Sunday, November 30, 2014

States and gangs

Having previously defined the state as (a structure of) systematic coercion requiring hierarchy to operate and revenues to sustain itself extracted from a given territory, an obvious question is: what about criminal gangs? They engage in systematic coercion, have a hierarchy which they use to extract revenue to sustain themselves from a given territory.

One objection might be that criminal gangs do not have a "territory" in quite the same sense. They extract income from individual acts of coercion within a given region rather than being "sovereign" over a specific territory. Sovereign as defined by the 1933 Montevideo Convention, which adopted the declarative theory of the state as:
a person in international law with 1) a defined territory; 2) a permanent population; 3) a government and 4) a capacity to enter into relations with other states.
as a community which consists of a territory and a population subject to an organized political authority; that such a state is characterized by sovereignty.
Which means a lot is resting on the notion of government or political authority, as gangs can have territories, even in a strongly exclusory sense. For example, the Swedish police have released a map of 55 "no-go" areas (via). (In France, they are known as Sensitive Urban ZonesZones Urbaines Sensibles or ZUS.) If the armed organs of the state cannot operate in specific areas, said areas might be within the official boundaries of the state, but not its effective authority. That would appear to rest with whatever gang is dominant in a given "no-go" area.
State authority contested.

There is likely some notion of legitimacy lurking in the above definitions to distinguish a state from, say, a criminal gang, but legitimacy is a dubious descriptive concept. Is the state just a criminal gang with pretensions?

In a sense, yes. Both derive revenue fundamentally from coercion, from expropriation. Both are exercises in domination, nicely characterised by political scientist Xavier Marquez as:
asymmetrical relations where one party (“the dominant”) has an incentive to prevent the other party (“the dominated”) from exiting the relationship or meaningfully altering its terms, i.e., from resisting it, while the other party has a contrary incentive.
But state and gang engage in domination on rather different scales. A criminal gang is about personal status and profit, often highly localised; there is little or no serious pretensions beyond that. A state claims authority in a much "thicker" sense. It might operate at its core as a protection racket ("pay us, or bad things will happen to you") but states make larger, and very public, claims, when criminal gangs typically don't bother. On the contrary, gangs operate much more in the shadows. Indeed, the more openly gangs operate, the more compromised the authority of the state--for, if the authority of the state was not sufficiently compromised, being too public just makes the gang members targets of state sanctions. 

Which does point to the ways in which states and gangs are competitors. Criminal gangs flourish particularly strongly when the state declares a range of (continuing) transactions as being illegal--i.e. not covered by the normal property rights enforcement and adjudication services of the state--such as prostitution, gambling, drugs. Gangs move into to provide such goods and services and have to provide their own property rights protection and mediation services, backed by private violence. Gangs are then providers of property rights protection and mediation services that the state refuses to provide. Thus they can also operate in areas the state does not bother with (e.g. Latin American shanty towns) or does so too incompetently (e.g. Bangalore property rights).

Creating disorder
So, by banning a range of continuing transactions (or being too lax or incompetent to deal with them effectively), the state creates social disorder into which competitors move. Which is the wider point made in James Q. Wilson and George L. Kelling's 1982 "Broken Windows" essay: subtitled, revealingly, "Police and neighbourhood safety"--that enforcement of social order is not merely a matter of law:
Though the police can obviously make arrests whenever a gang member breaks the law, a gang can form, recruit, and congregate without breaking the law. And only a tiny fraction of gang-related crimes can be solved by an arrest; thus, if an arrest is the only recourse for the police, the residents' fears will go unassuaged. The police will soon feel helpless, and the residents will again believe that the police "do nothing." What the police in fact do is to chase known gang members out of the [housing] project. In the words of one officer, "We kick ass." Project residents both know and approve of this. The tacit police-citizen alliance in the project is reinforced by the police view that the cops and the gangs are the two rival sources of power in the area, and that the gangs are not going to win.
The state and gangs as competitors becomes very explicit in such circumstances.

But rather localised competitors. Which is part of the problem--the comfortable can largely ignore the consequences of policies they do not have to live with. So the Swedish police publish their map of "no-go" areas and it just disappears into the ether, since that (largely Muslim) migration to Sweden has resulted in such intense (if highly localised) social disorder is too confronting to progressivist comfort to deal with. The Baptist-and-bootlegger de facto alliance operated much the same way, as does the modern "war on drugs" equivalent.

Being public
States need public effectiveness, for if authority is going to "scale up" beyond the narrow and personalised intimidation of the criminal gang, habitual obedience is required to make the state work. Both within the hierarchy of the state and the wider populace. The notions of government and political authority used in the above definitions of a sovereign state incorporate a notion of sufficient control generating habitual obedience. But very public control and very public habitual obedience. 

Hence the importance of signalling for systematic coercive power. The more publicly a gang operates, the more it signals its power. The more people are surrounded by effective signals of state authority, the more habitual obedience is likely to be. Hence the aforementioned "broken windows" theory of crime. Hence also the "cosmological bluster" (to use James C Scott's lovely phrase) of states, expressed in stone, ritual and public discourse. States require habitual obedience over much wider territory and areas of life than does a criminal gang.

Exit, resistance and voice
The dangers to such habitual obedience are exit, resistance and voice--ways of coordinating against state activities and authority. Not necessarily exit from the territory of the state--European states exported large numbers of people in the C19th without losing authority. The dangers are rather exit from its authority within its territory and public denial or contesting of its authority; either as a political community (the wish to secede: as seems a factor in the Swedish and French cases mentioned above) or as a current regime.

Leninist states famously attempted to block exit. While widespread wish to leave did undermine the cosmological bluster of such states--that they were the golden path to the future--at least as important an issue was the loss of people to expropriate from; given the level of expropriation such states engaged in. Hence, for example, East Germany "selling" people to West Germany. 
A wall to keep people in.

Leninist regimes also typically seek to drown out any alternative voices in public social space. Less total regimes are usually content with merely "pruning" the public social space.

So, the main difference between the state and a criminal gang is the scale of the operation of the state. Unless, of course, the state acts to broaden the benefits it provides. Which, of course, modern democratic states do. Indeed, the point of elections and representation is precisely to get the state to do that.

Which can then provide a strong positive-social-standing effect to what the state does, and does not do. For good or ill. The "war on drugs" and the "fight against crime" provide cover for noxious withdrawal of state coverage of transactions and inadequate police accountability respectively, to take topical examples. 

Community, state and regime
There is also some ambiguity between political community/society, state and regime. Partisan feeling can generate widely varying attitudes to particular office holders or governments. In the US, conservatives tend to be strongly attached to the US as a society & political community, but be rather more dubious about aspects of the American state. Conversely, progressives tend to be more positive about a wider range of aspects of the American state, but rather less enamoured of the US as a society & political community. 

The belief that the state can reduce "sin" in society has done much to increase the level of crime and the ambit of the state's localised competitors, criminal gangs. Fear of said crime in a highly armed community has done much to undermine police accountability in the US. A bit more scepticism about what the state can do in stopping "sin" would go a fair way to reducing crime.

Ironically, it is the failure to extend basic operations of the state to a range of continuing transactions that gives its localised competitors such revenue opportunities and expands the ambit of crime, including theft and violence. Less hubris about what can be achieved and more coverage would work rather better. 

[Cross-posted at Skepticlawyer.]

Tuesday, November 25, 2014

Origins of the state

The state is systematic coercion requiring hierarchy to operate and revenues to sustain itself extracted from a given territory. The development of farming does not, of itself, create the preconditions for the development of the state, apart from requiring the storing of food across seasons (and so able-to-be-expropriated). Indeed, the first wave of proto-cities rose and fell without creating states.

Foraging society strongly tends towards egalitarian norms, as sharing of food within the band lowers the risks of variability in garnering food. So, plants--gathered by child-minding women, with low day-to-day variability--tend to be shared within the family. Meat--hunted by men, with high day-to-day variability--tended to be shared within the band. It was possible, though not common, to have foraging inequality, if prestige could be parlayed into control of productive assets (such as large fishing canoes, particular inlets), possession of ritual knowledge, or other levers of social inequality.
Çatalhöyük: settlement without streets or public spaces.

Farming, as it started and spread from the Fertile Crescent, was originally hoe-based, thus largely women's work, as hoe-based farming can be done while child-minding. The men hunted and later herded, the women farmed. There was no inherent reason to shift away from egalitarian norms and beliefs. But the larger population led to the development of substantial permanent settlements, which persisted for centuries or even millennia, and then collapsed. Settlements which were physically structured in a way that did not reflect any apparent social hierarchy. 

It has been suggested that such settlements failed because the belief system could not longer sustain them (pdf). But it had for many generations. It is more likely that some new factor destabilised the social arrangements, leading to the abandonment of the concentrated settlements. Otherwise, they would more likely have simply reached an upper limit and plateaued in size.

One factor could be climate change: the productivity of the region declined. Though there is apparently no correlation between a drop in regional surges and collapses in population in Europe and climatic conditions.

A possible disrupting factor could be pastoralist raiders; disrupting the productivity of the region. This has been suggested as reason for the collapse of "Old Europe", the farming settlements of the Danube valley. 

The disruptive plough
A third possible factor could be the introduction of the plough, disrupting the social logic of the egalitarian settlements. The earliest evidence of ploughs in the the Levant is in the 6th millennia BC, or around 8-7,000 years BP (Before Present), which is around the time in which the first wave of urban settlements in the region drop dramatically in size.

Ploughs have two effects--they increase the productivity of farmers and they concentrate farming in the hands of males. More productivity means (1) more people, (2) more possibility for social differentiation, (3) a more sizeable possible extracted surplus. Moreover, ploughing is men's work--both because of the greater grip and upper body strength required and, more crucially, as it is not compatible with childminding. As neither is animal herding, that leads to a male monopoly of the major productive assets and, as a consequence, male domination of public social space. 

Suddenly, family relations become much more hierarchical. Hierarchical families provide easier support for wider social hierarchy: ploughs predate the first states. Contradiction between the egalitarian social logic which originally sustained the first wave of urban settlements--manifested in their physical construction--and the new logic of male domination of productive assets, and so public social space, could have been so disruptive as to lead to the abandonment of the first wave of concentrated settlements--which reflected, and were associated with, the previous social logic--and dispersal into new villages, which could now reflect physically the new social logic. Possibly helped by the plough increasing the land area which could be cultivated. A social logic that had not yet developed the means to support larger aggregations of population.
Hierarchical Uruk

When sizeable settlements arise again, they are both significantly larger in population--they are undoubtedly cities--and physically reflect much more hierarchical social arrangements. Including explicit physical public spaces, which Çatalhöyük, the largest of the earlier settlements, had entirely lacked--it had no streets, one went from house to house via roofs.

Hierarchical families, based on unequal gender relations, may well make the generation and acceptance of wider social hierarchy more acceptable, but that is hardly enough in itself to generate states. Though the larger populations, higher individual productivity and capacity for social differentiation from the plough created a much larger possibility for the creation of states.

Conflict and coercion
Which comes back to states being coercive: so the obvious path for the creation of coercive structures large and coherent enough to be called "states" is via inter-group conflict. Specialist warriors (or at least war-leaders) arise to block raids. That creates the basis for a coercive hierarchy, which can then extract a surplus: since farming on its own merely supports more babies and some increased specialisation, so it takes expropriation to create a significant surplus. The bigger the area controlled, the more effectively raids can be countered. So an upward process of building a coercive surplus-extracting hierarchy is created, whereby outside pressure provides crucial motivation for key stages in the process of state-building, turning what would otherwise be a "chicken-and-egg" problem of how to get the hierarchy to extract the surplus to support the hierarchy into a more interactive feedback process which spirals into state building.

There would be an element of experimenting involved, trying things to see what works. And the process would be aided if hereditary elites could be established, as genuine state-building is likely to be a multi-generational process.

Those pastoralists again
If conflict occurs across an ecological frontier--that is, a persistent division in ways of life which militate against unification across said frontier; as, for example, between farming and pastoralism--then a mutual spiralling up could occur. A chief aggregates villages to block raids, so the nomads gang together to manage bigger raids, which encourages even more aggregation of farming villages. And so it goes. If the farmers have a big enough hinterland, a large agrarian empire could be created. If the pastoralists have a big enough steppe, a large pastoralist empire could also be created. Which is Peter Turchin's model for the creation of large agrarian empires (pdf).
Pharaoh dealing with the vile Kush.

A process which incorporates state-building, but such empires need not be the end result of any particular state. Once we have hierarchical family structures, the logic of hierarchy has a point of origin; a point to rest the social lever to leverage into ever greater hierarchy until we end up with ancient autocrats disposing of huge social surpluses largely created by the process of extraction: since farming on its own merely supports more babies and some increased specialisation. It was required to have (1) persistent conflict; (2) the notion that one person could control (a) productive assets that others do not and (b) other people; and (3) enough accessible production to support the required surplus. Indeed, monumentalism is a rational pattern in such autocracies, since a continual series of autocrat-controlled labour service projects signals, manifests and preserves the authority of the autocrat. Still, having all three conditions for long enough was sufficiently rare that states still took centuries or millennia to evolve, and only in a fairly small number of locations.
State territory in 1837.

Once the trick was known, the creation of states spread. But as late as the first half of the C19th, large sections of territory were outside effective state power, or even claimed authority, because the necessary conditions had never applied--either long enough or at all. Up until at least the C15th, states had never controlled more than a minority of inhabited territories. And, for millennia, only relatively small proportions of inhabited territory.

American exceptions?
The Americas did generate states from hoe-based farming. Only in a few regions and much later than in Afro-Eurasia (the Monte Alban polity of the Zapotec in central Mexico around 100BC, the Moche of the Andes around 100AD and the Classical Maya of Guatemala around 250AD) eventually leading to the Aztec, Incan and late Mayan civilisations the Spanish conquistadors encountered and destroyed. The Americas also had unusually productive hoe-based agriculture via maize, potatoes and a wide range of vegetables. They had (1) persistent conflict; (2) the notion that one person could control (a) productive assets that others do not and (b) other people; and (3) enough accessible production to support the required surplus. They just did it without the plough.
State territory in 1453.

It also seems to have been done with relatively balanced gender roles. Women could typically own property and divorce, often had a significant role in farming, dominated cloth and feather production, were priestesses, local merchants and (occasionally) rulers--though the most common instances were Mayan royal women acting as temporary regents for male relatives.

Warriors and war-leaders were male, while rulers were strongly predominantly male. So key aspects of state-building were male-dominated.

Herd animals played much less role in American societies than in Afro-Eurasia, being limited to some domestication of deer in Mesoamerica and the llamas and alpacas in the Andes region. The lack of herd animals likely encouraged a hunting mode of warfare, where a central aim was the capture of slaves and sacrifices. In particular, the limited availability of herd animals, especially in Mesoamerica, also probably encouraged the widespread use of human sacrifice (where the sacrificed were also eaten: we might call them protein wars), which may have had an intensifying effect on conflict; remembering that war is a great device for social differentiation. While acceptance of slavery brings together control of productive assets and control of others.
State territory in 500.

So, state-building (and even empire-building) was possible without the plough or pastoralists, it just apparently took longer. Lacking the higher productivity, stronger gender imbalance and quicker social differentiation that ploughs produced or the spiralling-up effect of farmer-pastoralist conflict.

Herding ironies
So, the existence of substantial herd animals in Afro-Eurasia, hence balancing the roles of hunting-herding males with hoe-farming women, meant the development of very egalitarian proto-cities. Yet the existence of the same herd animals led to the development of the plough, unequal gender relations, pastoralist raiders and then a relatively quick path to states.

The much lower significance of herd animals in the Americas led--especially in Mesoamerica--to human sacrifice, with the intensification of conflict that implies, a hunting mode of warfare, yet rather more even gender relations and a slower path to the state.

This also suggests answers to two puzzles of Ancient Egypt: (1) why were gender relations in Pharaonic Egypt unusually even? and (2) why did Egypt move in the shortest known period from farming to territorial state? The answer to the latter is because farming arrived after the plough had been developed and production along the Nile was very "transparent" to observers (pdf): the plough had the increased productivity noted above while accurate expropriation was unusually easy.

The answer to the former is; because production was so transparent and based on irrigation managed at the village level (pdf), there was no private ownership of land, which meant male ploughing was simply a task, not a basis for gender-differentiated asset ownership. Nor was there any large-scale pastoralism in the Black Land--that was left to folk such as the wretched Kush (aka the vile Kush). So men did what men did, women did what women did and neither dominated productive assets, leading to relatively even gender relations.

Expropriation games
Karl Wittfogel's theory of hydraulic civilisation got things the wrong way around. It was not management of irrigation that provided a basis for state power--irrigation was managed at very local levels. Irrigation provided the basis for easier expropriation, with the highly observable (i.e. transparent) irrigated productivity of the Nile (with its regular inundations) making for particularly easy and thorough expropriation. The ability to expropriate drives the state: the more absolute the expropriation, the more absolute the state. States where expropriation is based on active bargaining are a rather different beast, but the only developed in a few places and were, for most of the history of human states, odd outliers. 
Don't worry, Pharaoh's watching.

Leninism's development of the totally expropriating state was profoundly atavistic. So atavistic that, as I have noted before (here and here) the Soviet Union managed to pass through ibn Khaldun's state cycle in a single life time.

Lenin famously claimed that communism was socialism + electricity. Actually, it was an attempted return to the origins of the state + electricity. But bargaining states had let loose technological dynamism on the world, and mere expropriation was no longer the cutting edge in organising societies. The gap between Leninist pretension and economic reality became de-stabilisingly obvious. So, we have collapsed Leninist regimes or societies with notionally Leninist ruling regimes ruling very not-totalitarian societies or, in the case of North Korea, a regime that has embraced its atavism. History is how the present was created, but only provides understanding if we accurately grasp that history.

[Cross-posted at Skepticlawyer.]

Wednesday, November 19, 2014

Atavism error

What is the most atavistic state on the planet?

That would be the Democratic People's Republic of Korea (DPRK), aka North Korea. It is a state of hereditary God-kings using a hierarchy of officials and soldiers to extract resources from a poverty-stricken population. And a system of God-Kings extracting resources from poverty-struck mass populations harks back centuries and millennia in human history. Though the system North Korea most resembles is that which evolved in Sung China (907-1279) and replicated under Ming (1384-1644) and Qing China (1644-1911) of hereditary ruler ruling through a meritorious bureaucracy over labour-service-and-tax-paying peasants. Except, as a command economy, rather than sitting "on top" of society as the mandarin state (mostly) did, the North Korean state effectively subsumes society.
Public acts of worship of departed God-kings.

Nor does it make much sense not to call the ruling dynasty of North Korea God-kings. Since the first ruler of the Kim Dynasty is the eternal President, and the second the eternal General Secretary, what would we call them other than God-Kings?

There is, of course, a huge irony in North Korea being the most atavistic state on the planet, since it is a product of Leninism, which regarded itself as the end of history; the culmination of hunan social political and economic understanding. How can such a vicious irony occur?

Getting the state wrong
From a series of errors embedded in Marxism, mainly in understanding the state. Historically states are:
(1) originally based on exploitation
(2) fundamental moulders of human society.

Leninism is a derivation of Marxism, and Marxism treats exploitation as a product of capitalist commerce and states as a epiphenomenon of society. So, if one gets rid of capitalist commerce, one gets rid of exploitation.
Qin Shi Huang and subjects:
Everyone ultimately worked for the ancient autocrat.

Nor is it the state one has to worry about; in Marxism the state is a tool of class interests. So, as long as the state proclaims itself to be a servant of the "correct" class, then social developments are on the correct path, no matter how powerful the state gets.

But states are not epiphenomena of society: a fact most obviously displayed in the history of Leninism itself, where state power was used to hugely remould societies. Moreover, states are the prime vehicles for exploitation of humans by their fellow humans. Indeed, genuine exploitation is always based on unbalanced coercion. That is, coercion which is used against one group for the benefit of another. And the state is, almost always, the most effective instrument of coercion, hence the most effective vehicle of exploitation.

Exploitative origins of the state
In its origins, the state is an instrument of exploitation. Perhaps the most striking single feature of Western civilisation is that it creates states which are not primarily vehicles of exploitation. Ironically, it was the very distinctiveness of Western states which encouraged Marx to be so wrong about the state--observing states which were actively responsive to their societies, he took the wildly abnormal as the normal and generalised from that.

[I rather like Deidre McCloskey's view of Marx:
... the greatest social scientist of the nineteenth century, without compare, though mistaken on almost every substantive point, and especially in his predictions ...
Actually, it is productive labour which counts:
not the same thing at all.
But he was attempting to generalise from C19th Europe; in so many ways, the most wildly anomalous place and time in human history up to that time, bar none.]

Farming societies do not automatically produce hierarchy or surpluses--the extra food produced mainly goes into producing babies and supporting some increased specialisation. What farming does is create extractable food--since food has to be stored across seasons. So, once the trick is managed of creating a controlled hierarchy able to systematically extract food, then a substantial surplus is created.
Look what I can do with all that extracted surplus.

It generally took thousands of years to evolve the state (centuries in the case of Upper Egypt), because it took that long to get the combination of farming density and social hierarchy able to resolve the "chicken-and-egg" (or perhaps non-linear feedback) problem of sufficient-surpluses-created-through-extraction able to sustain a system of extraction-that-created-sufficient-surpluses.

Thus Marxism's blindness about both the nature of exploitation and the nature of the state lead directly to--in its revolutionary form--the creation of exploitative tyrannies. Hence the path from Marx's mistakes to the creation of the most atavistic state on the planet.

Ideas do indeed have consequences. Including mistaken ideas--indeed, perhaps especially mistaken ideas.

[Cross-posted at Skepticlawyer.]

Monday, November 17, 2014

A regulatory wrinkle from rational expectations

The rational expectations hypothesis can be understood in various ways. One is as an equilibrium condition in a model--the model is in equilibrium when expectations of agents in the model align with the predictions of the model (though that does not mean it is a stable equilibrium). Another is that expectations of agents within the model should not be set differently from the predictions of the model without justification. That is, rational expectations is the default available-information-is-used hypothesis.*

One of Arnold Kling's recurring points in his useful and enlightening analysis of the 2008 Financial Crisis, Not What They Had in Mind, is that the regulators were not systematically cleverer than the banks and other financial institutions. That, on the contrary, both the regulators and the regulated tended to share beliefs about risk, prospects, etc. Of course, why would we expect them to do otherwise? They had access to much the same information and were using essentially the same analytical tools--given that analytical tools are part of information. (Indeed, to the extent there were differences in access to information, market participants would be likely to be better informed than regulators.)

The convergence in information and expectations was (and can be expected to be) of a somewhat interactive nature, as much of the information was created as a response to the regulations. I don't mean "made up" (though there was some of that; but where there is wealth to be had, fraud is always a potential issue). I mean that information was created both to conform to the regulations and as a result of the regulations. 

Discretionary convergences
So, does not discretionary regulation have a rational expectations problem? On what basis do we expect the expectations of the regulators to be usefully systematically different from the expectations of the regulated about market conditions? If we have no basis to expect them to be usefully systematically different about (for example) risks--and surely we do not--why do we have discretionary regulation?

One response might be: but regulators and regulated have different incentives. Well, yes; but why does that make a difference if they still have converging expectations? And creating a difference by having the regulators be significantly less informed about market conditions than participants hardly seems a desirable way to discourage expectations convergence. (Having them be systematically better informed is not a plausible situation if markets are even weakly information efficient.)

The US political system is particularly prone to creating discretionary regulations, because delegating regulatory activity to specific agencies allows more "responsive" regulation (i.e. it does not have to fight its way through Congress), because it creates someone for Congress to blame (they can distance themselves from negative political fall out) and because it permits more use of "expert" knowledge to "fill in the blanks" of legislation that is more likely to pass if it has useful ambiguity, leaving areas open to later (lobbying and) decision. 

If we at least pretend that the point of regulation is good public policy (rather than creating politically useful externalities), given this converging expectations difficulty, what is required for socially-beneficial regulation is for differing incentives to usefully create different reactions even though regulator and regulated are likely to have the same expectations about, for example, risks.

What makes this even more problematic is that, as Kling points out, financial regulatory regimes in particular are not stable:
It turns out that financial regulation is not like a math problem, which can be solved once and stays solved. Instead, financial regulation is like a chess game, in which moves and counter-moves proceed continually, eventually changing the board in ways that players have not anticipated.
A great deal of financial innovation is aimed at what Kling calls "regulatory arbitrage"--getting around regulatory constraints. So, any given regulatory regime is inherently prone to becoming increasingly detached from the actual structure of financial markets even as those structures will be significantly affected by said regulatory regime. In such circumstances, as Kling notes, regulations become ways, not so much of stopping the last crisis, as helping to create the next one.

And expecting regulators to react usefully to the changes when they will have the much same expectations as those they are regulating seems, to put it mildly, a big ask. 

So, there seems to be a rational expectations problem with discretionary regulation, particularly in financial markets.

Broad bargains
If you are really going to get around the converging expectations problem, then the incentives difference has to be maximised without enlarging the gap between market participants and regulators about market conditions--i.e. not increasing the degree to which regulators are less informed than market participants. Such can be done by making sure that--to continue with the case of banking and financial markets--the "game of bank bargains" is played in as broad a bargaining process as possible. That is, minimise the likelihood of the interests of significant groups either not being considered or being discounted. Which is another mark against discretionary regulation, because that has a fundamental tendency towards being framed by those most involved; hence the whole regulatory capture problem.

So, is your financial regulation bargain broadly or narrowly based? If it is the latter, then converging expectations (and incentives) between regulator and regulated are not likely to result in a socially-beneficial regulatory regime; and the more said regulatory bargain relies on discretionary regulation, the more that is so.

A point, by the way, that applies to bureaucratic approval processes generally. Especially when we realise that regulatory capture is not solely a feature of regulated firms, but can apply to well-organised/well-connected interests generally. Land use regulations are classic examples of that.

Broad-based bargaining producing general rules which are transparent would seem the way to go. Any system which ultimately relies on the regulators having different expectations about market circumstances than the regulated has a problem. Given that the more informed the regulators are, the more convergence in expectations is to be expected--while generating different expectations by regulators being less informed is hardly desirable--rather more scepticism about regulatory structures (especially discretionary regulatory structures) than seems generally evident seems sensible. If the point is good public policy.

Arnold Kling's suggestion of trying to have a financial system which is easier to fix rather than harder to break also seems to be worth considering.

* Economising on information and cognitive effort would presumably be what you would base any divergence in agent  expectations from model predictions on.

[Cross-posted at Skepticlawyer.]

Thursday, November 13, 2014

The three ages of Western history summarised

In the Ancient period, the dominant ideal was to ennoble life (to seek glory).

In the Medieval period, the dominant ideal was to sanctify life (to seek salvation).

In the Modern era, the dominant ideal is to expand life (to live long and prosper).

The ideal of the previous era never entirely dies, but becomes part of the cognitive context in which the later ideal operates. 

These thoughts struck me while reading Pierre Manent's The Metamorphoses of the City: On the Western Dynamic. A book I found alternatively intriguing and frustrating.

The Ancient period generated both the aristocratic-heroic notion of seeking glory and the philosophical notion of seeking knowing virtue. These are both hierarchical notions of meaning and purpose in life. In a different way, so is seeking salvation. It may be open to all, but it is a journey Godwards, so a journey metaphysically upwards, towards the highest point in the "great chain of being".

Social framing
In the Greek polis there is the participation in the city-community and glory within (and beyond) it. From the persuasion, disputation and rhetoric of polis politics came the philosophers, who came to seek a universal wisdom and virtue. The Jewish idea was to follow God, but was not a universal idea, it was a matter of being the Chosen People.

Then along comes Christianity, which marries the universalism of the philosophers to the God-focus of the Jews within the rule of a city (Rome) that had become a quasi-universal law-for-all Empire; an Empire that was both the apotheosis and the stagnation of the Classical World.

The collapse of the Western Roman Empire and the triumph of Christian universalism creates the medieval world of Latin Christendom. But that universalism breaks apart in the Reformation and the Wars of Religion--the aspiration and claim remains, but the experienced reality becomes very different.

Meanwhile, the Scientific Revolution produces a universalism of truth. But that is not a hierarchical notion in the same way--it may seek to winnow out truthful understanding from misleading dross, but it is outward-looking rather than upward-directed.

Along comes the Enlightenment; a reaction against murderous and hugely destructive religious strife, but a re-engagement with philosophy and Classical thought inspired by the burgeoning success of science. This in a society where the aristocratic ideal had been re-invigorated as one of leadership in military and political life along with patronage and appreciation of art and culture.

Political revolutions
The Parliamentary tradition coming out of medieval history gets a commercial re-invigoration with the Glorious Revolution and again, with more of a Classical gloss, in the American Revolution. While both were grounded in claims about the British tradition, the already somewhat multi-ethnic American colonies began to articulate more universal notions--most notably in the Declaration of Independence:
We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness.--That to secure these rights, Governments are instituted among Men, deriving their just powers from the consent of the governed, --That whenever any Form of Government becomes destructive of these ends, it is the Right of the People to alter or to abolish it, and to institute new Government, laying its foundation on such principles and organizing its powers in such form, as to them shall seem most likely to effect their Safety and Happiness.
Though the US Constitution stressed commonality rather than universality:
We the People of the United States, in Order to form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defence, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity, do ordain and establish this Constitution for the United States of America.
The Revolution which talked rather more in terms of universality was the French Revolution and those that descended from it. Or, as it was put in the Declaration of the Rights of Man and Citizen (pdf):
The representatives of the French People, formed into a National Assembly, considering ignorance, forgetfulness or contempt of the rights of man to be the only causes of public misfortunes and the corruption of Governments, have resolved to set forth, in a solemn Declaration, the natural, unalienable and sacred rights of man ...  
Article first: Men are born and remain free and equal in rights. Social distinctions may be based only on considerations of the common good.  
Article 2: The aim of every political association is the preservation of the natural and imprescriptible rights of Man. These rights are Liberty, Property, Safety and Resistance to Oppression. 
The French Revolution became based on the politics of virtue which led, of course, straight to the politics of the guillotine. For virtue can not be negotiated over, it can only be adhered to, or not; and to be the "enemy" of virtue is to be the enemy of humanity.

Hannah Arendt once asked why folk so often ignored the American Revolution, which succeeded, but extolled the French Revolution, which failed. A major reason is that intellectuals and academics--typically not being responsible for anything except their own work--have not much to contribute to the politics of negotiating liberty. But they can define "virtue" more easily than anyone else while being--precisely due to that lack of responsibility--far more "virtuous" than anyone else. So, of course, they find the politics of virtue so attractive.
Judged to be insufficiently virtuous

Moreover, in societies where commercial interests were relatively weak, revolutionary activity was much more likely to be grounded in the intelligentsia than in the sort of propertied folk who drove the  Glorious and American Revolutions. Hence the sad litany of failed "Revolutions of Virtue", with their tyrannies and mass murders.

Mass politics
As the Industrial Revolution got underway, and revenue and politics became so much about the capital/labour ratio (where capital is the produced means of production)--rather than, as it had been before, the land/labour constraint (with a trade-in-luxury-goods add-on)--the Western world led the world into an age of mass politics.

Mass politics in its universalist forms being the politics of humanity. But, as Manent asks, how do you define humanity? A much more fraught issue than it might appear. What of past generations? What of future ones? Do we accept that everything with a human face is human? Or "fully" or "properly" human. (Lots of people don't accept that; not really.) Are the vast majority of people even, in any real sense, visible to us?
Poland partitioned between the
and the Radical Enlightenment

The struggle between the Sceptical Enlightenment (of negotiated liberty); the Radical Enlightenment (of a humanity made virtuous); and the Counter-Enlightenment (extolling the particular) flows directly out of the fraught politics of humanity (and the reactions to it). The Dictators' War (1939-1945) was all about that struggle, which saw the defeat of the Third Reich; the state which personified the Counter-Enlightenment. Just as the Cold War was about the struggle between the Sceptical and Radical Enlightenments, as personified in their two Revolutionary super-states--the USA and the USSR.
Sceptical v Radical Enlightenment

Contemporary confusions
The triumph of the Sceptical Enlightenment, with the collapse of the Soviet Empire and China's switch to "socialism with Chinese features" (i.e. capitalism), was supposed to be the End of History. But the ideas of the Counter-Enlightenment resonated with the Islamic revival (its own form of the politics of virtue) to produce the jihadi movement while Euroskepticism and Putin have come along to remind us that the Counter-Enlightenment's extolling of the particular can still have appeal. Often for quite understandable reasons.

The jihadis confound us; not only because religious motives (such as clearly expressed here as mass killing following the example of the Prophet) are mysterious to our overwhelmingly secular intelligentsia and commenters, but also because the goal of virtuous harmony seems very Radical Enlightenment, but the jihadis particularist atavism is much more like the Counter Enlightenment in its most violent form. Or, as Algerian journalist Mohamed Sifaoui puts it:
the Muslim fundamentalists are our extreme right.
Expatriate Algerian activist Marie-Aimee Helie-Lucas expressed a similar sentiment back in 1993:
Islamic fundamentalism is not a religious movement, it is a political movement. It is the extreme right wing using religion as a cover. Yes, it is a populist movement, which therefore gives it legitimacy. But we should never forget that Hitler was a populist. Hitler was elected. It is the Fascism of today.
The jihadis are especially confounding for Western progressives, as they fit really not at all into the oppressed-oppressor narrative of progressivist politics--they are non-Westerners (so inherently "oppressed") but seek to be oppressors (up to, and including, being slave-owners [pdf]).  All this mostly within the confounding complexity of the Middle East (though a complexity not so different than Europe during, say, the Thirty Years War, but with extra unfamiliarity).

So, not quite the end of history. But not quite not, either. Democracy--the politics of the sovereign people--is still the overwhelmingly preferred political system in polls around the world (including the Islamic world). The Emancipation Sequence--the politics of common humanity--has proved to be a somewhat exportable product. Violence continues its long-term decline, albeit with some upward spikes.

The paradox of politics--that we need the state to product us from social predators but the state itself is the most dangerous social predator--was never going to go away. But the framing of that paradox has changed profoundly; and overwhelmingly for the better.

[Cross-posted at Skepticlawyer.]

Tuesday, November 11, 2014

How do you keep an exploited state socialist economy going?

You sell people you don't want (via):
East Germany's economy was in free fall. Many skilled workers and intellectuals had fled and the Soviet Union was stripping the country of its resources. By 1964 the fiscal situation had become so dire that the authorities developed a scheme to sell political prisoners to West Germany. They called it haeftlingsfreikauf.
"Between 1964 and 1989 some 33,755 political prisoners and 250,000 of their relatives were sold to West Germany, for a sum totalling 3.5bn Deutschmarks," says historian and author, Andreas Apelt.
"Both sides had an interest in the business - the GDR because it needed Western currency and the West because it wanted to save people from the inhumane prisons of the GDR."
Prisoners were also traded for commodities such as coffee, copper and oil.
Meanwhile, in Venezuela, the government has decreed that folk will have a merry, price-controlled Christmas (via):
The doors opened on Monday, November 3, at 5 a.m. local time, and more than 600 people entered the store to shop at government-issued prices. Military officers monitored the sales, limiting customers to three items per person, and only one item of each kind.
Customers complained about the store’s lack of inventory, especially the shortage of popular dolls. By Wednesday, all Barbie dolls and Max Steel toys sold at the regulated price were sold out in all eight General Import stores.
Let's hear it for the spirit of Christmas. What's worse than highly commercialised Christmas? The state-controlled alternative.

ADDENDA: If you are North Korea, you can go into exporting state slaves as construction workers.

[Cross-posted at Skepticlawyer.]

Saturday, November 8, 2014

Swift justice

Evening of May 11, 1812: broker John Bellingham shot and killed Prime Minister Spencer Perceval in the lobby of the House of Commons.

May 15, 1812: John Bellingham tried at the Old Bailey.  A claim of insanity was not accepted.

May 18, 1812: John Bellingham was hanged by the neck until dead.

No mucking about in those days.

[Cross-posted at Skepticlawyer.]

Friday, November 7, 2014

Never reason from a static coalition

From the Great Depression election of 1930 to the Contract with America election of 1994--so a period of 64 years--the US House of Representatives had a Republican majority for precisely 4 years (two terms): 1947-49, 1953-1955, the terms of Speaker Joseph William Martin Jnr.

Since the Contract with America election, the only non-Republican Speaker has been Nancy Pelosi (2007-11). So, after having a US House of Representatives majority for 4 years out of 64, the Republican Party has since had a majority for 16 out of 20: a majority confirmed, indeed increased, in the recent midterm elections, with the Republicans achieving their largest majority since 1928. [Or, at a State level, since 1920: with the Democrats down to Civil War levels of (lack of) State control.] Suggests that shifts in the electorate have been heading the Republican's way.

Density, diversity and Democrats
Yet, it is very easy to find analyses which will tell you that long-term demographic trends are working against the Republican Party. One of the more striking such analyses is a population density analysis by Baltimore entrepreneur-blogger Dave Troy. With a couple of striking graphs, he points out (in a November 2012 post) that, once population density in a county hits 800 per square mile, it votes Democrat; with such voting increasing the more population density does. Indeed, as density also means diversity, it correlates strongly with racial residence patterns--except it apparently only takes 3% Asian population or 9% Hispanic population to trigger Democrat majorities at a county level. Hence, he concludes that
The real drivers seem to be density and diversity. Density (such as found in cities) corresponds with diversity. Diversity leads to progressive voting behaviour.
The Atlantic magazine took up this theme in a November 2012 article, that the US political divide was a rural-urban one:
The new political divide is a stark division between cities and what remains of the countryside. Not just some cities and some rural areas, either -- virtually every major city (100,000-plus population) in the United States of America has a different outlook from the less populous areas that are closest to it. The difference is no longer about where people live, it's about how people live: in spread-out, open, low-density privacy -- or amid rough-and-tumble, in-your-face population density and diverse communities that enforce a lower-common denominator of tolerance among inhabitants.  
The voting data suggest that people don't make cities liberal -- cities make people liberal.
This divide is how things are trending:
This divide between blue city and red countryside has been growing for some time. Since 1984, more and more of America's major cities have voted blue each year, culminating in 2012, when 27 out of the nation's 30 most populous cities voted Democratic. According to Dave Leip's Atlas of U.S. Presidential Elections and The New York Times, the 2012 election marked the fourth time in the last five federal election cycles that voters shifted away from the party of the sitting president. Despite that constant churn, one part of the electoral map has become a crystal clear constant. Cities, year by year, have become drenched in more blue. Everywhere else is that much more red.
For years, this continues: Urban and rural counties jostling with a small pool of counties which go back and forth every couple of elections. There's no real realignment, just a constant tug of war as the nation grows further divided.
Now, if density and diversity favour the Democratic Party, has the US got more or less densely populated and diverse since, say 1994? Especially compared to, say 1932-1993? Even since 1984? And how has the Republican Party done in House of Representatives seats in that time, worse or better?

One sees the little problem: identify that density and diversity favour the Democrats, note that the US is becoming more densely populated and diverse, and conclude the Republicans are on a long-term losing wicket. Dave Troy warns so, in his original post:
Red state values are simply incompatible with density.
Only subsidized suburban housing and fuel prices are insulating the United States from this global trend, and even with these artificial bulwarks, there is no good reason to think that America’s future lies in low-density development. 
Density is efficient. Density produces maximum economic output. An America that is not built fundamentally on density and efficiency is not competitive or sustainable. And a Republican party that requires America to grow inefficiently will become extinct. 
While the Republican party is retooling in the desert, it should carefully consider whether its primary issue is identity politics or whether its platform is simply not compatible with the global urban future. If that’s the case, an Hispanic candidate running on the same old Republican platform will simply not resonate. The Republican party must develop a city-friendly platform to survive. 
Cities are the future and we need candidates from both parties that understand that reality.
OK, so he is warning about the future, rather than simply consigning the Republican Party to long-term loser status. Still, there is a paradox here: density and diversity favour the Democrats according to a rural Republican v urban Democrat division which has been becoming more and more entrenched since 1984 in a US that has been becoming more diverse and more densely populated, yet the Republican Party has been having its most electorally successful period in close to 90 years. 

Yes, there are some (re)districting issues, but that does not get you very far at all in explaining the apparently contradictory pattern of "hostile" demographics yet Republican electoral success.

I would suggest a more basic issue: in a two-Party system, both Parties are effectively coalitions of interests and groups. In a highly competitive two-Party system, they are dynamic coalitions. Even with a rural-urban divide, there is nothing magical about 800 people per square mile. Push the "crossover" number up a bit to, say, 850 people per square mile, and the Republican vote goes up significantly. Push it down to, say 750 people per square mile, and the Democratic vote goes up significantly. 

So, if Republicans soft-pedal cultural issues which are working against them and start talking about poverty, equal pay, income inequality and black disadvantage (their Senate majority now includes South Carolina's first black Senator since Reconstruction), then the cross-over point can shift--in their favour. [The Republicans made gains in all demographic groups.] That is how two-Party systems work, in genuinely competitive environments.

Yes, of course demographic changes are of interest--but they are of interest in how electoral contests will be framed, not (in genuinely competitive systems) as permanent predictors of winners. Which, if that is the point Troy was trying to make, is a good one. But don't buy into "Party X is doomed because [insert demographic trend here]". It is simply not how competitive two-Party systems work.

Oh, and what does the Party of an unpopular President doing madly in second term midterms tell you about the prospects for 2016? Essentially, nothing.

[Cross-posted at Skepticlawyer.]