Moral and Immoral Hazard

Rick Santelli has been all over YouTube, the blogs, and prime time news with what has been described as his "rant of the year". Santelli's complaint is a simple one - that the Obama mortgage plan is rewarding bad behavior, and that responsible tax payers are being forced to subsidize irresponsible ones. Economists call it "moral hazard". When certain bad behavior is subsidized or forgiven or bailed out, people are more likely to engage in that bad behavior in the future than they otherwise would have. A number of libertarian blogs have taken the "moral" part of "moral hazard" very seriously. Obviously, the broad sketches of this argument are completely sound. Nobody denies the logic of moral hazard, and it's not the goal of anybody who institutes these programs to reward bad behavior.

But I wonder if it's a misnomer. Really, it should be called "immoral hazard" - because the hazard about which we're concerned is that people will be encouraged to commit immoral acts. I think "moral hazard" could then be redefined to communicate the risk of preventing people from engaging in fundamentally moral behavior when a government chooses not to step in and guard them from what have been called the "rough edges" of capitalism.

Clearly - a completely irresponsible borrower is not going to learn their lesson if every single time they default they are forgiven by the government. I'm now calling that phenomenon "immoral hazard". But what about the responsible borrower, who only borrowed what they could afford and is now caught in the down-draft of a burst asset bubble? I would guess that if they aren't supported by the government (or some other benevolent white knight), they would be less likely to borrow responsibly in the future. They might rent, or borrow extremely conservatively - leading to an underutilization of available capital. They also might feel a little bitter that they are suffering from the mistakes of others, which caused the collapse in their own home value.

So of course we, like Rick Santelli, should be concerned with "moral hazard" (what I've renamed "immoral hazard"). One of the reasons why Santelli didn't really impress me was that his rant was so trivial. It's not like he was bringing new information to Obama's attention. Everyone knows about the problem. But what nobody is ranting about is the risk of punishing and disincentivizing good, moral behavior by standing to the side and doing nothing to help innocent bystanders who are being hurt by the irresponsibility of others. That's the real moral hazard, and that should be getting some attention as well.

Revising or Re"vision"ing?

I think Evan's post goes a long way toward explaining why the oft-derided "historical revisionism" isn't always bad. But I would like to make some caveats to his points.

First, I think most of what Evan talks about in terms of the accessibility of information and the role of technology has less to do with "historical revisionism" as it is traditionally thought of, and more to do with revising facts. Revising happens constantly, and insofar as it is done accurately it is almost always a good thing. Technology (both social and material) like wikis accomplish this by broadening the sources of information and incentivizing those sources to be self-policing. Who shot first in South Ossetia? How many Palestinians did Israel kill? How many middle age white males voted for Obama? These are facts that should go through as much revising as it takes to get to the cold, hard, truth.

But historical revisionism is very different - and I think it hinges on a new "vision" of what the history of a situation was, rather than a revising of the facts about that history. For example - when Charles Beard challenged the idea that our founding was the culmination of an Enlightenment experiment in liberty. Or when the story of the Civil War gets written as a war over slavery... or the tariff... or states rights. The facts of the 1860s haven't changed substantially (although certainly we do still revise those facts) - but the meaning of those facts does change - and that change is what I tend to think of as "historical revisionism".

Now, having said all that and having distinguished between two strands that I think Evan talks about simultaneously (revising and revisioning), I would definitely still agree with Evan's assertion that "historical revisionism" isn't always all that bad. After all - as Evan says, much of our historical memory is derived from the memories of those who actually experience the history. And if that memory is tainted or distorted to begin with, then perhaps some historical revision is in order.

I'll close by drawing attention to a recent historical revisionism fad - claiming that the New Deal didn't work or was counterproductive. A chief culprit in this school is Amity Shlaes, of the Council on Foreign Relations . Now, I haven't read her book - but I have read her articles and reviews of her book, and she provides a new vision of the New Deal by assuming:

1.) Work program jobs aren't actually jobs

2.) The Dow Jones is the best indicator of economic strength (despite the fact that the Dow Jones is an index of the price of a handful of products - in this case, corporate stocks) rather than GDP, which is a measure of all products.

3.) Don't include the defense budget in federal spending, even thought it was the single biggest components of federal spending in the 40s, and

4.) Pretend that the brief, sharp downturn in 1937 was a result of the deficit spending of 1933-36 and not the budget balancing of 1937.

It is one thing to "revision" the past by ascribing new meaning to old facts. For example, if (God forbid) the United States ever does turn into a socialist state, historians will probably reevaluate Roosevelt as the founding father of that slow march to socialism, and will probably revision the New Deal as the first American "five year plan". If we slip into socialism, that characterization may or may not be accurate. I feel that as long as they get the facts right, ascribing significance to those facts based on the current context of the times is reasonably fair. We know the scientific revolution was a success and not a real challenge to the Church because of the perspective we have. A Vatican historian in the 1600s might not have known that, so our "revision" of that history is appropriate given the information we're privy to.

But what Shlaes and others are doing is not providing a new vision to frame old facts. They are fundamentally changing the facts themselves. I think this is where historical revisionism is the most dangerous - when the past is forced into a certain mold, not because of the new context or information that future generations have - but because new generations have new ideological imperatives to make it fit the new mold.

Terrorism, Just War Theory, and the Proportionality Principle

This post started as a collection of thoughts I had on the Israeli invasion of Gaza, back in December. I've expanded it and made it a little clearer for the purposes of the blog - but that's why I start by talking about Hamas and Israel.

Proportionality and Gaza

The proportionality principle roughly holds that a "just war" must keep its number of casualties proportional to the magnitude of the threat that the war is meant to address. One definition of this states: "The anticipated benefits of waging a war must be proportionate to its expected evils or harms."

This proportionality principle is obviously at the front of everyone's mind when they think of the conflict in the Gaza Strip in late December and early January. Every night the Palestinian casualties - civilian or otherwise - grew higher and higher, seemingly exponentially. The Israeli casualties, while increasing, were only creeping up with each day of combat. I have to admit that even though I felt that the Israeli action was fully justified, I was deeply troubled by the increasingly disproportionate body counts. A lively exchange with a good friend from high school only drove the point home for me that whatever we think of the justice of a particular military offensive, we cannot simply ignore the body count. This friend posted an article that grabbed my attention, especially because of this very striking statement by the author:

"Israel's insane offensive against Gaza seems to follow the logic of an eye for an eyelash".

It is not a trivial concern. Certainly it isn't a trivial concern for intelligent, caring American onlookers - as is amply demonstrated by me and my friend. But I also think it is evident that the concern is not trivial for the Israelis, who have made efforts - at least in most cases - to warn civilians before military strikes.

But I wonder how our understanding of the proportionality principle should change when we consider a war on terrorists. If proportionality is to be determined by weighing the anticipated benefits against the "expected evils or harms", how do we assess the "expected evils or harms" of terrorism?

We are left to balance "anticipations" against "expectations" - two very fuzzy things which leave any assessment of symmetry in warfare in even fuzzier territory. If we know Hamas is receiving missiles from Iran, and we know Iran is seeking the development of nuclear warheads, is the prospect of nuclear warheads in the hands of Hamas an "expected evil or harm"? If it is justified as an "expected evil", then a harsh crackdown on Hamas in an effort to destroy that network by Israel, with considerable civilian casualties, seems to me to be justified. Yes, the cost of hundreds of civilian casualties is great, but the "expected evil" of thousands of Israelis dying in a potential nuclear strike is far greater. The justification game becomes a game of providing the best argument for the "anticipations" and "expectations" that you're peddling.

However, if the "anticipated benefit" and the "expected evil" must only be restricted to the immediate casualties inflicted by Hamas, clearly the current conflict is "disproportionate". I don't think there can be any doubting that. The question is - what is the "expected evil" that we should be weighing military action against when we contemplate the proportionality principle?

Proportionality and Terrorism

I would argue that the question becomes especially challenging when we consider the problem of terrorism. The whole point of terrorism is to exacerbate fears and expectations of evil and harm. That's what al Qaeda wants to inflict on us - not necessarily greater actual harm (although they would love to do that too), but the expectation of far greater harm. That's what Hamas wants to inflict on Israel as well. It's what Khaled Meshaal, a senior Hamas leader, meant when he said that Israel would face a "black destiny" as a consequence of invasion. What did he mean, exactly? The uncertainty is the object of the statement. It is the intention of terrorism.

So should the "expected evil and harm" that we weigh the cost of war against under the proportionality principle be the harm that we have already endured (the couple thousand dead on Sept. 11th; the handful dead by Hamas missile attacks), or should the "expected evil and harm" be the evil and harm that we can envision happening? And if it is the evil and harm we can envision happening at the hands of terrorists, it seems to me that the nature of terrorism itself necessary escalates the war against terrorism. If the business of terrorism is exacerbating "expected evil and harm", even when actual evil and harm may be minimal, then the business of terrorism necessarily leads to a devastating response under just war theory.

Ultimately, though, the strength of an argument for military response is only as convincing as the argument for the "expected evil and harm" is. Hamas could obtain a nuclear device from Iran, but in all likelihood they won't. Iran is happy to send money and explosives to suicide bombers, but I'm guessing they'd distribute technology like nuclear weaponry with a little more discernment. So that "expected evil and harm" isn't very convincing. But expectations of more traditional, but nevertheless horrific Hamas terrorist attacks if nothing else is done is certainly not an unconvincing argument.

Iraq figures into this as well. The Bush administration tried to make a case of exceedingly high "expected evil" that justified a massive military undertaking. I didn't buy it, and neither did a lot of other people. Whatever benefits may have accrued to the Iraqi people from ridding themselves of a dictator, the "expected evils" that were trumpeted in 2003 - WMD's - didn't really pan out.

But I think the way we use the proportionality principle of just war theory to approach Iraq (and Iran, for that matter) is fundamentally and qualitatively different from the way it is used to approach terrorism. Iraq and Iran, unsavory as they are, have always tried to downplay the threat they pose to the West. Yes, they do their fair share of belly-aching and name-calling - but they don't dare threaten the spectacular attacks that terrorist groups do. Why? Because they are nation-states. They rely on good relations with the outside world. They are members of the United Nations. They have to be careful how they resist the West.

Terrorist organizations operate differently, and their primary purpose is to terrify their enemies - to convince them that all hope is lost, and incredible violence and destruction is just lurking around the corner. I think this represents a fundamental snag in a Just War Theory that has otherwise served us reasonably well in prosecuting conventional warfare. The proportionality principle, it seems to me, justifies substantial asymmetric warfare against terrorism. Honestly, I'm still personally rather convinced. I have no problems with a long, merciless war against al Qaeda. But this blind spot in Just War Theory still bothers me. I wonder if I'm misdiagnosing the implications of the proportionality principle for terrorism, or if I'm correctly diagnosing it and perhaps we need a new standard for determining whether a war is just.

What are people's thoughts on this? I don't know if this is a legitimate way to look at the problem or not. I don't even know if just war theory is something we should feel obligated to. Perhaps it's just a medieval relic.

The purpose and pitfalls of open discourse

Evan raises the question of what an “open discourse” looks like, later adding the qualifier of an “open public discourse”. This theme reminded me of a work that I am only marginally familiar with – Karl Popper’s The Open Society and It’s Enemies. In it, Popper once again makes his case against Hegel, Marx, and historicism by emphasizing that knowledge is “provisional and fallible”, necessitating an openness to diverse opinions. The fallacy of totalitarianism and communism is to assume that well informed individuals can organize society according to deterministic laws. Popper points out that Plato makes a similar mistake in empowering his Philosopher King. More recently, and perhaps more benignly, I would suggest that we see this impulse in the writing of John Kenneth Galbraith, who heralds the rise of the Technocrat as a replacement of the Bureaucrat in social organization.

In democratic societies, we place a premium on open discourse because we believe that the laws of social organization don’t operate as predictably as the laws of physics. If determining whether foreign aid should fund programs that provide abortion services or whether a school bond initiative should be adopted could be accomplished by plugging some numbers into a formula, the argument for free speech and democracy might be much weaker.

I think what Popper’s analysis ignores is the more fundamental distortions of language that make it susceptible to the same kinds of tyranny that an “open discourse” is designed to protect against. The kind of tyranny I have in mind is the “discursive framework” or double-speak that is attached to the words and phrases that structure our public discourse. A discursive public square is a defense against the proclamations of a Philosopher King, but if the speech used in the public square is blunted or co-opted, there is no reason to put blind faith in "open discourse".

One example that comes to mind is the reemergence of the term "socialism" in American political discussion. Barack Obama and his domestic agenda is what is most often refered to as "socialist" particularly since the infamous statement he made to Joe the Plumber about "spreading the wealth around". What is most ironic about the media and the public's newfound love affair with this word is the conspicuous absence of socialism in the United States, a topic addressed in Seymour Lipset and Gary Marks' famous book "It Didn't Happen Here." No platform of either party even resembles socialism - a rarity in the industrialized world. And even if one of them did, the platforms of the two parties are so similar on the fundamental questions of social organization (i.e. - a progressive income tax, social insurance, etc.) that the differences between Democrats and Republicans can hardly be attributed to socialism on the part of the Democrats. Some of the nation's most celebrated Cold Warriors were Democrats, and the fundamental outlook of that party hasn't changed substantially since the early years of the Cold War (something that cannot be said for the Republicans, who brilliantly reimagined themselves in the late 1970s). There are definitely important questions of appropriate government intervention to address in public discourse today, but a discussion of socialism is wholly irrelevant to the issues before us. And yet, "socialism" is central to the current public discourse!

Why is that? Because new meaning for words is far easier to impose on the public discourse than new initiatives are. It is easier to reinvent the Earned Income Tax Credit (an instrument imagined by a conservative economist and initiated by a conservative president to supplant welfare) as "socialist" than it is to eliminate it.

We should guard the words we use, and use those words very precisely. We shouldn't use words like "socialism" unless we're discussing the abolition of private property rights and the collectivization of the means of production under the power of the state. In other words - we probably shouldn't use the word "socialism" in relation to American policy making at all. We should also be careful about applying terms like "fascist" to the Bush administration or Israel. The faults of the Bush administration and the state of Israel are very real, but a fair-minded assessment of those faults very quickly show that fascism has nothing to do with it. Only a handful of regimes in the world today could possibly be described as "fascist". When we identify our two political parties with the extremes of the political spectrum - socialism and fascism - we are discounting the rich "middle ground" policies that are actually being considered.

Who do I blame for this? I blame the Ann Coulters of the world who sell books by redefining words like "treason", "guilty", and "liberal". It's particularly sad because she makes her living as a writer who uses the English language every day - and yet her millions have been made from redefining hot-button words. At one time, "treason" meant betraying your country. Now it means betraying Coulter's idea of what the country should be. It's not the first time "treason" was defined that way. John Adams' Alien and Sedition Act had a similar interpretation of the word.

We should also blame people like Cindy Sheehan and the MoveOn.org crowd, who take perhaps legitimate concerns about the war in Iraq and superimpose language of fascism, Nazis, and "blood for oil" on the issue. MoveOn.org has also committed what we might call the "Coulter Fallacy" of assuming that betrayal consists of turning your back on a very specific interpretation what the county should look like. Recall the full page New York Times ads that MoveOn.org ran about "General Betray Us", mocking Gen. Petraeus and accusing him of betrayal. MoveOn.org had several good, legitimate points to make that where very critical of Petraeus - as Coulter surely did about the historical treatment of Sen. McCarthy - but they both chose an irresponsible short-cut. They chose to make their point by distorting language and the meaning of words.

I'm not trying to say that catchy titles are bad. But when you write titles, you have to consider how you're using words. Did General Petraeus "betray" us, or was he unobjective and misleading to Congress? Wouldn't it have been better to say "General Petraeus is Misleading Congress about the War in Iraq"? It's still certainly accusatory and eye catching. But presumably the word "misleading" is more defensible than "betrayal". The same goes with Coulter. Instead of "Treason" (my understanding is that she argues that liberals, as a group, are basically traitors to their country), she could have used the title "Ungrateful Whiners". It would capture what she's trying to say about the slander of Sen. McCarthy's record and her views on liberals without accusing them of being traitors - an accusation which is clearly false.

In conclusion, we all need to refamiliarize ourselves with Orwell's "Politics and the English Language". I'll leave the reader with a line from the conclusion of that piece:

"I have not here been considering the literary use of language, but merely language as an instrument for expressing and not for concealing or preventing thought. Stuart Chase and others have come near to claiming that all abstract words are meaningless, and have used this as a pretext for advocating a kind of political quietism. Since you don't know what Fascism is, how can you struggle against Fascism? One need not swallow such absurdities as this, but one ought to recognize that the present political chaos is connected with the decay of language, and that one can probably bring about some improvement by starting at the verbal end."