The need for a state

Via Bradford DeLong here are some historical perspectives on the need for a state:

Adam Smith: Withering away of the state? Private profit-making rights-enforcement organizations? Have none of you ever taken a trip to the Scottish Highlands? Have none of you ever read about the form of society that used to exist there? In the Scottish Highlands David Friedman's dream of a society without a state, in which justice was administered by private profit-making rights-enforcement organizations, was a reality. And what a reality! The private profit-making rights-enforcement organizations were called "clan lords" and their henchmen. In the Highlands, everyone was seen as either a clan member to be helped, a clan enemy to be killed, or a stranger to be robbed. With such insecurity of life and property, the system of natural liberty could not operate to create prosperity, and life was... what is the phrase?...

Thomas Hobbes: Nasty, brutish, and short.

and

Davey Hume: Exactly. That is the key problem of governance: mighty, but limited. It is only after the state has been established and the memory of what life was like in the Highlands disappears that people can even begin to forget why the state is necessary. Under security of property, people begin to view each other--even total strangers--as possible partners in mutually-beneficial acts of exchange. The oxytocin levels in their bloodstreams rise. They feel mutual sympathy toward each other. They feel bound by the moral law, and no longer kill clan enemies or rob strangers even when they can do so in perfect safety... 

I think that this sort of problem of fading memory is common.  The regulations that make fires less likely (or that establish fire departments) seem less useful in a world in which they are highly effective and so we don't see the day to day need for the intervention. 

A good medical example is vaccination.  At one time people were (correctly) terrified of these diseases and the death, disability, or disfigurement that they could cause.  In a world where there are a lot of measles vaccinations being given (and where we have all forgotten the polio/smallpox/measles epidemics) it can be easy to ask the question: "why do we subject our children to the risks of being vaccinated" (given that these risks may not be zero).  Of course, when vaccination stops, the same diseases may quickly come back.  And, even so, it might not be easy to get all children vaccinated because the consequences are not fully realized until it is way too late. 

In the absence of a state, I don't really see a clear solution to the free rider problem.  Even enforcement of damages presumes somebody (i.e. a state actor) to enforce the claim to damages (or a rather brutal enforcement process at the point of a gun).  Since people may forget just how bad the previous era really was, it can be hard to prevent things from deteriorating.   

But it isn't a problem just limited to the state, itself, but it shows up in many successful areas of human intervention where the intervention is a victim of it's own success. 

Mark added as a private comment that this can be extend to a lot of different areas.  He gave the examples of bedbugs and economic insecurity, both of which are on the rise because we don't have the urgency of prevention that we used to have. 

Excellent comment alert

There is a new conservative plan to replace the Affordable care Act. One piece of this plan is to:

For example, allowing insurers to sell policies across state lines would invite a “race to the bottom.” In time, all insurance would originate from states with the least regulation. The policies will be cheaper. But they’ll also be skimpier. They’ll be great if you’re young, healthy, or wealthy enough to afford to fill in the coverage gaps. They’ll be terrible if you are older, have a chronic condition, or, again, if you’re low income.

These are all legitimate problems.  But the one that actually seems the most salient is in the comments:

I cannot understand why conservatives support turning health insurance into interstate commerce, which would then be subject to federal regulation. You would think they would prefer to leave it in the hands of state insurance regulators. 

This is actually a really good point.   If you put health insurance into the national market (and not a state by state individual market) then it is, by definition, interstate commerce and the role of the federal government as a regulator is clearly derived. 

This seems to be the opposite of a small government solution. 

Ways of Measuring Wealth

A recent exchange between Matthew Yglesias and Andrew Gelman got me thinking. Here's Yglesias' original comment:

I think rich businessmen would be happier if we could go back to 1950s-style, more egalitarian distribution of pre-tax income. The richest people around would still be the richest people around, and as the richest people around they would live in the nicest houses and drive the nicest cars and send their kids to the best schools and in other respects capture the vast majority of the concrete gains of being rich. But they’d also have a much better chance of gaining the kind of respect as civic and national leaders that they crave. They want to be seen as the “job creators” and the heroes of the economy, not the greedy exploiters of the masses. But in order to have heroes of the economy, you need a broadly happy story about the economy—one where living standards are rising across the board and prosperity is broadly shared.

And here's Gelman's response:

This is an appealing argument but I’m skeptical. My impression is that, back in the 1950s, the culture heroes included sports starts, authors, broadcast and movie stars, etc. Some politicians and union leaders too, and various others. But nowadays, lots of rich people are heroes of one sort or another: Steve Jobs, those guys at Google, various gossip about tech billionaires, Donald Trump. Even the supervillians at Goldman Sachs get some respect—it’s kinda cool to be a supervillian. There’s the Forbes list of billionaires. Not to mention Michael Bloomberg and Mitt Romney. And it’s not just cos these rich guys have done cool things like Google maps. Warren Buffett is a hero too, mostly from doing a very good job at accumulating money.

If you’re superrich and your goal is to be viewed as a hero, I’d say that the current era from the mid-90s through now has been a good time to do it. They call this the New Gilded Age for a reason. In contrast, I have the sense that the 1950s was a great time to get respect for local rich guys: the owner of the local factory, the proprietor of the local newspaper, etc. Back then, if you were running a moderate-sized business, you could be a real big shot.

I’m not quite sure how this could be studied more systematically but maybe it’s worth looking in to.

This is very much a first draft, but just to get things started, let's think about money in the following ways: traditional; relative; impact (Really need to come up with an adjective for this); ordinal; 'disposable'; perceived and perceived value (not crazy about these terms, but we can always come up with something better later).

I have to be careful with the word relative here (most of these are, in some sense, relative). In this case, I mean relative to some cost of living measure for that person for household. For example, this might entail normalizing or otherwise adjusting for region and might also take into account factors such as what your stage of life is, what your health and healthcare needs are, and what your family situation is.

In a distinction that is sure to piss certain people off, I think of impact as a libertarian metric. It measures the increase in choices that additional money creates. This is, as I believe we have discussed before, a function of both where you start and where you end up. The impact of going from 5,000 to 10,000 a year is unimaginable to anyone who has never been destitute; going from 10,000 to 20,000 while huge is not as big; going from 20,000 to 40,000 while big is still less than the former jump, and so on.

Ordinal is also a somewhat relative measure since where you rank depends on the group to which you're being compared. As Gelman alluded to earlier, being the richest person in town can have special significance even if it doesn't require that much absolute wealth.

Perceived wealth could be perceived by the holder or we could be talking about the perception of some group which the holder is either a member of or which affects him or her.

Perceived value would basically be the thing Gelman is talking about, how much we value a given level of wealth. There's an obvious compared-to-what problem here that, I think, would be best suited to a multivariate approach. We would look at the relationship between perceived wealth and things like how attractive/likeable/respected a person is, how much people would like to meet that person, how much they'd like to trade places, etc. Given the desire not to appear shallow, it might be a good idea to supplement traditional methods like surveys with something like implicit association tests.

Obviously all of these metrics are correlated and in some situations one can undoubtedly be substituted for another, but that does not mean that they are interchangeable. That leaves us with two big questions: one which metric or metrics are most appropriate for a given problem; and what are the best way of measuring these different concepts of wealth, but there are some data gathering steps we can start while we're grappling with those questions.

Health Care Costs

I recommend this video (warning: eight minutes long) that talks about health care costs in the United States.  In particular, that we spend more government money per capita than Canada does (Canada ensures basically everyone) and only manage to insure 28% of the population is staggering. 

Also of great note is how this complex problem really does not have a simple solution and/or explanation. 

They also mention the incidental economist, which is always a sign of good taste.

The General Grant quote I was looking for earlier

I've got a post coming up on price discrimination and the role information plays in the process. One of the things that came to mind was this anecdote from the Memoirs of Ulysses S. Grant, which describes his experiences as an eight-year-old horse trader and illustrates what happens when the seller knows too much.

As he told the story, there was a Mr. Ralston living within a few miles of the village, who owned a colt which I very much wanted. My father had offered twenty dollars for it, but Ralston wanted twenty-five. I was so anxious to have the colt, that after the owner left, I begged to be allowed to take him at the price demanded. My father yielded, but said twenty dollars was all the horse was worth, and told me to offer that price; if it was not accepted I was to offer twenty-two and a half, and if that would not get him, to give the twenty-five. I at once mounted a horse and went for the colt. When I got to Mr. Ralston's house, I said to him: "Papa says I may offer you twenty dollars for the colt, but if you won't take that, I am to offer twenty-two and a half, and if you won't take that, to give you twenty-five." It would not require a Connecticut man to guess the price finally agreed upon. This story is nearly true.

D&D Monsters

This list is a pretty representative list of the most unique and popular Dungeons and Dragons monsters.  I am a little surprised none of the creepy monsters made the list (green slime, ear seekers, rot grubs) but these are the ones you'd see in the novels. 

Not sure that Bacharach shouldn't have split this into to two but both halves are worth reading anyway

Via Thoreau, Jacob Bacharach has has an excellent albeit somewhat disjointed post that hits on a few of our ongoing threads. It starts out as a beautifully cynical insider's view of MBA programs then jumps (a bit abruptly) to a blistering take down of Joel Klein's efforts, working with the Rupert Murdoch family of companies, to sell tablet computers to school districts.

Here's a taste:

And in any case, when you look at the sales pitch, you see the same old clichés about the workplace of tomorrow peddled as the great social inflection point whose crisis-borne arrival necessitates the adoption of these critical tools that just happen to cost $199 a pop. The simple fact of that traditional dollar-short-of-an-even-hundred commercial pricing model ought to tip you that something may be slightly crooked here, the transformative promise more marketing than prophecy. “Robin Britt, the Personalized Learning Environment Facilitator (PLEF)”—no, really—leaps Ballmer-like to the front of the room and engages in a little future-is-nowism for the crowd:

I've been meaning to write about the tablets-in-the-classroom movement for awhile, particularly since the recent blow-up in here in LA. It represents one of the most notable of the many cases where ddulites and movement reformers intersect with predictably disastrous results.

For the record, disadvantaged students would much better off if we gave them laptops running Ubuntu rather than the latest tablet. It's worth noting that the latest snag in L.A. schools Supt. John Deasy's iPad initiative came because no one thought to budget money for keyboards. (Deasy isn't really a think-things-through kinda guy. Unfortunately, he's in a think-things-through kinda job.)

General Grant on the U.S.-Mexican War

I came across this in the course of researching a post on another topic. I don't want to imply  an analogy between Syria or even Afghanistan or Iraq -- these are very different situations -- but it's still worth that in what we generally think of as a jingoistic age, you could find a range of nuanced views.

From The Personal Memoirs of Ulysses S. Grant.

Generally, the officers of the army were indifferent whether the annexation was consummated or not; but not so all of them. For myself, I was bitterly opposed to the measure, and to this day regard the war, which resulted, as one of the most unjust ever waged by a stronger against a weaker nation. It was an instance of a republic following the bad example of European monarchies, in not considering justice in their desire to acquire additional territory. 

It's worth noting that Grant's friend and publisher, Mark Twain, was also a vocal critic of imperialism.

Fiscal responsibility

As we get further into the debt conversation, I think this is worth remembering:

People have largely forgotten about this, but back in the 1999–2001 era instead of complaining about the deficit being too high conservatives were obsessed with the need to prevent the national debt from getting too low. The reason was that they feared that there might not be enough "on-budget" debt for the Social Security Trust Fund to buy, which would lead the Social Security Trust Fund to act like the Canada Pension Plan and start investing in equity and other financial vehicles. This, according to Alan Greenspan and others, would rapidly put us on the road to serfdom.

But as sovereign wealth funds are spreading from Persian Gulf petrodictatorships to oil-free dictatorships (Singapore) and oil-rich democracies (Norway) and now even America's friendly next door neighbor Canada, I think it's time to rethink this opinion.

And also this:

But the larger point here, surely, is that Rehn has let the mask slip. It’s not about fiscal responsibility; it never was. It was always about using hyperbole about the dangers of debt to dismantle the welfare state. How dare the French take the alleged worries about the deficit literally, while declining to remake their society along neoliberal lines? 

In a sense I think we should be mad at the Austerity advocates for hopelessly confusing the debt issue.  Debt is bad but increased taxation is always worse seems to be the argument.  But by trying to confuse the issues they are merging two very different propositions.  High taxation can be bad but the evidence for this is much weaker than for government financial crisis due to debt loads. 

But it becomes impossible to talk about the debt without getting drawn into the quagmire of the appropriate level of taxes.  But it is notable that the argument against running a surplus appears to be bogus (the disaster of paying off the debt seems to not be a disaster elsewhere).  The level of taxes in the United States is low relative to other first world countries -- that makes it hard to argue that small tax increases would immediately lead to disaster. 

This is making me want to be almost dismissive of the deficit.  Not because the debt wouldn't be lower in my ideal world, but because all of the action is about the size and scope of government (and a strange argument about whether government should be intrusive at the federal or state level).  These are interesting arguments, to be sure, but they are only distantly related to the question of fiscal responsibility.

Weekend blogging -- "Zatoichi and the Chess Expert"

Not chess as we think of it (though it does qualify as a first cousin).

Still how can I not post a link to a film where a blind master swordsman meets up with a mysterious chess-playing samurai (and one of the best of the series to boot).

Dilbert

This Dilbert comic strip shows that Scott Adams still has it.

But how often is the cost-benefit equation for work and reward really put this cleanly?

Still more Motley Foolishness

In the pursuit of a couple of threads about the business of media, I find myself frequently clicking on links to Motley Fool posts and almost always regretting it. Here's how I summed up my reaction earlier:

MF specializes in overexcited, often under-informed posts usually focusing on hot topics that have strong emotional associations of success or (more rarely) failure. All of which is designed to get readers anxious and eager enough to shell out $199 a piece for various newsletters.

One part of that formula is the BIG HEADLINE!/small story. The pattern here is to start with a wildly overstated headline then scale back to a much more modest actual claim in the article. On top of that, even the modest claim is weakly supported only by very optimistic arguments.

Recent examples:

This Marvel Movie Has "Winner" Written All Over It
(about the upcoming Guardians of the Galaxy)

and

Why Disney's "Agents of S.H.I.E.L.D." Could Be Bigger Than "The Avengers"

If you read the first, you go from Guardians having winner written all over it to it being "an interesting mix of characters that under the guidance of director James Gunn could result in a potent Marvel movie." In this context, I'd read "winner" to be above average for a film in the larger Avengers franchise or at least a 300 million dollar box office. From there we go the the more modest and far more vague 'potent.'

Left out is the fact that the director, while promising, has only directed two features, Slither and Super, neither of which appear to have broken even. Add to that the fact that introducing large numbers of unfamiliar characters is problematic, and that one of these characters is named Rocket Raccoon (a joke that wasn't good even when the reference was fresh).

Likewise, after claiming that the new Shield television show could be bigger than the Avengers, the article never actually argues for anything more than it possibly being a successful show that's good for the network. Once again, even that fairly limited claim is not well supported. No reason is given why the show should be more successful than something like Young Indiana Jones (another TV spin-off of a hit franchise) or that, if it is successful, that success will be somehow more important to ABC than the success of a Castle or a Dancing with the Stars. It should also be noted that while Joss Whedon has been the creative force behind many critically acclaimed TV show, he has never, to my knowledge, been involved with an actual hit. (And no, having a long run on the CW does not count).

Just to be clear, I have every reason to believe that these shows will be entertaining and have a reasonable shot at success. The people at Marvel have a good track record and have shown themselves to be smart about playing a long game.

What I am saying is that Motley Fool has not presented any arguments to show one way or another that these projects will be successful enough to move the stock. What MF is doing is trying to create a emotional state such that you will be eager to start playing the market and you will subscribe to one or more of their newsletters. As far as I've been able to tell, that's pretty much all they try to do.

I have two problems with that approach. First, they appear to be selling a product of little value. Second, and this is the kicker, they are encouraging people to engage in what is for most of us a highly risky behavior.

I have no way of knowing whether or not Guardians of the Galaxy will break box office records or if Agents of S.H.I.E.L.D will be the top rated show next year. If they are hits, I couldn't tell you whether or not that success has already been anticipated by the market and priced in to the stock. These analysts might be right about Disney stock or they might be wrong. Given the arguments we've seen so far I have no reason to guess one way or the other. However, given the cost and risk involved, I would be reluctant to make an investment based on one of these guys' monthly newsletters.

Charter Schools and Hedge Funds

A Wall Street trader draws an interesting analogy:

Survivorship bias
In statistics, this is a textbook case of what is known technically as “survivorship bias”—otherwise known as “ignoring data that makes you look bad.” This statistical fallacy opens up enormous opportunities for people with flexible ethics and an entrepreneurial bent. It is a mainstay of the hedge fund industry, for instance.  Hedge fund indices routinely appear to outperform simple, non-fee generating investment strategies like index funds by neglecting to include funds that closed down, and take funds out of the index whenever they stop reporting performance (hint: no fund fails to report good performance!).

R u hot or not?
Some funds, which shall remain nameless on the advice of counsel, improve quite a bit on these crude methods. They recruit new traders continuously, and give them a bit of capital. After a few months, the ones that make money are trumpeted to investors as the next hot thing, while the ones that don’t are quietly fired and never mentioned again. In this business model, what the traders actually do is irrelevant, as long as they are cheap and willing to sign leonine contracts. In fact, buying monkeys and letting them flip coins to predict market direction would work even better, though this might make the game a bit too obvious.

Repeat as necessary
The parallels to the emerging charter school paradigm are obvious. You start a lot of charters. Some do better than public schools, some do worse, but overall they underperform. You shut down the bad ones. Now repeat the analysis with the non-terrible ones. Improvement!  Except that the students unfortunate enough to attend these terrible school don’t just disappear (we hope – let’s not give charter schools any ideas!). However, they do disappear from the CREDO study, and that seems to be good enough for the charter sector and its advocates to proclaim this a success story.

I haven't seriously dug into the CREDO data so I can't vouch for the rest of the trader's analysis but it looks reasonable and it reinforces a point I've been making for a while: there are a lot systemic factors which favor charter schools and which furthermore tend to bias the data in these schools' favor. In other words, given the conditions charters operate under, we would expect them to outperform public schools even if they were pedagogically identical due to factors like selection, volunteer and placebo effects and even if the schools were performing identically, we would expect the charters to look better due to factors like attrition and survivorship. Add to this some non-trivial cases of data cooking and you can see where this leads.

Even with these factors, charter school performance has been tepid, at best. I don't see that as an argument for abandoning the experiment, but it does mean that the standard the-more-charters-the-better narrative is no longer viable and movement reformers like Arne Duncan have got to mark to market if they expect to be taken seriously.

Weekend blogging -- sometimes the least conventional covers turn out to be the most faithful

The standard approach to "You Rascal You" would be a band dressed Thirties-style in white tuxedos against an Art Deco background fronted by a vocalist with a mock-menacing bass voice but a cheerful demeanor, figuratively (and perhaps literally) winking at the audience to let them know it's all in good fun.

Played straight, without the winking, the effect is very different.

If you have to ask, you should use the door marked "Morlock"

From Business Insider:

An NYC High Rise Is Putting In Separate Entrances For Rich And Poor Renters

A luxury high-rise apartment in Manhattan’s Upper West Side is set to have a so-called “poor door” — a separate entrance for low-income residents receiving subsidized housing.

The 33-story building — 40 Riverside Boulevard – being developed by Extell Development Company will have 219 condominiums selling for more than $1 million each.

But by including 55 affordable housing units on the first few floors renting at a starting price of $845 a month, the developer could get a tax break, according to the West Side Rag.

With this disparity between the million-dollar condos for purchase versus the units for rent at a phenomenally low price for Manhattan, the developer decided to design the building with separate entrances for those who own condos and those who rent at a price below market value. As one might expect, this “rich door,” “poor door” situation doesn’t sit well with some.