The American Scene

An ongoing review of politics and culture


PEG Leads, Peter Thiel Follows?

Peter Thiel has a big interview with Francis Fukuyama in The American Interest. One thing I’ve noted is that he seems to be inclined toward giving kids the vote, or at least lowering the age barrier.

As frequent readers will know, I’m a big fan of Thiel’s and giving kids the vote is one of my hobby horses so I’m feeling excited today.

The whole interview is worth reading and interesting throughout even for people already familiar with Thiel’s worldview. There’s some new stuff and illuminating reflections/explanations of the old stuff.

Best Practices In Education

Most of us remember that (a+b)^2 = a^2 + 2ab + b^2

But why?

Via François Taddei comes this wonderful video:

I’m willing to bet none of us were taught it like that, and yet once you see it it’s so obvious. It’s one of those “A-HA!” type moments.

It reminds me of reading about KIPP schools in Work Hard, Be Nice and reading that the schools had turned the multiplication tables into sing-song ditties that the entire class sings, which of course makes it much easier for children to remember. (I still remember the torture it was to learn multiplication tables as a child, and I still don’t know them. If you ask me what 4×8 is, I do the math in my head.)

There’s of course an important policy point to be made about all this: I’m willing to bet all the money in my pocket that if a fry cook at McDonald’s comes up with a faster way to make a Big Mac, his manager will notice, who will get his team to use it, and the information will trickle up to his manager and so on, and then trickle down and a year later all McDonald’s fry cooks around the world will be using the new, faster Big Mac cooking technique.

Such are the virtues of the competitive sector. Not all private sector companies are like that. Much has been written in the business literature about kanban kaizen the process of continuous incremental improvement which was so instrumental in the trouncing of US automakers by Japanese automakers. Elsewhere, I’ve described bureaucracies as “Institutions which do not see themselves as being under competitive pressure.” In the case of Toyota vs GM, GM became a bureaucracy because it forgot it was under competitive pressure, while Toyota was very aware that it was competing with GM and so the impetus to innovate and then broadly apply best practices was felt throughout the organization.

Forgive me for thinking this is precisely a feature public educational systems lack.

Why Voting On "The Issues" Is Stupid And It's Fine If Voters Are Uninformed

There are tropes popular among elite watchers of electoral contests that are treated as self-evident and that I think are self-evidently wrong and portray a misunderstanding of how democratic elections and governments work.

The first is the idea that voters should vote based on “the issues” and that voting for/against a candidate based on her character is silly.

The ideal voter, in this scheme, would print out all the 10-point plans on the various candidates’ websites, read them, and then make an informed decision as to which policies she likes more. Conversely, she should utterly disregard attack ads pointing out that this guy is a philanderer and that guy is a hypocrite.

This is completely backward to me, and here’s why: what determines policies enacted by a head of government are her political coalitions and managerial/political skills, not her position papers.

Remember when Barack Obama stood apart in the Democratic primary by coming out with a mandate-less healthcare plan? And we ended up with a healthcare law that includes a mandate? It’s not that Barack Obama is a “flip-flopper” or had a change of heart or what have you, it’s that the healthcare plan that ended up being enacted was a function of political debates and coalition-building in the Congress. Conversely, whatever differences there might have been to a plan enacted under President Rodham Clinton would not have been due to the differences in whatever was on her campaign website, but to her managerial/political skill at navigating Congress and public opinion. And the reason why there was a universal healthcare bill to begin with was that the liberal/progressive movement had been chomping at the bit for decades for political circumstances that would allow for such a bill. What mattered was not any candidate’s “issues”, but the political context and the managerial/political skills of the chief executive. And anyone who expected otherwise betrayed a fundamental misunderstanding of how American (indeed, democratic) government works.

“The issues”, in other words, are merely positional signaling, ie marketing, ie akin to the TV ads that sophisticated political watchers so disdain.

And yet, to most higher-educated politics watchers, a voter who had said “Well, I’ve read Clinton and Obama’s position papers on healthcare, and I’m going to vote for Clinton/Obama because I’m for/against a mandate” would have been applauded as sober and reasonable, while a voter who had said “Well, I’m going to vote for Obama because he seems more, put together, you know, more charismatic” would have been the subject of Twitter snark. But it strikes me as a much sounder basis for choosing a chief executive to point to their level-headedness and charisma—character traits that one assumes useful to running a government—than any 10-point plan, which is by definition a list of things that won’t happen.

Beyond broad strokes (are they “conservative” or “moderate” or “progressive”—in other words, what kind of coalition will they put in charge of the executive?) and a handful handful of litmus tests (it’s completely reasonable to refuse to vote for someone who advocates something you find abhorrent, whether that’s bank bailouts or foreign wars or what have you) “the issues” are useless in picking a candidate.

As I’ve written before, 99% of what presidents do is appointing and firing people who do the actual work of government. The remaining 1% is the most intangible and the most important—the Cuban-missile-crisis-type decisions, the do-we-go-to-war-with-Iraq-type decisions.

For determining who’s better at either of those, “the issues” are useless. And character, on the other hand, that thing that we are told should be irrelevant, is (nearly) everything. It’s very hard to judge a person’s character, but looking at their biography, their public appearances and so forth is going to give you a better indication than “the issues.”

Famously, George W. Bush campaigned on a “humble” foreign policy, and gave us anything but. Is it because “Bush lied and people died”? Of course not. It’s because 9/11 happened. If you cared about foreign policy, the relevant question wasn’t “Do I agree more with Bush/Gore/McCain?” but “Who has the character to respond more intelligently and competently to the unknown crises that are bound to happen?”

Deciding that based on TV ads, campaign appearances, little details like whether they seem honest, and so forth, is highly imperfect. But it’s a heck of a lot more reliable than “the issues.”

This brings up the broader question about whether voters should be “informed”. Yes, they should be!, we are told. A popular “contrarian” view we see once in a while is that uninformed and apathetic voters should just stay home if they can’t bothered to make an “informed” choice. But, again, this seems to me to miss how democracy works.

Democracy, as a political regime, is worthwhile because it has given us over the long run much superior policy and economic outcomes than alternative regimes. Yes, Singapore is better run and richer than Greece, but on the whole and over the long term, democracies tend to be freeer and more prosperous than non-democratic regimes.

The main reason for that is quite simply the following: leaders who deliver bad outcomes get fired, no excuses. That’s it. It’s the only regime we know where, at regular intervals, if most households feel that things are getting worse, whoever runs the government is out. The “no excuses” part is important, too. What matters is how implacable it is.

In the corporate world, e.g. Cisco CEO John Chambers has been given a free pass for over a decade by supposedly sophisticated investors for not lifting the company’s stock price because he came in during the tech bubble and so has to deal with circumstances out of his control. Supposedly unsophisticated voters, meanwhile, are much too clever to grade on a curve. It doesn’t matter that you “inherited the recession from Bush”—fix it, and fix it now, or you’re out.

This is a wonderful spur to providing good outcomes, and on the long run, in most cases, it works. If we could invent a regime that chose leaders any other way but had the crucial bad-performance-gets-you-fired feature, it would deliver superb outcomes over the long run. (Arguably, this is what the Chinese Communist Party is trying to build, at least if they’re smart.) People talk about a “democratic deficit” in Britain because the constituency, first-past-the-post system “underrepresents” some parties in Parliament and causes a relatively low number of swing voters in key constituencies to decide the fate of the country, but the system works nearly flawlessly: there was an economic crisis under Labour, and now Labour is out, and if the Conservative-LibDem coalition doesn’t fix it, they’ll be out in the next election, as they are well aware. Same thing with the Electoral College in the US.

Therefore, the only question you need to be able to answer when voting in an election is this: Do I feel better now than I did last time I voted? That’s it. You don’t need a PhD. Heck, you don’t even need to be 18. It’s the famous Reagan appeal.

Over the long run, it’s probably better to have a more informed polity, as many political decisions need to be made with the assent of the governed and it helps that the governed have good ideas/notions, but for the specific duty of voting for a president/governing party, these things really don’t matter. Not to mention the fact that being “educated” correlates with positions on social and other issues that are moral/aesthetic/tribal and have on the merits nothing to do with how educated one is, and the fact that the highly educated tend to have a bias toward believing that other highly educated people should run things, a bias which in my view the last decade has thoroughly debunked (in this sense, I would much rather be governed by the Boston phone book than by the Harvard faculty).

So, in sum, I hope I’ve disabused you of a few notions and convinced you of the following:

  • Don’t vote on the issues, vote on character.
  • Don’t complain that fellow voters are uninformed, it means the system’s working.

A Thank You to The Folks Who Made This Site Possible

Whether this is going to be a fallow season for The American Scene, or its end, or if there will be new posts up tomorrow (for a site with PEG and John Schwenkler and Matt Feeney would be formidable!), I have no idea, but it strikes me as an appropriate moment to offer a few thank yous:

– To Reihan Salam, for somehow managing to attract a constellation of writers who would collectively orbit no one but him, and for permitting me the privilege of taking part.

– To everyone who began blogging here at the beginning, especially Ross Douthat, whose approach to public discourse has been a model to me and many others, even when he was just starting out.

– To Matt Frost, for keeping the site running.

– To the writers with whom I shared TAS: James Poulos and Peter Suderman (Culture11 never would’ve existed as it did if not for this site), Alan Jacobs, Noah Millman, Jim Manzi, Matt Feeney, John Schwenkler, Matt Frost, PEG, Reihan, and briefly, David Sessions, Graeame Wood and Dara Lind. I’d pay to read any of you, and it’s been such a pleasure to share digital space with your work, I hope not for the last time. (After I post this I will pay to read Alan Jacobs, whose latest project is available for purchase — go here for a description).

Since I may well post again myself one day (how long I’ve had a short story in mind for this space that I haven’t had time to finish), I’ll refrain from making this any longer, except to say that TAS has meant so much to me that I don’t think I’ll be up for articulating just how much for a very long time. In closing, thanks to some of the commenters too.

New Ventures, Too

I’m sorry to see Noah go, but have already bookmarked his new blog.

I’m going to follow his lead in this regard. As many readers here know, I usually cross-post each of my pieces to TAS and The Corner. I think it makes more logistical sense, in a world of RSS, etc. to just put the posts up there.

You can find all of my posts, the archive, the RSS location and my email on my author page at NRO.

I have a great fondness for TAS, and its greatest strength has always been the commenters. Commenting at The Corner requires free registration, but that’s about it. I do my best there, as here, to respond to all non-vituperative comments. I hope you will continue to chip in at that location.

New Ventures

A bit of home news: I’ve just signed on as a regular blogger at The American Conservative. My current page is here. I still expect to post here now and again, but that’s going to be the main outlet for most of my blogging, for the time being anyway.

Millman’s Shakesblog is going to continue for a little while longer where it currently lives, and then it’s also going to migrate over to TAC, after they revamp their site, which should be done in about a month. I’m particularly excited about doing more cultural coverage – writing about books, movies and the arts generally, not just about theatre – which is an area where they are keen to expand (so they say now).

I’ve very much enjoyed the comraderie of TAS, but, to be frank, that comraderie has been thin on the ground of late, what with everyone moving on to bigger venues. TAC is a place where – they say – I can think and say what I like. That matters a great deal to me, and it’s surprisingly rare in the opinion journalism space.

It’s a venture I’m quite excited about, and I look forward to hearing from you all there.

In other home news, I’m mapping out my fourth screenplay, as well as doing another round of revisions on my second (working title, “Goshen United”) and a number of other promising developments on that front. Needless to say, if there’s any really exceptional news, I’ll be sure to let folks know here about that as well.

Of CEOs, Private Equity Titans and presidents

Jim Manzi has had an excellent discussion on the relation between Mitt Romney’s professional background and what he might be like as a president. Megan McArdle has also been discussing this at length.

I’ve made no secret that I think Mitt Romney should not get the GOP nomination, as now looks inevitable, and should not be the next President, as looks likely if the economy does not improve over the next year (but, on this score, I’ll probably be lucky).

I believe that the fundamental and egregious dishonesty that has characterized every step of his political career to date ought to disqualify him from city dogcatcher, let alone wielding the launch codes.

All that said, I think the background of a Harvard JD/MBA, private equity investor and occasional turnaround CEO is great for running the executive branch.

The job of a President is basically two-fold: getting his agenda through the legislative branch, and running the executive branch. The former mostly requires political skill.

As to the latter, which is incredibly important in our era of the Imperial Presidency, a widely spread idea is that in the private sector you learn “management skills” and how to “get things done”. That’s the President-as-Jack-Welch meme. I think that’s largely an illusion for three reasons:

  • The public sector works very differently from the private sector;
  • The Federal government of the United States is immensely more complex than any private sector business;
  • Most “management skills”, at least as taught in business schools, are largely a crock.

CEOs actually have much more leeway in terms of management than do presidents. Amazon CEO Jeff Bezos famously spends a few weeks each year working in Amazon warehouses to get a better understanding of that side of the business and improve it. President Romney isn’t going to intern in the Patent Office for two weeks to see how applications could be streamlined. A CEO can decide to spin off, merge, or shut down departments. If President Romney (or Perry) wants to shut down the Commerce Department, he’s going to need an Act of Congress.

99% of the work the President does as manager of the executive work is the following: – Setting priorities – Hiring and firing

The other 1% are the Big Decisions, that are the least frequent but also the most important. It’s the part that can’t be taught and where the background is irrelevant.

In other words, the President behaves much more like an “executive chairman” of a company who has a hand over major strategic decisions than a CEO who runs it day to day.

This is also very similar to what a private equity investor does in a buyout: analyze the business, decide on a strategy and hire, retain (and fire) managers. He should have a “nuts and bolts” understanding of the business, but he’s not going to go into the factory to make widgets or tell the factory manager how to make widgets.

In other words, to reprise Ronald Reagan’s excellent phrase, to be a good manager of the executive branch, a President should know who to trust, and how to verify. These are also the skills a (good) private equity investor has in spades. Mitt Romney has decades of experience analyzing stuff and then hiring, holding to account and firing people.

Of course, when someone who is also a fundamentally dishonest liar with obvious contempt for his fellow citizens has these excellent skills, it’s an additional argument AGAINST nominating them to the position where they would have the power to detain fellow citizens indefinitely, appoint judges to the federal bench, and start wars.

But the question of whether Mitt Romney would make a good president is distinct from the question of whether a co-founder of a successful private equity firm, as such, would be suited to managing the executive branch.

Romney & Bain: Intention versus Method

Yuval, Avik Roy, Ramesh, Michael Walsh and Jonathan Last at The Weekly Standard, among many others, have all written perceptively about the relationship between Mitt Romney’s work at Bain Capital and our political economy.

I think that this paragraph from Jonathan Last gets to the nub of the issue:

Romney’s work at Bain differs in some important ways from how he has characterized it thus far. When Romney says that his goal at Bain was to “create jobs,” that’s not entirely true. As a private equity firm, Bain’s goal was to maximize return on investment (ROI) for a small group of high net worth investors. Sometimes that meant giving seed money to a promising start-up. Sometimes it meant rescuing a company and turning it around. Sometimes it meant finding revenue streams a company hadn’t realized—including government bailouts. Sometimes it meant off-shoring a company’s jobs. And sometimes it meant finding a company whose component parts were worth more than the whole—and dismantling it.

Without respect to the electoral politics and messaging for a moment, the predominant form of “bad” capitalism in contemporary America is created by the joining of a capitalist enterprise with the coercive power of the state, not by the impurity of the motivations of the capitalist. This distinction is crucial for defenders of free enterprise.

This perversion of capitalism normally arises in one of two ways: (1) the crony capitalism of state-backed enterprises, or (2) the implicit violence of lawbreaking by dishonest capitalists. The root problems that need to be addressed in finance in the U.S. are things like Fannie / Freddie, too-big-to-fail, government bailouts of specific companies and so forth, on one side, and Madoff-type scandals, on the other. No real political economy is ever textbook-pure, so there will always be some of both of these, but they ought to be reduced from their current levels.

But requiring that businesspeople make decisions based on some putative idea of altruism, even if such a stricture could be defined and enforced, would be a terrible idea. Capitalists should not be restricted as to intention, but as to method. As a rough-and-ready rule, they should be forbidden from using force. The government may also choose to place additional regulations on them (weights and measures rules, minimum wage laws, non-discrimination laws, etc.). While any given regulation is debatable, some formal regulation is required for real markets, and capitalists should have to obey the law. Further, real markets depend to some extent on informal norms – e.g., general commercial honesty, an ethic of a “deal’s a deal,” and so on. This last point can obviously get somewhat fuzzy, but is still important.

Within these constraints, we should generally want capitalists to pursue their self-interest in business dealings. This is not some falling short of humanity, but the way we grow the material wealth of the society as a whole over time. This is the meaning of Adam Smith’s famous aphorism that:

It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own self-interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own neccessities but of their advantages.

The valid criticism of Romney as a capitalist would be that he worked government angles to seek advantage for himself, or broke laws or crucial norms. Seeking to make more money within the rules is a good thing, not a bad thing, for a capitalist to do. That is, Romney’s immediate goal was almost certainly to make money, not to “create jobs.” But the effect of Romney’s actions was to do this – though most of these jobs were created indirectly. This is Adam Smith’s famous “invisible hand.”

Romney was working to “create jobs” only in the sense that if you believe in this, you can have confidence that you are doing your part to increase overall material well-being of society by acting as a self-interested capitalist. More precisely, if all capitalists act this way, then over time, society will advance materially. Tracking your indivudal contribution, or even knowing if it was positive or negative, is a fool’s errand. This is why the very act of trying to count the jobs created at Staples, assessing how many would have been created had Mitt Romney not agreed to take the job running Bain Capital instead of somebody else, estimating how many of these Staples jobs need to be netted against other jobs that therefore were not created at other business supply stores, and so forth is so self-defeating. If we could accurately calculate things like that, we would have much less need for markets in the first place.

The key argument made by critics of “financial capitalism” that can be construed as consistent with all of this relates to the idea of informal norms. In simplified and illustrative terms, this argument would be that by doing something like breaking a norm against laying people off after age 50, these firms create value for themselves, but at the expense of the long-term degradation of society, and therefore the transfer of wealth from almost everyone else to themselves. This is a huge subject that will not be resolved in a blog post, but the key problems that critics of leveraged buyouts seem to point to are layoffs and moving production offshore. Restraining business from doing either of these things is a terrible idea for long-run wealth (and job) creation, and goes to the heart of the creative destruction inherent to real free enterprise.

Obviously there are shades of gray, and as I said all markets require regulation, but we need to be grown-ups about the choices we face. Enjoying the growing wealth created by free markets without the pain, uncertainty and risk that they involve is a fairy tale for an advanced economy.

To end with a word on the politics, I agree with Yuval that this implies that Romney’s work at Bain is only a partial preparation for high political office. On one hand, it would presumably help him to see the economy in a more practical light; but on the other, participating in a capitalist economy is a very different task than regulating it. I have no idea how the politics of this will play out, what is the best way for a Romney campaign to communicate these ideas, or even if they should be communicated at all. But I am convinced that “de-politicizing” our now much politicized economy is very important for America’s future growth and prosperity.

(Cross-posted to The Corner)

Re: Apple’s Cash

One of the great things about Karl Smith is that he usually responds to critical comments thoughtfully and collegially. His response to my post on Apple is no exception. Let me take his responses one at a time.

Smith begins his response by writing that:

So, I am not actually making any statement about whether Apple’s stock price is “too high” or “too low.”

Smith wrote in his original post that:

On the one hand you can buy Apple stock for $375 a share and pay $7 to ScottTrade. On the other hand I also have a trash can in which you can deposit your $375, pay me $5 and I will set it on fire for you.

Clearly, I am offering the better deal as in both cases you have approximately zero probability of getting your money back and I am willing to burn it for $5 whereas you have to pay ScottTrade $7.

He wasn’t saying that there is a risk that Apple will never pay out enough cash to shareholders to justify the price of the stock, but that there is “approximately zero probability” of this happening. If a share of Apple stock has the same value as a pile of ashes, then it is not only worth less $375, it’s worth less than $1. That sure sounded to me like he was arguing that Apple’s stock price of $375 is “too high.”

Smith goes on to respond to my observation, based on my experience, that it can be very beneficial to shareholders for a company to hold cash on its balance sheet so that it can act decisively when opportunities arise, by writing that:

In Jim’s scenario he has a lot of cash on his balance sheet and that allows him to make strategic purchases. But, by construction you know who doesn’t have that cash – Jim’s shareholders.

If Jim had paid out the cash to his shareholders then they would have it. And, if Jim could convince them that he really did have all of these great opportunities they could give it back to him. The fact that no one wants to give Jim cash should be taken as evidence that giving Jim cash is not a good idea.

On a blackboard, maybe. If we lived in a world where it was free, instantaneous and riskless to go through the fundraising process, I guess this might work. Actually raising cash from investors can take anywhere from days to months, and you can lose the chance to buy the asset, or lose the chance to get the best price; it is often expensive, especially in the time and attention of senior managers; and, it often results in information about the potential investment or acquisition leaking out to the market while you are raising the money, which can materially increase whatever you have to pay for the asset, and maybe cause you to lose the deal entirely.

In response to my point that maybe Apple is keeping cash on its balance sheet in part to work a tax angle, Smith writes that:

Yeah, this is just akin to saying that I am reading their signals wrong which of course could be true.

This is a very different statement than “a share of Apple stock is worth the same as a pile of ashes.” If Smith is saying that his actual argument is that it is possible that Apple is just never going to deliver cash to shareholders, because of a principal-agent problem or some other issue, then I have misunderstood what he wrote, and we are in agreement. My argument is that Smith has not come close to making the case for what a rational expectation for future cash dividends to shareholders from Apple ought to be.

In response to my point that maybe Apple is using the cash in part to deter potential competitors, Smith writes that:

Again, its clear why this is good for Apple. Its not immediately clear why its good for a diversified shareholder who also own stocks in the companies that Apple is deterring.

Except that an Apple shareholder might not have the opportunity to invest in such a competitor because it is private, or because it is a division of another company that requires making a compound bet on that division plus the rest of the company, or because the investor has finite time and attention to devote to her portfolio, or for any other of a large number of reasons. I don’t think it’s especially bizarre that a shareholder of company X tends to be made better off when company X succeeds versus competition.

Smith concludes with this:

Key in my claims is that under none of these hypotheses is it in the interest of the Management to take these actions. Whether its in the interest of shareholders to take some action different than what they are taking I am not taking a stand on.

What is true – and a puzzle – is that under some variants of my claims it would be in the interest of private equity to take over the firm. The private equity problem is difficult as well though. Because, its clear how given these principle-agent problems one can create discounted present value using private equity.

Its not perfectly clear how one extracts that value.

Smith has argued that a given shareholder will get more free cash flow by paying $380 for a bunch of ashes in a trash can than by paying $382 for a share of Apple stock. The important exception is that she can get cash in pocket by selling this share to some other buyer of the stock. Smith is arguing that any investor who counts on that is counting on a greater fool buying it, because Smith can see what they cannot, which is that Apple will not ever pay dividends. (Once again, if he is really saying that it’s possible they won’t pay dividends, then we have no disagreement.) But exactly this judgment is the contested issue. This is what markets price.

Here’s the most obvious way that you extract the value if you are convinced that a stock’s market price overestimates its true value: you short it. If Smith doesn’t believe that the market will, in any feasible investment horizon, figure out that he’s right and begin to heavily discount Apple’s stock price, then you have just defined an asset that will, with respect to this issue at least, retain its value – otherwise known as “a good investment.”

(Cross-posted to The Corner)

Blogging About Business versus Doing Business

Both Matt Yglesias and Karl Smith have blog pieces that claim businesspeople are doing pretty dumb things. The claims are in some ways mirror images. Yglesias claims that Barnes & Noble is foolishly spending money developing and selling Nook, when instead it should just return the cash to shareholders. Smith is claiming (as far as I can tell) that Apple investors haven’t figured out that Apple can’t really return much of its immense pile of cash to shareholders, because this money is required to run the business.

Yglesias says that it is an obviously bad use of shareholder funds for Barnes & Noble to invest in Nook, because their expertise is in running brick-and-mortar stores. But by this kind if logic, why would movie company Disney invest shareholder funds opening theme parks, why would brick-and-mortar retailers Walmart, Target and Macy’s invest shareholder funds developing web businesses, and why would computer company Apple invest shareholder funds developing phones?

Core competencies and intangible assets are notoriously tricky to define and quantify for a real company, but for Barnes & Noble they almost certainly include the power of their brand name as a place to look for book-related merchandise, their expertise in developing and managing relationships with publishers, and their existing back catalog of titles. I don’t know enough about the specific situation to know whether Barnes & Noble should have developed and sold an e-reader, but based on what is in the piece, Yglesias doesn’t either.

Karl Smith is a very smart guy, but keeps digging himself in deeper and deeper on his criticism of Apple’s shareholders as foolish, in direct contradiction to the fact that Apple shareholders seem to have done very, very well for some time.

Smith argued in an earlier post that because Apple has not paid real cash dividends to shareholders, that it is more valuable to put money in a trash can and burn it than to invest it in Apple shares. I did a long post pointing why I don’t think this is true. Smith has subsequently done several posts on this same topic, amplifying and clarifying his point.

His most recent post on this subject develops an analogy between the workforce of a tech company and the particles in a sub-critical fission reactor. This is meant to be literally (as far as I can tell) a sketch of a mathematical model for why Apple requires a huge amount of cash on hand to retain its employees. At best, it is pure speculation. And based on any practical experience in a tech company, it’s also extremely implausible that Apple would start to shed important engineers, or be at a disadvantage in recruiting, if it had built up, say, $40 billion on the balance sheet instead of $80 billion.

Smith is arguing that Apple shareholders are suckers who depend on greater fools coming along, because there are hidden requirements for cash in the business that mean the true free cash flow available for distribution to shareholders is less than it seems to investors based on accounting statements. This is not a crazy idea (though his argument that specific hidden requirement is that this amount cash is needed to retain employees does strike me as very implausible). It is also not a new question to ask, and in my experience is one that is debated by professional equity investors in relation to many stocks, ranging from technology companies to convenience store chains.

I have no idea whether Apple stock should be a buy, sell or hold, but if Smith is right that the current shareholder base of Apple massively misunderstands the true capital requirements of the business, then he has a huge moneymaking opportunity. If he really believes in his investment thesis, he should borrow a lot of money and short Apple’s stock.

Win, Place, and Show

Apropos of a couple of pieces linked to by Andrew Sullivan about the future of GOP Presidential politics beyond this year, let me just say this: the race for second place matters, empirically, quite a bit. And the best evidence is this election season.

The GOP has a strong penchant for nominating whoever has next “earned their turn.” And very frequently, the way they tell who earned it is by looking at who came in second last time around.

In 1976, Ronald Reagan gave President Gerald Ford a run for his money. In 1980, he was the nominee.

In 1980, George H. W. Bush won the Iowa caucuses, and came in second to Ronald Reagan in the primary contests. He was selected as Reagan’s VP, became his heir apparent, and got the nomination for President in 1988.

In 1988, Bob Dole, who had been Ford’s VP nominee in 1976, won the Iowa caucuses, and looked like a formidable contender for the nomination. After losing New Hampshire, he faded, but he still came in second to Bush. In 1996, he became the nominee.

The 2000 election was something of an exception to the above rule. George W. Bush had never come in second running for President before. Second place in 1996 went to Pat Buchanan; third place to Steve Forbes. Buchanan was unacceptable to a broad spectrum of Republican leaders, and was effectively drummed out of the party after 1996; he wound up running an independent campaign in 2000. Forbes would have been acceptable ideologically but was obviously absurd as a candidate. So the field was genuinely open – there was nobody who was obviously “next.” George W. Bush didn’t so much earn the blessing of the establishment as inherit it; it was his “turn” on the basis of primogeniture. It didn’t hurt him that the other major candidate, John McCain, ran against the establishment when he was unable to lock up its support.

But, interestingly enough, that opposition to the establishment in 2000, and his flirtation with the Democrats out of pique in the wake of the 2000 election, were not enough to prevent McCain, who came in second in 2000, from winning the nomination in 2008.

And, finally, Mitt Romney, who is overwhelmingly likely to be the nominee this year, has earned that position primarily by coming in second in the 2008 primary contest. I don’t think anybody is deluded into thinking he is a particularly strong candidate. But he ran last time, came in second (in total votes and states won, that is; Huckabee actually came in second in the delegate count), and his full-time job since then has been lobbying for establishment support. That’s how he earned the nomination.

If Romney gets the nomination and loses, whoever hangs in and fights him for the nomination over the long haul, assuming they aren’t wildly unacceptable to the party establishment, will automatically be in contention for 2016. Ron Paul is wildly unacceptable to the party establishment; Gingrich, for different reasons, probably is, too. But Huntsman, Santorum and Perry aren’t. No one should assume that if they lose this time around, they are gone. That’s not the way the GOP works.

Of course, a historical trend is just that – a trend; it doesn’t guarantee anything at all. But Republican Party history suggests that the race to be the “not-Romney” is far from irrelevant, even if Romney winds up as the nominee.

90% Of Life Is Not Dropping Out

So the winner of the “Not Romney” caucus turns out to be a pro-life, hawkish, Midwestern, blue-collar, has-been politician in a non-threatening sweater vest who was polling in the single digits – not just nationally but in Iowa – until mid-December. If Tim Pawlenty isn’t on suicide watch yet, he should be.

Seriously, though, and I’m not a Pawlenty nostalgist – I’m overwhelmingly likely to be supporting President Obama in November, and no Republican actually running was likely to change my mind about that – but let’s look at the handful of things Santorum has going for him that the other “Not Romneys” didn’t. Everybody in the party doesn’t hate him, the way they hate Gingrich. He’s capable of at least remembering his own talking points, unlike Rick Perry, apparently. He’s not an obvious amateur, like Herman Cain, or an obvious crazy person, like Michele Bachmann. He’s not challenging core GOP positions, like Ron Paul is (on foreign policy, the drug war, civil liberties, etc.). His blue collar roots lend credibility to his economic message, whatever it is. He’s a Midwesterner, not a Southerner or a Texan. Every one of these attributes applies to Tim Pawlenty as well.

And his negatives? He has no money to compete nationally, no organization, no support from the party leadership (even Pawlenty wasn’t quite as bad off). He’s an exceptionally annoying person to listen to (call this one a tie). He lost his Senate reelection bid by 18 points (Pawlenty won his, narrowly). And he’s transparently an extremist on both foreign policy and social issues, and even if some GOP voters are thrilled to have a “full-spectrum” conservative to support, transparent extremism isn’t usually considered an asset in a general election. Call Pawlenty what you like, “transparent extremist” isn’t what you’d call him.

All of which goes to prove simply that winners don’t quit, and quitters don’t win. Pawlenty was a pretty uninspiring candidate. But with the exception of Ron Paul, who inspires a relatively narrow slice of the electorate but inspires it a great deal, nobody running is particularly inspiring. Heck, most of the folks running inspire some combination of dread and disgust. Rick Santorum would be a terrible general election candidate. Worse, even, than Mitt Romney. But he earned his hour to strut and fret upon the stage, by refusing to leave it.

Antitrust as Self Medication

Reihan Salam, in a characteristically excellent post here at NRO, points to a paper by Michael Mandel, who is one of the most interesting blogospheric commentators on innovation from a “New Democrat” perspective. Mandel makes the basic point that progressives should not be so gung ho about antitrust enforcement, because big organizations like AT&T Bell Labs and Apple are the anchors of business eco-systems that drive innovation.

My experiences – my first job out of grad school was at Bell Labs, and I’ve since started and built a global enterprise software company – lead me to agree with the conclusion, but to be a little more jaded about exactly how big firms contribute to innovation in the kinds of industries he discusses.

Just as Mandel indicates, there is some straight-up development of new technologies in big labs that is then deployed by the parent company (I was involved in some). And further, consciously planned eco-systems of the type he cites – for example, developers building apps for the iPhone and iPad – can help to identify and then scale successful new technologies efficiently. Both of these things matter a lot. But here’s what I have seen big companies actually do to drive innovation that I think is most important for overall job creation and long-term growth:

1. Because innovation can only be partially planned, even the best research labs that create enormous value for the parent company also inevitably discover things that cannot be practically exploited by the parent firm. In the more extreme cases, they produce innovations that would threaten the parent company’s business model. Xerox’s comparatively tiny PARC lab invented the laser printer, which Xerox turned into a multibillion-dollar business. It also developed the graphical user interface, Ethernet computer networking, and most of the other elements of the modern personal computer that Steve Jobs famously exploited to make Apple, not Xerox, a leading personal-computer company.

2. Big companies provide a cash exit for successful start-ups, either before or after IPO. In this way they act as informed allocators of capital that intermediate between general investors and the complex technology landscape. Think of most software start-ups and IBM, Oracle, SAP, Microsoft and HP.

3. Big companies also use partnerships and other vehicles to act as marketing arms and integrators for successful technologies developed by start-ups. Think of biotech and big pharma.

What’s critical about these roles for big companies is that they require that you have lots of entrepreneurial firms to compete with the incumbents. And, in fact, if my characterization is correct, you would expect most of the job creation to happen in the successful new entrants as they grow, which is just what we see. According to the National Venture Capital Association, venture capital–funded firms employ a majority of all workers across many of the most productive and growing sectors of the economy, including the software, biotech, semiconductor, electronics, telecommunications and computer industries.

I’m glad to see somebody on the Left arguing for a modernized view of antitrust, but I think that what is essential if we are to do this is to reduce simultaneously the political power of large companies to stifle competition, as manifest in manipulation of patents, financial regulation, safety rules and the endless list of regulations, subsidies and tax breaks that govern the modern economy. This is similar to what Reihan called in his post “completing the neoliberal revolution.”

The market process is imperfect and takes time, but in my view is preferable to one in which we allow large companies (who will always have an advantage in lobbying and compliance) to use the political process to protect their position, which we then counter-balance with antitrust regulation. No real system of political economy is ever pure, so we will always have some amount of political jockeying and counter-jockeying; but in general, the more we get government out of the way of innovation, the better off we will be.

I think that “de-politcizing” the economy would be an important and powerful component of a Republican presidential campaign in 2012.

(Cross-posted to The Corner)

Iron Chef Millman V

You know the drill:

Prelude: Latkes three ways: – topped with goat cheese, melted leeks and smoked salmon – topped with pea and roast garlic puree and roast lemon salsa – topped with persimmon and apple puree and sushi ginger

Soup: a duo of soups: – roast olive and garlic – roast red pepper and carrot – served together with a dollop of herb pesto

Crudo: thin-sliced hamachi topped with slivers of jalapeno, green lemon-infused olive oil, and sea salt

Salad: fennel and apple salad with tarragon and a lemon and olive oil dressing

Pasta: ricotta and swiss chard malfatti (like giant gnocchi) with sage brown butter sauce served over a bed of butternut squash pureed with mandarin orange-infused olive oil

Main: broiled arctic char dusted with ground porcini mushroom and fennel seed, served atop an oven-roasted tomato and a bed of white beans and wild mushrooms

Dessert I: crema fritta, deep-fried breaded cream

Dessert II: Rosemary lemon olive oil cake

Menus from years one, two, three and four also available.

This year we also had a signature cocktail – the maghreb martini. Gin, vermouth and preserved lemon brine, garnished with a wedge of preserved lemon. Color was a bit yellow; I think the brand of preserved lemons I used had saffron in the brine. But the flavor worked wonderfully, and paired very nicely with the latkes.

In fact, this is the first year that I can recall that really every course worked. The only hiccup was that the first batch of malfatti dissolved upon hitting the water. I had formed them in advance and frozen them, but I’ve done that before successfully, so I think either they didn’t have enough flour (I don’t think that was the problem) or the ricotta and chard between them retained too much water (I suspect this was the problem). Anyway, I heated up another pot of water, defrosted another batch quickly and re-formed them (you twirl the dough in a wine glass with a bit of flour to make the football shapes), and the second batch came out fine if a little bit late to the party. But other than that hitch, everything came off well and everything worked, in terms of flavor and presentation. If I had to pick standouts, I’d choose the soup duo, the fish, and the crema fritta.

I really enjoy doing this. I don’t entirely know why. It’s in part because I love to be the entertainer, the provider, the host; I like showing off, but I also like making people happy. And it’s in part because I love to eat. But it’s in part because cooking is one of the very few activities I engage in where I really use my hands. I don’t play a sport; I don’t paint or do woodworking or futz around with motorcycles. But I do cook. And when I cook, I still use my brain, but I use it differently, and I don’t feel so much as if I’m living in it, more like it is living in the world. Which is a very good and too-rare feeling with me.

And it seems to work for my guests.

As always, recipes available upon request – and please, don’t be afraid to email me and pester me if I fail to post something in response to a comment. Sometimes I don’t notice that a new comment has been posted; I can be bad that way. My email is available on the “About” page of the site.

Re: Gene to Phene

John, good to see you posting too, and Merry Christmas!

You say this:

Surely it will not be “the fact of our ignorance in this area” that “is likely to be very important to thinking about public policy in the upcoming decades”: rather it will be our increasing understanding in this area. The fact of our ignorance was, after all, around from the beginning of time up to 1953.

Our understanding of both genetics and the biological basis of behavior is proceeding rapidly, and I assume will continue to do so for some time. This has led to many extravagant claims for knowledge that we do not have, i.e., a “gene for depression.” Such claims have obvious policy relevance, and I think that subjecting such claims to rigorous scrutiny will become increasingly important in future decades, because there will likely be many more of them.

Then you ask the following:

And what does this mean: “We do not have the practical ability to understand why person X has normal psychological make-up Y based on analysis of his or her genome”? Do you mean to say this is a thing we metaphysically cannot understand? What is the evidence for that? The name Auguste Comte mean anything?

I know of no metaphysical reason (that I am certain is true) for why we could not ultimately understand this scientifically. We don’t understand it yet, though.

Comte is a great illustration of several kinds of errors, many of which center on unfounded claims to knowledge. You link to one example of this: his claim that we could never know the chemical composition of stars. But Comte is usually thought of as the founder of sociology: a discipline that he saw as scientifically modeling human social organization based on mathematical laws (per a recent set of Corner exchanges, Hari Seldon anyone?). He and Saint-Simon were called out by Hayek as key intellectual figures in building belief in the current (not possible at some future date) capacity to predict and therefore plan society. A key intellectual task of Hayek, Popper and the other mid-20th century libertarian thinkers was to point out the pseudo-scientific nature of these claims.

It may be that someday we will be able to use knowledge of the genome to predict human social behavior sufficiently to rationally plan our political economy, but we are not there yet. We should rigorously scrutinize claims of the reduction of non-pathological human mental states to scientific phenomena, in part because of the potentially profound political implications of such findings. More precisely, all scientific claims should be subjected to rigorous scrutiny, but we should challenge the sloppy popularization of such claims unless and until they are really scientifically validated, because any such popularization may tend to create an unfounded intellectual climate hospitable to the erosion of political and economic freedom.

(Cross-posted to The Corner)

What a Ron Paul Victory Would Mean

He hasn’t won yet, of course, and if he does we won’t get a terribly accurate picture from his supporters of why they gravitated toward him. But in my own wildly speculative view:

- Contra David Frum, Ron Paul is not the candidate of “indifference” to the economic situation. Indeed, I strongly suspect that the main substantive reason why Paul is getting more traction this time than last time around is precisely the economic crisis, and popular fury about it. Paul’s policy prescriptions are, in my view and in Frum’s (and in Andrew Sullivan’s, for that matter), insanely wrong – certain to badly exacerbate our plight, not to ameliorate it. They are reactionary, anti-modern, rooted in ignorance not knowledge. But they are an authentic response. Paul is not saying everything was fine in 2007. His is a deep and radical critique of business as usual. But a vote for him will not mean “I don’t care about the economic crisis.” It’ll mean, “I am convinced that Washington has no idea how to resolve the economic crisis, and, as a consequence, I am open to extremely radical and dangerous alternatives to the status quo.”

- I also don’t think Paul is getting much support because of his radical opposition to the foreign policy consensus. But I agree with Daniel Larison that if Paul wins, the fact that he will have won in spite of flouting that consensus is significant. Andrew Sullivan says his priority is “remaking” the GOP on foreign policy by opening up debate. Paul himself cannot make that debate happen – because he’s a rigid ideologue and his opponents are mostly behaving like thugs and hysterics. A debate of that sort isn’t really a debate at all. But if Paul wins Iowa, and does well in New Hampshire, he’ll have established that, in a post-9-11 world, there is room not to toe the line on foreign policy questions, room for someone with pragmatic views more like Dick Lugar’s (or Mitch Daniels’s) to run and not do what Romney and Huntsman have been doing. To a much lesser extent, I think the same thing can be said of civil liberties concerns.

- But it probably won’t mean anything at all. Mike Huckabee won in 2008. I haven’t noticed that the GOP field this year has been tripping over itself to win Huckabee’s support. Pat Buchanan nearly tied Bob Dole in 1996, but after that the party moved away from him, not towards him, on basically all his issues. Pat Robertson’s constituency has only gotten more important since 1988, but he himself probably reached the peak of his influence that year, and his constituency has remained important in part because it has proven to be domesticable – they have not demanded a radical change in much of anything in exchange for their votes. If Paul’s voters turn out to be similarly domesticable, one can debate how important they will turn out to have been. If not, I find it doubtful that the GOP will consider changing much to win them over.

Speaking Truth to Power

I see, via Daniel Larison that Bret Stephens has been unsurprisingly busy making the opposite argument to the one I just made:

A proper attitude [toward tyrrany] may not have required physical belligerency, [Havel] believed, and it could easily incorporate diplomacy. But it did require a constant posture of spiritual belligerency—a refusal to accept that a regime like Saddam’s or Kim’s was just a normal fact of life, beyond the reach of moral examination. In the context of Cold War Czechoslovakia, Havel called it a matter of “living in truth.” In the context of countries like North Korea, Russia or Iran, Havel told me it was also a matter of truth-telling. “We can talk to every ruler,” he said, “but first of all it is necessary to tell the truth.”

There’s a very important insight there, an insight Larison should acknowledge even though Stephens does his best to bury it. The insight is that truth, because it cannot be answered honestly and directly, has a corrosive effect on a structure that depends on lies to survive. Speaking truth to power can frustrate and even defeat power. Not always, of course. But sometimes, and to a surprising degree.

But the Iraq War was not “speaking truth” – because it wasn’t “speaking” at all: it was action. Without even going into the issue of the distortions – and self-deceptions – involved in building the case for war (in both of which I participated in my own small way, I should readily admit), action is not speech. Action cannot be truth; action creates truth, in the sense of facts, through the exercise of power.

The article that Vaclav Havel signed in support of the Iraq War was not an instance of speaking truth to power. It was an instance of speaking for power. The principal argument in the article is that unity is strength; that is to say, inasmuch as we want strength – power – it is more important to agree than to debate the truth. A secondary argument is that credibility is strength; that is to say, inasmuch as we want strength – power – it is more important to mean what we say than to debate the truth.

These are not specious arguments. They are entirely legitimate arguments – sometimes, they are persuasive ones. Once you have power, you have to consider these kinds of arguments. And it is juvenile to reject power as such – power is a fact of life, neither to be abjured nor idolized, but to be dealt with like other facts. I’m just pointing out that they are arguments about the accumulation, exercise and preservation of power – not about truth, and certainly not about speaking truth to power.

As a head of state, Vaclav Havel was implicated in power. Moreover, as a Czech, and not an Iraqi, he had only an indirect relationship with the sorts of truth that he might wish to speak were he not so implicated. Those aren’t cop-outs – they’re just more facts of life, things to be dealt with. It’s pleasant to imagine that the moral stature derived from one’s noble actions as a dissident is perfectly fungible, but it isn’t; it’s as context-dependent as everything else. With respect to the Iraq War, Havel wasn’t a dissident – not because he agreed with President Bush and disagreed with President Chirac (had he gone the other way, one could just as easily claim he was being a yes man and a conformist, but a conformist to European expectations rather than American), but because he was a head of state.

Stephens quotes Havel saying in a 2007 interview that “[t]he world . . . could not be indifferent forever to a murderer like Saddam Hussein.” Margaret Thatcher famously said that there is “no such thing as society” – by which she meant not that we are all atomized individuals without communal obligations but that there is no separate entity called “society” that can act. Individuals can act; they can direct institutions to act; but there is no “society” to which one can make an external appeal. Obligations imposed upon “society” turn out to be obligations imposed upon individuals. Similarly, there is no “world” to be indifferent or to take an interest in or to be indifferent to a murderer like Saddam Hussein. There are only the various governments of the various countries, and the various institutions those governments created to work within. We are not, once again, talking about speaking truth to power; we are talking about using power, and Havel was speaking as part of that power structure, not an outsider to it.

In my own view, Havel made the right call on Iraq for the right reasons. He had every reason to be grateful to the United States for its role in opposing the Soviet Union (even though we did essentially nothing to oppose the Soviet Union’s crushing of the Prague Spring – because, prudentially, there really was nothing much we could do), as well for, after the end of the Cold War, cementing Czech membership in the Western club of nations by expanding NATO to include them. He had every reason to trust the United States in its estimation of the Iraqi threat. And he had every reason to believe that the NATO Alliance and the United Nations between them held out the best hope for an international relations structured around simultaneously preserving peace and promoting freedom. One of the many negative consequences of the Iraq War is that, in its wake, people like the Czechs have every reason to feel that those feelings of gratitude and trust were exploited. But the blame for that lies with us, not with them.

What Is a Gene “For”

Analogies or metaphors are often useful for starting to understand a given topic, but in my view, serious engagement requires that we progress from this to a description of what is really going on operationally. (Technically, at some linguistic level, I’m sure it all remains some kind of metaphor, but at least things get much, much more concrete.)

The blog Gene Expression has a recent post which explains why when we read a headline about a “gene for depression” or whatever, this is usually very misleading. It is a model of science writing. It’s not easy to engage seriously with the science, avoid jargon, and keep your eye on the main issue. I think that a broadly educated person in the 21st century should have the level of understanding on this topic that you will get from the post.

I wrote an article for National Review a few years ago in which I argued that the fact of our ignorance in this area – that while intelligence and other mental traits have been understood to be somewhat heritable since at least the time of Homer, we do not have the practical ability to understand why person X has normal psychological make-up Y based on analysis of his or her genome – is likely to be very important to thinking about public policy in the upcoming decades.

(Cross-posted to The Corner)

Hitch, Kim and the Legacy of Eric Blair

What with Christopher Hitchens and Kim Jong Il dying so hard one upon the other, I found myself yesterday reading an essay by Hitchens from a couple of years ago about the Hermit Kingdom. The essay ends thusly:

Unlike previous racist dictatorships, the North Korean one has actually succeeded in producing a sort of new species. Starving and stunted dwarves, living in the dark, kept in perpetual ignorance and fear, brainwashed into the hatred of others, regimented and coerced and inculcated with a death cult: This horror show is in our future, and is so ghastly that our own darling leaders dare not face it and can only peep through their fingers at what is coming.

I read that last sentence over again, two or three times. It’s a well-written sentence, with a rhythm that marches you, the reader, on to its inexorable conclusion. It’s also a sentence that owes something to Hitchens’s own political and literary idol, George Orwell; I thought particularly of the ending of Homage to Catalonia, when Orwell returns to England, more specifically to

. . . the huge peaceful wilderness of outer London, the barges on the miry river, the familiar streets, the posters telling of cricket matches and Royal Weddings, the men in bowler hats, the pigeons in Trafalgar Square, the red buses, the blue policemen — all sleeping the deep, deep sleep of England, from which I sometimes fear that we shall never wake till we are jerked out of it by the roar of bombs.

A magnificent sentence, a famous (and correct) warning urged onward paradoxically by its very soothing cadence. But in the context of the book that precedes it, it’s a bit puzzling what the warning is. Homage is, after all, a book that complicates one’s relationship to the Republican cause in Spain, at least if one goes in with sympathy for it. Orwell went over to fight Fascism. He didn’t change his mind at all about Fascism, nor about the justice of the Republican cause – but he came to lose much hope of success for that cause, not only because of the inept fractiousness of the Republicans but because their own greatest ally, the Soviet Union, apparently preferred the Spanish Left to lose if the alternative was for Moscow to lose the Spanish Left. Orwell was trying to wake England up not simply from the threat of Fascism but from a kind of “it’s a pity they can’t both lose” attitude toward the struggle between Fascism and Communism, when it looked far more likely to Orwell that they would both win.

But the sentence is better remembered than the argument behind it. That is a danger of well-written sentences – a danger that Orwell himself was alive to. Indeed, well-written sentences can obviate the need for argument altogether.

Read that Hitchens sentence again. “This horror show is in our future, and is so ghastly that our own darling leaders dare not face it and can only peep through their fingers at what is coming.” Was he serious? This horror show is in our future? North Korea? A state universally acknowledged – including by its own principal ally – to be not only a terrible place but a colossal failure and a model for nobody? North Korea is a nasty and intractable problem, and could yet prove to be a serious problem, but from the perspective of Olympus it’s an oddity, a curiosity, a freak, not the future. It’s interesting to speculate what Orwell would have made of the persistence of this dystopia that he feared might cover the earth, and what he would make of our world more generally; I feel quite confident, though, that one thing he would not have treated North Korea as is a matter of urgency. But that – the posture of urgency – is all there really is in the Hitchens piece.

Hitchens professed to admire Orwell, and in large part for Orwell’s ability to combine a posture of urgency – of a call to action – with a distaste for propaganda, a commitment to clear-seeing and clear-speaking. But it is past time for us to recognize that this commitment can become a pose, and that, just as Joyce (or Stephen Daedalus, at any rate) felt that all art that moved one to action was, on some level, pornographic, so too all journalism that moves one to action is, on some level, propaganda, and is still propaganda, even if aimed at an obvious evil.

Storytime with Joseph Stiglitz

Arnold Kling points to an article in which famous economist Joseph Stiglitz lays out a theory for a common structure for the causes of the Great Depression and what Stiglitz calls the current Long Slump.

Here is what Stiglitz has to say:

At the beginning of the Depression, more than a fifth of all Americans worked on farms. Between 1929 and 1932, these people saw their incomes cut by somewhere between one-third and two-thirds, compounding problems that farmers had faced for years. Agriculture had been a victim of its own success. In 1900, it took a large portion of the U.S. population to produce enough food for the country as a whole. Then came a revolution in agriculture that would gain pace throughout the century—better seeds, better fertilizer, better farming practices, along with widespread mechanization. Today, 2 percent of Americans produce more food than we can consume.

What this transition meant, however, is that jobs and livelihoods on the farm were being destroyed. Because of accelerating productivity, output was increasing faster than demand, and prices fell sharply. It was this, more than anything else, that led to rapidly declining incomes. Farmers then (like workers now) borrowed heavily to sustain living standards and production. Because neither the farmers nor their bankers anticipated the steepness of the price declines, a credit crunch quickly ensued. Farmers simply couldn’t pay back what they owed. The financial sector was swept into the vortex of declining farm incomes.

He then goes on to describe how this problem propagated through the rest of the economy.

It’s interesting that in the first paragraph Stiglitz specifies that “more than a fifth” of all Americans worked on farms at the beginning of the depression, and that “2 percent” do today, but makes the non-numerical statement that “a large portion” of the population did so in 1900. I assume this would tend to lead most casual readers to think that most workers were on farms at that time. In fact, about 34% of the American labor force was in agriculture in 1900, and about 21% in 1930.

The proportion of Americans working on farms has been in continuous decline since at least 1800, when about three-quarters of the labor force was in agriculture. The decade with the biggest reduction in this proportion appears to have been the 1840s, when the percentage of the workforce in farming went from 67.2% to 59.7% (a reduction of 7.5 points). The rate of reduction from 1900 to 1960 appears to have been between 4 and 5 points per decade. As far as I can tell, this was roughly the rate of reduction from about 1860 – 1960.

The Great Depression occurred around the middle of a century-long, steady decline in the percentage of the labor force on farms. How could this decline have been the special cause of a spectacular economic collapse that occurred in one of these ten decades, but in none of those before or after?

(Cross-posted to The Corner)

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