers, or just lucky workers, make more, and unlucky or less endowed workers make less. This offends the hunter gatherer instinct for equality.

There is a double catch here. On the one hand, some capitalists succeed not by hard work, but by luck. On the other hand, some unlucky workers are not just unlucky, but freeloaders taking advantage of the successful work of others.

In the 19th century, in a spontaneous process, people developed new social structures to ameliorate the luck quotient by developing labor unions and fraternal associations. These social institutions extended the solidarity among blood brothers outwards to non-related people who declared themselves the moral equivalent of brothers. Thus unlucky people could be assisted by their union or Masonic brothers, and nascent freeloaders encouraged to mend their ways, or get expelled from the brotherhood.

We threw the fraternal model away in the early 20th century and replaced it with the welfare state.

But the welfare state is a full-on encouragement to freeloaders. It tells members of society that if they are victims, they deserve help; that is their right. There is no mechanism to encourage social behavior. If you qualify for help, you get help. Obviously there is no limit to this sort of thing. It encourages everyone to discover a "right" and to demand support from the rest of society because of some disability.

We can see, from the recent Wisconsin events, that it is very difficult to tell the benefit recipients that the money is gone. Typically they react with rage. Freeloaders, like most evildoers, are not like Shakespeare's Iago, who delights in his villainy. They justify their evildoing with lies and self-deceit. They persuade themselves that they deserve what they steal; they have a right to it.

But obviously, the Springtime for Freeloaders is coming to an end, the welfare state is running out of money.

The question for reformers, working to restore a society of trust out of the debris of the age of freeloading, is how to proceed? Hawks like radio host Hugh Hewitt are pushing Republicans in Congress to press the pedal to the metal, and set up a showdown with Democrats, replicating the actions of Gov. Scott Walker (R) in Wisconsin.

But I wonder. I think that the freeloaders are going to have to see the bottomless pit opening up under them before they will be willing to give up their "rights," and I don't think we have reached that point. I don't think the average benefit recipient has a clue how close we are to a real financial meltdown.

Against that is the call of conscience, the need to be right with the divine judge. It is all very well to plan strategy and put your opponent in an impossible position. But against that is the moral imperative, to do the right thing.

And the right thing is to repair the government finances, no matter who it benefits today, or who it benefits tomorrow.

Because in the end we all must stand before the divine judge.

Thursday, March 3, 2011

It's Not the Rule of Law

We westerners like to witter on about the importance of the rule of law--compared to those lawless Islamic radicals, for example. The importance of law in the western canon goes right back to Homer and the Iliad. "A clanless, lawless, hearthless man is he that loveth dread strife among his own folk." So spake Nestor to his fellow Greeks at the gates of Troy. In modern terms, meat-and-potatoes conservative Sean Hannity speaks about people who go to work, follow the rules, pay their taxes, and obey the law. Yet this rules and laws principle reaches its apotheosis in the administrative welfare state where every social need is provided somewhere in a vast bureaucratic rulebook. This is what the culture of rules and laws leads to?

In fact, the world doesn't work on rigid rules at all. It may be that the lifeless world of cold steel and plastic works in a mechanical way, according to universal laws that provide one rule for all motion. But the social world does not, and we can get a clue from an unremarked fact about the mechanical world. The world of Newton's mechanics only works because of lubrication. The great clanking steam railway locomotives that I remember from my youth only worked because of the oil and grease in their bearings. Without the lubricating oil keeping the metal parts apart, every machine in existence would grind to a halt in seconds. Sure, the laws of mechanics and heat engines apply, but they are all framed by abstracting away the fact of friction. Friction is an annoying problem that gets introduced into mechanics by the back door. The same applies to social life.

Clausewitz famously introduced friction into his theory of war. Friction and the "fog of war" are what makes nonsense of every plan of attack. Shakespeare's Portia famously exposed the difficulty of enforcing a contract gone wrong. How do you measure out the pound of flesh that is specified as the forfeit? You can't live just with contracts and rules, you need also mercy, that falleth like the gentle rain from heaven. And people in their day-to-day activities replace strict rules with the flexibility of give-and-take. In British law this used to by symbolized by the two-track legal system, with courts of common law and courts of equity.

Even the lordly President Obama has already started to shade the majestic rules of his universal comprehensive health plan with waivers--for the politically connected big corporations and labor unions.

In the hunter-gatherer culture, humans worked up many answers to the friction problem. They designed their religion to deal with the freeloader problem; they organized all-night ritual drumming and dancing to soften and melt their feuds and animosities. Their political structure was remarkably egalitarian.

In our times we have capitalism which is a social system to reward flexible adaptation to the needs of others. It lies upon a hard bed of rigid commercial and contract law, but its everyday operations use give and take. Whatever the rules may say, it is the aim of every business owner to charm and please his customers, to create a long-term relationship that shades the starkness of buy-and-sell into a practical friendship.

Our great clanking welfare state is built upon a classic mistake. It built a vast machine of great complexity but forgot about the lubrication.

The great task of the next age of reform to to replace the clanking mechanical monstrosities with new institutions based upon the eternal principles of social life shared by all the social animals. For social animals, rules are not chiseled on tablets, or promulgated from a throne; they hover in the air suspended in a mist of social cooperation and give and take. This is a lesson that many forgot in the mechanical age. The sooner we relearn it, the better.