Another commenter’s question: third party

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The commenter asks

Arnold, what do you think of the new “Alliance Party” taking form over at Walter Russel Mead’s site?

1. I find the Alliance Party more attractive than the Niskanen Center in trying to formulate what I might call a centrist-libertarian agenda.

2. Third parties face structural barriers that are well known.

3. In addition, a centrist-libertarian party has no momentum going for it. There are very few of us.

Most important, the major political parties have managed to convince most politically engaged people that there is a lot at stake in the current cold civil war between progressive elites and conservatives/populists. In that context, most people aren’t asking about a third party, “Is this the middle ground that I am looking for?” Instead, they are asking, “Whose votes is this party going to siphon away?” The center-left does not rally to Howard Schultz; instead they are wary of him. The center-right is likely to react similarly to the Alliance Party, if it ever gets beyond the 3-thinkers-with-a-manifesto stage.

Question from a commenter: carbon tax

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A couple of weeks ago, he wrote,

I have a question on the carbon tax issue.

Assume for the moment that the tax imposed accurately reflected the social cost. By the standard theory of Pigouvian taxes, do we actually care whether emissions go down? As long as everyone incorporates the social costs in to their decisions, we’ve internalized the externality, yes?

If demand isn’t very elastic in the range of the tax, then no reduction in emissions (or too low to measure) is the “correct” result, right?

1. I suspect that the main reason a carbon tax tends to have no effect in practice is that it takes a lot of political will and bureaucratic effort to make it really bite. It’s difficult to avoid grandfathering and other concessions.

2. If you drink the climate-change Kool-Aid, then the social cost of carbon emissions is ginormous. If you also believe that demand is inelastic, then you either have to implement quantity rationing (there is a classic paper by Martin Weitzman on “prices vs. quantities” that would justify this) or go for a very high tax.

3. If you believe that demand is inelastic for a very wide range of price+tax, then it suggests that the social cost of reducing carbon emission is ginormous. Then the policy issue becomes a kind of irresistable force vs. immovable object situation.

A sex survey: what’s not to love?

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The story is behind a WaPo paywall.

1. It is not a story about sexual frequency. It is about the incidence of people who have not had sex with a partner in the past year. Call these folks abstainers. Sorry, Tyler, but I disagree with Christopher Ingraham that it is amazing that there are more abstainers in the 18-30 age bracket than among fifty-somethings. My guess is that the proportion of married people is quite a bit higher among 50-somethings, and if you’re looking for abstainers, you are more likely to find them among people who are not married. To be blunt, the survey does not say that older folks are having more sex. It just says that fewer of them are abstaining for a year.

2. Robin Hanson also could not resist commenting.

it won’t at all do to point to effects that are constant in time, such as people not always telling the truth in polls, or men having lower standards for sex partners. It also won’t do to point to changes over this time period that effected [sic] all ages and genders similarly, such as obesity, porn, video games, social media, dating apps, and wariness re harassment claims. They might be part of an answer, but can’t explain all by themselves. To explain an unusual burst over the last decade, it is also problematic to point to factors (e.g., computing power) that changed over the last decade, but changed just as much over prior decades.

3. Here’s a way to simplify the data in one of the graphs on Robin’s post, which looks at people in the 18-30 age bracket. Suppose we had 100 heterosexual men and 100 heterosexual women. Ten years ago, there were 10 abstainers of each gender. Among the more recent cohort,there are 28 male abstainers and 18 female abstainers.

4. Here’s a way to think about this. Ten years ago, there were 10 female abstainers, each with a “partner” who abstained also. In the more recent cohort, the number of abstainer “partnerships” increased by 8. Some of that could be a decrease in marriage rate, but how much could the marriage rate of have fallen in the last decade?

5. Another interesting development is that there are now 10 male abstainers who don’t have a “partner.” To put it another way, there are now 82 women who did not abstain and only 72 men who did not abstain. (Of course, ten years ago, there were 90 non-abstainers of each gender, so definitely don’t think of this as women getting friskier.) Who did these extra ten women find? Older men? Men who already had non-abstained with someone else?

6. Robin writes,

it seems that. . .the latest age cohort has switched to a new sex culture wherein the less desirable half of young men are now seen as even less desirable by young women than previous cohorts would have seen them. And within this culture it is seen as more acceptable for young women to share the more desirable half of young men

I agree that this is likely the basic story, but I would not overstate it. It could be that we should be talking about the less desirable quarter of the male population. And the number of women who are ok with sharing desirable men may still be very small. My arithmetic exercise suggests that the proportion of women who are sharing (in the sense that they have a partner who in the past year has had additional partners) is 10 percent, and a lot of that may not be sharing by choice.

My review of Raghuram Rajan’s latest book

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My review of The Crumbling Pillar says,

One can think of each of the three pillars as having an ideological base. The strongest support for the market comes from libertarian ideology. The strongest support for the state comes from progressive ideology. And I would argue that the strongest support for community comes from (socially) conservative ideology.

My overall criticism of the book is that he supports an idea of subsidiarity which I identify strongly with conservatism but without doing anything to raise the status of conservatives or lower the status of progressives. Either this is what Tyler Cowen would call a Straussian attempt to appeal to progressives or it shows how conservative thought is completely ignored by academics these days. In my review, I opted for the latter interpretation.

Please read the whole essay.

What is a firm? an organizational culture

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I just received a review copy of Tyler Cowen’s latest, Big Business, which will be released in a week. As is my habit, I started reading it from the outside in, and I quickly landed on the appendix, in which he writes

in lieu of the Coase and Williamson transactions-cost appraoch, I typically view a corporation in terms of the following properties:

  1. It is a collection of assets, assembled at favorable purchase prices (or at least the prices were favorable for the case of successful corporations.
  2. It is a nexus of external and internal reputation and norms.
  3. It is a carrier of contractual and legal responsibility.

My inclination is to elaborate on (2). I might describe a firm as an organizational culture.

I think we need to distinguish among types of firms. The local restaurant run by a family of recent immigrants is not the same as Microsoft.

I want to ignore most types of firms, including the restaurant, and instead focus on young, ambitious firms and mature, established enterprises.

I would describe a young, ambitious firm (or a “promising business” in Amar Bhide’s terminology) as an organizational culture embodied in its top management layer. To be successful, the members of this team must:

  • generate good ideas and discard bad ones
  • have the skills, experience, and drive to execute on ideas
  • work well together
  • manage the transition to a mature, established enterprise

In a mature enterprise, the organizational culture permeates the entire firm. A set of rules, systems, processes, habits, and institutional knowledge is deeply ingrained in every layer of the organization. One of the things that struck me about Minerva, the innovative college, is the terminology that I called “Minerva-speak.” This sort of firm-specific terminology can contribute to a shared organizational culture.

When Tyler points out that bureaucracy is both good and bad, I interpret that in terms of the tension between organizational culture and individual initiative. I picture Minerva in those terms. Its culture is more clearly defined than that of a typical college, but ultimately that could feel stifling to some faculty and students.

Recall that one of my rules for work and financial life is:

When you have little left to learn on a job, it is time to move on.

A lot of what you learn when you work at a firm is its organizational culture. Moving within a firm means you learn new subject matter, but you are largely staying within the same culture. The psychologically more challenging move to a different organization gives you an opportunity to experience a different culture, sort of like spending time abroad.

Large, established enterprises are in one sense easy for a CEO to run and in another sense very difficult to run. With a deeply-ingrained organizational culture, an enterprise can operate on auto-pilot in a stable business environment. In a changing environment, which seems to be more prevalent nowadays, the CEO has to know when and how to discard cultural baggage. Changing the culture of a large organization is risky and wrenching. In a large corporate merger, cultural integration is both challenging and very important.

Perhaps the biggest challenge faced by top management in a large organization is to know what the organization needs to learn and to unlearn as its environment changes. I can think of many examples where the environment changed quickly and a large enterprise unlearned too slowly. Or maybe the value of its legacy rules, systems, processes, habits, and knowledge was decimated by the new environment, and there was not much that top management could do about it.

But I can think of at least one example where a new top management layer insisted that the organization unlearn its approach and the outcome was tragic. That was when Freddie Mac’s board brought in Richard Syron as CEO. Syron and his executive team discarded the organizational knowledge about credit risk, which included a reluctance to deal in “low-doc” mortgages. Under Syron, Freddie Mac dove into the “low-doc” business, with results that were disastrous, both for the company and for the country.

Tax robocalls?

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Roger Meiners proposes

Call it the Penny for Sanity Tax: a 1-cent tax on every call made. Fifty billion robocalls would cost $500 million—a powerful incentive to stop.

I would add that you could have a feature where the recipient of a call could press a button to forgive the tax. That way, the tax would fall even less on legitimate callers.

But my guess is that the cost of collecting the tax would be prohibitive. Many robocalls originate in foreign countries. I saw a story in the WSJ about the FCC’s collection rate on fines that it has levied against known violators of the law. It’s pathetically low.

My suggestion would be to offer a prize for a firm that develops an effective phone spam filter. I might define an effective spam filter as one that does not delay calls for more than 1/4 of a second, that filters out at least 95 percent of robocalls that get through existing filters (such as they are) at major phone service providers, and that filters out no more than 1 out of 1000 legitimate calls.

Maybe the government could offer the prize. Or maybe someone will just put up a GoFundMe and see if those of us who hate robocalls will put money where are mouths are.

The West was lucky to win

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I have been delving into J.S. Sharman’s Empires of the Weak, which argues that the story we tell of the triumph of the West as inevitable is quite misleading. In general, he questions the assumption that competition will automatically strengthen states through the processes of learning and selection.

Victory and loss in war are a result of complex and varying combinations of factors, many of the most important of which, like leadership and morale, are intangible. (p. 20)

We tend in hindsight to see correctness in what the winner did and mistakes in what the loser did. We also tend to narrow the list of critical factors. In fact, we may very well be emphasizing the wrong factors, we may misclassify some decisions as correct when they were mistakes and vice-versa, etc.

I think that this is true in business as well.

On the issue of selection, Sharman argues that there is not enough extinction among states for selection to operate effectively. I suppose that because firms go out of business much more frequently than states disappear, one can have some hope that the process of selection leads more reliably to improvement in the case of firms than in the case of states.

More medical treatment, less health

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In a book review, Chris Pope writes,

Unlike many politicians and pundits, however, Mr. Kaplan doesn’t pretend that the situation is simply the result of overpayment for services that could be easily remedied with mandatory price cuts. He suggests, instead, that America’s high spending is the product of a sicker population, a higher intensity of care and the over-medicalization of care at the end of life. The author is skeptical of the capital-intensive innovations that excite investors, and he observes that R&D spending on drug discovery has seen diminishing returns. “To achieve the kind of scientific progress we enjoyed in the early 1970s,” he writes, “takes 25 times as many researchers today.”

This makes More than Medicine, by Stanford medical professor Robert M. Kaplan, sound like a re-run of my own Crisis of Abundance. There I argued that capital-intensive and skills-intensive medical services with high costs and low benefits are the main driver of the poor performance of our health care system relative to that in other countries.

I also would agree with Kaplan that the really big improvements in health outcomes come from outside of the medical-treatment realm. Think of urban sanitation, reduced pollution, healthier and safer working conditions, and reduced smoking. To me, that argues for taking dollars away from subsidizing demand for medical treatment and trying to apply some those dollars to efforts to improve public health.

But Pope points out that Kaplan writes as if we know how to solve our public-health problems, and we just need the will to do so. My impression is that problems like homelessness and obesity are very challenging, and we will need to sift through many potential solutions. Finding something that works and is widely applicable may not happen for many years, if ever.

The future and the auto-didact

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Yuval Noah Harari wrote,

in the 21st century, we are flooded with enormous amounts of information, and the censors don’t even try to block it. Instead, they are busy spreading misinformation or distracting us with irrelevancies. If you live in some provincial Mexican town and have a smartphone, you can spend many lifetimes just reading Wikipedia, watching TED Talks, and taking free online courses. No government can hope to conceal all the information it doesn’t like. On the other hand, it is alarmingly easy to inundate the public with conflicting reports and red herrings.

That quote should be filed under “Martin Gurri watch.” But what I really want to get to in this post is Harari’s thoughts on the implication of accelerating cultural evolution. He implicitly agrees that the future belongs to auto-didacts.

Unfortunately, teaching kids to embrace the unknown while maintaining their mental balance is far more difficult than teaching them an equation in physics or the causes of the First World War. You cannot learn resilience by reading a book or listening to a lecture. Teachers themselves usually lack the mental flexibility that the 21st century demands since they themselves are the product of the old educational system.

…So the best advice I can give a 15-year-old stuck in an outdated school somewhere in Mexico, India, or Alabama is: don’t rely on the adults too much. Most of them mean well, but they just don’t understand the world. In the past, it was a relatively safe bet to follow the adults, because they knew the world quite well, and the world changed slowly. But the 21st century is going to be different. Because of the increasing pace of change, you can never be certain whether what the adults are telling you is timeless wisdom or outdated bias.

My advice to 15-year-olds is to treat what I have to say as timeless wisdom, even though I am at an age where I probably lack mental flexibility and what I write may come across as outdated bias.

Another elderly person with timeless wisdom is Peggy Noonan, who writes,

Avoid elite universities if you can; they’re too often indoctrination mills anyway. Aim at smaller, second-tier colleges, places of low-key harmony, religiously affiliated when possible—and get a real education. Every school has a library. Every library has books. That’s what you need.

If you missed her piece, entitled “Kids, Don’t Become Success Robots,” be sure to read it.