War and peace, order and chaos

We think of the World Wars of the C20th as being unprecedented in their death tolls. That is not true in either total deaths or, still less, death rates.

While the 1939-45 War did have the largest death toll of any war in history, the 1914-19 War does not come second. When one considers the huge increase in population the Industrial Revolution unleashed, they are both well down list in death rates; mostly due to starvation and disease not taking the proportional toll it did in previous major conflicts. The increase in technology -- in productivity, in transport capacity, in administrative capacity, in knowledge of disease and medicine -- created much more robust social orders.

We can see this quite clearly in these estimates of China's population over time (via). While the estimates are subject to all sorts of doubts about level and amplitudes, the pattern is likely broadly correct.

As a new dynasty imposes order on China, the population surges as people have more surviving children due to the expansion in farming production.

If that order breaks down, the population plummets (even taking into account shrinkage of official ability to take censuses) due to starvation and disease as the land people are able to reliably cultivate shrinks. The effect is increased as agriculture is an across-seasons activity and so more vulnerable to disruption.

Hence the supreme importance agrarian societies generally, and China in particular, have usually put on preserving social (and divine) order.

As heirs of millennia of monotheism, it is natural for Westerners to think of the (moral) universe in good-versus-evil terms. A perspective that likely dates back to Zoroaster, who historian Norman Cohn argued was its originator. But there is an older perspective that dates back to the beginning of farming societies and which still pervades Asian perspectives.

That is of order-versus-chaos. When things are ordered (both on earth, and in what the heavens provide -- rain, fertility-renewing floods), then the crops can be cultivated and planted, families get fed, children survive.

If chaos strikes, if order is lost, all that is imperilled. In a very direct and literal sense.

The ancient Egyptians -- running a complex society dependant on the Nile flooding regularly -- had the concept of maat or order. The ancient Mesopotamian religions clearly had a similar perspective of order versus chaos; creation is the construction of order out of chaos.

If order is the supreme social goal, then actions are justified according to how much they preserve, restore or extend social (and divine) order. The historical Chinese notion that if someone committed a sufficiently severe crime, then you killed their entire family, makes perfect sense in this context. That family had failed in its duty to defend order; it had proved itself a source of disorder and needed to be eliminated so that order could be preserved.

This order-versus-chaos perspective can also lead to a more limited notion of law. If families are supposed to take care of their own, and the family will be punished if its fails to do so, then the realm of law can be much more limited. The historical Chinese notion of law as "instructions given to officials" fits in with an order-versus-chaos perspective. You only do enough law to maintain order. Particularly given the lack of a priestly role in law, so no need to separate the righteous from the unrighteous, the "clean" from the "unclean". Being simply a guardian of order is a much less expansive role than being a gatekeeper of righteousness.

This perspective of there being delinquent families is alive and well in the operation of the North Korean police state (pdf), for example.

Of course, Leninism is a particularly intense version of the politics of salvation, so the full deal can be deeply concerned with controlling just about all aspects of life -- as was true in Maoist China and is still true in North Korea under the Kim Family Regime. But the more Leninism becomes a social game to signal acceptance of ruling authority (pdf), the more law in post-Leninist Asian societies is likely to shrink back to its more conventional role of whatever is needed to maintain order.

Which makes the apparent spread of Christianity in China a disturbing development for the emerging social order there. (Islam is a much smaller in numbers and much more connected to border problems.) Importing a strong good-versus-evil perspective does not sit well with "keep order, and that's enough". The regime's apparent interest in promoting a revival of Confucianism -- very much an order-versus-chaos worldview -- makes a great deal of sense in such a context, beyond Confucianism being indigenous Han in origins and so lacking any implied foreign connections or loyalties.

But just looking at that graph makes the deep Chinese fear of disorder make perfect sense.

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

A startling development

One of the things that has been strongly associated with the modern age is for increasing life expectancies.

So, it is startling to discover that life expectancies for low-educated whites in the US are declining.

It is apparently not clear why, but the effect is clear, particularly for low-educated white women:

The steepest declines were for white women without a high school diploma, who lost five years of life between 1990 and 2008, said S. Jay Olshansky, a public health professor at the University of Illinois at Chicago and the lead investigator on the study, published last month in Health Affairs. By 2008, life expectancy for black women without a high school diploma had surpassed that of white women of the same education level, the study found.

I have always scoffed at suggestions about how "unhealthy" modern living was on the basis of increasing life expectancies.  Clearly, the story is now more complicated.

Complexity strikes

One of the frustrating things about trying to have an intelligent debate about matters Islamic is the tendency to simplistic polarisation.  One is the "nothing to see here" version, where raising any concern about trends within Islam and Muslim communities is dismissed as alarmist and likely racist or otherwise bigoted. Any concern or suggestion motivated by same is immediately reconstrued so as to fit into the latter framing.

While I get that this is all about displaying conspicuous virtue, it is also childish and stupid. Both because it is closing one's eyes to real issues and because it leaves the public debate open to being dominated by more extreme views who get credence precisely because they are the only people apparently willing to talk about genuine problems.

Problems such as what journalist Michael J. Totten well-characterises as the terrorists' veto (over free speech).  Part of the massive sense of entitlement that belief in the One God often generates; a sense of entitlement that, in contemporary Islam, repeatedly degenerates into murder. A sense of entitlement both generated and inflamed for reasons of power and authority.

More mundanely, it generates claims against ordinary legal processes and decorum, such as refusing to stand when the judge enters. That Appeals Court threw out all but the first contempt of court conviction on the ground of seeking a "least disruptive" way of maintaining order; which implicitly does generate special claims over normal procedure. (Which then becomes grist for claims of creeping Sharia.)

The second form of simplistic polarisation is the "it is just Islam" approach where Islam is treated as a monolithic thing incapable of evolution or variety. This flies in the face of history and evidence. For example, this study (pdf) which found that anti-Americanism was far more connected to elite competition within Islamic countries than Islamic piety.

An excellent example of such complexity recently occurred in Benghazi where a large angry mob of protestors stormed a militia headquarters; anger apparently sparked by the attack on the US consulate in Benghazi which killed the US Ambassador.  

There has been a wave of hostility towards the militias since US Ambassador Christopher Stevens and three others Americans died in last week's attack on the Benghazi consulate.

"I don't want to see armed men wearing Afghani-style clothes stopping me in the street to give me orders, I only want to see people in uniform," said university student Omar Mohammed, who took part in the takeover of the Ansar al-Sharia compound.

Many Libyans have expressed outrage at the attack on the US consulate. Ansar al-Sharia denies being behind it.

"Angry Muslim mob storms militia HQ in outrage over attack in US consulate" does not quite fit into the "it is just Islam" simplicities.

Of course, as one commenter notes here: 

Intimidating a town that faced down Qaddafi's entire army would be a Herculean task.

Also, it was Qaddafi's murderous threats to Benghazi which prompted the NATO intervention in the first place. 

As political scientist Walter Russell Mead points out in this useful short essay, the complexities of the Middle East have been a constant trial for the US since the days of President Jefferson. He provides a cautionary summary:

Since Thomas Jefferson’s original unhappy encounter with the ambassador of the Barbary States, the U.S. has suffered one setback and disappointment in the Middle East after another. Our good intentions have often gone awry and we seem to sow dragons’ teeth no matter what we do. Yet at the same time, the United States has managed through thick and thin to advance and defend our core interests in the region and over time, some core American values have gained a tenuous foothold. In the Middle East, the United States has a record of failing forward.

It is not a particularly glorious or inspiring track record, but no outside power has done better.

More broadly, it is the lack of simplicities which makes the issues surrounding Islam and Muslim migration so complicated and resorting to self-congratulatory simplicities (in either direction) is the opposite of a useful response.

Dark Satanic Mills

And did those feet in ancient time.
Walk upon Englands mountains green:
And was the holy Lamb of God,
On Englands pleasant pastures seen!
And did the Countenance Divine,
Shine forth upon our clouded hills?
And was Jerusalem builded here,
Among these dark Satanic Mills?

Since Blake's poem is clearly invoking the legend that Joseph of Arimathea came to Britain -- indeed even brought a young Jesus with him on an earlier visit -- the popular reading of the "dark Satanic Mills" as being the factories of the early Industrial Revolution does not make a great deal of sense.

The brooding monuments of Britain's pagan past make more historical sense, particularly as there is even sketch evidence from Blake's papers.

Oxford and Cambridge is another possibility.

Hanging markers of humiliation

One of the less pleasant sights of Melbourne is sneakers tied together and hanging from overhead wires.


These are trophies of some kid being jumped on, his or her sneakers removed and tossed where they cannot get them back. The hanging trophies of persecution can remain for weeks or even months, an enduring reminder of humiliation.

Kids can be horrid.

Thoughts on wage stickiness

Based on a comment I made here.



Nominal wage stickiness is about contracts being written in nominal terms. But, given heterogeneous consumption/investment bundles/preferences, how else could contracts plausibly be written?  Money is not only a (largely "the") transaction good, it is, in effect, the common language of transaction and so of contract -- hence a sort of "network" effect of being the unit, indeed medium, of account where your income contract is tied into your expenditure contracts.

Given utilities and debt contracts are also in the same "language", and given we are social beings very concerned with status and standing (our notions of fairness are often about status while a strong element in bargaining is not losing "standing" for future interactions), there are powerful reasons for wage stickiness. Even when one hires new workers.

Possibly, in earlier times, when many industrial workers were ex-agrarian workers and used to rising and lowering prices for products across seasons, wage flexibility was more acceptable.  But once we got plugged into debt, utilities, etc; not nearly so much.

Something obscurantist this way comes

I recently had the unexpected experience of reading a book that appalled me; this is not a reaction I can remember having to a book before.

The book has a title I agree with: Ideas Have Consequences. Regarded as a classic text of  postwar American conservatism, the book is a long jeremiad at the corruption of culture and social life stemming from the nominalism of William of Ockham (him of Occam's Razor).

I have no problem with someone finding things to admire in medieval society and thought. But the notion that the passage of human history has, since the C14th, been a story of decline is such appalling nonsense that I am stunned any intelligent person can offer it seriously.

The Wikipedia entry on the author, Richard Weaver, tells us that he was both a Platonist and a defender of Southern culture. The former brings to mind Etienne Gilson's observations about Platonism in his The Unity of Philosophical Experience:

Begotten in us by things themselves, concepts are born reformers that never lose touch with reality. Pure ideas, on the other hand, are born within the mind and from the mind, not as an intellectual expression of what is, but as models, or patterns, of what ought to be: hence they are born revolutionists. And this is the reason Aristotle and Aristotelians write books on politics, whereas Plato and Platonists always write Utopias (Pp54-5).

Extending that point, as Gilson says, in his God and Philosophy:

Truly to be means to be immaterial, immutable, necessary and intelligible. That is precisely what Plato calls Ideas. (p.24)

Naturally, if ideas are so wonderful, then they are more “real” than mere transitory people: to have a “true grasp” of such wonderful ideas gives on a status far beyond that of ordinary mortals. Platonic Guardians here we come. Hence the politics of “my ideas are more important than people”. Not merely in the sense of ways of making people lives better, but in the sense of disregarding the actual consequences of one's ideas for people, of requiring people to conform to the ideas.

Willful blindness has consequences
Ideas Have Consequences does not argue, so much as assert; often in such rotund generalities that following how, if at all, it connects to reality is somewhat murky, to put it politely. There is a deep hankering for a sense of lost certainty that Weaver seems to believe reached some apotheosis in the C13th and began to be lost from the C14th onwards. For someone so clearly steeped in Western culture, Weaver has a remarkably poor sense of history. Far from being accidental, this poor sense of history appears to be necessary to protect his particular sensibility.

This hankering for lost certainties pervades the work, as in comments such as:

But the Symbolists retained a Romantic's interest in the intimate and in the individual, with the result that their symbols came not from some ideology universally accepted but from experiences almost private (p.82).

The notion that art based on private experience is somehow decadent or otherwise problematic is based on a conception of people as problem. The work is pervaded by a sensibility deeply reminiscent of Dostoyevsky's Grand Inquisitor; people have to be controlled and moulded by their betters -- particularly in their beliefs. As when Weaver asks whether literacy has value (p.94), holding that truth can only be effectively conveyed by personal teaching (thereby limiting it to the elite with the leisure to undertake it). Obscurantism as self-satisfaction is not a pretty sight.

But this distrust of people goes with the horror of nominalism, for what would encourage a sense of the power of the particular more than taking people -- in all their variety of experience and sensibility -- seriously? Weaver again and again denounces manifestations of modern life as egotism and manifestations of a "spoiled child psychology". Yet, behind the jeremiad seems to be a disappointed scion of a culture fallen on hard times who resents that the modern world took his social toys away.

Naturally, he hates newspapers, radio, cinema, the mass technology of communication (Pp93ff); not for him Jefferson's preference of newspapers without government over government without newspapers. We are offered the banal observation that the great works of intellect are better than journalism (Pp98-9).

Naturally, Weaver also hates Jazz (Pp85ff); holds that music has been in decline since Beethoven while Impressionism is a similar sign of the degeneration of art (Pp83ff).

The book's sensibility rests on a frozen concept of social order and a hostility to cultural difference and the range of human experience. Weaver may be steeped in Western culture, but he has remarkably little sense of other cultures (which, of course, then limits his sense of his own). When he suggests that the growth of landscape painting as a sign of a loss of sense of divinity (p.88), do the rich traditions of Chinese and Japanese landscape paintings make this at all a sensible judgement?

This deeply limited sense of the past leads to a poor sense of the present, and of future prospects. Thus, the growth of democracy rather contradicts his expectations of despotism (p.91) and he is deaf to any sense of the genuine moral progress that Pinker has documented. He is blind to experience beyond that of the cultured, and privileged, Western male. So, for example, he appears utterly unaware of the imposed nature of female subordination (p.178) in what he regards as their "natural" role.

Weaver dislikes machines -- he is clearly unaware of the medieval fascination with them. He offers a ludicrously metaphysical analysis of the Great Depression and responses to it (p.144).

But this sense of loss certainties is itself deeply ahistorical. That, for example, Aquinas's thought was seriously controversial when it first appeared seems to pass him by. To the extent there were social certainties, they were certitudes based in part on ignorance and often defended by brutality.

For any serious outbreak of new knowledge and capacity encourages nominalism as previous verities and categories are exposed as inadequate. Nominalism was as natural a result of the expansion in knowledge of the natural world and technological possibilities in the C12th Renaissance as it was to the Hellenistic Scientific Revolution or to the expansion in knowledge from C16th global exploration and the second Scientific Revolution it kicked off. Nominalism, breaking things down to specific manifestations, is a way of absorbing the new information and reconstructing categories better able to handle them. This is also why becoming a nexus civilisation -- a civilisation newly connected to a range of other cultures -- so regularly leads to artistic and intellectual flowerings; it is a positive effect of the shock of the new.

If the previous conceptualisations were such eternal verities, further knowledge and experience would confirm them.  The problem is that expansion in knowledge and experience repeatedly undermined them.  For such verities and categories are creations of particular historical circumstances and rely on exclusions and ignorance to make them seem unchallengeable. The more limited and specific experience/available information, the easier certainty is because the more constrained one's experience of possibilities.

But there are also consequences for moral sensibilities and social possibilities from expanded knowledge and capacities. As the background constraints change, so do the possibilities and interactions we want to protect. Moral perspectives and social possibilities change according to constraints, possibilities and conceptions. There is nothing surprising about this.

Credence but not authority
The book encapsulates, in a particularly intense form, the difference between giving credence to the past and giving it authority. Far from being the same thing, they are, to a large degree, opposites (or, at least, antinomies). For to give authority to the past is to fail to give it full credence. To give authority to the past is choose which parts of it to give credence to. It is to impose a congenially selective sense of significance on it.

For example, how many of those opposing current claims to equal protection of the law -- often on the basis of defending tradition -- are beneficiaries of previous decisions that mere persistence through time is not enough? Traditions are not eternal things, they are responses to circumstances. Those responses might have been broadly based, or they might be exercises in social power. If we cannot revisit how and why they evolved, we attempt to make history the permanent possession of a given set of victors.

Due to the cognitive limitations of the human mind, reality is always going to be more complex than what the mind can grasp. The problem comes when the human mind insists on reality as conforming to those simplicities it finds congenial. The alleged respect for the past and experience usually conceals a willful refusal to inquire into the realities of that past and what experience counts, or does not.

As I have noted before, conservatives turn out to be regularly very bad at learning from history. They tend to idolise the past in much the same way that progressives idolise the future. They are just different ways of ignoring and discounting human experiences, of sacrificing giving credence to the past in order to selectively give it authority (positively or negatively).

Not that the progressivist-modernist approach of giving the past negative authority is any improvement. On the contrary, the more such a view is taken, the more disastrous and oppressive the results are likely to be, as it gives little or no credence to the past, thereby making current theory the only reference point while cutting off from consideration warnings and achievements from past experience. (Consider the way Leninism utterly disregards millennia of experience of the problems of political power.) The modernist impulse has been vastly destructive.
A form of destruction that Platonist worship of ideas feeds. Consider the society in Plato's Republic; is it not profoundly modernist, profoundly based on imposing a theory on human possibilities with pervasive discounting of past experience and institutional learning?

But obscurantism and modernism are not our only choices, no matter how much politics tends to devolve into Bagehot's stupid party versus silly party. Grounding our ideas in human experience -- all of it -- is a great barrier to sacrificing people to ideas.

Ideas do have consequences, and Weaver's massive discounting of human experience in the service of the authority of a past so selectively considered as to be a grotesque work of fiction is no way to understand the past, the present or prospects for the future. Weaver's book may have helped kick off postwar American conservatism but it is also a window into its flaws and limitations.

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

Nordic, schmordic

So, Tim Worstall has invoked the recurring fascination of Anglosphere progressivists of various stripes with adapting the Nordic model to Anglo societies (in his case, the US).

It is a very bad idea.

A recent report (pdf) by Swedish-Kurdish economist Nima Sanandaji, whose Tino brother runs the excellent -- and very empirical -- Super-Economy blog, goes into considerable detail why, for the report provides some revealing comparisons with the US as it the examines the sources of Swedish success (or not).

For example, Swedish-Americans have a 50% higher per capita income than Swedes but (using American benchmarks) the same poverty rate as Sweden (p.21). So, this "natural experiment" suggests that the American model is better for Swedes than the Swedish model is.

One reason for the better performance is that Sweden had no net private sector job creation from 1950 to 2010.  All employment growth was in the public sector, while the overall employment/population ratio fell (p.14).

The American model is also better for migrants than the Swedish model.  In the words of the report (p.27):

Between 1993 and 2000, the income from work for the average Iranian immigrant was only 61 per cent of that of a native Swede and that of the average Turkish immigrant 74 per cent (...). This contrasts with the situation in the USA. According to the US Census for 2000, those born in Iran had an income that was 136 per cent of the average for native-born residents, compared with 114 per cent for those born in Turkey (US Census, 2000). Clearly, similar groups of immigrants had very different opportunities in the USA compared with Sweden.

The lack of private sector job creation would go a long way towards explaining why migrants generally do much better in the US than they do in Sweden.


The report points out that Sweden was a highly successful society before the expansion of the welfare state, with high rates of economic growth and low levels of income inequality.  The expanded "Swedish model" degraded Sweden's relative economic performance, in part through the suppression of entrepreneurship. The dramatic drop in the creation of new businesses has seen entrenchment of very unequal wealth distribution (more so than the US).

The expanded welfare state has also seen increases in wealth (and income) inequality in recent decades due to welfare dependent households that do not save and often have negative or zero assets (p.20). Migration has also increased inequality.

Sweden was a successful society because it had good institutions, with strong social cohesion and high levels of trust. It has remained, apart from the labour market, a country whose markets are generally lightly regulated (as is also true in the other Scandinavian countries; they generally score persistently high in economic freedom). The issue here is, as so often, secure freedom; the wider the ambit of the secure freedom to transact, the more transactions there will be. High levels of trust makes for more secure and lower cost transacting, hence more transacting and so more economic activity.

If one has an extensive welfare state, then lots of people will learn how to be good at being dependant on the welfare state; this is just natural, since it is likely to offer the best return for their efforts (particularly when the value of extra leisure is taken into account). This then has effects on social attitudes. For example, when Swedes were polled on whether they agreed with the statement "claiming government benefits to which you are not entitled is never justifiable" there was a dramatic shift in attitudes over time (p.25):

1981-84  81.5%
1989-93  74.5%
1994-99  57.9%
1999-04  55.3%
2005-08 61.0%

Clearly, a welfare state where there is strong social consensus that you do not claim unjustified benefits is going to work more effectively (and more cheaply) than one where "get what you can" becomes increasingly the attitude. (The mild shift back towards earlier attitudes coincides with a shift to the right in Swedish politics.).The extensive welfare state -- what progressivists normally point to when talking of the "success" of the Swedish model -- does not explain Swedish success. That is a result of social cohesion, a high trust society and secure freedom to transact (again, apart from a highly regulated labour market). The level of social cohesion likely helped produce the extensive welfare state, due to a strong sense of common identity. It also likely ameliorated its deleterious effects. Consider this comment by economic historian (and Nobel laureate) Douglass North:

The implications of ideological consensus or ideological diversity for our modeling of institutions should be clear. To the degree that the members of a society have the same ideological framework, the formal rules of the society that define the constraints making up institutions will not have to be defined very clearly and enforcement mechanisms and procedures may be minimal or even absent altogether. But to the degree that society has diverse ideologies reflecting the growth of specialization and division of labor, more resources will have to be devoted, first to defining the rules precisely, and second to enforcing those rules. Such definition and enforcement is necessary because, with conflicting ideologies, the individual participants will feel no necessity to constrain individual maximization (cheating, shirking, etc.) at the expense of the other party. Given the costliness of measuring performance, ideological consensus or alienation is a fundamental influence upon the form of institution.

Adjusting that from ideology to culture, relatively small, strongly culturally homogenous societies can achieve outcomes through centralised provision that larger and more diverse societies simply cannot by such means. Even the much greater geographical diversity of a US or Australia makes the Nordic model problematic, without getting into the much greater ethnic and religious diversity.

Indeed, if Sweden keeps importing Muslims migrants at the rate it has, Sweden won't be able to run the Nordic model any more, because the level of social commonality needed to make it work just won't be there. Moreover, the evidence such that trust levels persistent (i.e. the trust levels in various ethnic groups continue to reflect the level of their originating cultures) -- so importing migrants from low trust societies will also have persistent (negative) effects on level of social trust. Which affects what sort of policy regime is sustainable. Even without considering some of the more dramatic issues.

So, it is hardly surprising that Swedish policies are increasingly moving in a more "Anglo" direction; the more socially diverse their country becomes, the more their policy patterns will tend to become more like countries which have always been much more socially diverse. So, trying to adopt the Swedish model to ethnically diverse "Anglo" societies is a very bad idea, one that is a complete misreading of the basis for Swedish success and the implications of social diversity for public policy regimes.

I long ago reached the conclusion -- in large part from observing how disastrously badly extensive welfare policies failed to cross, or deal with, cultural divides in indigenous policy in Australia -- that the Swedish model was grotesquely inappropriate to Australia (and even more so for the US). There has been a persistent delusion that the Scandinavians were somehow "nicer", "more moral", than us retrograde Anglos when the relevant policy regimes were much more explicable as broadly rational responses to quite different social conditions. Australia in particular -- which actually does better than Sweden in the UN's Human Development Index, for example -- has no good reason to adopt the Swedish policy regime and lots of very good reasons not to.

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

The problematic birth of macroeconomics

This is based on a comment I made here.



From reading David Glasner's Uneasy Money blog, I have developed a general thesis about macroeconomics.

(1) Modern macroeconomics was kicked off in the reaction to the 1930s Depression.

(2) The 1930s Depression was a seriously abnormal event.

(3) Being framed by a seriously abnormal event, and by two charismatic economists (Hayek and Keynes) who were both significantly wrong about said event, set macroeconomics off on a deeply flawed course.

(4) How flawed is shown by economists failing around when confronted with another deeply abnormal event 80 years later.

The WSJ Op.Ed. pages are a particularly egregious example of (4). A sort of bad monetary economics thinking grease trap.

This could be called "the Glasner-Sumner thesis", since I came to it by reading David Glasner's Uneasy Money blog and writings by its author having already absorbed from Scott Sumner that the economics profession had largely gone off the rails in its response to the Great Recession.

Feeling a little out of place

I had a avoided the Glee thing -- too much of a cliche, gay man has to like a TV show about putting on musical numbers with a gay character. Alas, I started watching it during the flights on my recent overseas trip and have to confess to enjoying it a lot.

Rolling Stone magazine have produced a very amusing character moment for Kurt Hummel, the gay kid (played by actor Chris Colfer).

I am guessing his drink is a Green Dragon rather than a Grasshopper (further possibilities here). Can we suggest what tune the young guy should now launch into? (Would Macho Man work in a falsetto?)

Or perhaps, there is a bear in there?

A fight over money

Over the last twelve months or so, the blogosphere saw another round of a long-standing fight over money. Not over getting more money (though that is an element too), but its nature and history.

A story about debt
The aforementioned tussle has been provoked by the publication of David Graeber's intriguing, but seriously flawed, book Debt: The First 5,000 Years. Graeber takes strong issue with much of economics in general and with the barter-then-commodity theory of money in particular. This is a theory of the nature and origins of money which dates back to Adam Smith and was famously stated by Austrian economist Carl Menger in his short 1892 essay On the Origin of Money which took further comments made in his 1871 Principles of Economics. Austrian school economist Bob Murphy has provided a useful summary of Menger's theory, as extended by Ludwig von Mises.

Graeber has done what authors do and engaged in various interviews to promote his book, one of which was posted here. Bob Murphy leapt to the defence of the Smith-Menger-Mises tradition, critiquing what Graeber had to say in the interview without, alas, having actually read the book. Graeber responded in turn, to which Murphy then responded. Graeber has since posted a nice summary of his thesis as a wrap-up to this interaction. (One of the sub-themes of which includes the issue of how blogosphere promotes quickie, congenial attacks by the ideologically hostile, including negative Amazon reviews.) Bob Murphy did get around to reading and reviewing Graeber's book.

Economist and Adam Smith scholar Gavin Kennedy has posted a much lengthier, and more nuanced, set of critiques of Graeber's book than Murphy's original posts. There is even the requisite Marxist critique of Graeber for lacking an underlying economic theory and being a romantic.

Meanwhile, economist Jeff Hummel has also posted a critique of Graeber's book. He does a good job of defending economics and economists from Graeber's wider attack, but does much less well in his critique of Graeber's central thesis. Hummel writes that Graeber:

makes several different historical claims, not all of them compatible:
(1) Credit transactions preceded and dominated spot transactions in early human societies.
(2) Media of account emerged before media of exchange.
(3) Barter was unknown (or at least extremely rare) WITHIN early human societies.
Notice that point (1) is incompatible with either (2) or (3). Early credit transactions must have involved barter (contradicting number 3) or media of exchange (contradicting 2). There is no other logical possibility. Yet because Graeber's peculiar concept of barter excludes a farmer trading a pig for delivery of an ax in two weeks (to use Murphy's example), his claim that barter was non-existent tends to become true by definition. Murphy was not the only one to catch this semantic sleight of hand; it is even exposed by an Amazon commenter on the book.
Graeber's terminological tautology appears to stem from his confusing (a) the limited ability of credit to mitigate the problem of the double coincidence of wants with (b) the substantial ability of multilateral exchange to do so. Multilateral networks are in reality what he is partly describing when he invokes "systems of broad, non-enumerated credits" (more on the "non-enumerated" part below). Consider the standard three-person THEORETICAL trading problem, where A wants only what B is selling, B wants only what C is selling, and C wants only what A is selling. The lack of a double of coincidence of wants can be solved by using one of the goods as a medium of exchange in two bilateral trades OR by conducting a single multilateral trade. Obviously for small groups, where people know and trust each other, the latter is often more likely and convenient. Whether such a multilateral exchange takes place at one moment in time (a spot transaction) or is extended through time (a debt transaction) is of secondary relevance, although the possibility of debt transactions certainly increases the potential scope of multilateral exchange.

This is a damming critique of a thesis which, alas, is not Graeber's. If exchanges of goods and services are intermediated, to what extent are such exchanges then barter? Graeber's central point is that early human societies did not involve spot transactions within them. Instead, people operated within dense webs of connections and that transfers of goods and services occurred within, and as expressions of, those connections. Graeber is taking further patterns described in Marcel Mauss’s classic 1923-4 text The Gift: The Form and Reason for Trade in Archaic Societies. Now, Graeber describes the underlying principle as "communism", which is both provocative and misleading. It certainly wasn't the case, for example, that there was no sense of private property. But seeing connectedness as the central feature leads one to view exchanges very differently than a view which takes methodological individualism to imply the "natural" economy is a series of spot trades.

Social connections
What Graeber is describing is transfers of goods and services that manifested felt obligations; obligations that were informal, personal and involved life-time "games". Including a sense of indebtedness that could be discharged in various ways. So credit exchanges need not involve specific media of exchange; any appropriate good and services would do. Units of account could thus easily predate media of exchange; they were ways of keeping track of obligations in the goods and services economy. (Indeed, various modern economic models treat money precisely like that, as ways of keeping track of prices, debts etc in the "real" or goods and services economy.) Moreover, having such units of account immediately provide some of the transaction cost advantages of money without having actual physical money in any useful sense.

Assumption of debt by guarantor

It is clearly true that foraging societies involved implicit exchanges between hunting males and gathering females; an early use of comparative advantage that improved allocation of resources for the purposes of getting food, distributing risks and raising children. Graeber's point is that this did not involve a series of spot trades ("this chicken for those yams") but roles which connected and obligated--we provide the meat, you provide the fruit, grain and vegetables. Now, there is an exchange going on here, but it is not "barter" in the sense of spot trades. It is only when you have interactions outside these dense webs of connections that spot-trade barter makes sense.

Think of a family-and-friends barbecue.  People do not engage in spot trades. They contribute various things and, over time, people have a sense of who contributes what and whether they are "pulling their weight" in the web of connections which come together in said barbecues. Well, in a foraging society, every meal is a group barbecue embedded in connections. Describing what goes on as "barter" is true in one sense (good and services are being exchanged without money) but very misleading in another.

Medieval tax tallies

Graeber's point is that credit, debt and units of account grow out of connections, not out of spot trades.  Which is highly plausible and accords with much archaeological and anthropological evidence. Even taking things forward several millennia; to describe manorial economies as "reversion to barter" simply because use of coins dropped dramatically shows a gross misunderstanding of how manorial economies work.

So far, so good. That, however, the inadequacy of the spot-trade barter story, or implications from it, somehow invalidates mainstream economics does not follow even though Graeber wants to imply that somehow it does.  And Graeber does not help his case by being very cavalier about historical facts. He is, for example, perfectly correct that historically state debt was mainly about war, since warfare and military expenditure overwhelmingly dominated state expenses. Attempts to tie postwar US debt to military expenditure is, however, nonsense on stilts. Debt is borrowing to spend and is driven by whatever the borrower spends money on and in no modern developed state, not even in the US, is military expenditure (whose share of GDP and government expenditure has been trending downwards across the postwar era) remotely the dominant form of government expenditure.

Graeber's factual unreliability is particularly unfortunate, as he has some fascinating ideas about various historical phenomena and trends -- I was particularly struck by his discussion of what makes an age medieval. But when Graeber makes silly statements such as:

Again, non-state bureaucracies are a phenomenon that no economic model would even have anticipated existing. It’s off the map of economic theory.

he is promoting nonsense -- modern economics finds such things so not-outside its purview, it has awarded Nobel Prizes for work in precisely that.

Unfortunately, there seems to be at least as great a tendency for anthropologists to make dubious statements about mainstream economics as there is for economists to be cavalier about anthropological evidence. Though some economists can join the former game quite happily. For example, in a survey lecture-cum-article on different approaches to money in historical context, economist Michael Hudson tells us that

Douglass North (1984) sees money as having been developed by enterprising merchants seeking a stable measure of value as well as a convenient means of payment. ...
One of the stated reasons for awarding the Nobel Economics Prize to North was his idea that money was developed not by public institutions, but by individuals to grease the wheels of commerce.

Yet there is no mention of money in North's Nobel citation, nor in his Nobel lecture, nor in the article Hudson cites while North's magnum opus has no citation for 'money' in its index.

But there is a wider polemical tussle underlying much of this.

M- or C-theory?
For the debate over Graeber's book is part of a long-standing debate that goes back to at least Georg Friedrich Knapp's The State Theory of Money (pdf) originally published in 1905. (Knapp seemed to have thought that analysis meant multiplication of definitions; his book produces a continual stream of them to the point that following the analysis becomes quite difficult.) Within the Anglosphere, the credit or chartallist theory of money was famously stated by Alfred Mitchell-Innes in two articles published in 1913 and 1914. This stream of thought led to modern monetary theory (MMT). In the chartallist approach, money is seen fundamentally as a creation of the state. This is what economist Charles Goodhart called in a 1998 paper (pdf) the C-theory, one of the two concepts of money.

The alternative is what Goodhart calls M-theory, which sees money as developing out of the needs of exchange. This is very much the dominant mainstream economics approach.  Optimum Currency Area (OCA) theory, for example, uses it. And while Goodhart is correct in that OCA theory is bad at explaining current boundaries of usage of particular currencies, the Eurozone crisis has proved to be eminently explicable in its terms. OCA may not be a good theory of currency realms (the ambit of particular currencies) but it is an excellent barometer by which to judge whether existing currency realms should amalgamate (or not).

As for the wider ideological game that is also being played out, if money is a natural product of exchange, then any state role in money is much more likely to be at best unnecessary and, at worst, pernicious. If, however, money is a natural product of state action, if the state has a necessary role in money, then such action is much more likely to be beneficent.

Thus, Hudson's lecture-cum-article displays a strikingly benign view of "the public sector". While taxes and soldiers get mentioned, the piece shows no serious sense of the expropriation and violence which is at the heart of the history of rulership and the state; in his comments on contemporary policy, there is little sense of issues about the inefficiency of fiscal stimulus, or its impotence if monetary authority does not give it space; little sense of government monetary dysfunction or issues about expenditure rises. Ibn Khaldun's C14th writings have a far better, mostly due to being far more balanced, sense of rulership.

Graeber is not quite playing the same game (his target is debt and state action supporting the same). Nevertheless, while Graeber's portrayal of slaves-money-debt Axial Age empires is extremely hostile (he extends the Axial Age to 600AD), his treatment of ancient Mesopotamian temple and palace complexes is remarkably benign, as is his depiction of medieval manorialism and village economies. He treats the collapse of the Western Roman Empire as overwhelmingly positive, with little sense of the demographic collapse or the loss of comfort which attended it.

On a much less ideological note, part of the problem is that money provokes two different sorts of questions. One is concern for its swap value -- inflation, deflation, use in money offers, the way demand is expressed in a monetised economy. The sorts of questions mainstream economics is mainly interested in.
The other sort of question is how come money has transaction utility at all, why do currency realms exist, what determines the boundaries of currency realms? Boundaries not only in the sense of which money is used in which exchanges, but also whether or how money is used. Consider that family-and-friends barbecue; it is embedded in networks of much more formalised and impersonal exchanges. Such formalised and impersonal exchanges are typically how you treat strangers and other people with low levels of personal connection with you.  Which is why we get offended if people start treating highly informal and personal interactions in ways which imply that they were as if with strangers.

So, there is a certain amount of talking past one another expressed in Goodhart's "two concepts of money", in M-theory and C-theory. Anthropologist Keith Hart expressed the hope that analysis might cope with both sides of the coin -- its manifestation as state power and its use in exchange. But, as he has since pointed out, there is some resistance to such.

Graeber approvingly cites Hart's original "Heads or Tails" essay in his book, and then manifests precisely the sort of one-sided aversion Hart was appealing to folk to get beyond.  There have been attempts to provide some sort of synthesis (such as this recent paper) (via). But the focus on different questions, and the wish to get answers which support wider concerns, means that this recurring fight over money shows no signs of abating.

(Cross-posted at Skepticlawyer and at Critical Thinking Applied.)

They did it again

One of my basic analytical principles is that things reveal their nature in history (including the history that has not happened yet -- that is, what has happened is not the sum of possibilities). If one wishes to understand current events, then cultivate a sense of history for the past is the cause of the present and the beginning of the future.

So, it was both revealing and depressing to read Jorg Bibow's 2003 paper On the 'Burden' of German Unification (also here) (via). Revealing, because the paper shows how destructive the Bundesbank's monetary rectitude could be; depressing because Bibow's analysis of events during the decade before the publication of his paper provides such a depressingly consistent template for events 6 or so years after the publication of the paper.

The unification of West and East Germany in 1991 was the absorption of East Germany by the Federal Republic. Since the infrastructure, technology, firms and level of marketable skills of the East were at a significantly lower level than that of the West, the costs of unification for the German Federal budget were considerable.

Which led to a significant increase in the Federal budget deficit. This, the Bundesbank disapproved of because of its potential inflationary implications. So, the Bundesbank engaged in restrictive monetary policy and public pressure to get the fiscal deficit back down. Which led to the German Federal Government raising taxes to improve the fiscal balance because of Bundesbank pressure while the Bundesbank's monetary policy led to a lowering in economic activity which acted to decrease government revenues and increase government expenditure (i.e. tended to increase the budget deficit).

This became completely farcical when the Bundesbank contracted monetary policy to counteract the effect on the price level of the tax rises it had pressured to occur. That is, the German Federal Government raised taxes to increase revenue only to have the Bundesbank engage in restrictive monetary policy to counteract the price impact of said tax increases thereby effectively negating any effect of the same on the budget balance. So the budget deficit did not improve significantly, but economic activity was below its previous trend.
It was a complete failure of policy coordination.

The Bundesbank did manage to push the German economy onto a lower economic growth path. What an achievement for monetary rectitude.

Once more, with feeling
Fast forward 10 or so years. The Eurozone has been created, with the European Central Bank (ECB) being basically the Bundesbank on steroids. In the words of political scientist Walter Russel Mead, it has become the world's first sovereign central bank. The point of the Euro, apart from achieving "ever closer union", was a Deutschmark for everyone.

Which meant that, until recently, the Bundesbank was calling the shots within the ECB. Which meant doing, in the name of monetary rectitude, deeply stupid things such as including tax increases in the inflation target, with the result that the ECB is not reaching its inflation target, it is systematically undershooting it. Worse, when Eurozone government raise taxes (!!!!) during a prolonged economic downturn to reduce their fiscal deficits, the ECB engages in restrictive monetary policy to counteract the "inflationary" effect of such tax increases, thereby driving down economic activity, so spending, so income, so government revenues and driving up government expenditure.

In other words, just like the Bundesbank in 1992-7, the ECB completely undermines the efforts of Eurozone Governments to reduce their fiscal deficits. All in the name of "price stability".

And doing so while not even managing competent inflation targeting, as the results show.

But the problem is not merely that the ECB has been negating, or worse than negating, any economic stimulus effect from the budgetary deficits. Nor is it even that it undermines the attempts of Eurozone governments to reduce their budget deficits by its monetary austerity.

It is worse than that; its restrictive monetary policies have made their public debt levels much worse. Which has both stressed the European financial system and further undermined the ability to reduce budget deficits (by increasing the cost of servicing public debts.)

If income crashes, one's debt burden gets worse. This is elementary.

If income increases, one's existing debt burden lessens. Which is the classic way to deal with public debt (apart from some form of default) -- to grow one's way out of problems, as outlined in Evsey Domar's 1944 article. As the economy increases, the existing public debt burden lessens.

But if, in the name of "price stability", the central bank engages in restrictive monetary policies to block any surge in activity that "threatens" the inflation target, then that route is blocked.

It is truly astonishing, how apparently indifferent so many "hard money" advocates are to the level of risk to the financial system they are apparently willing to tolerate to block any danger that inflation might get to the dizzying heights of, say, 4%pa. But, of course, we have also been here before. Adherents of the gold standard in 1928-32 were willing to sacrifice both price stability and the financial system to the sacred doctrine of gold. It is as if money stops being a tool for transactions and becomes some sacred principle to which all else must be sacrificed at whatever cost.


As for regarding increases in the monetary base as an example of "loose" monetary policy presaging some inflationary, or even hyperinflationary breakout, the history of the US monetary base in the interwar period shows what nonsense that is.

More recently, the evidence is that ECB President Mario Draghi has decided that monetary union is not, in fact, a suicide pact. While US Federal Reserve's statement of open-ended asset purchases to get unemployment down is a sign that even the Fed has decided that there is a limit to the economic misery to be imposed in the cause of ostentatious monetary rectitude.

The good news is that the Fed has decided to have something like a clear and open target and has apparently accepted that expectations about spending matter as well as those about price stability.

Monetary turnover ("velocity")

Old-style Monetarism relied on the assumption that monetary turnover (how quickly money moves through transactions, what economists call 'velocity'; a very confusing usage to those of us for whom high school Science took a little too strongly) was basically stable. This turned out not to be true. Which turns the focus on expectations, since they drive behaviour -- including whether people hold onto money or spend it. The more insecure people are in their expectations of income, the more they tend to hoard money rather than spend it, and the more the turnover ("velocity") of money drops.

In extremis, this can lead to a severe fall in monetary turnover, so a crash in transactions.
So, expectations about price stability matter, but so do expectations about income (i.e. spending). (Which is why Australia has not had a recession for 21 years; because Reserve Bank of Australia policy manages both price and spending expectations.) It is good that the Fed (and to a lesser extent the ECB) are beginning to get with the program.

What is less good is that the Fed is targeting a "real" (i.e. non-monetary) variable, unemployment. Central banks have great power over monetary matters (price level, spending, etc). They have much less over non-monetary matters. As several econbloggers have pointed out, using monetary instruments to keep employment up and unemployment down is precisely what lead to the "Great Inflation" of the 1970s.

Prominent econblogger Scott Sumner's comments about the limited understanding of so many central bankers appear to be not less than the truth.

Note for non-economist readers:Nominal GDP = GDP in money terms = NGDP = aggregate demand = Price level (P) times output (y) = Py.

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