Listen. Time for New Thinking.

One thing I have noticed in this political environment is that people do not listen to political views that diverge from their own. They believe what they believe, and that’s the end of it. Then they project bad intentions on anyone who disagrees. It makes for useless, though necessary, conversations.

This writer makes a good case for some rational reasoning through the imperative of listening to our politics rather than shouting them. We need to chart the correct path forward and it’s not by turning to the recent or distant past. Those mostly provide warning signs for the consequences of foolish mistakes.

History tells us that populist waves can lead to disaster or to reform…So how might we tilt the odds from disaster to reform? First, listen.

It’s Time for New Economic Thinking Based on the Best Science Available, Not Ideology

A new narrative for a complex age

By Eric Beinhocker 

If 2008 was the year of the financial crash, 2016 was the year of the political crash. In that year we witnessed the collapse of the last of the four major economic-political ideologies that dominated the 20th century: nationalism; Keynesian Pragmatism; socialism; and neoliberalism. In the 1970s and 80s the center right in many countries abandoned Keynesianism and adopted neoliberalism. In the 1980s and 90s the center left followed, largely abandoning democratic socialism and adopting a softer version of neoliberalism.

For a few decades we thought the end of history had arrived and political battles in most OECD countries were between centre-right and centre-left parties arguing in a narrow political spectrum, but largely agreeing on issues such as free trade, the benefits of immigration, the need for flexible efficient markets, and the positive role of global finance. This consensus was reinforced by international institutions such as the IMF, World Bank, and OECD, and the Davos political and business elite.

In 2008 that consensus was rocked, last year it crumbled. Some will cling on to the idea that the consensus can be revived. They will say we just need to defend it more vigorously, the facts will eventually prevail, the populist wave is exaggerated, it’s really just about immigration, Brexit will be a compromise, Clinton won more votes than Trump, and so on. But this is wishful thinking. Large swathes of the electorate have lost faith in the neoliberal consensus, the political parties that backed it, and the institutions that promoted it. This has created an ideological vacuum being filled by bad old ideas, most notably a revival of nationalism in the US and a number of European countries, as well as a revival of the hard socialist left in some countries.

History tells us that populist waves can lead to disaster or to reform. Disaster is certainly a realistic scenario now with potential for an unravelling of international cooperation, geopolitical conflict, and very bad economic policy. But we can also look back in history and see how, for example, in the US at the beginning of the 20th century Teddy Roosevelt harnessed populist discontent to create a period of major reform and progress.

So how might we tilt the odds from disaster to reform? First, listen. The populist movements do contain some racists, xenophobes, genuinely crazy people, and others whom we should absolutely condemn. But they also contain many normal people who are fed up with a system that doesn’t work for them. People who have seen their living standards stagnate or decline, who live precarious lives one paycheque at a time, who think their children will do worse than they have. And their issues aren’t just economic, they are also social and psychological. They have lost dignity and respect, and crave a sense of identity and belonging.

They feel – rightly or wrongly – that they played by the rules, but others in society haven’t, and those others have been rewarded. They also feel that their political leaders and institutions are profoundly out of touch, untrustworthy, and self-serving. And finally, they feel at the mercy of big impersonal forces – globalization, technology change, rootless banks and large faceless corporations. The most effective populist slogan has been “take back control”.

After we listen we then have to give new answers. New narratives and policies about how people’s lives can be made better and more secure, how they can fairly share in their nation’s prosperity, how they can have more control over their lives, how they can live with dignity and respect, how everyone will play by the same rules and the social contract will be restored, how openness and international cooperation benefits them not just an elite, and how governments, corporations, and banks will serve their interests, and not the other way around.

This is why we need new economic thinking. This is why the NAEC initiative is so important. The OECD has been taking economic inequality and stagnation seriously for longer than most and has some of the best data and analysis of these issues around. It has done leading work on alternative metrics other than GDP to give insight into how people are really doing, on well-being. It is working hard to articulate new models of growth that are inclusive and environmentally sustainable. It has leading initiatives on education, health, cities, productivity, trade, and numerous other topics that are critical to a new narrative.

But there are gaps too. Rational economic models are of little help on these issues, and a deeper understanding of psychology, sociology, political science, anthropology, and history is required. Likewise, communications is critical – thick reports are important for government ministries, but stories, narratives, visuals, and memes are needed to shift the media and public thinking.

So what might such a new narrative look like? My hope is that even in this post-truth age it will be based on the best facts and science available. I believe it will contain four stories:

  • A new story of growth [see this post]
  • A new story of inclusion [see this post]
  • A new social contract
  • A new idealism

This last point doesn’t get discussed enough. Periods of progress are usually characterized by idealism, common projects we can all aspire to. Populism is a zero-sum mentality – the populist leader will help me get more of a fixed pie. Idealism is a positive-sum mentality – we can do great things together. Idealism is the most powerful antidote to populism.

Finally, economics has painted itself as a detached amoral science, but humans are moral creatures. We must bring morality back into the center of economics in order for people to relate to and trust it. All of the science shows that deeply ingrained, reciprocal moral behaviors are the glue that holds society together. Understanding the economy as not just an amoral machine that provides incentives and distributes resources, but rather as a human moral construct is essential, not just for creating a more just economy, but also for understanding how the economy actually creates prosperity.

In short, it is time to forge a new vision that puts people back at the center of our economy. To paraphrase Abraham Lincoln, it is time to create an economy that is “of the people, by the people, for the people.” We are truly at a fluid point in history. It could be a great step backward or a great step forwards. We must all push forwards together.

Based on remarks originally delivered to the OECD New Approaches to Economic Challenges workshop, December 14, 2016, Paris.

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The Degeneration of Political Discourse

If there’s one thing I’ve learned this election season, it is the increasing degeneration of political discourse in our society. Probably everyone in America these past few months has experienced this phenomenon, and either jumped into the mudpit or turned away in disgust. Unfortunately, there is nowhere to turn.

Democracy, as an institution of social choice and self-governance through voting, relies on compromise to resolve divergent interests. This compromise, or middle ground, is often depicted as serving the interests of the “median voter” in election models. Our electoral system seeks to reward candidates or parties who can appeal to this median “center.” The idea of the centrist is one who moves away from the extremes to find common ground. The problem is that we have obliterated the center in our national politics.

How did this happen?

Some have blamed the two-party system that has divided us into red vs. blue and subsequently conquered us as we squabble over ideological trivia. Others have decried our lack of choice between the parties of Tweedle-Dee and Tweedle-Dum, sometimes using the catch-all term the Republicrats for the political class. Still others blame the systemic bias of the media in their desperate bid to remain politically and economically relevant in the digital world.

All of these factors have contributed to our political degeneration. However, I would say the problem is less about only having two parties than about how the parties abuse the system to divide us. I’ve written repeatedly about how the parties and the media benefit from our dysfunction and promote it every chance they get. It is true of Obama, as it is true of Congressional leaders of both parties. It is true of the mainstream media as it is of FOX News and Talk Radio. If we’re looking for relief, it won’t come from these sources.

It will come from us, and there’s the rub.

My own experience as a political commentator illustrates my point. A few weeks ago I wrote that I will vote Neither…Nor in this presidential election for reasons explained here.

Immediately I was accosted by partisans of both sides claiming I was really favoring the opposing candidate. So Democrat liberals accused me of essentially supporting Trump and Trump Republicans of putting Clinton into office. Obviously both can’t be true, but that seems beside the point.

What’s going on here is the desire to paint the issue in black and white and castigate one for joining the wrong side. Identity politics, the growing cancer on democracy, almost forces this dynamic. The tactic is truly the last resort of dirty, rotten scoundrels, but let me explain. What I’m referring to is a typical debating tactic of winning the debate by delegitimizing your opponent (not the argument, but the person). This tactic can take several different forms.

The most extreme way is to simply condemn your opponent’s moral character: a racist, a bigot, a crook. A related way is to impugn your opponent’s motivations: greedy, power monger, predator. Next up is to question one’s intelligence: ignorant, uneducated, low IQ. A more subtle, less aggressive method is to accuse one of being a willing victim of misinformation and propaganda. Sometimes this can be accurate in this corrupted media world, but it’s often used as a blanket dismissal of opinions, views, or facts one disagrees with: I see, you listen to FOX News or read the New York Times.

So, I call this the last redoubt of a scoundrel because it is a feint away from the issue that must be resolved or compromised, and the scoundrel merely realizes that the just compromise with the stronger rationale is not the one they favor. Hence the desire to intimidate and throw one’s opponent on the defensive in order to win an argument. It tosses  democratic compromise into the lion’s pit of do or die.

I’ve written here how this silly finite game of winning an election is overwhelming the more important infinite game of democracy founded on the principles of liberty and justice. Scoundrels do damage to justice and to liberty. Yet too many of us have succumbed to the emotional appeal of winning at all costs. Unless we stop this and start to legitimize our fellow citizens’ preferences (we’re really not debate opponents), our discourse will continue to degenerate and lead to ever increasing dysfunction with disastrous results.

The politicians won’t do this for us. Heaven help us on November 9, because this election is merely the canary in the coal mine.

 

 

 

The Future of History

Can Liberal Democracy Survive the Decline of the Middle Class?

Stagnating wages and growing inequality will soon threaten the stability of contemporary liberal democracies and dethrone democratic ideology as it is now understood. What is needed is a new populist ideology that offers a realistic path to healthy middle-class societies and robust democracies.

By Francis Fukuyama

Thought-provoking essay by Fukuyama, author of The End of History and the Last Man, published in Foreign Affairs journal. Link back here.

This essay is now a year old, but I’ll comment because ideas about “the future of history ” are not really time-sensitive. I’d agree with Mr. Fukuyama’s analysis of the failure of ideology at both ends of the spectrum. In particular, he is correct that:

  1. The Left is intellectually bankrupt, with state corporatism, postmodernism, and social welfare statism all running into their inevitable limitations, intellectually and economically.
  2. The Right has succeeded temporarily due to the failures of the Left combined with a simple return to pro-growth market-driven economic policies. But with imbalances created by globalization and technology, these policies are limited in effectiveness, with neoclassical growth policy merely perpetuating and amplifying the business cycle. Efforts to avoid the consequences of downturns have led to the explosion of public debt as the new policy norm.
  3. Inequality is being driven primarily by technology and globalization, which are symbiotic. Just take a look at the progression of baseball salaries. A world market driven by technology with increasing returns to scale has created a Winner-Take-All market-driven society, leading to economic imbalances and concentrations of power that have rendered existing paradigms ineffective and promoted political cronyism. Capital has enjoyed an increase in market power relative to labor.
  4. The answer to Mr. Fukuyama’s question “Can Liberal Democracy Survive the Decline of the Middle Class” is probably “No.” The adage is correct: “No bourgeois, no democracy.” The irony of the Obama administration’s state corporatism redux is its antipathy to the bourgeois—small business and entrepreneurs—with policies that reward big business, big labor, and big government and conflict with the aspirations of free people under free markets.

In closing his essay, Mr. Fukuyama suggests the need for a new ideology to deal with these failures but is less definitive on its features. In considering the trends cited above and the choices we must make, I think it helpful to first identify the true ideological differences between the Left and Right. The trade-off comes between freedom or security, meaning a society that enhances individual autonomy and the range of choices for its citizens versus a society that tries to insure their physical and economic security. The state cannot effectively deliver both. For example, the promise of universal entitlements means nobody gets to opt out, so it constrains the alternatives that free citizens might choose. Given the entitlement crises, it’s questionable whether the state can deliver true economic security at all.

Ideologues of the Right are strongly biased toward freedom, while those of the Left prioritize security in the form of social solidarity. But any new ideology will have to optimize the opportunities for both freedom and security, as both fulfill our emotional human needs to find meaning in our lives. We need to hope for the extraordinary that lies outside the boundaries of the norm, and we need to manage our fears of failure, uncertainty, and loss in order to venture out of our comfort zones.

There is a workable ideology, and it lies right under our noses. Economic markets and political democracy can deliver both freedom and security if we can think outside the dominant political and economic paradigms. To start, the policy challenges we face can best be classified as distributional. Income and wealth inequality, hunger, pollution, educational access, etc., are all distributional failures – our sciences have taught us how to maximize the production of goods, but not how to distribute them to insure market sustainability. Nature has solved this problem with its delicate balance, but man still struggles with skewed social outcomes. But there is a natural logic to the distributional effects of economic and political markets. To achieve sustainability and stability, policy must harness this logic rather than oppose it.

Finance and economics adheres to the ironclad law of risk and return to determine the natural distribution of returns. Those who assume the risks reap the rewards or the losses. Violating this law disrupts the risk-taking, wealth-creating activity on which a free society depends. Political cronyism that favors clients of the state, or tax and redistribution that is politically motivated, contradict the law of risk and return. To illustrate, one can consider the insidious immorality of “heads we win, tails you lose” as a stark example of the violation of natural distributive justice.

To fulfill this promise of a new ideology, we will need to pursue policies that promote the decentralization and diversification of power, both political and economic. (This need not impede the scale of enterprise.) In a capitalist society, the ownership and control of capital is key to participation in the system. The predominant focus on labor, an input cost to the production process, is misguided. Wage labor should be seen as a low risk, low return strategy whereby the worker sells his labor for a pre-determined wage, while the risk of business failure is assumed by the owners as residual claimants to profits. In a globalized world with an oversupply of labor and mobile capital, the relative shares of production strongly favor capital. The owners/managers of enterprises that outsource production increase their incomes, while those who rely solely on labor incomes suffer. The solution is not to restrict productive activity by punishing outsourcing, but to broaden ownership participation in capitalist enterprise.

Policywise, it is a mistake to superimpose capital and labor on citizens. Labor and capital should not be conceptualized as workers and capitalists, these are merely productive factors, like land and equipment. Any one of us can enjoy the returns to any of these factors through ownership and control. The ownership of free labor is obvious, but the ownership and control of capital is more determinant of the final distribution of returns. As the enterprise grows, owners receive greater returns, but workers get the pre-determined wage (plus a small bonus?). Stock options on equity capital is the cause of outsized management compensation where CEO pay is 400 times that of the average worker.

Now comes the kicker: The accumulation of capital also allows for the greater diversification of risk across different asset classes. For example, my labor is concentrated in my person, while my capital is diversified across the world economy. This helps diversify my risk of loss, while also enhancing my potential returns. The broad distribution of the ownership and control of productive assets is the only way to achieve the individual and social objective of freedom and economic security.

As Fukuyama explains, the main hurdle to any new ideological paradigm is political because the existing concentrations of power are self-reinforcing. We will not get policies that reinforce the bourgeois without grassroots mobilization for change. We need reforms of capital markets, corporate governance, the tax code, entitlements, public spending, campaign finance, electoral rules, etc. but existing power bases will vigorously defend the status quo. The only way to dislodge concentrations of power, short of a revolution, is through the power of numbers. Those who oppose change know this very well and expend most of their political energies on divide-and-conquer strategies that target ideological identities. Thus, the Tea Party and Occupy Wall Street were pitted against each other, even though they had compatible interests. Breaking out of this pattern at the grassroots level will take seemingly impossible effort, but the alternative will be recurrent crises and failure.