Martin Gurri on Today’s News

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Maybe in a few weeks I will have forgotten about Martin Gurri and moved on to something else, but right now I am viewing everything in the newspaper through the lenses he provides in The Revolt of the Public.

One of Gurri’s themes is that elites now make unrealistic promises to the public, and the public soon discovers this, discrediting the elites. So, in today’s WaPo, the lead story is about world leaders denouncing the North Korean test of a hydrogen bomb. The public is going to view this as a government failure. After all, back in the Clinton Administration, they reached a deal with North Korea that was supposed to keep it from going nuclear altogether. The WaPo buries the issue of the Iran deal in a different story, and there the spin is that the Iran deal is a success because Obama paid attention to it while he let North Korea slip his mind. My guess is that this talking point is not going to work with the public.

The second top front-page story is headlined Germany targets a surge in vitriol (the digital version uses different wording but gives the same message). Later down in the story, you read about the New Year’s Eve rampage in Cologne that was “allegedly committed by gangs of young Arab and North African men.” My guess is that the public thinks that the lead story is the rampage, not the vitriol. And the public sees the rampage as evidence of government failure in its promise to absorb immigrants without problems. (Of course, I am over-generalizing when I say “the” public, but you can be sure that I am describing a significant segment of the population.)

UPDATE: A Failure by Germany’s Elite.

Another of Gurri’s themes is that the elites are blindsided by the public. The elites take it for granted that they are competent and that their authority will be respected. When the public revolts, the elites’ first inclination is to go into denial.

Martin Gurri on the political implications of communications technology

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I have just about finished reading The Revolt of the Public. It is an important book, but not easy to digest. I give Virginia Postrel a lot of credit for boiling it down fairly well, but there is more to it than fit in her write-up.

Back in the 1990s, a lot of people tried to forecast the impact of the Internet on politics. Libertarians thought that it would lead to a more libertarian world. Social democrats thought it would lead to a more social democratic world. I don’t recall any conservative prognostications.

Gurri says it could lead to a more nihilistic world, one in which newly-empowered outsiders tear down elite control structures but are then left with the question, “Now what?”

Gurri says that elite insiders have difficulty coming to terms with the revolutionary implications of the new communications environment. Cue Ross Douthat, trying to explain why he did not foresee the Donald Trump phenomenon.

Now if I wanted to avoid giving Trump his due, I could claim that I didn’t underestimate him, I misread everyone else — from the voters supporting him despite his demagoguery to the right-wing entertainers willing to forgive his ideological deviations.

In fact, I lean toward that view. There was a market niche available, and Trump happened to fill it. Some of it reflects his individual skill, but I am not inclined to put too much emphasis on that.

The point about “right-wing entertainers” is well taken. For years, conservative talk radio personalities have railed against “RINO’s” (Republicans in Name Only) and claimed that if the Republicans stopped nominating me-too candidates and instead ran a real conservative for President they would win. The way that I look at it, anyone who really believed in the need for Republicans to nominate someone reliably conservative would prefer almost any Republican candidate in the race other than Trump. (I am hardly alone in that view.) But it seems that the talk radio hosts are happy to toss prior convictions out the window in order to excite their listeners.

I keep going back to the 1960s. In 1964, Barry Goldwater was nominated by an insurgency, and he got crushed. I think that in 2016 the insurgent candidate with the highest chance of getting the nomination (and I put his chances at well under 50 percent) is not Donald Trump, but Bernie Sanders. And I think that if Sanders is nominated, then he will get crushed.

In any case, Gurri provides the best analytical framework I have come across for understanding current politics, both here and in other countries. Ross Douthat should give it a read.

Health Care Pricing

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Timothy Taylor writes,

Health care prices aren’t being set in a well-functioning competitive market. Some geographic markets just lack competition in health care. But in many others, prices for hospital services are being negotiated in ways that result in big variations between geographic areas–like prices for a given service in one place being a multiple of what it costs in other places. In turn, these different prices being charged are linked to big differences in spending across geographic areas. Moreover, all of this is happening in a setting with potentially large cross-subsidies–potentially running in either direction–between private health insurance and public health insurance programs like Medicare. It’s all part of the reason why designing policies to slow the rise in health care spending is so difficult.

What you will hear is that the problem is with our free-market health care system. For many people, “free-market”
serves as an all-purpose boo-word. Of course, my own view is that health care regulations are what are most heavily implicated in the high, opaque pricing of medical services.

Mike Munger on Specialization

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He writes,

Admittedly, it was a significant intellectual achievement to show that the weaker trading partner benefits from trade, even if the stronger partner is better at everything. But those fixed differences have largely disappeared in many markets. The question of what should be produced, and where, is now answered by dynamic processes of market signals and price movements, driven by human ingenuity and creativity. The cost savings resulting from successfully dividing labor and automating production processes dwarf the considerations that made comparative advantage a useful concept in economics.

Read the whole thing. In The Book of Arnold, I express a similar disappointment with Ricardian comparative advantage, because it is always taught as the “two by two” case, which hides the complexity of specialization in the real economy.

Sweden’s Consensual Hallucination

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From the NYT,

At more than half of the branches of the country’s biggest banks, including SEB, Swedbank, Nordea Bank and others, no cash is kept on hand, nor are cash deposits accepted. They say they are saving a significant amount on security by removing the incentive for bank robberies.

The country is that far along in its use of electronic payments.

China Fact of the Day

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George Friedman writes,

most Chinese wealth is concentrated 200 miles from the coast. The next 500–1,000 miles west is a land of Han Chinese living in Third World poverty. The China that most Westerners think about is the thin strip along the coast. The fact is that China is an overwhelmingly poor country with a thin veneer of prosperity.

His main point is that Chinese leaders will be more obsesssed with internal issues than with external issues.

My Review of Scott Sumner’s The Midas Paradox

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The book offers a historical interpretation of the Great Depression as a monetary phenomenon. My review is here. This paragraph may be a bit terse:

The price index that Sumner uses is the Wholesale Price Index. This is a volatile index that largely excludes finished goods and instead tracks goods that are intermediate inputs to other producers. From the standpoint of those final-goods producers, an increase in the WPI indicates not a positive demand shock but an adverse supply shock. Sumner did not succeed in convincing me that the causality runs from increases (decreases) in the WPI to increases (decreases) in output, rather than the other way around.

Suppose that the idea is that when monetary policy is expansionary, prices for finished goods go up and nominal wages remain sticky. Then producers will increase output, and this will raise the demand for goods that are intermediate inputs. The price of intermediate goods could rise by a much higher percentage than the price of finished goods, provided that intermediate goods are not a large share of the cost of producing finished goods and provided that the supply of intermediate goods is somewhat inelastic.

Using this story, the Wholesale Price Index is not really the “P” that goes into the real wage rate, W/P. Instead, it is an indicator that production is rising (or is expected to rise). We still have to take in on faith that a decrease in W/P is what caused the rise (or expected rise) in production.

Meet the Totalitarians

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Jonathan Haidt writes,

Like most of the questions, it was backed up by a sea of finger snaps — the sort you can hear in the infamous Yale video, where a student screams at Prof. Christakis to “be quiet” and tells him that he is “disgusting.” I had never heard the snapping before. When it happens in a large auditorium it is disconcerting. It makes you feel that you are facing an angry and unified mob — a feeling I have never had in 25 years of teaching and public speaking.

You will find me posting quite a bit on Roger Scruton’s recent book, Fools, Frauds, and Firebrands, which is mostly about left-wing European philosophers. I am inclined to dismiss the significance of these characters. However, their totalitarian impulses are frightening, and the way that they have permeated part of the academic culture is depressing.

Douglass North vs. Anarcho-capitalism

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In Institutions, Institutional Change, and Economic Performance, he wrote (p. 58),

players may devise an institutional framework to improve measurement and enforcement and therefore make possible exchange, but the resultant transaction costs raise the costs of exchange. . .The more resources that must be devoted to transacting to assure cooperative outcomes, the more diluted are the gains from trade. . .The more complex the exchange in time and space, the more complex and costly are the institutions necessary to realize cooperative outcomes. Quite complex exchange can be realized by creating third-party enforcement via voluntary institutions. . .ultimately, however, viable impersonal exchange that would realize the gains from trade inherent in the technologies of modern independent economies requires institutions that can enforce agreements by the threat of coercion. The transaction costs of a purely voluntary system of third-party enforcement in such an environment would be prohibitive. . .there are immense scale economies in policing and enforcing agreements by a polity that acts as a third party and uses coercion to enforce agreements. But. . .If we cannot do without the state, we cannot do with it either. How does one get the state to behave like an impartial third party?

Think of two ways to organize a pee-wee baseball league, with players aged 8 to 10. The anarcho-capitalist approach would be to have the players on the teams meet before each game and agree on rules and enforcement mechanisms. The state-based approach would be to have a league commissioner articulate the rules and arrange for their enforcement. If you’ve ever observed 8- to 10-year-olds involved in a discussion over rules, you know that the an-cap league would never play any baseball. The negotiations would occupy all of the time scheduled for the games. What North is saying is that the equivalent would happen to an an-cap economy–it would be buried in the transaction costs involved in trying to enable the sort of market exchanges that we take for granted.

As you know, I am re-reading North because of the overlaps between his work and that of Peter Turchin and other theorists of cultural evolution. I have suggested that North in 1980 anticipated their major insights. The quotation above is from 1990. By that time, some of the seminal papers in cultural evolution had appeared, and North cites them. But no one in the field cites North. If his work were more widely known, I believe that: (a) North would be considered a founder, perhaps even the founder, of the study of cultural evolution; and (b) scholars of cultural evolution would still be mining North’s books for insights.

Debate is not about Debate

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Robin Hanson writes,

in our intellectual world, usually there just is no “debate”; there are just different sides who separately market their points of view. Just as in ordinary marketing, where firms usually pitch their products without mentioning competing products, intellectuals marketing of points of view also usually ignore competing points of view. Instead of pointing out contrary arguments and rebutting them, intellectual usually prefer to ignore contrary arguments.

Or cherry-pick the weakest contrary argument. Or make up straw-man positions for the other side.