Ethos and the welfare state.

The OECD Secretariat released recently (November 2014) a revealing summary (pdf) of public social expenditure by OECD countries. The database the study is based on is available online. (Private social expenditure--i.e. private charity--is not covered by this post.) Social expenditure being defined as:

Social expenditure comprises cash benefits, direct in-kind provision of goods and services, and tax breaks with social purposes. ... To be considered "social", programmes have to involve either redistribution of resources across households or compulsory participation. Social benefits are classified as public when general government (that is central, state, and local governments, including social security funds) controls the relevant financial flows.

I was struck by the graph adjacent, covering specifically paid-in-cash benefits, which indicates that Anglo, Dutch and Scandinavian welfare states are strongly downwardly redistributive (i.e. the bottom income quintile receives a larger share of social expenditure than the top income quintile; and the former can be reasonably assumed to pay less tax than the latter) while the Mediterranean states are strongly upwardly distributive (i.e. the top income quintile receives a larger share of social expenditure than the bottom income quintile: one cannot say upwardly re-distributive, because that requires look at share of tax revenues). And, regarding present debates over fiscal austerity in the Eurozone: cutting public expenditure in states with downwardly redistributive social expenditure is likely to mean something rather different than doing so in states with upwardly distributive social expenditure.

There seemed to be some patterns in the data, so I downloaded said social expenditure data, added in data on economic freedom and (via Wikipedia's useful lists) on religious adherence as % of population and was able to generate various, somewhat striking, correlations.

Using the bottom quintile's share of social expenditure less the top quintile's share of social expenditure (in % points of total such expenditure) as an indicator of how downwardly distributive social expenditure was, there was no significant correlation (0.18) between the total level of social expenditure (as a share of GDP) and how downwardly distributive total social expenditure was. So, the level of public social expenditure as a share of GDP tells us literally nothing about how focused on helping low income folk such expenditure is.

Regulation fairy stories

There was quite a strong positive correlation (0.59) between the level of economic freedom and how downwardly distributive social expenditure was. Now, if you believe in the state-as-regulation-good-fairy story (the state typically regulates to improve overall social and economic outcomes), this may be a surprise.

If, however, one accepts that a significant amount of regulation is to favour selected groups and that, generally speaking, the higher the level of regulation the more this can be expected to be so, then this result will be unsurprising. (Not least because, as mechanisms of transparency and accountability are not infinitely elastic, so the more they have to cover the weaker they can be expected to operate.) Especially as the better connected, resourced and organised an interest group is, the more it is likely to be able to bend regulatory policy in its favour.

So, taking economic freedom to be an indicator of "neoliberalism", then the more neoliberal (other things being equal) your economic regime, the more downwardly distributive public social expenditure it tends to be. Shocking only if you accept the "bad fairies" theory of neoliberalism: which so many academics do; but, then, much of what academics write about neoliberalism is crap.

The deserving poor

There was quite a strong positive correlation (0.60) between the Protestant share of population and how downwardly distributive social expenditure was and a stronger positive correlation (0.64) with the no-religion share of population.  (It was clear from the sources that, depending on context, people would nominate both a religious identity and as being of no religion: I took that to mean they were culturally Protestant, Catholic, etc.) So actual and cultural Protestants, and folk with no religious belief, apparently tend to believe in the deserving poor: i.e. that welfare expenditure should be downwardly re-distributive.

This was capturing something specific, because the correlations between between the Protestant share of population and the level of economic freedom (0.47) and between the no-religion share of population and the level of economic freedom (0.36), though positive, were not as strong. 

Protestantism I would characterise as "naked before God" religion, since one has direct access to the basic religious authority (Scripture) and is entitled to make one's own judgement about it. Folk with no religion can be expected to generally also believe in a strong sense of individual moral sovereignty.

So, my tentative hypothesis would be that a confidence in one's own moral judgements (and the sense of moral sovereignty that flows from that) apparently encourages social expenditure to be downwardly redistributive: what perhaps might be called a strong sense of the deserving poor. Perhaps because it encourages considering people by fairly direct, and directly identifiable, notions of worthiness (in this case, lack of income).

Preserving rank

A very different result was gained if the Catholic+Orthodox+Muslim share of population were added together, because then there was a strongly negative correlation (-0.70) between said share of population and how downwardly distributive social expenditure was.

Again, something specific is going on, as the correlation between the Catholic+Orthodox+Muslim share of population and economic freedom, though negative, was not as high (-0.48). In keeping with the level of social expenditure not being a key factor, there was no significant correlation (-0.08) between the Catholic+Orthodox+Muslim share of population and public social expenditure as a share of GDP.

Catholicism, Orthodoxy and Islam I would characterise as "priests and clerics give detailed instructions" forms of religion. They involve both hierarchical notions of moral authority and complex moral maps--since it is in the interest of gatekeepers of righteousness to promote moral complexity, as it inflates their role. You probably don't need a priest or cleric to tell you that murder is bad; you probably do need them to tell you whether you need to wash your hair every time after you have sex or how to expiate specific sins.  

The combination of moral complexity and moral hierarchy apparently leads to public social expenditure which reflects, even reinforces, existing social rankings. Thereby leading to much less policy weight being given to such a direct characteristic as (low) level of income. Remembering that complexity of any sort is a great way to obscure who is receiving what.

Ethos matters

So, ethos appears to matter, given that there is such a vast difference between the apparent connection between Protestantism (religious or cultural) (0.60) and no-religion (0.64) on one side, and Catholic+Orthodox+Muslim share of population on the other (-0.70), and how downwardly distributive public social expenditure tends to be.

One possible mechanism via which religious roots of cultural perspectives could matter is different perspectives on time. The work of psychologist Philip Zimbardo and others on time perspectives (pdf), suggests that higher self-trusting, future-oriented Protestants might be more likely to think that the state should concentrate on those who need help. Conversely, lower self-trusting Catholics, Orthodox and Muslims who are more past or present oriented may think the state should do more for everyone regardless of current situation.

The former will lead to more downwardly distributive social expenditure, the latter much less so. Especially as, once it is accepted everyone should receive, the better organised and connected are much better place to, well, so receive.

Whatever the actual mechanism by which the observed effects happen, the data does clearly suggest that policy, over time, reflects the choices of the voters. Choices that appear, in turn, to significantly reflect what moral ethos is dominant among voters.

[Cross-posted at Skepticlawyer.]

Norm failure

I have previously posted about how similar the failures in indigenous policy and development (particularly foreign aid) policy have been. Remarkably similar, indeed. They also show some distinct similarities to the more unfortunate effects of welfare provision. (By 'welfare provision' I do not mean the aged pension or health or education services; I am talking about income and other transfers to working-age-but-not-working people.)

Policy lowlights
That indigenous policy has a remarkably consistent dismal story of failure is its most striking feature. Whether it is Australian aborigines, Amerindians or Lapps, the record of broken communities mired in violence and sexual, drug, alcohol and child abuse, entrenched poverty and lower life expectancies is dismally similar. [Though comparison between Australian aborigines and Amerindians is complicated by the much greater range of the latter in their pre-conquest ways of life--from foragers through horse-peoples to agrarians--and that some Amerindian communities have parlayed treaty rights into profitable assets, such as casinos, which gets them "out from under" the more problematic features of indigenous policy.] No matter how much money is thrown at the issue, the problems never seem to get much better [within communities primarily dependant on indigenous policy]. Indeed, in Australia, outback Aboriginal communities were often more dysfunctional by the time of the Commonwealth Intervention than they were in the 1960s and early 1970s.  The difficulties for indigenous peoples tend to be notably worse for former foragers (i.e. hunter-gatherer cultures) than farming peoples, but the latter are not exactly shining beacons of success.


Development policy--specifically foreign aid--has much the same record of failure as indigenous policy for farming peoples. Not the level of disaster that indigenous policy has been for former foragers, but still remarkably little return for huge expenditures (in total sumsover time).

Welfare recipients also show patterns of entrenched problems--broken homes, violence and crime, entrenched poverty. There is a cause-or-effect problem here, in that social dysfunction makes one more likely to qualify for welfare assistance. Still, being on welfare does not seem to do much to improve such patterns and there is some evidence it makes them worse. Though, in all this, one has to be careful to not to mis-characterise behaviour which may turn out to be rational responses to the constraints of poverty (pdf) that have little to do with the above forms of public policy.

Saints, knaves and moralisers
I was reading a typically excellent paper (pdf) by the late Elinor Ostrom (a fine appreciation is here) when I came across a passage that generated an "a ha!" moment:

Finally, the worst of all worlds may be one where external authorities impose rules but are only able to achieve weak monitoring and sanctioning, cooperation is enforced without any need for internal norms to develop. In a world of no external rules or monitoring, norms can evolve to support cooperation. But, in an in-between case, the mild degree of external monitoring discourages the formation of social norms, while also making it attractive for some players to deceive and defect and take the relatively low risk of being caught (Pp 147-8; Pp 12-3 in the pdf).

Clearly, welfarism, indigenous policy and foreign aid involve "weak monitoring and sanctioning" and a "mild degree of external monitoring". But the epiphany went deeper than that.

Ostrom starts her paper by putting the problem of collective action in context. The problem being that, on the assumption that folk are rational egoists, then there is a massive free riding problem for collective action which should make cooperative action effectively impossible. Yet, both in the wider world and in experimental economics, we observe a wide range of cooperative behaviour.

From the experimental and empirical evidence, Ostrom distills three basic types of human agents--rational egoists, conditional cooperators (presume cooperation and then respond to others actions) and willing punishers (keen on sanctioning those who free ride). This is a similar framing as founder of cliodynamics Peter Turchin's division of people into knaves (always self-interested), saints (always cooperate) and moralists (moral with punishment). Turchin characterisers his moralists as conditional cooperators, but he draws out folk at the high end of cooperation spectrum to form his saints category and puts those more willing to withdraw if cooperation is not forthcoming in with Ostrom's willing punishers: these are different ways of cutting up the same underlying patterns, they are inferring from the same general body of evidence. (I discuss Turchin's book War and Peace and War here; he also has a useful website.)

Norms evolve
We homo sapiens did the key part of our evolving in small foraging bands. So, results from game theory experiments that:

Only the trustworthy type would survive in an evolutionary process with complete information. ... Where a player's type is common knowledge, rational egoists would not survive. Full and accurate information about all players' types, however, is a very strong assumption and unlikely to be met in most real world settings (p.145; p.10 of the pdf)

suggest that there might have been strong evolutionary pressure for cooperators (saints and moralisers) and against rational egoists (knaves). More worrying for more complex social settings is that:

If there is no information about player types for a relatively large population, preferences will evolve so that only rational egoists survive (p.145; p.10 of the pdf).
This implies that, in a game where people know only their own payoffs and not the payoffs of others, they are more likely to behave like rational egoists. McCabe and Smith (1999) show that players tend to evolve towards the predicted, subgame perfect outcomes in experiments where they only have private information of their own payoffs and to cooperative outcomes when they have information about payoffs and the moves made by other players (n8, p.145; p.10 of the pdf).

Different social settings affect which norms evolve and some may favour rational egoism. While most people start off as cooperators (saints and moralisers):

... preferences based on these norms can be altered by bad experiences. ... In this setting, the norms supporting cooperation and reciprocity were diminished, but not eliminated, by experience (p.146; p.11 of pdf).

Somewhat more reassuringly:

... if there is a noisy signal about a player's type that is at least more accurate than random, trustworthy types will survive as a substantial proportion of the population. Noisy signals may result from seeing one another, face-to-face communication, and various mechanisms that humans have designed to monitor each other's behaviour (p.145; p.10 of the pdf).

So talking is good.[1]

The big, take-away point here is that social settings affect which norms evolve and public policy can create or influence social settings.

Pay-off delayed
If we consider the evolution of norms, it is not surprising that people from foraging cultures do worse than people from farming cultures in modern industrial (and post-industrial) society. Foragers do not develop norms encouraging long time-horizons since there is little time-lapse between acquisition of food and its consumption. Farmers have to develop such norms, or they starve, since they live off delayed consumption. This is particularly so for farmers in colder climates (like, say, Northern Europe, Northern China and Japan) where surviving winter takes extra preparation.


In societies where asset accumulation is crucial (starting with one's own human capital), a failure to develop longer time-horizons, and the associated and reinforcing norms, is going to be a bit of a problem. A recipe for social failure, indeed.

Nice middle class folk from farming-cum-industrial-cum-post-industrial societies may not "get" what a big deal this is, as they have so internalised longer time-horizons--and their supporting norms--that they do not "see" them, and so do not seriously consider their possible lack and the implications thereof. Consider yours, mine andours. In a foraging culture, food storage is not much of an option. All food is fresh food and has to be consumed pretty rapidly. So sharing is simply what you do (within your not-very-big band). Particularly with "big" items such as meat. There is an awful lot of ours, not so much yours and mine.


This does not work with farming. You have to engage in an annual cycle of effort for considerably delayed payoffs where food is stored to get you through the year and production of sufficient seed grain is crucial. If one is expected to share everything, the free rider problems become enormous. A farming community based on continuation of forager sharing typically collapses in starvation. (This experiment has been run repeatedly; notably in the very early North American colonies who attempted Christian sharing of all food: this was a complete disaster until the new governor re-imposed the evolved farming norm of your land, your effort, your food.  It also makes me wonder about the very high violence level of non-state farming communities, which might represent difficult transitions from foraging to farming norms.)


Forager sharing also does not work with, say, housing. Asset-use massively disconnected from asset-care is not good for asset preservation. And housing paid for by others does not encourage the development of asset-care norms. Are the notorious problems of indigenous public housing making more sense now?

But it gets worse. How do prospects for "human capital formation" (i.e. doing well at school) look if everything has to be shared, so quiet space to do homework rarely or never happens? Or anything which evolves delayed pay-offs in cultures which have never had much cause to evolve such norms? Now add in free, no-effort-required, "sit down money" to the free, no-effort-required, housing. Not only are the evolution of norms appropriate to an industrial/post-industrial society frustrated, it is worse than that. The original pay-off-for-effort norms of foraging society are undermined too.

What would one predict from that? Massive social dysfunction, tending to get worse as time marches on. A tendency for norms to (probably rapidly) evolve to rational egoism with short-time horizons since income and housing comes without cooperation or effort.

What we have is massive norm failure. Public policy creating social settings where the evolution of norms appropriate to modern society is blocked and existing effort-and-cooperation norms are undermined or directed to profoundly parasitical behaviour.

Even more basically, prosperous lives in functioning communities with stable families and good life expectancies in decent polities are not the result of material things. They are results of patterns of behaviour, and the underlying cognitive framings, that produce the behaviours which create those things. Said behaviours, and supporting norms, do not just "happen" if income-and-material-things are provided. Dropping the physical consequences of such patterns of behaviour on people do not induce the patterns of behaviour. Worse, since provision of such things creates incentives, the resulting incentives can actively militate against beneficial norms and behaviours; they can actively undermine their development. This has been expressed as Reynolds' Law:

Subsidizing the markers of status doesn’t produce the character traits that result in that status; it undermines them

from a comment by überblogger Glenn Reynolds aka Instapundit:

The government decides to try to increase the middle class by subsidizing things that middle class people have: If middle-class people go to college and own homes, then surely if more people go to college and own homes, we’ll have more middle-class people. But homeownership and college aren’t causes of middle-class status, they’re markers for possessing the kinds of traits — self-discipline, the ability to defer gratification, etc. — that let you enter, and stay, in the middle class. Subsidizing the markers doesn’t produce the traits; if anything, it undermines them.

Referring to the matter as a problem of "character traits" may be great for conservative, middle class righteousness but it lacks social science support. Not to mention any sense of historical change or cultural evolution. Looking at the issue as one of which norms are likely to evolve, or not, and why, is much more productive and does have good social science behind it.

Ironically, talking in terms of "character traits" rather than norms actually tends to underestimate the damage that can be done by badly structured public policy. If it is a matter of character traits, then, at worse, poor public policy is subsidising poor traits and weakening the return from good ones. If, however, it is matter of norms, then the potential exists for public policy to both block things getting better and make things worse through its effect on cognitive framings and the behaviour that flow therefrom. Hence some calls from African economists to stop foreign aid to Africa.

Conspicuous signals
Welfare, indigenous and foreign aid are rather bedevilled by the politics of righteousness, largely due to being high-signalling-but-devalued-consequence policy areas. That is, in these areas good intentions have high salience but the policies are typically directed towards people with low participation in public debate. (Public policy generally has a problem with signalling--which is clear and simple--having greater public debate salience than consequences--which are often indirect and complex--but the imbalance is particularly intense in these issues; as it is in public policy areas affecting groups with diminished or no moral standing.) This makes welfare, indigenous and foreign aid excellent policies for signalling righteousness (or moral vanity, or conspicuous compassion) since the intentions of the policies are very public but their effects much less so. This creates an attractive simplicity: if you are in favour of (preferably) more spending on welfare, indigenous policy and foreign aid, you are a good (that is, righteous) person. If you criticise such policies as ineffectual or counterproductive you are a bad (that is unrighteous) person. After all, you are threatening to take the conspicuously compassionate's signalling toys away from them.


Or else, if you are playing to a different righteousness game, it is just subsidising laziness and other "bad character traits" and, as the late Jesse Helms' famously dismissed foreign aid, pouring money "down a rat hole".
But if we proceed on the basis that people actually matter, so the actual consequences matter, then we can ignore the squeals of conspicuous outrage (or other posturing) and move on.

A further complication is that welfare, indigenous policy and aid bureaucracies have little incentive to explore options that make them redundant. Worse, politicians can have an incentive to keep people welfare-dependent or otherwise limited in opportunities if improved circumstances would increase the likelihood they would vote for their opponents. Or, in the case of indigenous political entrepreneurs, lessen their appeal. Part of the so-called Curley effect (pdf), using taxes and redistributive policies to shape the electorate. The ALP and other centre-left political parties, for example, have an incentive to expand public housing that concentrates their voters, and put them in marginal seats, as a way of increasing their chances in such electorates.[2]

Foreign aid is in even a worse situation than welfare or indigenous policy, given that the recipients are not even potential voters in the donating polities. So, one would expect fairly low (share of total) expenditures with little effective benefit to the alleged recipients, since the main political benefit domestically is the signalling one gets from the intentions, which actively militates against paying serious attention to any negative consequences. Any policy area where there is active pressure against facing failure is going to tend to produce a lot of it.
In other words, these are areas where there are sadly good grounds to have low expectations about policy effectiveness (defined as good for the recipients).

Including not even asking the right questions.

Evolved norms or imposed constraints
Cooperative behaviour (both active--doing things together--and passive--not blocking others) is crucial to achieving positive social outcomes. A society of rational egoists would be poor and nasty. (Postively Hobbesian indeed.)

In the paper on collective action and the evolution of social norms (pdf) first cited above, Elinor Ostrom pointed out that imposing outside rules turns out to be somewhat fraught in encouraging cooperation:

... experimental (as well as field) evidence has accumulated that externally imposed rules tend to "crowd out" endogenous cooperative behaviour ... To the surprise of experimenters, a higher level of cooperation occurred occurred in the control groups [that had not experienced imposed rules], especially for those who communicated on a face-to-face basis. The greater cooperation that had occurred due to the exogenously created incentive-compatible mechanism appeared to be transient. As the authors put it ... the removal of the external mechanism "seemed to undermine subsequent cooperation and leave the control group worse off than in the control group who had played a regular ... prisoner's dilemma."
Several other recent experimental studies have confirmed the notion that external rules and monitoring can crowd out cooperative behaviour. These studies typically find that a social norm, especially in a setting where there is communication between the parties, can work as well or nearly as well at generating cooperative behaviour as an externally imposed set of rules and system of monitoring and sanctioning. Moreover, norms seem to have a certain staying power in encouraging a growth of the desire for cooperative behaviour over time, while cooperation enforced be externally imposed rules can disappear very quickly (p.147; p.12 of the pdf).

Public policy, it's difficult. Particularly when it is effectively attempting to shift people in a single generation through processes of social evolution that took millennia elsewhere. Europeans and East Asians are the fortunate heirs of said millennia of evolution, so are not in a great position to sneer at those who are not.

Even in the case of industrialisation in farming society, we are still talking taking a generation to traverse what the originators took a couple of centuries to work through. Rather more centuries if we mean developing rule of law and responsible government. A point, btw, which also applies to migrants. So policies which undermine the development of productive norms by migrants and their children are particularly problematic, for both them and the host society.

Regarding indigenous policies, one of the more tragic stories I have been told is of a group of indigenous kids from Arnhem Land who were taken to Singapore; apparently the take-away point the organisers were after was that you did not have to be white to be successful. The kids came back to their broken communities and got straight into the glue-sniffing etc, because they were not white and so had no excuse. Realising how very different things can look to the person standing next to you is one of the hardest things in life, let alone public policy. Lots of folk pontificate about cultural difference; rather fewer seriously consider their implications.

Morality, custom and law
A point Ostrom makes in the above paper and elsewhere, supported by lots of field research (particularly in irrigation systems, were locally generated rules tend to manage water resources much more sustainably than those with externally imposed rules), is that the government advantage in rule provision and enforcement is much more limited than is generally realised. Particularly for common resources used by longstanding inter-actors. Worse, attempts to manage common resources--such as fisheries--have been sabotaged by central governments refusing to recognise the local rules and property rights that have evolved to manage the common resource. This has been particularly true of forests, local streams, grazing areas and inshore fisheries in the developing world, often out of a misplaced environmental concern and an inability to recognise the difference between open-access and common-property regimes. Ironically:

When resources that were previously controlled by local participants have been nationalized, state control has usually proved to be less effective and efficient than control by those directly affected, if not disastrous in its consequences (...). The harmful effects of nationalizing forests that had earlier been governed by local user groups have been well documented for Thailand (...), Niger (...), Nepal (...) and India (...). Similar results have occurred in regard to inshore fisheries taken over by the state or national agencies from local control by the inshore fishermen themselves (...).

In looking at norms, how they work, how they arise, what factors effect their evolution, we are in the area where morality shades into custom shades into law. Indeed, in much of the medieval period--particularly early in the medieval period--law basically meant the custom of the area (or "what we remember doing last time this came up"). Nor were laws simply territorial; If a matter came to trial, a traveller might well be asked which set of laws applied to them. We are so used to thinking of law as something that emanates from a central authority, we now longer recognise it when it emerges out of custom, such as local use regimes. (Alternatively, states are determined to defend their monopoly privileges.) Though, in the mid-C19th, the California Supreme Court had the sense to legally recognise what the gold miners themselves had worked out. Native title is also legal recognition of existing custom.

Both of which were the common law returning to its roots. Henry II's attempt to provide royal judges for a kingdom that had Anglo-Saxon law, Danelaw and Norman law, and regional variations thereof, is what led to the development of the common law. Send us all your local laws was the royal request, and his chancery distilled the common bits--hence the commonlaw. Henry's royal justice was competing with both the ecclesiastical courts enforcing canon law (which led to some Beckett unpleasantness) and local manorial and baronial courts. His travelling judges were such a success that the only part of Magna Carta which called for more royal government was the clause insisting on more frequent visits by royal judges.

To call Henry II a law-giver is to underestimate his achievement. He oversaw the creation of a system for generating law; for taking custom, precedent and current experience and producing law. Appropriately, for centuries, the end of his reign was the beginning of time immemorial. About one-third of humanity now lives under full or part common law systems; a system which began operating in a knightly society now copes fine with the space age.

The barons were not so keen on the royal competition with their own courts, but they became quite keen on being able to sue other folk; provided, of course, that no royal judge could do anything to them unless they were found guilty by their peers. Possibly the most famous of the trade-offs in Magna Carta. (The list of trials of peers before the House of Lords makes for racy reading. A highlight being Earl Ferrers who pleaded his own defence on grounds of insanity; a paradoxical approach--he conducted his defence with sufficient ability as to fatally undermine it--that did not save him from the gallows for murder of his steward. Allegedly, he was hung with a silken rope, out of deference for his rank.)

That, in English law, only the holder of the title was noble--so all the rest of their family were legally commoners--affected both the laws and norms of England, since it gave the peerage a strong vested interest in how the law treated commoners. Not the case in, for example, France were all members of a noble house were nobles so lacked incentives to attend to the legal (or other) treatment of commoners. They did, however have strong incentives to insist on their status and privileges, these being increasingly unanchored in genuine responsibilities. So a significant number of the peers of France ended up guillotined while the House of Lords is still with us. (It is even still inspiring emulators; it is a pity that those responsible for post-invasion Iraq and Afghanisgtan did not consider something similar to the Somaliland House of Elders, thereby anchoring their new governments in existing social structures.)

Norms matter
Norms matter; so the incentives that affect their evolution matter. Aid, indigenous and other welfare transfers typically do not generate productive norms. Worse, unearned transfers encourage rational egoism with short-time horizons since they provide payoffs without cooperation or effort. The failures of indigenous policy, of foreign aid, are typically norm failures. They will continue to be failures until they are structured to encourage the evolution of norms that encourage healthy and productive lives, families and communities. Successful lives, families, communities and economies are built on patterns of behaviour and supporting norms; so failure to attend to what does, or does not, encourage the evolution of such norms simply leads to failure. Including making things worse.

[Cross-posted at Skepticlawyer and at Critical Thinking Applied.]

Notes

---

[1] Speaking from personal experience, a narcissist--rational egoists with added self-delusion--can be very much more revealing in email; presumably because they are only channelling themselves, they are not getting any audience feedback, so their-convenience-as-reality-principle gets freer reign. Companies may also want to consider whether private payment structures are such a good idea.

[2] There have also been suggestions that centre-left parties may be using immigration policy to boost the number of supporting voters; in effect, importing voters.

Debt and Boom

The slogan for this post is: don't think debt, think safe assets.

(This post is partly provoked by this post by Paul Krugman responded to by Scott Sumner and by Marcus Nunes.)

In my Debt, Doom and Despair post I noted that a hugely debt-burdened post-Napoleonic Wars UK (where the national public debt was probably about 250% of GDP or about 25 times the revenue of the British government) went on to an amazing surge in population and mass prosperity.  (In fact, by far the most remarkable in all of human history up to that time.)

What if it was not a coincidence? What if the debt burden actually encouraged said surge?  After all, WWII left the British, Australian and US governments all highly indebted (at about 240%, 150% and 120% of GDP respectively) yet all experienced amazing postwar surges in population and prosperity. All surges marked by high rates of productivity increases from expanding technology and global trade.

One's persons debt is another person's asset.What were the British, US and Australian governments doing in running up such huge debts? They were creating a huge level of safe assets, given that none of these three governments have defaulted on their bonds, ever.  One reason why Britain went back on gold in 1925 at the pre-war (over-valued) parity was to "keep faith" with its bondholders.

So, those high levels of public debt were also creating high levels of income from safe assets. If you are, for example, 1815 Britain, and debt is 250% of GDP, then a significant amount of income, compared to total production, is flowing from said safe assets.

Expropriating risk managers
There are two basic things states do: they expropriate and they manage risk. The latter is necessary for the former and goes back to the origins of rulership--dead farmers cannot pay taxes.  In ibn Kaldun's definition, cited and admired by Ernest Gellner, government is:

an institution which prevents injustice other than such as it commits itself.

This the paradox of politics or the paradox of rulership--we need the state to protect us from social predators but the state itself is the most potentially dangerous of social predators. It is a paradox that can never be fixed, only managed more or less well.

One of the tricks of rulership, refined by medieval rulers such as Alfonso IX of Leon, and Edward I of England, is that, if you get consent for your taxation, you can do a higher level of taxation because it lowers the "resistance cost". Democratic welfare states have taken the consent-benefit trade-off up to record levels (for any non-patrimonial or totalitarian polities; i.e. for societies with any free element). Welfarism is the domestic aggrandisement of the expropriating state as imperialism is its external aggrandisement. (One of the ways we can tell that welfarism is, at least in part, an excuse for state aggrandisement is how weakly expenditure is tested against effectiveness in improving social outcomes; conversely if there is less inherent nobility in welfarism than appears, there were also positives in imperialism, albeit at wildly varying levels.)

But the public goods, and latterly welfare, provided by the state in return for implicit or explicit consent for its expropriations are overwhelmingly about risk-management. And risk management is a genuine service. Consider protection of life, person and property; or mitigating the risks of unemployment, sickness, disability, old age.

Balancing risks
For any given level of risk aversion by potential investors, creating a safe income stream raises the risk threshold for further investment. People will be more willing to tolerate higher levels of risk in their other investments.

Such as in highly uncertain investment in new technology. True, that leaves one open to asset booms and busts (pdf). Nevertheless, net economic outcome is likely to be a long term acceleration in productivity (pdf). And the surge in population and prosperity such involves.



[Read the rest at Skepticlawyer or at Critical Thinking Applied.]

Imperialism, it is what rulerships do

I came across (via) this very silly statement:

The very idea of empire was created in ancient Rome ...

That would be news to the Persians, the Chaldeans, the Assyrians, the Babylonians, the Hittites, the Egyptians, the House of Ur, the Gutians, the Akkadians, the ... And that is just the Middle East.

When revenue was based on control of farmers and trade, then imperialism was what all rulerships did to the limits of territory they could control and which generated a positive return. It was about optimising expropriation, both intensively (pdf) and extensively.  What else would one have expected?  It is not possible to understand the history of farming-and-trade rulerships until one understands what a natural feature of rulership imperialism was.

Of course, creating a serious empire was not easy. You had to have the organisational and military power to seize and hold significant territory. So, what you could do, what those around you could do, what the geography was, all mattered. But, within those constraints, imperialism came naturally to farming-and-trade rulerships.

May the best predator win
As river-valley rulerships arose, there tended to be a fairly Darwinian "survival of the fittest" process of expansion and elimination until one rulership dominated a river valley. It was a bit like putting a whole lot of yabbies in a fish tank and leaving them; the stronger predators eat the weaker until you are left with one uber-yabbie or, in this case, uber-rulership. (The post-Roman British Isles displayed a not dissimilar pattern, until the English Crown ruled the lot.) The process could take a long time (from the start of the Kingdom of Wessex to the union of the British Isles under one monarch, about a thousand years, although English absorption of Wales and domination of Ireland predated the full unification by centuries).

As organisational capacities improved, this domination of a river valley could expand until you dominated several river valleys or, in the case of the Roman Empire, an entire sea, their Mare Nostrum("Our Sea"). Empires tended to be river-and-coasts-based because rivers and coasts were where the fertile land was and water transport was a lot cheaper and quicker than land transport--the rough estimate is that water transport was about 15 times cheaper than land transport, so travelling 100km by land was the equivalent of travelling about 1500km by water. Hence, rivers and coasts were where the farming and the trade that rulers expropriated to fund their rulerships were and where control could be maintained.

It is not surprising that the largest (and longest surviving) Empire of the above series was the one that was spectacularly good at road building. But it was still based on a sea.

The exceptions to this coast-and-rivers pattern were the horse-archer empires of Central Eurasia. But they were based on flat plains and lots of horses. Cavalry could easily go 40km in a day, so you could send a cavalry force 1000km in 25 days and couriers much quicker. They also had the Silk Road trade system to manage and exploit.

Problems of empire
All such empires ran into what modern economics calls principal-agent problems, the difficulty of maintaining stable internal control, and organisational advantage problems--those you interacted with learn from you. So, maintaining internal coherence and external effectiveness was a difficult balancing act.

Ibn Khaldun famously set out the pattern for the rise and fall of farming-and-trade rulerships. First, a group bound by common feeling seizes power. Then the ruler separates himself from the original group to entrench his own power. The regime slowly decays as group solidarity fades and corruption (the ruler's agents enriching themselves in ways that undermine the ruler's expropriation) erodes social resilience and regime power. Until the regime finally collapses.

Lest one think this a relic from the past, let's match the most recent Eurasian empire to rise and fall (the Soviet Empire) against the pattern: a group bound by common feeling seizes power (Lenin 1917-1924). The ruler separates himself from the original group to entrench his own power (Stalin 1924-1953). The regime slowly decays as group solidarity fades and corruption erodes social resilience and regime power (Khruschev to Chernenko 1953-1985). Until the regime finally collapses (Gorbachev1985-1991).



[Read the rest at Skepticlawyer or at Critical Thinking Applied.]

The taxman cometh (but only for what he can see)

There have been two great transformations in human affairs. One is the Neolithic Revolution, the transition from foraging to farming. This is a transformation which is still going on, as there are still some foraging groups around the planet (though it is a vanishing way of life). The second is the Industrial Revolution, the shift from reliance on what is produced by land (farming), a factor of production managed but not created by humans, to reliance on factors of production produced by humans, the produced means of production (capital), such that farmers change from being about 80% of the workforce to less than 5%.

Compare and contrast
Both transformations are technological and involve expanded use of energy, setting off dramatic population increases (the second much faster than the first). In the foraging-to-farming transition, humans no longer merely took food from the environment around them; they deliberately grew food. This food was typically storable, so able to cope with variations in food production across the seasons.  Farming both increased the (food) energy to humans and allowed it to be stored for later use, to be actively managed across time. (Hence the very different attitudes to time between foraging and farming cultures.)

Industrialisation used wind, water and (particularly) steam energy to produce things which produced things. Increased agricultural production allowed increased production in general, with expanding sources and use of energy, ushering the creation of, not merely mass prosperity, but increasing mass prosperity. This is in stark contrast for the foraging-farming transition, where it is likely that general standards of living actually fell and, with some exceptions, remained stagnant for thousands of years.

Another contrast is that the foraging-farming transition lead to hierarchical societies with elite-dominated rulerships--whether autocratic, monarchic (i.e. containing powerful noble elites) or deliberative. The last were polities run by elite assemblies, the most democratic of these being some Mediterranean city-states where as much as a third of the adult population got to vote--i.e. male citizens; women, slaves and resident foreigners being excluded. Outside the Mediterranean, assemblies were also important in cities in Lower Mesopotamia and in the kshatriya republics of India. Conversely, with some hiccups, the Industrial Revolution has led to much more broadly-based forms of political life. Another contrast is that the share of output taken by taxation tended to be fairly constant across farming rulerships but has been steadily increasing in modern states.

Why did farming lead to hierarchical societies dominated by controlling elites? The standard answer has been increased production of food led to a surplus above subsistence which allowed a more differentiated society. The problem with this is, why there was any such surplus? Why did not population just increase to consume the surplus? What blocked population increase sufficient to allow the creation of the food surpluses that sustained these elites?

The second problem is, even if there was a food surplus, why did that not just lead to increased specialisation? What happened such that population was blocked from rising to consume the food surplus and that surplus was largely appropriated by a narrow, controlling elite? And, moreover, elites of differing sizes, with different land tenure systems.

Expropriating what you can see
Three Israeli economists have produced a paper (pdf) which provides an elegant answer. Their argument is that the key element is transparency; both in stored food and in expected production. Food had to be stored across the seasons, which made it more vulnerable to expropriation. In their words:


[Read the rest at Skepticlawyer.]

Suffer the little children: the burden of culture

A description of what confronted a Commonwealth officer in the Northern Territory during the Pacific War (1941-5), when thousands of service personnel passed through the Northern Territory:

… once you introduced a European or Asian father any child of that liaison had any rights as an Aboriginal extinguished at birth. They were not classed as Aboriginal people by the Aborigines …
… the Aboriginal midwives were well aware of the problems that could exist through a woman have a half cast[e] child and in this respect particularly in the Centre where Aboriginal children were born over a hole in the ground where a fire had been lit and when the child was born green leaves were thrown on the first so the child was smoked at birth. Also if the child was of light colour the Aboriginal midwives just grabbed a handful of ashes out of the fire and placed it over the nose and mouth of the child so that the child didn’t live. The child was then taken away from the camp area and buried 99% of the time under a small ant hill. This was just levered up with a yam stick and the body placed underneath and then put back in place and the area swept so that no one could tell where it was or anything else.

The author apparently made two attempts to give evidence to Sir Ronald Wilson’s Bring Them Home enquiry, and was both times refused. (Like the report’s use of the word ‘genocide’, Sir Ronald later publicly admitted that was a mistake.)

While the narrative of celebrity achievement is a universal exception, as an Older and Wiser friend of mine has pointed out, there are two permitted narratives about indigenous Australians among what Judith Brett calls ‘the moral middle class’: victims or Noble Savages. Which narrative does the above fit? And if neither, why is there anything morally righteous about writing those nameless, culturally euthanized children out of history?

Fetishising indigenous cultures is not remotely the same as understanding them. And, without understanding, what is moral judgement worth? Indeed, what is moral about wilful blindness?

Forager constraints

Hunter-gatherer desert cultures have to deal with an enormously constricting environment. There has to be a brutal pragmatism about such cultures if those who live according to their precepts are going to survive from generation to generation; let alone for thousands, indeed tens of thousands, of years.

Hunter-gatherer—that is foraging—cultures have to control fertility: a control which has to all the more strict the more constraining the surrounding environment is. Children are burdens, having to be carried and fed, to be taken on with due care.
A process whereby young girls are married to older men, and their widows are married to young men, transfers knowledge between the generations, commits the younger to support the older, and keeps fertility rates down. It is functional in an environment where not being functional means starvation.

Strictly controlling who can marry whom provides genetic protection, embeds children in a protective network and binds folk together in known patterns. Cultural selection when the non-functional means starvation selects brutally for what works.

Mixed parentage children had no place and no place means an unsupportable burden. The rules that led to the above behaviour make perfect sense under the constraints of desert foraging. Twins, for example, would be culled for the same reason.

Of course, even in the 1940s, those constraints no longer operated. But the culture had not yet shifted. It did later; once non-Aboriginal partners were seen as not-forbidden, instead of not-permitted, mixed-parentage children became much more acceptable.

The culture fetish

But this is where the fetishing of culture comes in. Cultural practices and outlooks that make perfect sense under the constraints of desert foraging make none at all in a society of industrial (or even post-industrial) prosperity. If the welfare of indigenous Australians is the measure, then their cultures must change. If fetishising them as noble savages with morally pristine cultures is what folk are about, then dysfunction is an embarrassing reality which indigenous Australians-as-victims can be invoked to hide from.

[Read the rest at Skepticlawyer.]

It's transactions, stupid

If you had to do everything yourself (feed yourself, clothe yourself, shelter yourself), you would be very much poorer than you are now. The ability to specialise and the ability to access resources beyond your immediate vicinity enormously increases your resource use possibilities.

(This, btw, is why "food miles" is such utter crap. It is just a revamping of the late C19th/early C20th "local food" movement. As it was back then, it is richer folk sneering at the only way lower income folk can get cheap food.)

The ability to specialise and to access resources beyond your immediate vicinity relies on transactions. The easier it is to transact, the greater the resource use possibilities. Which is why reduction in transaction costs has been such a key feature in the evolution of mass prosperity. Institutional structures which generate lower transaction costs have tended to be advantaged over those that generate higher transaction costs. More transactions, more resource use possibilities, mean greater social capacity and higher levels of general prosperity.

The trouble is, blocking certain sorts of transactions can be a great way to create or defend privilege. Various forms of social mercantilism restrict the ability to transact, or the ease of transacting, to favoured groups: such as requiring (expensive or time-consuming) official permission. Latin America, for example, has long been bedevilled by that sort of social mercantilism. As has the Middle East (pdf). Such social mercantilism both generates jobs for officials (and possible bribe income) and allows some groups to be advantaged over others.

One sees the same privileging by restricting the ability to transact in many European labour markets: hence high unemployment rates, particularly among young workers. This is a particularly severe problem in Spain.

This is a game that generates problems, particularly for welfare states. Not only does restricting the ability to transact lower the level of economic activity, thereby decreasing the revenue for government; it also increases the reliance on welfare services, raising the expenses for government. Sure, public employment and welfare dependence can be a voter-and-activist base, but one runs into problems of sustainability.

The success of the Australian public policy model has been crucially based on making transacting easier and targeting welfare more precisely, creating a far more sustainable welfare state. A low tax, low debt, low unemployment, high income growth, high low-income growth, public policy model.

Central to this success has been macroeconomic stability founded in a clear monetary policy target. The target is an average of 2-3% inflation over the business cycle. That means that, if output surges, the Reserve Bank (RBA) tightens policy; if output falls away, the RBA loosens policy. In other words, using the MV = Py equation, if y [output] surges, the RBA puts downward pressure on P [prices]; if y falls away, the RBA eases so that growth in P increases.

In other words, the RBA acts to stabiliise growth in Py (or GDP in money terms: i.e. NGDP). Which means it stabilises growth in spending, hence income (since income is just someone else's spending). Stable income growth means a higher transaction path.

Money is a transaction good. In Australia, monetary policy encourages stable growth in transactions. Monetary policy thus allows money to perform its function of being used in transactions, based on stable expectations of income growth.

The RBA does not treat minimising growth in P as the only thing to worry about. In particular, it does not play games with expectations; it does not suddenly shift its intended growth rate in P without telling folk, as the US Federal Reserve [Fed] disastrously did. Nor does it regard driving down income growth to keep growth in P low good policy, as the European Central Bank did, creating the European income, and thus debt, crisis. In Australia, money supply reacts to changes in money demand so as to keep stable growth in income by providing a stable framework for expectations about future income.

Which makes it a lot easier to keep public debt down, since income growth is relatively stable.

What is undermining European welfare states, particularly in Mediterranean economies, is a double "whammy". First, structural failures which restrict the ability to transact (and so the number of transactions); putting downward pressure on government revenue and upward pressure on expenditure. Second, monetary policy failure; so that preserving the "value" of the Euro is regarded as much more important than the level of its actual use in transactions. The mindset which declares the value of money is more important than its level of use.

To summarise the failure of European policy (and the failures of the Fed): it's transactions, stupid. And to summarise the success of Australian policy: it's transactions, of course.

Indeed, the greatest failures of Australian policy are in indigenous policy (with massive social failure in indigenous communities) and land use policy (creating way over-priced [pdf] housing). In both cases, restrictions on transacting are at the heart of the failure. Really, it's transactions, stupid.

Cultural panic and the economics of riots

Striking events such as the recent England riots provide opportunities for all sorts of attempts to “explain” the events (in this case riots) in terms of whatever “cultural panic” framings one finds congenial.

Fortunately, riot and civil unrest has been the subject of some quantitative social science, which allow us to develop analysis based on actual empirical evidence.

Economists Jacopo Ponticelli and Hans-Joachim Voth have produced a paper (pdf) on whether fiscal austerity (i.e. budget cuts) lead to social unrest, examining the European evidence from 1919 onwards. The short answer is they do find quite a strong connection between budget cuts and riots and other form of civil unrest. Tax increases have little connection to civil unrest, but budget cuts do, independent of other changes in GDP. They also find, unsurprisingly, that a propensity to civil unrest is associated with higher levels of public debt. Given other evidence that budget cuts have little association with loss of votes, their suggestion that expenditure is higher to buy social peace seems plausible.

There is, however, an interesting complication in that the effect disappears from the late 1980s onward: in other words, the period of the “Great Moderation” in economics and the collapse of the Soviet bloc in 1989-91. That they find that strongly democratic societies (where there are considerable restraints on the executive) show less propensity to riot and civil unrest give reasons why the latter might matter.

They also find that strong levels of media penetration are not associated with increased civil unrest. So, standard “cultural panic” explanations such as de-regulation/“neoliberalism”; high levels of welfare spending; mass media are all “contra-indicated”, as social analysts say. (A useful summary and short discussion of their findings is here.)

Also contra-indicated, it would appear, is the fiscal austerity explanation as the connection disappears from the late 1980s onwards. That, however, OECD countries generally have experienced the biggest collapse in nominal spending since the 1930s, a return to 1930s conditions might lead to a return to 1930s patterns, given that the authors find a strong connection between budget cuts and civil unrest across the rest of the period. Though fiscal austerity was clearly not the only (or even dominant) cause of civil unrest.

The Ponticelli and Voth paper seeks to answer the question: “what connection, if any, is there between fiscal austerity and civil unrest?” and deals only with European cases. A paper (pdf) covering a much wider range of cases, and testing standard economic explanations of riots, was produced in 1994 by economists Denise DiPasquale and Edward L. Glaesar (i.e. after the 1992 L.A. riots): Glaesar has a sensible opinion piece based on their findings here.

They find (completely unsurprisingly) that riots are urban phenomena associated with higher levels of urbanization. (In particular, bigger cities are at more risk.) They also find that ethnic diversity and high levels of unemployment are associated with riots while homeownership makes them less likely to occur but does not affect their intensity once they start.

Lacking a job or not owning a home obviously gives folk less to lose from rioting while concentrated populations are more likely to achieve the necessary "critical mass" of people who believe they can “get away with it”. The Ponticelli and Voth finding that budget cuts do have a connection to civil unrest, but tax increases do not, fits in with the DiPasquale and Glaesar findings concerning unemployment and homeownership. Basically, the sort of people not inclined to riot—employed homeowners—pay taxes while the sort of people much more inclined to riot—unemployed renters—receive government expenditure.

The ethnic diversity effect fits in with Robert Putnam’s findings that ethnic/cultural diversity lowers social trust. An effect likely to be particularly strong if ethnic group A is, in effect, policing ethnic group B (e.g. a predominantly white police force policing a black area): an incident of perceived police brutality is a classic riot-triggering event.

DiPasquale and Glaesar found that migration and poverty are not associated with rioting, though lower GDP per capita countries are more likely to have riots (presumably because there are more people with less to lose). Dictatorships are less likely to have riots: which suggests that the Ponticelli and Voth finding about fiscal austerity not leading to civil unrest in Europe since the late 1980s is less about the spread of democracy and more about general economic conditions. (There may also have been less funding and activist support for causing trouble in non-communist states.)

None of this “proves” why a particular set of riots happen. But they are highly suggestive. What they suggest is that the 2011 English riots are classic ethnic-diversity, unemployment and police failure riots: a combination which is easily enough on its own to explain why the riots occurred when and where they did.