Billionaires in Sweden?

Matt Yglesias has a "must read" article on why does Sweden, home of cuddly socialism, have so many billionaires.  In some ways the cuddly socialism makes it possible to have a much more vicious market economy.  Putting people out of work in the name of efficiency is far less resisted if there are assurances that they will still end up with food, shelter, and health care.

But there is another argument that I want to focus on.

This reality cuts against a recent critique of the Nordic social model from Daron Acemoglu, James Robinson, and Thierry Verdier that was popular in right-of-center circles. The authors contrasted American-style cutthroat capitalism with Nordic-style cuddly capitalism as two social systems that are compatible with high levels of GDP per capita. The cuddly Nordic system might be better for human welfare, they said, but the American system is better for the world. Their reasoning was that high levels of inequality create financial incentives for innovation; cuddlier nations don’t have those incentives. The authors test this rather schematic model empirically by showing that the U.S. files more patents per capita than any of the egalitarian Nordic countries.

Now followers of this blog will know that we consider the patents-innovation link to be nonsense.  It is as much a matter of the legal structure of the country in question as it is a marker for innovation (and excessive patents create more opportunities for lawsuits, which rarely improve corporate performance). 

But the real tricky piece is calling the American system "better for the world".  I grow tired of argument, offered without exceedingly strong proof, that current business practice just happens to be all about altruism.  After all, the current system also happens to be shifting a lot of wealth into a fairly narrow social class.  Is that also all about altruism?  Or, like Sweden, is it about having a tournament system of business rewards? 

The real question is about the counter-factual.  Would a cuddly form of capitalism really result in less innovation overall? 

Now it is possible that Sweden (and other Nordic countries) have unique advantages that may not be replicated elsewhere.  But let's engage that argument directly, rather than resort to appeals to "we suffer for the sake of everyone" type red herrings. 

Moral underpinnings of income

John Sides brings up something that has long puzzled me:

But, unlike with programs that do provide direct subsidies, most Americans do not think of tax credits as government benefits.  Mettler’s data shows that 60 percent of people who claim the mortgage interest deduction say they “have not used a government social program.”  The same is true for those who claim tax credits for child and dependent care or the Earned Income Tax Credit, or who pay into a 529 savings program for their children’s education.

Reducing income is equivalent to increasing expenses from a balance line point of view.  It is true that there is a difference if one presumes that salaries and income streams are a morally just allocation of resources.  But that is a very strong assumption that has a number of key issues involved.  Is robbing a bank a morally just sources of income?  What about managing a pension fund in a way that maximizes fee revenue?  Or writing a hit song in a market with limited media outlets?

When you look closely, a lot of sources of income depend partially on a socially agreed upon framework where laws decide what is or is not a just income.  So the distribution of resources is no more morally just than the laws themselves.  And one rapidly runs into a odd problems if (changeable) laws reflect underlying moral worth.

Now I tend to be pragmatic.  Rewarding hard work and the exercise of talent is a really important social goal.  So it is good that there is a distribution of income, insofar as it encourages the socially desirable outcome of more resources and a better world for all involved.  Things like a stable currency and a court system are needed for a modern society to function.

So the mortgage tax deduction is a government program, as clearly as being mailed a check by the government. It's just a difference in how the accounting is done.

Beware of shifting standards -- more fun with the Netflix narrative

This is another example of the Netflix narrative and press release journalism, but I probably would have flagged this even without those connections simply because it nicely illustrates one of the classic warning signs to look for in stories about numbers.

Here's the headline I saw on a Netflix via a Yahoo link.

Netflix tops 40 million customers total, more paid US subscribers than HBO

Do you notice anything funny? Check out the first part "40 million customers total" and compare it to "more paid US subscribers." Why shift from total to US mid-headline?

Maybe following the link will clear things up:

Netflix's results for the third quarter have arrived and one of its most important numbers, the total amount of US subscribers (not including trial accounts), has reached 29.93 million, more than HBO's last count of 28.7 million. Last year at this time it had notched 25.1 million US customers, and including trial subscribers it passed HBO's US customer base back in April. Internationally it's up to 9.19 million subscribers and is anticipating that it will add more than three million customers total in the next quarter. New original series Orange is the New Black has been a hit and while Netflix still isn't releasing viewing numbers, it says the show will end the year "as our most watched original series ever." Yes, bigger than House of Cards.

I'm a bit confused as to how that 'tops' 40 million (29.93 + 9.19 > 40?), but that's not relevant to this conversation, nor is the fact that, since we have no idea how many people watched House of Cards (Netflix is notoriously closed-mouthed on the subject), knowing that Orange beat it doesn't tell us that much.

What is relevant here is that this is very much a Netflix = HBO2.0 story and that it uses both the worldwide total for Netflix and the small US advantage over HBO to make its case. That leads to the obvious question, how does Netflix compare to HBO worldwide?

Thanks to Wikipedia, we know the answer is "not that well."

HBO also broadcasts in at least 151 countries covering approximately 114 million subscribers worldwide.

Of course, all of the usual caveats apply -- Netflix is a good service. NFLX may still be a bargain at $350 a share. -- but when it comes to the coverage, we still don't have a fact-based narratives.(though we do sometimes have narrative-based facts).

An under-appreciated consequence of extremely long copyrights

This is one of the unforeseen consequences of extremely long copyright terms:

Not only have many copyright holders failed to keep their older works in print, but there are now many books whose copyright holders can't be identified at all. In many cases, the original copyright holder is dead and records about who now holds the copyright aren't available. These "orphan works" have become a serious problem for projects such as Google Books, which aims to digitize books and make them available to the public. Google can't obtain the rights to reproduce these books at any price because it can't figure out who it needs to negotiate with. The older a work is, the more likely it is to be orphaned, so copyright extensions have made the problem much worse.

At some point the interests of the creator of the work are more likely served by allowing their creation to be published and enjoyed rather than left to wither on the vine.  If nobody can even figure out who owns these rights then precisely who is being protected? 

Martians and metadata

Just in case you don't know the story:

The War of the Worlds is an episode of the American radio drama anthology series The Mercury Theatre on the Air. It was performed as a Halloween episode of the series on October 30, 1938, and aired over the Columbia Broadcasting System radio network. Directed and narrated by actor and future filmmaker Orson Welles, the episode was an adaptation of H. G. Wells's novel The War of the Worlds (1898).

[Written primarily by Howard Koch who went on to do some other interesting work, but nobody talks about the writer.* ]

The first two thirds of the 60-minute broadcast were presented as a series of simulated news bulletins, which suggested to many listeners that an actual alien invasion by Martians was currently in progress. Compounding the issue was the fact that the Mercury Theatre on the Air was a sustaining show (it ran without commercial breaks), adding to the program's realism. Although there were sensationalist accounts in the press about a supposed panic in response to the broadcast, the precise extent of listener response has been debated.

In the days following the adaptation, however, there was widespread outrage and panic by certain listeners, who had believed the events described in the program were real. The program's news-bulletin format was described as cruelly deceptive by some newspapers and public figures, leading to an outcry against the perpetrators of the broadcast. Despite these complaints--or perhaps in part because of them--the episode secured Welles' fame as a dramatist.

Of course, no one who heard the whole broadcast panicked. The first line listeners heard clearly spelled out what was about to come: "The Columbia Broadcasting System and its affiliated stations present Orson Welles and the Mercury Theatre on the Air in The War of the Worlds by H. G. Wells."

But most of the people who were listening when the show ended hadn't heard the beginning of the show. They had been listening to one of the highest rated acts on radio, a ventriloquist named Edgar Bergen (you might want to take a minute to reflect on the concept of a radio ventriloquist before continuing). About fifteen minutes into the hour, the show cut to a musical interlude and people started channel surfing.

Though we don't normally think of it in those terms, the title of a program is data, as is the author. We feed it into the algorithm we use to interpret what we see, or in this case, hear. People who didn't hear the words  "The War of the Worlds by H. G. Wells" tried to impute the genre based on the information they heard when they first tuned in to what seemed to be a reporter covering a disaster.

Check out the first few minutes and think about what you'd conclude.



PBS has a special commemorating the anniversary, but I'm staying loyal to the original medium and recommending this radio documentary produced for KPCC.



* Welles' relationship with Koch in some ways foreshadowed the controversy over Citizen Kane. Here's Pauline Kael's summary.

The Mercury group wasn’t surprised at Welles’s taking a script credit; they’d had experience with this foible of his. Very early in his life as a prodigy, Welles seems to have fallen into the trap that has caught so many lesser men—believing his own publicity, believing that he really was the whole creative works, producer-director-writer-actor. Because he could do all these things, he imagined that he did do them. (A Profile of him that appeared in The New Yorker two years before Citizen Kane was made said that “outside the theatre … Welles is exactly twenty-three years old.”) In the days before the Mercury Theatre’s weekly radio shows got a sponsor, it was considered a good publicity technique to build up public identification with Welles’s name, so he was credited with just about everything, and was named on the air as the writer of the Mercury shows. Probably no one but Welles believed it. He had written some of the shows when the program first started, and had also worked on some with Houseman, but soon he had become much too busy even to collaborate; for a while Houseman wrote them, and then they were farmed out. By the time of the War of the Worlds broadcast, on Halloween, 1938, Welles wasn’t doing any of the writing. He was so busy with his various other activities that he didn’t always direct the rehearsals himself, either—William Alland or Richard Wilson or one of the other Mercury assistants did it. Welles might not come in until the last day, but somehow, all agree, he would pull the show together “with a magic touch.” Yet when the Martian broadcast became accidentally famous, Welles seemed to forget that Howard Koch had written it. (In all the furor over the broadcast, with front-page stories everywhere, the name of the author of the radio play wasn’t mentioned.) Koch had been writing the shows for some time. He lasted for six months, writing about twenty-five shows altogether—working six and a half days a week, and frantically, on each one, he says, with no more than half a day off to see his family. The weekly broadcasts were a “studio presentation” until after the War of the Worlds (Campbell’s Soup picked them up then), and Koch, a young writer, who was to make his name with the film The Letter in 1940 and win an Academy Award for his share in the script of the 1942 Casablanca, was writing them for $75 apiece. Koch’s understanding of the agreement was that Welles would get the writing credit on the air for publicity purposes but that Koch would have any later benefit, and the copyright was in Koch’s name. (He says that it was, however, Welles’s idea that he do the Martian show in the form of radio bulletins.) Some years later, when C.B.S. did a program about the broadcast and the panic it had caused, the network re-created parts of the original broadcast and paid Koch $300 for the use of his material. Welles sued C.B.S. for $375,000, claiming that he was the author and that the material had been used without his permission. He lost, of course, but he may still think he wrote it. (He frequently indicates as much in interviews and on television.)

Intellectual Property

We have not talked about copyright for a while, but this is an evergreen point:

More recent characters never enter the public domain because a handful of 1930s-vintage characters—Mickey Mouse, Batman—are owned by corporations that are still powerful today and have successfully lobbied congress to retroactively extend copyright terms. What we ought to do is go back to a sensible regime of finite copyright—perhaps the lifespan of the author or 50 years, whichever is longer—so that creators can still benefit from their works but that new generations of characters will enter the mythic realm of the public domain.

 I think the piece here that is underappreciated is the retroactive nature of the copyright extension.  There is no way that extending copyright on Batman (today) will provide incentives to people in the 1930's to create more comic book characters. 

I don't know where the right balance is.  Matt proposes something vaguely sensible above, although one may be tempted to quibble with what is the correct period of protection.  But infinite copyright isn't going to really serve the original public policy goals of intellectual property protection, and should definitely be rethought. 

Rocco Pendola confirms some suspicions I've had about HBO and Netflix

Why should you care about Netflix?

It depends.

If we're talking about Netflix the company, I can't think of a strong reason that you should. The company does provide some competition to an industry badly in need of it but not enough to make a big difference and certainly far less than we get from something like OTA television (click here and here to get started on that thread). The demise of Netflix would be a bad thing but it wouldn't exactly be traumatic. If, however, we're talking about a Netflix as an example of the dangers of naive and simplistic narrative journalism, the topic becomes considerably more important.

Just to be clear, I'm not blasting the genre as a whole. Narratives can do a wonderful job of bringing relationships into focus and pointing out the significance of facts we might otherwise overlook. From Wolfe's The Kandy-Kolored Tangerine-Flake Streamline Baby and Kael's Kane Mutiny to the latest from Michael Lewis, some of my favorite journalists and critics have used non-fiction narratives to express their ideas.

Of course, all of those narratives were complex, well-thought-out and written from unique points of view. When you take away the complexity, the thoughtfulness and the originality, you leave the form vulnerable to the greatest weakness of narrative thinking: selection bias. In an extreme cases, like the Netflix/Reed Hastings saga, not only are pertinent facts ignored but unsupported claims that fit the narrative are elevated to the level of fact.

If you take the standard account mindlessly regurgitated by writers like David Carr,* Here's a sample:

Original content is hard. As silly as the network process is — let’s finance 20 pilots, pick three and cancel two of them after three weeks — no one had come up with anything better until HBO came along. Its model of finding good people, paying them for full seasons and running their work until it builds an audience — or not — has been emulated to very good effect by Showtime, AMC, FX and now Netflix.

The Netflix = HBO2.0 is one of the central recurring themes here, particularly regarding original content, but how similar are the approaches and models of the two companies? Despite Carr's implication, HBO does commission pilots, Its definition of 'good people' (especially behind the camera) is generally 'promising but relatively obscure' which is roughly the opposite of that of Netflix, where the approach has been to offer big checks for recognizable names. Furthermore, there's evidence that, even though the company pays top dollar, producers still treat the company as a place to pitch ideas after they've been turned down by HBO, Showtime, AMC, FX, etc.

As for the actual production and the post-run relationship with the programs, Rocco Pendola recently explained how sharp the contrast was.

First, Netflix guarantees 13 episodes right off the bat. Sometimes it will even give you a two-season commitment before the first season even airs. And, in terms of rights, it doesn't demand exclusivity. Outside of the first-run window, you are free to place your show anywhere you wish and, unless it cuts another deal with you, Netflix doesn't receive a cut of this action. Plus, there's very little, if any, creative development from Netflix.

In other words, the folks who output the content -- in this case, Sony -- are simply robbing Netflix blind. It's the type of deal that's too good to pass up.

Put another way, Sony doesn't care how many subscribers watch these shows on Netflix. They're more than happy to collect a fat (likely way too big) check, which subsidizes their risk, as they retain rights to sell the programming in markets where Netflix doesn't operate and in all other markets -- geographic and delivery -- after whatever the relatively short first-run window happens to be.

That's not how HBO, for example, plays the game. Never has been. And HBO sees no reason to start, given the franchise it has built and the enormous success it continues to have.

HBO doesn't give the world to studios and creators because it's not so desperate that it has to. It maintains exclusive rights to the programming it licenses. Unlike Netflix, it routinely produces programming in-house. And it almost always involves itself in the creative process. From what I understand, producers and directors actually appreciate this input, as HBO has a track record of making stars and producing huge hits.

Netflix is taking a massive risk writing big checks and doing whatever needs to be done to secure programming that might wind up elsewhere if "elsewhere" was as desperate as Netflix appears to be. Creators and studios go with Netflix because they can't turn down the easy money or their first choice turns down their programming. It's common to pitch HBO first, get a no and head over to Netflix.  ...

None of this means that Netflix will fail if it holds with its current strategy or that HBO can do no wrong (HBO worship is a standard narrative that should be addressed in another post). I'm not all that optimistic about NFLX, but it's a viable business in a volatile industry. With a few lucky breaks it could have a very good run.

What's significant here is that the standard narrative is not something that appears to have emerged organically from the facts; instead, it seems to have been an excuse to trot out the familiar and appealing _____-is-the-new-_____ template. Furthermore, once that template became accepted, the implications of the narrative were not only treated as facts; they were actually given more weight. Consider this previously mentioned quote from Forbes:

Of course, the end game may well lie in pivoting away from subscriptions and distribution altogether and moving into the world of content licensing.  This would fundamentally change the company’s equation. Whether a move to content licensing is the key to Netflix’s future growth is yet to be seen, but it certainly sets up fascinating new dynamics—and ironies—for the broader industry.

This fits perfectly with the HBO2.0 narrative (look at the post-run revenue stream of Sex in the City for an example of how big something like this can be) and so the idea that Netflix may be planning to become a major player in licensing makes it into one of our best and most respected financial publications. The fact that Netflix, despite the aforementioned huge checks that it's been writing, failed to acquire the rights to House of Cards and company. Unless something's buried in the fine print, they have no content to license and have shown no interest in acquiring any.

I'm not saying that these are necessarily bad decisions on the part of Reed Hastings and Ted Sarandos. I'll admit that I don't have a lot of faith in either (Sarandos, in particular, makes me nervous), but I can imagine scenarios where these decisions turn out to be pretty smart. I think they're a bit improbable but no one died and made me Nostradamus. What I am saying is that these decisions are not part of the standard narrative.

If you missed on the rest of this thread, here are some previous posts (if you're a real glutton for punishment, just search "Netflix"):

Edging away from the genius hypothesis

Netflix can never be the next HBO

Curiously, agressively anti-social

Two quotes about Netflix, presented (almost) without comment

House of Cards -- either already in the black or seriously underperforming

Netflix, the Emmys and the power of a happy narrative

Also check out Pendola's summary The Netflix Story in Three Tweets.

Rich Greenfield also has some sharp observations on the subject, some of which tie into a post I mean to write on the proper and improper use of business metrics.


* Carr's a bit of a creep too, but that's a topic for another day.

Negotiating costs

A correspondent to Talking Points Memo makes a point that matches my experience:

I've spent years making medical decisions based on the out-of-pocket cost. I've passed on doctor-advised MRIs because they would cost me $1,000 (and don't even get me started on the myth of how patients can negotiate with providers--a notion propagated largely by people who've never had to try it), and just this week I had to decide whether to have a follow-up visit with a neurologist for vertigo or see a podiatrist about an ongoing running injury.

If there was a robustly competitive market then maybe it would be different.  But most people have insurance and there isn't really a whole lot of ability to bargain down prices.  I found it to be surprisingly challenging to be allowed in to see a medical doctor, paying the full (very high) sticker price. 

I don't want to say that it has never worked for anybody (the US is large), but most of the time you are happy to find a provider at all.

Weekend blogging -- supply your own metaphor

Directionality

There was a lot of concern that the Affordable Care Act would lead to fewer full time jobs.  The most immediate effect was the opposite: more full time and fewer part time jobs. 

Now this doesn't mean you can't find individuals or sectors who are affected.  But it does cast some doubt on the potential strength of these effects.  It is like lowering or raising taxes.  In the ranges that the United States has tried in the last 30 years we had high taxes with high growth (Clinton) and low taxes with low growth (Bush).  Now the underlying relation might hold, but over this range you begin to suspect that it cannot be a dominant effect. 

In the same sense, the ACA might eventually lead to more part time jobs than the counter-factual.  But the initial look suggests that we should update our priors as to the plausible effect size if it can be so easily swamped by natural market shifts. 

A Motley Fool uupdate -- the Avengers probably can beat up the Agents of SHIELD

Just to recap: about a month ago Motley Fool ran a post with the provocative suggestion that the television program Agents of SHIELD could be bigger than the movie from which it was spun off, The Avengers.

This was an extraordinarily ambitious target. The Avengers was one of the very few movies in film history to break $1 billion at the box office and it made God knows how much more than that when you take into account marketing, rental and streaming, and the tentpole effect on other films in the franchise such as the upcoming Thor and Capt. America movies.

Even when you take into account the fact that a strong show can indirectly generate additional revenue through its effect on the rest of the lineup, the idea that this program would be bigger than the movie that spawned it would require Agents of SHIELD to be a huge perhaps even unprecedented television hit.

To support the claim that this was a relatively likely outcome, the Motley Fool writer offered very little in the way of argument other than his assurance that these things were going to be big.

How have these assurances panned out so far?

On Tuesday night, S.H.I.E.L.D. had 7.1 million viewers and a 2.6 rating among adults 18-49 at 8 p.m. This is still a good rating in this slot, especially when ABC has also recently launched freshman dramas that are much weaker, like Lucky 7, Betrayal and Once Upon a Time in Wonderland. Yet here’s how the Marvel series has tracked so far in the adult demo: A 4.7 rating for the show’s premiere, then 3.3, 2.9, 2.8 and now a 2.6.

It’s common for even successful and long-running new shows to drop the first two weeks after their launch, or even for three weeks. But now we’re on Week 5. We’re seeing some new shows stabilize or even improve in the ratings — last night, under-achievers like Fox’s Brooklyn Nine-Nine and ABC’s The Goldbergs finally crept up a bit. On Monday night, CBS’ Mom went up for the first time and Hostages held steady. Yet S.H.I.E.L.D is still trending down. Can Melinda May pull the S.H.I.E.L.D. jet out of its dive? Comic veteran Jim Steranko says the show has found its groove creatively. So why are fans still ditching? ABC has ordered a full season of S.H.I.E.L.D., so it’s not going anywhere anytime soon. But those numbers must stop dropping at some point, hopefully sooner rather than later.

 [A quick side note: Steranko (who arguably deserves co-creator credit for the original S.H.I.E.L.D along with Kirby and Lee) has a weekly gig at the Hollywood Reporter reviewing the show and his take is a bit more negative than the "found its groove" line suggests.]

You'll notice the focus on the 18-49 audience. This is area of some controversy in marketing circles and I've heard a lot of smart people in the field suggest that, while a thirty-year-old set of eyeballs might be somewhat more valuable to an advertiser than a sixty-year-old set, the difference isn't big enough to justify dropping a huge segment of the population from your metrics.

Without getting too far into the debate, I will say that it's a good idea to look at both numbers. In this case, pay particular attention to CBS. NCIS remains a powerhouse across all demographics. I'm not a fan of the franchise but Bellisario has been at this for a long time and he has perfected a tremendously successful formula of action, military culture, quirk-heavy characters and at least one scenery-chewing veteran thespian  per show. SHIELD is heavily targeted at 18-49 and it's not even winning there.

NET/TIME/SHOW				18-49 RATING	TOTAL VIEWERS
FOX	8:00P	DADS-		1.4	3,608
	8:30P	BRKLYN 9-9-		1.6	3,777
	9:00P	NEW GIRL-		1.8	3,759
	9:30P	MINDY PRJCT-		1.4	2,858
ABC	8-9P	MARVL-SHIELD-		2.6	7,126
	9:00P	GOLDBERGS-		1.7	5,264
	9:30P	TROPHY WIFE-		1.2	4,030
	10-11P	SHARK TNK	RS	1.1	3,450
CBS	8-9P	NCIS-		3.0	18,580
	9-10P	NCIS:LA-		2.6	14,870
	10-11P	PERSON-INT-		2.2	12,937
NBC	8-9P	BIGST LR15-		2.0	6,636
	9-10P	VOICE–		4.0	12,847
	10-11P	CHICAGO FIRE-		2.1	7,586
CW	8-9P	ORIGINALS-		0.9	2,152
	9-10P	SUPRNATURAL-		1.0	2,298

To be clear, we can't say definitively that the Motley Fool writer was wrong. After all, he only said this was possible, but it is important to remember a few things:

His suggestion was not just wrong, it was directionally wrong. He suggested that the series might wildly outperform expectations. Instead, it has at least mildly underperformed them;

His arguments for the suggestion were called out as being weak at the time;

Organizations like Motley Fool, CNBC, and other providers of stock tips are encouraging individuals to engage in an activity that is very risky. Almost no one who is getting their information from a post they see on Yahoo should be engaged in the business of stock picking.

Alternative thoughts

I read this passage:

For some people, disability insurance has become a way of exiting the labor force. It's hard for me to get into high dudgeon over these people, because I suspect that many of them have at least mild disabilities and also lousy job prospects, especially the last few years. But the hard fact is that the disability insurance program has limited funds, and is headed for bankruptcy. If it pays those funds to a substantial number people who are only marginally disabled,  and could be working, it cannot pay higher benefits to the more severely disabled.

in the context of this passage

There are private-sector consulting companies who are hired by states and paid several thousand dollars for every person who they manage to shift from a cash welfare program, which is partly funded by the state, over to disability insurance, which is funded by the federal government. 

And my reaction is very different than the original authors.  On one hand, I think that the possibility that disability funds might dry up is a call to raising revenue.  Helping the disabled (even the partially disabled) out is one of the characteristics of basic  human decency.

On the other hand, maybe we should just stop having the federal government subsidize state programs and simply run them directly. Because these games waste a ton of resources without actually making the system work any better.  A beggar thy neighbor strategy, in the long run, leads to everyone being poor.

Journalistic decline and GOP dysfunction

Picking up from Tactics, Schmactics...

When we talk about the mainstream media and the right-wing media and all the other little sliver media out there, there are all sorts of standards with which we can make our distinctions. The one I prefer, at least for this discussion, is axiom-based.

In the New York times, or Time Magazine, or slate, or in any section of the Wall Street Journal except the editorial pages, most of the writers start from the same basic set of assumptions. To a slightly lesser extent, you can say the same thing about the right-wing media: Fox news; Rush Limbaugh; red state. We could argue about the validity of each of those sets of assumptions, but the important part for the moment is the difference between the two sets.

Though there had always been right wing papers and left wing papers, it has only been in the past few decades that it is possible to completely immerse yourself in one set of assumptions while your neighbor is completely immersed in another.

That's part one of the story. Parts two and three are what happened to the two halves of the journalistic universe since then and how those changes have affected the breakdown of the Republican party.

On the mainstream side, simplistic narrative journalism, dogmatic centrism, and a increasing disregard for accuracy and for holding subjects to a high standard of honesty all acted together to weaken the press's traditional role in checking party extremes. Since these practices had long been coupled with a sense that the Republicans were the dominant power and a fear of conservative pushback, this primarily worked on the right,  allowing unpopular and extreme Republican policies to gain traction. This was particularly true in the area of governance. Unprecedented use of filibusters and other obstructionist techniques were practiced up until recently with relative impunity due to the "both sides do it" mentality of many journalists.

On the right wing media side, journalists traded off their normal role as providers of feedback in order to be more effective motivators. This is perhaps most obvious with Ailes and Fox News where the goal (after turning a profit) was clearly to shape (and in some cases, falsify) the facts in such a way as to keep the base loyal and energized. In the short term, the strategy worked well but it always had inherent risks, risks that have finally started doing serious damage.

You can read this partly as a cautionary tale of Straussianism gone awry. The first, the most fundamental assumption of any society based on the noble lie is that you have a hierarchy with well-defined classes of the liars and the lied-to and that all major decisions are made by people in the first class.

Here's an analogy: officers have been known to paint overly rosy pictures for soldiers ("Things are going great on the Western front." "The enemy's factories are in ruins." "Victory is near."). We can argue over the ethics of this kind of lying, but it's easy to see why some officers might do it.

Now imagine that through a combination of field promotions, broken lines of communication and general confusion,  strategic and tactical decisions start being made by people who actually believe all of the misinformation that was fed to the ranks. I'm no military historian but I'm fairly sure this would probably end badly.

We had a pretty clear example of this kind of a breakdown in the Romney team's analysis of poll data in the last days of the election. There was clear value for Romney in having his supporters believe that he was ahead but that value was more than negated by having his advisers believe the same misinformation. You can see similar dysfunction in the recent shutdown where many congressmen made what now appear to be disastrous decisions based apparently sincere belief in such Fox News talking point as "people won't get that upset about a shutdown."

Put more broadly, the processes that allow the right version of the truth to get to the right people – something that has been an integral part of the Republican strategy – has seemingly broken down entirely.

In addition to the largely random flow of misinformation, conservative media created an unforeseen problem in the rank and file with narrative momentum. When most members of a group get much of their information from outside, there's a natural friction on in-group narratives when members realize that their version is not shared by the general public. Conservative media is immersive to an unprecedented degree. Narratives like "the only time Republicans lose is when they become too moderate" are allowed to build unchecked.

On a related note, the immersive quality also greatly facilitates social norming. This greatly encourages extreme positions and widens the gap when members of the group try to communicate with outsiders.

More on this soon.

Efficient wage markets?

One grows increasingly skeptical of the claims that wages are a perfect reflection of market values:

The gap between skyrocketing CEO pay and relatively stagnant compensation for everyone else has been widening for decades. While annual CEO compensation increased by 726.7% between 1978 and 2011, average worker compensation only went up 5.7% during the same time, according to a 2012 study by the Economic Policy Institute.

 To make the argument that this is efficient you need to really think one of the following:

1) CEO wages were terribly depressed in the early post-war era
2) Markets have changed to allow CEO's to add more value than before

The first seems questionable: we do not think of 1945 to 1978 as a era of desperate stagnation and sub-optimal economic performance.  If it was hurting the United States, it was fairly subtle and swamped by other effects.

The second is only more plausible in that modern electronics and communications have made it easier for a CEO to influence policy.  But, interestingly, insofar as firms are themselves command economies, this actually suggests that the return to assets on command economies has improved.  I won't speculate further except to say that this is an interesting argument for the average free marketer to make. 

I suspect the real story is that barriers to entry (i.e. patents, ability to buy out competitors with market capital) are allowing senior people to reward themselves more without hurting the firms ability to compete.  Now that is not all bad -- extra resources have done a lot of things throughout history to improve matters, even when inequality is involved.  But it does make a mockery of the idea that the market can find the right price or wage in all circumstances. 

Tactics, Schmactics -- why I don't buy the latest trope on the government shut down

[I haven't seen anyone frame the discussion in the following way, but a lot of the points I want to make in this thread have been made recently by Josh Marshall and Jonathan Chait. Both are on my fairly short list of daily reads and both have a rare gift for, to paraphrase Orwell, seeing what's in front of their noses.]

You've been hearing it everywhere from Paul Krugman to the National Review: the growing rift in the Republican Party is strictly over tactics -- everyone on the right agrees on what they want; they're just fighting over how to get there -- but having looked carefully at this (and I've stared into this abyss longer than I should have), I'm convinced that it's not just wrong but wrong on multiple levels. I don't think it fits the facts but, more importantly, I don't even think it answers a meaningful question.

Here's a rough analogy. Let's say you're standing in a subway station and a man next to you has a seizure, falls to ground and rolls off of the platform. In that situation, "Why would he want to do that?" is not a meaningful question. The idea of explaining actions through desires only make sense if we make certain assumptions about rationality, vantage and control.

When we're talking about groups, particularly groups large enough not to be able to form fully connected graphs, checking similar assumptions becomes even more important. We have a tendency to anthropomorphize institutions. "The business community wants this." "The Tea Party is trying to do that."   Of course, we know this isn't true. The most you can say is that there's a strong consensus or that the group is following the lead of an individual. This doesn't mean that it can't be useful to analyze groups as if they were individual actors; it can often be the best approach, but only if certain conditions are met. The first of these is that the groups have to be, for lack of a better word, functional.

To be functional, the group has to have certain mechanisms in place and working reasonably well:

Mechanisms to bring information into the system, analyze it and make appropriate decisions based on it;

Mechanisms to disseminate instructions for implementing these decisions, and gathering feedback from members to allow adjustments in strategy;

Mechanisms to check those personal agendas when they threaten the overall goals of the group.

My take is that for quite a while now, the Republican party and the conservative movement have not been functional by these standards. I'm not saying that conservatives are stupid or unbalanced or are acting in an irrational or erratic manner. I am saying that the mechanisms needed for functional operation have broken down and, furthermore, they have broken down in entirely predictable ways, as long as you apply the right principles (game theory, social and individual psychology, voting "paradoxes," collective action and principal agent problem, organizational theory, etc.).

For example, the Romney campaign's inability to process poll information clearly indicates a breakdown in the way that information is suppose to flow through a system. More recently, many of the statements being made by prominent conservatives are clearly cathartic; They can only be seen as the actions of people seeking emotional release without regard to the larger strategic goals of the group.

I've got some suggestions as to why this is happening that I will try to flesh out more later (with the caveat that I have no special expertise in any of these areas and I will invariably get in over my head). I've got first drafts of the next couple of posts, but just to restate the underlying thesis, when it comes to recent developments in the GOP, I think that we are less likely to find useful analogies in the Art of War and more likely to find them in When Prophecy Fails.