Good news and bad news on the state of the news

Evan's critique of the consolidation of print media is both prescient and pedestrian - and I should say I don't intend that evaluation to be insulting to him at all. Indeed, I think the fact that it is both prescient and pedestrian is a positive sign. People are broadly aware of the problem, and there is a real grassroots constituency that is making exactly these points.



Actually, what I found most surprising about Evan's post was that it was decidedly more negative than the usual narrative you hear, and it is precisely this relatively negative outlook that I want to address. The more common storyline, I believe, is that local media and print media is dying at the same time that TV news is being dumbed down and sub-divided into ideological camps. Polarization in and of itself doesn't have to be bad, but the polarization we are seeing now seems to be contributing more heat than light to the debate. Keith Olbermann and Sean Hannity may personally be genuine in what they are reporting, but the market-segmenting arrangement between MSNBC and Fox itself is more akin to a cable-news Molotov-Ribbentrop Pact, dividing the market in half, than it is to a meaningful debate between two differing perspectives). In the no-man's land that's left in the middle (I suppose this would be Warsaw if I were to continue the World War II analogy), we have CNN that increasingly descends into flashy gimmicks that avoid the ideological confrontations of Fox and MSNBC - and CNN (and other middle of the road sources) end up avoiding real reporting in the process.

A Cable News Molotov-Ribbentrop Pact

That's the downside of the "usual narrative".

The upside is "Web 2.0"; the democratization of media as a result of Youtube, blogs, and even Wikipedia. The story goes that while the print media is failing to adapt, and cable news is failing to deliver, the blogosphere is creating a network of private citizen-reporters prepared to keep the elites (both in positions of power and in the media itself) honest.

I see two problems with this "good news/bad news" story, which may help to buttress Evan's concerns. First, many blogs themselves rely on re-posting, re-analyzing, or simply aggregating the work done by the "mainstream media". Obviously this serves an important chastizing function, but it is unclear what the blogosphere would look like without the New York Times, The Washington Post, The Wall Street Journal, Fox, MSNBC, and CNN. Could they pick up the slack and create new news? The beauty of blogs is that anybody can create one, absorb information, and reorganize their own thoughts. We do this all the time. But that isn't necessarily conducive to uncovering new stories.

My second concern centers on what blogs don't allow us to do. What bloggers can't do (at least out of their blogging revenue - if they even have that) is buy a plane ticket to Mexico City to investigate swine flu, and then stop by Atlanta on the way back to the office to consult with the CDC about what all this really means. This is the work of real reporters - the very reporters that are being laid off or re-branded by newspapers and cable TV shows. Some of this investigating can be done through sites like Youtube. Indeed, in many cases the mainstream media is now using videos posted by private citizens as material for their own shows (the George Allen "macaca" incident, linked above, comes to mind here). But as a general rule, bloggers don't have the access that traditional reporters do, and they also don't have the same reporting standards. This isn't to say that there aren't objective and rigorous bloggers - but there isn't the same obligation to double-check sources and edit material. By the time some blog stories get debunked, the story itself is so thoroughly embedded that often it can't be dislodged (i.e. - that Obama is a Muslim).

What I'd like to emphasize is that neither of these burdens should be insurmountable. Bloggers can and already have started creating new content. You don't have to fly to Mexico City or Atlanta these days, because there are local bloggers in those locations that can be networked with. The CDC can be reached by email, as can the Mexican government. Pictures and videos to highlight the blog post are a Google search (and Photoshop session) away. As for standards, I think the question of how much reporting standards really help is an open one. They may prevent certain news from reaching us that we would have wanted to hear. The National Enquirer - a notoriously low standard publication - actually gets the story right a lot of the time, and is therefore able to break news long before the "mainstream media" feels comfortable reporting it. They proved that this past campaign season, when they were first to break the (quite accurate) story of John Edwards's affair with a staffer. Even if problems do occur, debunking things is practically an American past-time. We love doing it, and even if many people take the original story hook, line, and sinker, we practically can guarantee that it won't go unchallenged.

I think cautious optimism is the way to approach the restructuring of the news industry. Evan's concerns are completely valid, but I think it's important to recognize that what we are seeing is what Joseph Schumpeter called "creative destruction". Old industries are collapsing precisely because they are being made obsolete by new industries. My guess is the blogosphere will pick up the slack and we will be fine, and in fact we'll probably see the reemergence of many traditional news organizations in this new medium (as we have already seen with The Atlantic, whose website is more of a blogging network than it is an online magazine). The question is - what kind of sneaky stuff will those in power be able to slip by with while the blogosphere is still learning the ropes? If recent history is any indication, I'm happy to say that I think the answer is "not much".

Reform and Recovery - A Word of Caution from Keynes

From John Maynard Keynes's Open Letter to President Roosevelt

"You are engaged on a double task, Recovery and Reform;--recovery from the slump and the passage of those business and social reforms which are long overdue. For the first, speed and quick results are essential. The second may be urgent too; but haste will be injurious, and wisdom of long-range purpose is more necessary than immediate achievement. It will be through raising high the prestige of your administration by success in short-range Recovery, that you will have the driving force to accomplish long-range Reform. On the other hand, even wise and necessary Reform may, in some respects, impede and complicate Recovery. For it will upset the confidence of the business world and weaken their existing motives to action, before you have had time to put other motives in their place. It may over-task your bureaucratic machine, which the traditional individualism of the United States and the old "spoils system" have left none too strong. And it will confuse the thought and aim of yourself and your administration by giving you too much to think about all at once."

Health Reform and the Reconciliation Process

Washington was buzzing Friday with news that health care reform would likely be pushed through the Senate this Fall during the reconciliation process, making it immune to the risk of filibuster. Normally, the famously "collegial" Senate has sensibilities that are far too delicate to countenance interrupting a given Senator when he or she is speaking. To close debate on a bill, 60 out of 100 Senators must vote for cloture. The end result of this procedural rule is that any given bill actually needs 60 votes to pass, not 51, so long as some Senator cares enough to filibuster it*. Filibustering is good insofar as it requires Senators to produce a more bipartisan bill. However, it opens the possibility that the minority will be able to dictate to the majority in a variety of occasions. The House does not have this rule.

However, budget bills can be submitted as "reconciliation bills", which cannot be filibustered. A reconciliation budget will specify certain legislative committees that need to bring certain pieces of legislation into alignment with the budget bill. So for example, this year's budget bill may say "we will spend X amount of money on health care", and specify that the committee that deals with health care bring the law in line with the spending requirements. These changes in health care law will then be passed without the risk of filibuster as well. This means that health care reform may be passed this year with 51 votes (which the Democrats easily have), rather than 60 (which they can't count on). It may come as a surprise to most Americans that this is even a major piece of news - isn't the majority always supposed to rule? Yes... except in the United States Senate.

Republicans are predictably suggesting that this is heavy handed and inappropriate. Why is this response predictable? Because it's exactly how the Democrats responded when the Republicans used the reconciliation process to push through the Bush tax cuts.... and most of Clinton's budgets... and most of Reagan's budgets. The false outrage over the reconciliation process is old hat in Washington. I personally have no problem with the Democrats using the reconciliation process - I wouldn't mind seeing filibusters eliminated from the Senate entirely. They have some moderating benefits, but they are inherently undemocratic. Republicans shouldn't be ashamed for using them to pass tax cuts under Bush, and they shouldn't be outraged that Democrats are using them now. But let's get past all this... why do I start by quoting a note of caution that Keynes offered to Roosevelt in the 1930s?

Reform and Recovery

The reconciliation process essentially guarantees that we will see some sort of health care reform this year. It may be a monumental overhaul, or it may be a first step towards a monumental overhaul. Right now we don't know. Health care reform is desperately needed in this country, no matter what side of the aisle you're on. We pay far more for the care we receive than any other country, and tens of millions of Americans don't have any health insurance. Higher costs and lower coverage are an explosive combination. These rising health care costs are also a burden on U.S. businesses who provide most of the coverage in the U.S.. Whatever the failings of the health care systems of our peer nations, they have been more successful at keeping costs down, which means that their businesses can operate that much more efficiently than ours can. Health care reform is unambiguously an imperative right now.

But another imperative is recovery from the current recession. Despite the upbeat talk of President Obama and Fed Chair Bernanke recently, most analysts think that we have not bottomed out yet, and when we do the recovery will be drawn out, rather than rapid. The ubiquitous Depression analogies aren't made to scare people, but they are made for a reason - this downturn will end up being substantial, and like the Depression there is no real prospect that the recovery will be swift. Those who write off double digit unemployment are fooling themselves. The "real economy" hasn't even bottomed out yet, and unemployment won't stop rising until well after the "real economy" has reached it's trough and started climbing again for at least a couple quarters.

Many people see the problem as steering deftly between the Scylla of a broken health care system and the Charybdis of a once (more likely twice) in a lifetime economic downturn. I think this understanding of the situation is incorrect. Health care is obviously a problem in this country - but is it a problem that throws millions out of work in a matter of months? Is it a problem that destroys a third of a family's savings? Is it a problem that will grow exponentially worse if it is allowed to fester for another year or two or three? No. If we are still at the bottom of this hole in 2011 or 2012, history will remember this as the Second Great Depression, and the future prospects of capitalism will truly be in jeopardy. If we maintain the current health care system through 2011 or 2012, how will history remember us? Perhaps as lazy. Perhaps that we missed an opportunity. Perhaps even that we are uncaring and primitive. It will probably look at us the same way that we look back to the sluggish adoption of Social Security and unemployment insurance in this country; unnecessarily slow, but since the change was inevitable, the delay is ultimately just remembered as an artifact of history. We have had somewhere around 40 to 50 million uninsured for years. It is a burden and it is a crisis, but that crisis clearly lacks the immediacy or urgency of the economic crisis.

We did elect Obama for a double task: reform and recovery. But his mandate for reform and recovery doesn't mean that both need to be done within ten months of taking office.

What is to be done?

I, like the vast majority of Americans, am suspicious of what's called a "single payer", public health insurance system. Thankfully, Barack Obama and the United States Congress also seem to be wary of such a course. We know that the market is too efficient to completely abandon. But there are problems that public policy can help to address. While Americans shouldn't be required to purchase government health care, we can think about making some sort of subsidized public insurance available to the 50 million people who are uninsured. The externalities of public health may justify mandating health insurance coverage, either from a public or private source - much like many states already do with car insurance. We can think about eliminating the tax privileges currently afforded to employer provided health benefits, which encourage sub-optimal over-consumption of health care and hide the true costs of care. We can imagine the benefits of a system of electronic health records, and we can conceive a potential role for government in jump-starting this process. There is a lot we can potentially do, but there are no silver bullets. I think this suggests that we act, but also that we discuss and deliberate. The "experts" have discussed our options for years - at least since the aborted attempt at health care reform spearheaded by the current Secretary of State in 1993. But our elected representatives have not had a real debate on the finer points of health reform, probably since that debate on the Clinton plan fifteen years ago.

If we don't act immediately to address the economic crisis, we could easily slip into a cycle of deflation, rising debt burdens, rising unemployment, and further deflation. A moment of hesitation could make this recession much worse. Can we say the same for health reform? Of course not? A moment's hesitation - even a year's hesitation, or two year's hesitation will probably find us about where we are today: with a health care system that could be vastly improved on a number of measures, but that generally keeps Americans healthy. What would a rush to reform health care risk? It risks leaving us with an equally poorly conceived system that we're likely to be stuck with for years or even decades to come.

I will note, this is not meant to suggest that there is no risk associated with rushing a program of economic recovery. Hindsight will certainly show us that there were major problems with TARP, TALF, ARRA, and every other "rescue" that's been rolled out since the summer of 2008. We will pay a price for these problems. But I would argue that these problems are far outweighed by the problems that would have emerged if we had waited longer to do something. I think the risks are flipped when it comes to reforms in general, and health care reforms in particular. Prudence and careful consideration will pay off. Obama should not rush into this (nor should he rush into education reform, finance regulatory reform, etc. etc.).

*The Washington buzz of Tuesday, the 28th (which absolutely swamps the events of last Friday in overal buzziness) largely negates the buzz on reconciliation of Friday, the 24th. Republican Senator Arlen Specter announced that he is changing his affiliation to Democratic, virtually assuring that by the Fall (when Al Franken will in all likelihood be seated), the Democrats will have a filibuster-proof majority anyway.

Four Reasons Why the Torturers Must Be Prosecuted

I agree completely with Evan that the torturing of prisoners that went on during the Bush administration was unambiguously criminal, and that the Justice Department needs to charge somebody with these acts, even if the burden of proof may represent a steep uphill battle. The torture of a few al Qaeda operatives is important because it violates U.S. and international law, but it's not important for that reason alone. I'm confident that the law is violated all the time - sometimes flagrantly, sometimes accidentally - and not all of these infractions merit public indignation over whether the Justice Department decides to prosecute. So why this time?

- First, because this crime is uniquely heinous. As Christopher Hitchens has said, "It used to be in the press you remember people would say that it simulates the feeling of drowning. You've read that I'm sure. In fact it doesn't simulate it at all in fact you are being drowned." There is a reason that both the Republican and the Democratic candidate for president this Fall came out strongly against torture, and it had less to do with McCain's war experience than it did with the fundamental incongruity of torture with modern society.

- Second, because this is not just a legal violation - it as a constitutional violation as well. While some of the Bill of Rights protections of criminals arguably do not apply to prisoners of war, and those who are tried by military tribunals, the injunction against cruel and unusual punishments has no such distinction. The numerous protections guaranteed by the fifth amendment are qualified by a very vital loophole that the Bush administration has ably exploited: "No person shall be held to answer for any capital, or otherwise infamous crime, unless on a presentment or indictment of a Grand Jury, except in cases arising in the land or naval forces, or in the Militia, when in actual service in time of War or public danger; nor shall any person be subject for the same offense to be twice put in jeopardy of life or limb; nor shall be compelled in any criminal case to be a witness against himself, nor be deprived of life, liberty, or property, without due process of law; nor shall private property be taken for public use, without just compensation." The eighth amendment, for what should be obvious reasons, includes no such qualification: "Excessive bail shall not be required, nor excessive fines imposed, nor cruel and unusual punishments inflicted."

- Third, and quite simply, the Bush administration has to be held accountable for something with respect to the prosecution of the war on terror and the Iraq War. History will judge the American people to be as complicit with the Bush as the American people were found to be with Jackson's Trail of Tears or FDR's internment camps if they do nothing to right this wrong. The specific points of the Patriot Act, the War on Terror, the Iraq War, the Plame Affair, extraditions, Guantanamo Bay, Abu Gharib, etc. can certainly be debated by reasonable people, and several of these cases have already been tried. Not all critiques may end up being legitimate critiques (I've agreed with the administration on a few of these concerns. For example, I'm a strong supporter of a vigorous War on Terror, and I don't think there's anything wrong with having a prison at Guantanamo, so long as the proceedings there are legal). This third point is therefore not meant to be a thoughtless, blanket indictment of the Bush administration. Instead, it is a recognition that life in America and abroad was radically different between September 11th, 2001, and January 20th, 2009. Some of it was handled quite well, and some of it was handled not as well. But we cannot abandon an evaluation of these years in an effort to "move forward". We can't move forward with confidence without knowing where we may have misstepped in the path. Obama's justification for failing to prosecute for these crimes is completely wrong-headed. If we don't grapple with what was done we have no road map with which we can move forward.

- Fourth, and by far the most important, we must prosecute as a defense against fascist tendencies. I have been enormously critical of news outlets that apply labels like "fascist" or "socialist" to President Obama. That kind of hyperbole is incredibly destructive. So why do I use this word now? It is because I'm concerned about letting the mindset of fascism take root in this country. Allow me to explain my distinction: it is my opinion that the Iraq War was aggressive and unprovoked - that we should have focused our energies on the War on Terror, which we actually had cause to prosecute. Despite my strong disagreement with Bush on the Iraq war, I don't think the war had any tendency towards fascism at all. Bush made a case to the people. He made a case to the international community. He had allies. He got the approval of Congress. A reasonable person could say that he didn't intentionally and recklessly abandon international law. In other words, the Iraq War may have been ill-advised, inappropriate, and perhaps even illegal: but it was done in broad daylight, it was not executed by personal fiat, and it was prosecuted in line with the Constitution. It was therefore not fascist. The same is true of the stimulus package and the TARP program. I'm infuriated when these things are called "fascist", not just because I agree with their necessity, but also because the critics ignore the clear consistency of the method of passing the stimulus package and the TARP with the liberal political tradition and democratic principles. No such consistency exists for these acts of torture, and while they may not be fascist themselves, they represent "fascist tendencies". Fascism is about method, not policy. A "benevolent dictator" could implement the same programs that any presidential administration in history has enacted, but they would still be fascist if they did so by will of the president, rather than by the will of the people, through the Constitutional apparatuses designed and assented to by the people. Likewise, democracies are capable of a great deal of misery, but poor or even ruthless decisions on the part of democracies are not "fascist" so long as they are implemented by a government limited by well defined constraints on it's power and the will of the people. I think this distinction is important to make, because we have flirted with fascism on more than a few occasions in our country's history. The bedrock fascist position is best stated by Nixon, probably the closest we have come to a president with a truly fascist mindset: "When the president does it, that means that it is not illegal." Nixon probably hurt his policital adversaries more than anyone else - his crime ultimately didn't result in much more of substance than a broad-based loss of innocence - but this man's very mindset was a fascist mindset. He was, and I think he will be remembered as, a fascist who held an official position in a democratic Republic for a number of years in the late twentieth century. Was Bush a fascist in this mold? Was Cheney? Prosecuting torturers won't answer that question, and we may never know. We probably won't have the benefit of a Frost interview for those men, like we had with Nixon. But the tortures reek of something terrible, in the same way that Watergate did. And even if the torture could be explained away in various ways (just like Watergate could have itself been explained away as quite insignificant), the entire endeavor is indicative of "fascist tendencies" in the Bush White House - a tendency to place the president above the law, rather than under it. We need that tendency to be scrutinized in the light of day. And perhaps I have it all wrong and the torturers will be found not guilty, and this whole post was all a big mistake - but I think the preponderance of evidence for enough people suggests that we need to shore up the value and strength of the law in America. We're likely to have very trying times ahead - we don't want a charismatic president like Obama to enter trying times without a firm message from the American people that fascist tendencies are not acceptable, regardless of the objective desirability of the program that the fascist is offering.

Smith's Theory of Moral Sentiments

This year is the 250th anniversary of the publication of Adam Smith's "Theory of Moral Sentiments" - the work of moral philosophy that in many ways served as a precursor to his "Wealth of Nations". Econtalk.org is marking the occasion with an audio series on the book, the first installment of which was recently released.

I, like many, am far less familiar with Moral Sentiments than I am with Wealth of Nations. And also, like many, my understanding of Wealth of Nations is largely restricted to the popular cookie-cutter interpretation of that work. To summarize: the pursuit of self-interest is actually beneficial to society, and restrictions on the pursuit of self-interest often have unintended negative consequences. The foundational "human motivation" in Wealth of Nations and most subsequent works of economics is this self-interested pursuit of "utility" or "profit". The few exceptions, including institutionalists like Thorstein Veblen, or heterodox thinkers like John Kenneth Galbraith (I'm thinking of the Galbraith of The Affluent Society primarily, rather than the Galbraith of The New Industrial State) seem to prove the rule.

There are many reasons to believe that any model of society based exclusively or even primarily on the motive of utility maximization is likely to imperfectly represent (and perhaps more substantially, imperfectly predict) reality. It should be self-evident (and I don't appreciate the casual use of that hallowed phrase) that we are motivated in our own lives by other things than self-interest. In many cases, when economists confront this reality, they explain it away by suggesting that alternative motivations aren't directly relevant to the marketplace. Yes, altruism, jealousy, etc. may motivate much of human activity - but greed and self-interest exercise such primacy in market decisions and any model determining production and allocation can safely disregard other motivations.

Adam Smith used his "Theory of Moral Sentiments" to outline the major facets of human motivation beyond self-interest, and for that reason it should serve as a motivator for economists who cling to utility or profit maximization models. This is not to say that self-interest should be marginalized. It will always be central to economics. But I would like to see (I would like to design myself) models that explicitly model the optimization of some combination of relative wealth and absolute wealth. We know people "keep up with the Jones's" - why do we pretend that relative wealth is irrelevant in our models?

Often we look back to Adam Smith, accept the foundational insights into the market that he introduced, and then proceed to qualify the Smithian worldview with various externalities and market failures that economists have come up with since the 18th century. The Wealth of Nations earns it's place of honor on our bookshelves (I have three copies myself, my favorite of which is about 125 years old and looks quite handsome, safely nestled on it's shelf, four feet above the floor), but it is rarely cracked open for actual guidance. I've never read Moral Sentiments, but I think it holds the possibility of exploding the profit-maximizing myth of modern economics. If economics is really going to be a science of human decision making, it should more explicitly encompass the full range of human motivations.

Globalization and the "One World Currency"

I want to apologize in advance for the brevity of my thoughts this week.

First, I want to remark on something Evan said. Often we challenge or butress each other's arguments, but when I read: "if globalization is present and increasing at the pace it currently exhibits" I just had to chuckle a little. If only! I understand Evan's point, of course. The broad trajectory is one of globalization and integration, and hopefully it will continue that way. But this is not the situation right now. International trade is imploding, racking up unemployment figures in export-oriented economies like China not in intervals of hundreds of thousands (as in the U.S.) but in millions.


Another thing that may or may not be on the table at the G-20 meeting is this nebulous prospect of a "one world currency". I want to caution people on exactly what is being proposed here. They're not going to throw national currencies out the window; nobody is talking about that. They're discussing the prospect of replacing the dollar as the world reserve currency. Right now, the Chinese central bank and other central banks hold a large amount of dollars because most world trade is conducted in dollars. It's easier for trade to be denominated in a single currency (like the dollar) than many currencies - and to support trade, central banks must hold that reserves of that currency so that importers and exporters can finance their transactions. This is where we get the term "reserve currency". The problem is, the global supply of dollars is governed by the Federal Reserve Board, in Washington D.C.. The Federal Reserve's charter dedicates it to the task of price stability, presumably in the United States.

However, the Fed's activities also influence the value of the dollar reserves held by central banks all over the world. The result is a fundamental conflict of interest. The Fed is often left with a tradeoff between global macroeconomic stability and national macroeconomic stability. Right now, the U.S. economy is under the pressure of a great deal of debt. The Fed (theoretically) has an incentive to increase the money supply and induce inflation to lower the burden of those debts. However, that would also dilute the value of China's massive dollar reserves, and impoverish the Chinese central bank at a stroke of Ben Bernanke's pen. This is why China is pushing for a new international monetary system, and this is why that monetary system is aimed at decoupling central bank reserves from the dollar.

I still don't know what I think about this. Barry Eichengreen has long advocated not a new reserve currency, but a "basket" of multiple reserve currencies. This seems sensible to me, because it would promote stability and not make the same mistake of putting price stability in the hands of a single decision maker.

To bring this full circle, I think any discussion of reforming the international monetary system is a great step forward towards erecting what Evan calls a "deeper pluralism". Sometimes economic policymaking eschews these more fundamental philosophical concerns - but it doesn't have to. Replacing the dollar as the world's reserve currency with a currency basket governed by multiple central banks, or a new IMF currency governed by a committee that is representative of all major powers introduces a great deal of pluralism into the global economy. In Europe, we've already seen how monetary coordination and the "deep pluralism" of the European central bank (which has to balance the needs of Eastern Europe, Western Europe, the Mediterranean, Scandanavia, and the Balkans) has led to greater political integration, cooperation, and peace.

A lot of people fear the world of monetary policymaking and banking. It's mysterious and shadowy. Those concerns may or may not hold water. I think the nature of both conspiracy theories and prophecies is that we don't really know until we know (you know?). I try to be a little more trusting of the situation in general, and optimistic about the direction we're heading. Money is just a neat human invention that has made our lives easier. I don't know too much about monetary economics or monetary policy, but I think the dialogue that's going on now is a great step forward towards a global polity that incorporates the very best from both "cosmopolitan" and "communitarian" visions for the future.

Risky Behavior and Morals

I spent the better part of the last three days in the Washington Plaza Hotel at a conference held by IZA, a German labor economics group, on the "economics of risky behavior".

The National Bureau of Economic Research held a similarly themed conference a couple years back. Broadly speaking, the conclusion of the NBER conference was "risk is rational". "Rational addiction models" were popular and common. People engaged in risky behaviors as a part of an explicit decision to maximize lifetime utility. It's not that crazy of a story - certainly we weigh the costs and benefits of some risks and choose a risky course of action. So I don't mean to belittle the NBER conclusions.

To a large extent, though, the IZA came to this conclusion too - but with more nuance and qualification. Empirical work on some risk behavior concluded that it was irrational some of the time. I also don't think this should be hard to accept for most economists, much less most people in general.

But one thing that occasionally came up that is talked about more often in other circles was the role of social norms and morals in risky behavior. The IZA conference covered lots of material, including infidelity, prostitution, murder, binge drinking, drug use, etc. etc. An outsider may have been surprised by the extent to which the group discussed these behaviors in very clinical, value-neutral terms. We talked about crack markets and sex markets as if they were markets for sandwiches or shoes. But occasionally, somebody brought up the constraining influence of morals.

I think economists could explore morals more thoroughly. Usually, economists think about maximizing something like utility or profit based on some decision set available to an actor. Morality could simply be understood as an institutional restriction on the available decision set, or perhaps excessively punitive costs associated certain decisions.

Another important question about the "optimality" of morals is to start to consider where morals come from. Let's assume for the moment that there are two types of morals: (1.) transcendent morals that universally restrict decision sets, and (2.) institutional rules that were created to minimize the costs and externalities of certain decisions. I include type 1 morals so that we don't have to argue about the most divisive and really the most important morals out there. By type 2 morals, I'm thinking about everything from the Jewish restrictions on pork to keep the Hebrews strong and healthy in the desert, to the myth of the evils of marijuana that was concocted in the 1930s. Insofar as type 1 morals are universally applicable and important, we're not especially concerned about any sub-optimality associated with them. If it is always excessively costly to the individual and society to murder, then the moral prohibition on murder that acts as a restriction on the decision set is always going to be optimal.

But what about those residual, type 2 morals that are inherited from the trade offs faced by bygone generations? These types of morals in all likelihood are forcing current generations into sub-optimal decisions.

My question is - if a sub-set of morals and norms really are just leftovers that distort the decision making process today, how do we deal with them? Are ethicists policing this at all? Is there a process for reevaluation? I think people naturally reevaluate morals in their own lives, but that process can be slow (not necessarily a bad thing).

I think it's nice to qualify the NBER assumption that risky behaviors are perfectly rational. Norms and morals do exist for humans, so they should exist in the science of human action. But the broader point of NBER rings true as well. We have rational faculties to weigh risky decisions. Morals inform those faculties. But if morals distort those faculties unnecessarily, what is to be done?

Production vs. Prosperity

I want to explore a little bit of Evan's query:

"Do those who provide goods and services contribute to useful cultivation, or do they perpetuate a practice of commoditization, either of ideas, tools, or resources?"

It's a reasonable question. Many have opined that the GDP statistics we collect are a poor measure of the true "wealth" of society precisely because this summation of values doesn't necessarily correspond to the creation of actual value in society. A homeless shelter may purchase paper plates and spaghetti from the store, and those purchases will show up in GDP statistics - but the couple of bucks that they contribute to GDP will far underestimate the "value" of that purchase to society when the spaghetti is served with a friendly face, an open ear, and a safe atmosphere.

But as Christopher Hitchens has recently pointed out: "There’s also the not-inconsiderable question of capitalism’s ability to decide, if not on the value of a commodity, at least on some sort of price for the damn thing." We need not assume that GDP encompasses all value to admit that there is value to the idea of GDP (and the products that it measures).

If we set up a straw man of modern production as some monstrous, commoditizing, corrosive influence then of course we will be able to vanquish that straw man and banish it to oblivion. But that would be a hollow victory, because that straw man doesn't really represent the "modern economy" as an idea.

Something like GDP is useful if we are realistic about what exactly it is: Gross (i.e. - after subtracting off imports) Domestic (a fundamentally political concept) Product (those things which are produced for sale in a particular jurisdiction). "Production" is a much more humble thing than "culture" or "happiness" or "value". Production includes the plows and tractors that make cultivation possible, as well as the proverbial pick up truck, farm windowsill, and apple pie (perhaps the apples are home-grown, but the flour is most likely ground somewhere else and the baking tin is almost certainly made elsewhere). This is what GDP is - production that is brought forth in the context of a market. And a market is nothing if not a social collective, and therefore absolutely relevant to "culture".

But Berry and Evan have a point that is illustrated in my example of the spaghetti and paper plates used in a homeless shelter. These contribute to GDP, but they only contribute prices - i.e., market values - and not social values. A great deal of social value is produced that is totally omitted from the GDP statistic.

Charles Murray (a real conservative's conservative) used the occasion of his March 11th Irving Kristol Lecture to speak on how a civilization's happiness is grounded in it's cultural institutions, rather than in cold economic calculations alone. On the other side of the aisle the Nobel prize winner responsible for attacking the Clinton administration from it's left flank, Joseph Stiglitz, has been tasked along with Amartya Sen by French President Sarkozy with exploring new ways of measuring growth to capture social happiness.

I think Berry's point is not lost even on those who deal with the modern, competitive market every day. The task is to:

1. Understand how markets both complement and conflict with culture and value, and
2. To be more realistic about exactly what GDP is and what markets can accomplish in the first place, and not penalize them for failing to accomplish something that it was never their task to accomplish.

The Entangled Nature of Equality

This week I want to address the fallacy of trying to separate "equality of opportunity" from "equality of outcomes" - one of the great fetishes of the American public dialogue on political philosophy. I doubt I'll say anything especially new or insightful here. I'm positive it has been considered before (in fact, I was somewhat inspired by an article I read recently by Anthony de Jasay in the Cato Journal). But in light of recent concerns that the administration is "redistributing wealth" and engaging in "social engineering", I do think it's worthwhile to revisit basic questions of whether we should be pursuing "equality of opportunity" only, or "equality of outcomes" as well.

Americans almost universally agree that ideally government should only guarantee "equality of opportunity"; a level playing field, as it were. For example, there is little opposition to anti-discrimination laws, universal K-12 education, or bare bones workplace safety requirements. If pressed, a large portion of Americans would also concede that practically speaking, some extenuating circumstances require the government to guarantee "equality of outcomes". The welfare state emerged out of this practical, but not ideal, response to extenuating circumstances in peoples' lives. The battle lines in the modern ideological debate over domestic economic and social policy are largely drawn based on the strictness with which people adhere to government's mission of only guaranteeing "equality of opportunity".

My thesis is that the distinction between guarantees of "equality of opportunity" and "equality of outcome" is far less distinct than we would like to pretend. The major reason for this is that an individual's success in life is based largely on things outside of his or her control. If a person's success was entirely derived from their own intelligence, talent, effort, and thrift, then relentlessly adhering to a policy of only guaranteeing "equality of opportunity" might be possible. But individual success is also influenced by the monetary and non-monetary endowments bestowed on individuals by their parents. Parental success is a major determinant of the quality of an individual's K-12 education, the availability of higher education, exposure to a strong work ethic, and an interest in advancing oneself.

We cannot make the claim that effort and talent are equally rewarded by the market if a youth that grew up in a broken home in a poor neighborhood needs to exert more effort or show greater talent in order to achieve the same success as another youth that grew up in a supportive home in a wealthy neighborhood.

This fundamental inheritability of success in life is by no means a bad thing. After all, improving your children's life chances is a major motivator for any individual's success in life. Parents would be less productive if there was no prospect that their children would benefit from their efforts. Few people advocate denying children the fruits of their parent's labor. But recognition of the high correlation of parental and child success does highlight the fact that guaranteeing "equality of opportunity" for all individuals is absolutely impossible without considering the "equality of outcomes" of other individuals (primarily parents).

This line of argument could obviously be used to justify any number of redistributive schemes. It could justify such schemes, although I want to emphasize that I don't mean to justify those schemes here.

What I do want is to recognize that:
(1.) "equality of opportunity" may be impossible to guarantee, despite it's place of honor in American political philosophy,
(2.) that if we are serious about at least partially guaranteeing "equality of opportunity" it may be perfectly reasonable to explore some "equality of outcome" efforts, even if we completely reject the goal of equalizing outcomes, and
(3.) that we cannot consider an individual's success to be solely derived from his or her own abilities and efforts; individual success is also a function of the collected series of familial successes and failures, compounded over time.

Abortion, Morality, and the Freedom to Decide Moral Matters

Evan's post revolves around the idea that despite the retro, flash-back images the abortion debate conjures up in the 21st century, there are still important, black-and-white moral questions at the heart of the conflict. Indeed, I sense that a major concern of his is that this moral dimension will be lost as both sides of the question begin to understand that they actually do share common values - that pro-choicers aren't actually "baby killers" and pro-lifers aren't actually "misogynists", and that neither side has any great affinity for the practice of abortion. From what I understand from previous discussions I've had with him, Evan considers the moderation of ad hominem attacks to be fantastic progress in the abortion wars - but he worries that it may dilute the real question at hand. The moral imperative itself still needs to be front and center. In this respect, I agree with him. So long as this is a moral problem with opponents, proponents should stand ready to engage the moral issue, even if their response is quite simply "I don't consider it a moral problem".

I would take issue with Evan's conclusion that as long as this remains a dilemma, there should be a moratorium. He specifically mentioned a moratorium on funding, but presumably some kind of "time out" on abortions themselves would be consistent with this view as well. The logic is that as long as we all still disagree the state shouldn't take sides.

What I think that position ignores is that as long as you're telling a person what they can and can't do, the state is always taking sides. The question is - what side should the state take?

In the United States, we have traditionally taken very seriously the idea that free people should make moral decisions for themselves; that their own moral compasses are far better equipped for decision making than government fiat. This is not to say that the government never "legislates morality". As Evan suggests, the Civil Rights movement and emancipation, not to mention laws against homicide, rape, and embezzlement are nothing if not "legislating morality". The essential difference, I would argue, is that these laws weren't passed until a critical mass of citizens identified the issue at hand as a moral problem that was worth state involvement. In the case of emancipation, the critical mass was so great that stringent requirements for Constitutional amendment were even met. At the same time, many more "moral problems" - like lying, adultery, etc. - remain free of state legislation, not because there is a disagreement over their moral standing, but because we still place a premium on individual moral decision making - even when the vast majority agree on the immorality of a course of action. Only certain immoralities translate into illegalities.

We aren't even close to a resolution of the moral question of abortion in this country - and I don't think there is any clear momentum in either direction that might justify a heroic court decision on the matter. Roe v. Wade represented such a "heroic" (perhaps "quixotic" is a better word) decision on the question in anticipation of the momentum of public opinion - and many legal scholars agree that while the conclusion of the court may have satisfied the pro-choice movement, the legal justification they provided was flimsy at best. Roe v. Wade, in my mind, was a mistake - but we shouldn't match it with an equally mistaken and equally sweeping national moratorium on abortion.

I think the court should have simply said that there is no precedent or Constitutional justification for a national position on abortion. No national consensus exists to support such a decision, and no Constitutional provision suggests that the federal government has a right to dictate the practice to the people or the states. As such, if the Texas legislature finds abortion to be a criminal offense, it is a criminal offense in the state of Texas. If the state of Massachusetts provides unfettered access to abortion, then unfettered access is legal in Massachusetts. This is how we have always approached contentious moral questions in the United States, and I see no reason not to approach it this way now. I think Roe did more damage to the veracity of federalism in the United States than it did to alter the fundamental position that free individuals should make moral decisions for themselves. It erred insofar as it prevented the several states from exercising their right to curtail individual decision making - but it did not do violence to the underlying sanctity of individual decision making. In that sense, it was bad law but not ultimately unsalvageable.

In the future, there may be a national consensus that passes a Constitutional amendment banning abortion. If that happens, that's fine. In the meantime, the House of Representatives still controls the federal purse strings. If they want to fund abortions, that's something that can be determined by a simple majority. If they want to restrict funding, that too can be done with a simple majority. The President conducts our relations with foreign nations. If he wants to restrict abortion funding from going abroad, that's fine. If he wants to make those funds available that is fine as well - and the voters will hold him accountable for his decisions.

To me, the real audacity of the abortion debate is that both sides have made a habit of assuming that the moral conclusions that they draw are more valid than the moral conclusions of others. One side is more valid than another, obviously. But neither should presume the right to exercise the power of the state on their own behalf unless they can legitimately exercise that power (i.e. - gather the votes or get the amendment).

The default position of the state in the United States is to let the people make decisions freely. Government action - whether in the form of funding, a moratorium, or a ban - should only occur when it garners enough votes. There is no default moratorium on free agency in this system! The default should be to let individuals choose. As bad as Roe v. Wade was, at least it still allows that to happen.

As an olive branch, I would note that because of my position on this, I completely support Montana's right to legislate that life begins at conception. We need to get to the point in this country where that is something that a state is able to decide for itself.

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.