“Merit” vs. Community

An Oxford professor of economics and public policy writes about “meritocracy and its critics” for the Times Literary Supplement:

What is going on with our conception of community? Amid the prevailing cacophony of mutual abuse, serious answers to that question are sorely needed and, belatedly, the cavalry is arriving. Communitarian intellectuals, who see a good society as a web of mutual regard rather than a random accumulation of entitled individuals, are beginning to turn the tide on decades of damaging ideas. Michael Sandel’s new book, The Tyranny of Merit, is a valuable reinforcement to this process: Sandel is the most important and influential living philosopher. And Sandel is not alone. For example, in The Third Pillar (2019), Raghuram Rajan, the world’s most respected financial economist, set out a powerful critique of our exaggerated reliance on states and markets: his missing third pillar was community. Many other similar analyses are out or currently in press: an intellectual cascade is under way.

Journalists have also caught up with community. David Goodhart’s new book, Head Hand Heart, critiques the excessive prestige awarded to cognitive skills, relative to equally demanding vocational skills, and the moral strengths needed for care work. In a telling statistic, the author shows that, in contrast to other European societies, the UK spends eight times more on training the cognitively gifted half of the population than on everyone else. . . .

The tide may be turning but Sandel and his fellow communitarians are all building on a long-dead, and mutually acknowledged, pioneer: The Rise of the Meritocracy (1958) by Michael Young, the remarkable social activist who wrote the Labour Party manifesto of 1945. Young presciently realized that meritocracy would be even more socially divisive than the then-prevailing class system of inherited status. His essential insight, based on his experience as a social anthropologist in the East End, was that a fully meritocratic society, with widespread ladders by which “the best” could ascend, would create a new class of “the best”, thereby turning those left at the bottom into “the worst”, bereft of dignity.

And so it has proven. The costs are both physical and mental – physical as evidenced by the falling life expectancy recently documented by Anne Case and Angus Deaton in Deaths of Despair and the Future of Capitalism; mental as evidenced by the anger harnessed by populist politicians in recent years. For while the intellectual cavalry was still asleep, mavericks spotted it coming and offered snake oil remedies that identified the anxiety while proposing fantasy solutions, leading to the political mutinies that baffled and exasperated so many of the successful. Even in 1958, this argument was uncongenial to many on the Left. The Fabian Society refused to publish Young’s book; denial has since become more entrenched.

Sandel develops Young’s critique of meritocracy by tracing its history back to theological disputes between grace and deeds as the criteria for entry into heaven. In the fifth century Saint Augustine emphasized grace, arguing that we did not earn heaven but were granted it by God’s grace. Yet heaven as the reward for deeds kept reappearing. The sale of indulgences by the Church to finance St Peter’s helped to provoke Martin Luther’s rebellious insistence on grace. The same dispute then rapidly infected Protestants. John Calvin took the power of grace into the cul de sac of predestination: some were born blessed by grace and others were not. How could we tell who was blessed? Because they performed good deeds.

Repeatedly, Sandel argues, societies have veered into exaggerated respect for success. . . . Meritocracy intrinsically over-emphasizes the distinctive individual attributes of “the best”. And as those attributes in modern materialist society are exceptional cognitive ability and exceptional effort, the rich and successful have come to see themselves as uniquely clever and hard-working. And deserving. This attitude is Sandel’s target, and it has been the leitmotif of our times . . .

Yet something is lost in that translation of grace into a secular vocabulary. It is the need to transcend “me” and “now”. In short, Sandel offers a profound critique of individualism, making the case for the move away from self to community, from “my wants now” to “the common good”. By this approach we transcend ourselves neither by the utilitarian calculus of the biggest sum of utilities nor the Rawlsian contrivance of detachment from our place in society by a veil of ignorance, but rather through the satisfaction gained from fulfilling social obligations. . . . A healthy society would aim to equip everyone to be able to contribute in some way to our common good: an objective quite different from “let the best rise”. . . .

An efficient journalistic magpie, Goodhart picks out an eclectic range of telling evidence. On the rise of “my wants now”, he cites the sharp decline in moral language: the use of words such as “gratitude”, “humility” and “kindness”, he claims, drawing on a Google study of words published in books, has dramatically reduced over recent decades, to be replaced by more economic language. On his final page Goodhart cites recent research on measuring wisdom, not a social science concept but one used by psychiatrists. They find it, he tells us, to be unrelated to cognitive ability. Psychiatrists define wisdom as “concern for the common good”, the loss of which being where Goodhart ends and Sandel starts.

I end with my initial question. What Sandel, Goodhart and all the communitarians are lambasting is the recent division of society created by a cognitive route to success that belittles all else. . . . Sandel’s thesis is . . . accurately captured as one of “insiders” versus “outsiders”, a distinction first formulated in the analysis of the labour market. Insiders have habitually defended privilege from outsiders: see the professionals such as lawyers, medics and accountants, whose high earnings are protected by their various associations through control of entry (eg setting entry standards unnecessarily high to prevent delegation to the less skilled). But insider advantage extends far beyond the labour market: many of our aspirations are set by the prevailing narratives of the privileged. In Happy Ever After (2019) the behavioural scientist Paul Dolan . . . showed how unwarranted norms set by the insider class, such as the over-emphasis on cognitive achievement, condemn the outsider class to a loss of respect and self-worth. . . .

Insider privilege has become both educational and spatial: the cognitively endowed, clustered together in the metropolis, have life chances radically superior to those of the outsiders. And insider advantage, just like the class system that it replaced, replicates itself. By assortative mating and hothousing their children, the insiders pass their privilege on: they have rapidly become a hereditary caste. All have the opportunity to succeed but the insiders have decisively rearranged the ladders, while – especially on the Left – bemoaning the “inequality” for which [the insiders] are primarily responsible. Goodhart tells a story about the advice offered by senior civil servants to the Minister of Education during the UK years of austerity. It was to save money by closing the colleges of further education. The 8:1 differential in spending on tertiary education, in favour of universities, would become 8:0. Their justification was that “nobody would notice”. What they meant was that the insiders (such as they themselves) wouldn’t notice, since they sent their children to university.

Not before time, the smugly successful are getting their comeuppance: our understanding of contemporary society is finally changing. An insider with a belated conscience, as these disruptive ideas are absorbed by my class, I will try to resist the pleasures of watching hubris turn to nemesis.

Unquote.

I was suspicious about psychiatrists saying “wisdom” involves concern for the common good, but the American Psychological Association offers this definition

wisdom: the ability of an individual to make sound decisions, to find the right—or at least good—answers to difficult and important life questions, and to give advice about the complex problems of everyday life and interpersonal relationships. The role of knowledge and life experience and the importance of applying knowledge toward a common good through balancing one’s own, others’, and institutional interests are two perspectives that have received significant psychological study.

Will society ever devote fewer resources to cultivating the head and more to helping the hand and heart? Recent appreciation for workers who keep society functioning, not just doctors and nurses and medical technicians but truck drivers, grocery store workers, sanitation workers, nursing home staff, et al. seems unlikely to reorder society’s priorities unless government takes much more control of “the market”. Will more people’s merit be recognized and rewarded? Time and the results of future elections will tell.

I Could Just Copy Stuff From Twitter

Hey, that’s what I’m doing!

From a gang of tweeters:

Trump didn’t extend unemployment benefits yesterday. He told states to set up a “lost wages assistance program” in coordination with FEMA, DHS and DOL and it’s gonna be a dang mess.

It also seems, like, illegal.

But a real shame if people think this is going to pay them next week.

The memorandum is in plain English and you can see that this is insanely complicated. Obvious, key context: states have already failed utterly to implement simpler policies in timely fashion.

As I’ve said elsewhere, people need to READ the text of executive orders. It’s a publicity stunt to make people think he’s DOING something. The texts clearly show all he is doing is pointing his finger at some cabinet member and saying “Look into this.”

Trump actually thought he upgraded & modernized our entire nuclear arsenal in a few months in 2017 because of an Executive Order:

Ee-5OjKVoAE0c4B

Agreed, but the publicity stunt only works if you have an accomplice in the mainstream media that will just pipeline it into the ether.

Because he’s the “president” they have to cover him and he counts on people just looking at the pictures.

 

Let the Pigs Fly!

The president issued some executive orders yesterday at one of his country clubs while being protected at great expense by the Secret Service. The people who write headlines gave us stuff like this from the widely-printed Associated Press:

President Txxxx moves to authorize more unemployment pay and a payroll tax deferral for coronavirus relief

The nation would have been so much better served if there had been headlines like this (I grant you it’s rather long) written by a Republican political consultant:

If you actually needed more proof that the Republican Party was a non-serious party with no interest in governing, Txxxx signing meaningless executive orders he doesn’t understand at a golf club he’s using to scam more taxpayer dollars is pretty much the perfect trifecta.

After almost four years, reporters still write as though this is a normal president doing things that presidents normally do. So we are told that “Txxxx directs Post Office to employ flying pigs in cost-cutting measure” as if Txxxx has the authority to do such a thing and it’s actually going to happen. He gets his headline and appears to be doing something significant. That’s all that matters to him. It’s good publicity.

As time passes, there will be articles analyzing what the president actually did or didn’t do. By then, he will have moved on to his next performance piece. It will turn out, however, that the Post Office, run by one of his cronies, did spend time and money trying to get pigs to fly but, damn it, somehow failed.

We do have Twitter, however. From Paul Krugman:

I don’t know if anyone else has said this, but payroll tax cuts are the hydroxychloroquine of economic policy. They won’t do anything to solve the employment crisis, but will have dangerous side effects.

Yet Txxxx remains obsessed with them as a cure. We’ve lost millions of jobs, not because employers lack incentives to hire, but because many activities, like bars, indoor dining, inessential travel, elective medical care have been put on hold because of the risk of contagion.

Letting employers keep money they were supposed to be paying into Social Security and Medicare — no good reason to believe they’ll pass the savings on to workers — does nothing to remedy this problem.

It will, however, undermine the finances of programs that are absolutely crucial to the lives of older Americans. If you measure the quality of policy ideas on a scale of 1 to 10, this is a minus 5 or worse.

Even Senate Republicans consider this a terrible idea. So where’s Txxxx getting it from? The immediate answer seems to be Stephen Moore, whose previous greatest hits include predicting that tax cuts would create a Kansas economic miracle [Note: Kansas fell apart after severe tax cuts].

Just a word about the other Txxxx “policy”, on unemployment benefits. He is NOT proposing to extend supplemental benefits. He’s calling for a new program, without Congressional authorization, that states are supposed to set up and provide with matching funds.

Two realities here: 1. The administrative capacity of state unemployment offices is stretched to the limit — it took months to provide expanded benefits, and some people never got them. They’re in no position to add a new program.

2. States are also broke because of coronavirus revenue losses and expenses. Even if they could reprogram their COBOL-driven computers fast enough, they wouldn’t have the money.

So this is policy by reality TV: an attempt to pretend that Txxxx is doing something, while providing no real relief. The fact is that Txxxx and those around him don’t know how to do policy.

But they do know how to get publicity.

In spades.

As if pigs began to fly.

No More Bad Bailouts

An opinion piece from The Boston Globe describes a policy a sensible government would adopt:

Twice in a dozen years, Congress has undertaken enormous bailouts to rescue companies and individuals in the economy. In 2008, the federal government drafted legislation on the fly that bailed out the big financial institutions, but left many homeowners drowning with underwater mortgages. Amid popular outcry, Congress then promised to end bailouts forever with the passage of the Dodd-Frank Wall Street Reform Act in 2010.

Less than a decade later, Congress has authorized an even more enormous bailout. This time, the legislative process has been even more complicated. Congress once again scrambled, drafting legislation to address both the public health and economic emergencies stemming from COVID-19. So far it has rushed through five separate relief bills in a matter of months because each successive bill was insufficient to address not only the public health crisis but also the economic crisis. Congress will now likely take up a sixth bill in late July [assuming Sen. Turtle Face, the Kentucky Republican, agrees], in part to deal with the imminent expiration of expanded unemployment insurance benefits.

Once again, the rescue legislation has been a bonanza for lobbyists, financial institutions, and big businesses, which have been able to get access to financing relatively swiftly and with few conditions. Once again, the public is left wondering where all the money went. And once again, workers and Main Street businesses have been relegated to second-class status. Small businesses have struggled to get limited rescue funds under the Paycheck Protection Act. Even with trillions of dollars going out the door, 40 million Americans remain out of work. The public health crisis continues, as testing remains woefully limited and incidence of the virus is growing in many parts of the country. Communities of color have been hit especially hard, setting back efforts to expand equality and opportunity.

This ad hoc approach to responding to economic crises is inefficient at best and malpractice at worst. Emergency response and disaster management professionals do not “wing it” every time there is a forest fire or a hurricane. They prepare in advance, developing policies and procedures so they can react swiftly and effectively. When Congress starts thinking about a response only after an economic crisis starts, it’s no surprise that the response isn’t very effective.

Policymakers should take a page from the disaster response playbook. Economic crises are emergencies, and just like with a fire or a hurricane, many aspects of a response can be anticipated — unemployment, income shocks, and liquidity constraints. What we need, therefore, is a standing set of procedures and policies — an emergency economic resilience and stabilization law that can be activated when a crisis hits.

The benefits of this approach are significant. Congress could respond to economic emergencies more quickly because it wouldn’t need to reinvent the wheel every time there is a crisis. Executive branch agencies would also be able to anticipate the administrative capacities needed to implement the program. And individuals and businesses would have a good sense of what happens during a crisis, reducing fear and uncertainty.

Because the standing law would address the major foreseeable problems, Congress could focus its attention on the unique causes of the specific downturn. In the case of COVID-19, for example, Congress would have been able to spend much of the spring focused on the public health aspect of the crisis, such as facilitating production of tests and establishing a contact tracing system.

A standing program would also reshape the political dynamics around rescue legislation. In the fog of an economic crisis, lobbyists see a bonanza: a chance to stuff goodies for their clients into must-pass legislation. Members of Congress who simply want good governance can end up using their limited political capital fighting off such bad policies or ensuring that uncontroversial provisions make it into the final bill rather than advancing the best policies.

While Congress would be free to change the economic resilience program even in the midst of a crisis, the fact that a program already exists would require members to explain any divergences. There would likely be fewer concerns about lobbying, favoritism, and corruption because the rules would be written without anyone knowing which particular companies need help—or which lobbied hardest. So what might such a program look like? We think it should have four parts.

First, it would end no-strings-attached bailouts by providing a restructuring process for large or publicly traded companies. The companies would have the option to get funding from the US government, but their shareholders would be wiped out. Their debt would be converted into equity — meaning the company would now be owned by its lenders and by the federal government, which would get a preferred equity stake. Alternatively, companies would still have the option to pursue a traditional restructuring in bankruptcy, but without federal aid.

Second, there would be a program for smaller businesses to cover payroll and operating expenses to prevent mass layoffs and closures on Main Street. The small business program would be akin to what Congress attempted with the Paycheck Protection Program, but with direct payroll subsidies for employers to maintain payroll and cover operating expenses, rather than operating through banks as third-party intermediaries.

Third, there would be reforms to the financial system infrastructure so that every person or business could get an account to which emergency government payments could immediately be credited. That would make it possible for people and businesses to get direct payments, like checks, much more quickly than they have in this crisis.

Finally, the program would include “automatic stabilizers,” a wonky term for policies that are automatically triggered based on data, rather than relying on repeated and recurrent congressional action. In the event of an economic crisis like the crash in 2008 or COVID-19 this past spring, funding for state and local governments, for example, would automatically kick in and would continue until the economy has bounced back.

A standing economic resilience program like this one is possible for a simple reason. We can predict many of the policy responses that are needed in a crisis. While every crisis undoubtedly has its own unique trigger and features, the next time won’t be very different. Rather than live through another round of ad hoc bailouts for the wealthy and powerful and suffering for everyone else, Congress should get prepared, so our country’s response to the next crisis can be quicker, fairer, and more effective.

Unquote.

This week the government was forced to identify some of the “small businesses” that received stimulus money. They included top law firms, the Secretary of the Treasury’s family business, several chains with wealthy private-equity investors, twenty-two tenants of an office building owned by the president, Kanye West’s company, the Ayn Rand Institute and the Archdiocese of New York. 

It would be cynical to say a sensible policy like this would never, ever happen in a country like ours.

(It would probably never happen in a country like ours.)

Let Them Eat Cake, But Raise Their Taxes

Newly-elected Alexandra Ocasio-Cortez (aka AOC) is the youngest person in Congress. She is becoming very well-known. Last week, she was asked about funding the Green New Deal, the plan to eliminate U.S. carbon emissions and move away from fossil fuels within ten years. This is what she said:

Once you get to the tippie-tops, on your $10 millionth dollar, sometimes you see tax rates as high as 60% or 70%. That doesn’t mean all $10 million dollars are taxed at an extremely high rate. But it means that as you climb up this ladder, you should be contributing more.

Right-wingers immediately screamed that a tax rate that high would be the equivalent of slavery. They didn’t bother to point out that she was referring to the “marginal” tax rate, the percentage at which income over a certain threshold is taxed. That’s very different from taking 60% or 70% of someone’s entire income.

The economist Paul Krugman explains why the 60% or 70% marginal rate is an excellent idea:

The right’s denunciation of AOC’s “insane” policy ideas serves as a very good reminder of who is actually insane.

The controversy of the moment involves AOC’s advocacy of a tax rate of 70-80 percent on very high incomes, which is obviously crazy, right? I mean, who thinks that makes sense? Only ignorant people like … um, Peter Diamond, Nobel laureate in economics and arguably the world’s leading expert on public finance…. And it’s a policy nobody has ever implemented, aside from … the United States, for 35 years after World War II — including the most successful period of economic growth in our history.

To be more specific, Diamond, in work with Emmanuel Saez — one of our leading experts on inequality — estimated the optimal top tax rateto be 73 percent. Some put it higher: Christina Romer, top macroeconomist and former head of President Obama’s Council of Economic Advisers, estimates it at more than 80 percent.[

Where do these numbers come from? Underlying the Diamond-Saez analysis are two propositions: Diminishing marginal utility and competitive markets.

Diminishing marginal utility [i.e. the value of something at the margin] is the common-sense notion that an extra dollar is worth a lot less in satisfaction to people with very high incomes than to those with low incomes. Give a family with an annual income of $20,000 an extra $1,000 and it will make a big difference to their lives. Give a guy who makes $1 million an extra thousand and he’ll barely notice it.

What this implies for economic policy is that we shouldn’t care what a policy does to the incomes of the very rich. A policy that makes the rich a bit poorer will affect only a handful of people, and will barely affect their life satisfaction, since they will still be able to buy whatever they want.

So why not tax them at 100 percent? The answer is that this would eliminate any incentive to do whatever it is they do to earn that much money, which would hurt the economy. In other words, tax policy toward the rich should have nothing to do with the interests of the rich, per se, but should only be concerned with how incentive effects change the behavior of the rich, and how this affects the rest of the population.

But here’s where competitive markets come in. In a perfectly competitive economy, with no monopoly power or other distortions — which is the kind of economy conservatives want us to believe we have — everyone gets paid his or her marginal product. That is, if you get paid $1000 an hour, it’s because each extra hour you work adds $1000 worth to the economy’s output.

In that case, however, why do we care how hard the rich work? If a rich man works an extra hour, adding $1000 to the economy, but gets paid $1000 for his efforts, the combined income of everyone else doesn’t change, does it? Ah, but it does — because he pays taxes on that extra $1000. So the social benefit from getting high-income individuals to work a bit harder is the tax revenue generated by that extra effort — and conversely the cost of their working less is the reduction in the taxes they pay.

Or to put it a bit more succinctly, when taxing the rich, all we should care about is how much revenue we raise. The optimal tax rate on people with very high incomes is the rate that raises the maximum possible revenue.

And that’s something we can estimate, given evidence on how responsive the pre-tax income of the wealthy actually is to tax rates. As I said, Diamond and Saez put the optimal rate at 73 percent, Romer at over 80 percent — which is consistent with what AOC said.

An aside: What if we take into account the reality that markets aren’t perfectly competitive, that there’s a lot of monopoly power out there? The answer is that this almost surely makes the case for even higher tax rates, since high-income people presumably get a lot of those monopoly rents.

So AOC, far from showing her craziness, is fully in line with serious economic research. (I hear that she’s been talking to some very good economists.) Her critics, on the other hand, do indeed have crazy policy ideas — and tax policy is at the heart of the crazy.

You see, Republicans almost universally advocate low taxes on the wealthy, based on the claim that tax cuts at the top will have huge beneficial effects on the economy. This claim rests on research by … well, nobody. There isn’t any body of serious work supporting G.O.P. tax ideas, because the evidence is overwhelmingly against those ideas.

Increasing marginal rates as income rises is called “progressive” taxation. It’s fair and practical. Republicans are against it, preferring a “flat” tax, where all income is taxed at the same rate. A flat tax let’s the rich keep more of their income. They say it’s fair and simple, but that’s not why they’re for it.