Predicting 2014’s “Fauxbel” Laureate(s)

The announcement of the 2014 Nobel laureates in economics – or rather, “Fauxbel” laureates, given that the economics prize is technically not a “Nobel Prize” – is due tomorrow morning. I offered some predictions last year as to who would win, and I actually got one! (Got one correct, that is; I myself was not among those honored with an early morning call from Swedish-accented strangers.)

Marginal Revolution’s Tyler Cowen predicts that the Nobel committee will select William J. Baumol, perhaps in conjunction with William G. Bowen, for his work on the cost disease. The Guardian floats Baumol as well, along with a host of others. So does Thomson Reuters, which also places its bets on Philippe Aghion, Peter Howitt, Israel Kirzner, and Mark Granovetter (a sociologist). Econ Job Market Rumors, one of the internet’s great econ-themed cesspools, has a thread on Nobel predictions where one poster wonders whether, instead of giving a prize this year, the committee shouldn’t opt for taking some back.

The Wall Street Journal’s Real Time Economics lists a number of contenders, including my own official guess: Harvard University’s Robert Barro. As noted by RTE, Barro currently ranks as the #2 most-cited economist on IDEAS, a database of research papers in economics maintained by the Federal Reserve Bank of St. Louis, and he is mentioned almost every year as a leading contender for the highest honor in the discipline.

An additional reason why I’m wagering that it’ll be Barro is because of the rough alternation of the prize between recognition of empirical and theoretical work. Last year’s award highlighted empirical research in asset pricing, 2012’s honored two theorists, and 2011’s celebrated the development of econometric techniques used to untangle cause and effect in macroeconomics. Barro is best known for his contributions to growth theory, so his selection would certainly fit with this pattern. It’s also been over 25 years since a Nobel was explicitly awarded for work in this area, so the field is arguably due. Plus, a Barro win would undoubtedly mean some entertaining tweets from his son, a factor the committee presumably weighs heavily.

Here’s hoping my one-year streak remains unbroken!

Dave Camp Makes the Case for Taxing Red Meat

On February 26th, Rep. Dave Camp (R-MI), chairman of the House Ways and Means Committee, released a proposal for a major overhaul of the individual tax code that he claimed would significantly reduce the amount of effort that individuals would have to expend on preparing their returns. I read a bit about Camp’s ideas when they first came out, and had planned on offering some thoughts here at RM. Unfortunately, his observation that the process of filing tax returns can be quite burdensome turned out to be an astute one: I spent the following seven weeks (right up until midnight yesterday!) working hard on my taxes, and had not a moment to spare to write about the Camp Plan until now.

Okay, not really; I actually just forgot. (I also started and finished my taxes this past Sunday, thank you very much.) But I was reminded of the issue as I filled out my forms and searched under the couch cushions for my W-2’s over the weekend, and now that everything is in the mail I thought I’d take a minute to discuss some of my reactions to Camp’s bold proposal.

And boy, is it bold. The sheer political implausibility of some elements of the plan led many commentators to declare it dead on arrival, with a few even going so far as to claim that its release was only ever intended as a bit of showmanship. Despite the early buzz, the proposal seems to have faded from the headlines; the conventional wisdom is that nothing even remotely that ambitious could pass Congress in an election year.

But that fact alone is no reason to ignore Camp’s work. The Republican Party has seen a relative flowering of policy entrepreneurship in recent months, even if some of the more wonkish conservative thinkers and pundits are misguided about how broad-based the renaissance really is. And even if none of Camp’s agenda has any chance whatsoever of becoming a reality anytime soon, parts of it could very well make their way into the platforms of future Republican candidates for higher office who are eager to present voters with fresh ideas.

On the whole, I think that Rep. Camp’s proposal is a serious one. It contains a number of good ideas that ought (in a less polarized political environment) to enjoy broad appeal among members of both parties. But it is not without its weaknesses, and it certainly isn’t above gimmicky red-meat-throwing. In fact, those two tend to coincide, with the most questionable parts of the plan also those that were most clearly included to score political points and poke political enemies.

First, a few of the commendable bits. Camp advocates scaling back the mortgage interest deduction, which is one of the most expensive tax subsidies in the individual code. The Center for Budget and Policy Priorities estimates that it reduced federal revenues by about $70 billion in 2012 alone. Since it is a deduction (which reduces taxable income) and not a credit (which reduces the dollar amount of taxes owed, and which in some cases may increase the size of a refund even if nothing is owed), its benefits tend to flow to those in higher tax brackets. In fact, the CBPP figures that in recent years more than three-quarters of the benefits associated with the mortgage interest deduction went to individuals with incomes above $100,000.

Although many budget experts have recommended converting the deduction to a credit, Camp at least takes a step in the right direction by lowering the cap on the amount of mortgage interest that is eligible for the deduction. Rather than allowing filers to deduct the interest paid on the first $1,000,000 of a mortgage, Cap would limit them to writing off only that pertaining to the first $500,000. He projects that this wouls only affect “less than 5 percent of the most expensive homes on the market today.” Given that the intent of this policy is presumably to facilitate homebuying for those who might otherwise be shut out of the housing market, and not to allow those who can already easily afford a home to afford a larger one, this tweak is certainly a sensible one.

Camp also demonstrates some courage by embracing ideas previously endorsed by President Obama and other Democrats, including “eliminating special depreciation benefits related to corporate jets” and treating “carried interest” as regular income rather than as capital gains for the purposes of taxation. He also takes steps toward shedding the GOP’s image as the party of plutocrats by proposing a quarterly 0.035% tax on any assets held by financial firms in excess of $500 billion. He defends this policy on the grounds that corporations designated as “Systemically Important Financial Institutions” or “SIFI’s” by the Dodd-Frank Act of 2010 are believed to enjoy lower borrowing costs on account of the fact that other market participants think they will be the recipients of public assistance (read, bailouts) in the event of another financial meltdown. Camp argues that taxpayers ought to be compensated for what is in effect an implicit subsidy.

Although – or perhaps because – only a handful of the very largest banks would be affected by this tax, it has provoked a great deal of backlash from lobbyists representing Wall Street banks. Mother Jones’ Kevin Drum has wondered whether Camp might have intended to provoke this backlash in order to guarantee that a SIFI tax would not be included in Republican reform plans in the future, but it’s unclear whether his motives were really that cynical. The GOP certainly has an image problem when it comes to its ties to the financial industry (although the Democrats are not immune to this problem either), and Camp seems to be at least trying to do something about it. Moreover, the notion of a financial transaction tax is one that has been endorsed on the merits by economists and pundits from across the political spectrum.

Now for the questionable parts. Camp asserts that waste and fraud in the tax system is an overwhelmingly serious problem:

Not only is the way Washington takes your money unfair, it wastes the money it takes from you… This is particularly true of existing refundable tax credit programs, where the IRS is unwilling or unable to stop the waste, fraud and abuse. For example, over the last 10 years, the IRS erroneously sent out an estimated $132 billion of your tax dollars to false claimants. The Earned Income Tax Credit (EITC), the largest refundable tax credit, consistently ranks among the worst government programs in terms of waste, fraud and abuse [emphasis added] – even though it is one of the most important tools to help low-income, working Americans. Last year, 21 to 25 percent of all EITC payments were incorrect, costing American taxpayers as much as $13.6 billion.

Leaving aside the question of whether fraud is really a problem that the IRS has not been effectively tackling, singling out the EITC for special criticism seems strange. The Republican Party’s standard response to calls from Democrats for an increase in the federal minimum wage has been to argue that expanding the EITC would be a much more effective and less costly strategy for boosting the wages of poor and low-skilled workers. Granted, Camp acknowledges that it is “one of the most important tools to help low-income, working Americans,” but this is clearly a footnote to the main argument being made here.

Deficit hawks have plenty of examples of silly or frivolous federal spending from which to choose, and are generally untroubled by creating the impression that spending of that sort represents a much, much larger share of federal outlays than it actually does. So why go after the EITC? Considering that he has three or four more examples of allegedly wasteful programs in the next several paragraphs, why not just omit it?

We should give credit to Mr. Camp for being less demagogic than many of his colleagues and for illustrating his point with more serious examples than “beaver management.” We should also acknowledge that he never actually calls for abolishing or even meaningfully scaling back the EITC. But in his zeal to attack a perennial conservative punching bag, he ends up undermining the plausibility of his own party’s alternative to a hugely popular minimum wage increase. Especially if other Republicans run with this meme in the future, the self-inflicted wound could split open even wider. (For the record, I support an expansion of the EITC in conjunction with a minimum wage hike, and I think Camp’s criticisms are more clumsy than damning.)

Another element of the plan that attracted a great deal of attention in the press when it first came out was Camp’s proposal to repeal the deduction for state and local taxes, including income, property, and sales taxes. His contention is that “[t]his deduction redistribute[s] wealth to big-government, high-tax states from small-government, low-tax states.” Commentators rightly read this as a jab at blue-state governors and legislatures, and Camp correctly notes that this benefit is most valuable to those who live in states with high taxes, which by-and-large are those that lean Democratic.

That’s one way to look at it. Another way to look at this deduction is as a benefit that redistributes wealth toward states that are self-reliant and away from those that depend most heavily on the federal government. The states with the largest total burden of state and local taxes also tend to be those that receive the smallest amount of federal spending for every dollar they send to Washington. According to the center-right Tax Foundation,

[t]hanks to a steeply progressive federal income tax, states with higher incomes [i.e. blue states, on average –MM] pay vastly higher federal taxes, payments that are unlikely ever to be matched by federal spending directed to those states.

The Tax Foundation regularly produces a ranking of states based on their average tax burden, excluding federal taxes. In 2011, four of the ten states identified as bearing the heaviest burdens – California, Minnesota, New Jersey, and New York – were also among the ten states with the largest net revenue contributions to the federal government, based on tax data from the IRS and spending data from Four of the ten states identified as having the lightest burdens – Alabama, Louisiana, South Carolina, and Texas – were among the ten states with the largest net inflow of spending from the federal government (calculations available upon request).

This is just a quick, unscientific exercise, and we can quibble about the best way to measure which states are most “self-reliant.” But they are incredibly suggestive, and provide some support for the intuition that the states that levy the highest taxes on their citizens are also those that are Washington’s largest revenue-raisers. If there’s any redistribution going on here, it’s toward low-tax states. In the absence of the state and local income tax deduction, that redistribution would be even more stark.

Why does this matter? Conservatives are typically champions of devolving as many functions of government as possible to the states, and states that do more for their residents will tend to require more revenue. Yet encouraging states to reduce taxation may incentivize them to shift more of the work of providing public services to the feds. One can understand on a political level why Camp would want to axe this particular piece of the tax code, but he ought to have thought more deeply about the potential policy consequences of doing so.

Rep. Camp has offered a credible template for revamping the tax code. Although his core assumption that complexity is its main defect has come in for some criticism – The New Republic ran a piece for Tax Day presenting survey evidence that most Americans don’t consider it that difficult to do their taxes, and that the ubiquity of tax preparation software could even allow us to implement a system with infinitely many tax brackets without much pushback – it seems like a good idea to regularly reevaluate whether the code makes sense and to pare back some of its kludgy accretions.

Camp is surprisingly honest about the tradeoffs required by any such root-and-branch reform, and is willing to write concrete proposals that take on some of his party’s sacred cows. This is not the plan that I would have come up with, but in a less acrimonious political universe it would offer a reasonable starting point for bipartisan negotiations (I stand by my claim that “reformocons” would have a better chance of getting a hearing in the Democratic Party, but that’s an argument for another day).

Yet whenever Camp indulges in political gimmickry, his plan is consistently the worse for it. Maybe the next congressman to release a brief on tax reform can propose a tax on red meat.

“Why Popes and Economists Need to Talk”

Last Monday after work I made what I was surprised to learn is a very long trek from lower Manhattan to Fordham University in the Bronx to attend a talk by Daniel K. Finn, an economic ethicist at the University of Saint John’s in Collegeville, Minnesota. The lecture, sponsored by Fordham’s Curran Center for American Catholic Studies, was entitled “Building Better Economies: Why Popes and Economists Need to Talk,” and marked the kickoff of a planned two-year series of events to celebrate the 125th anniversary of Pope Leo XIII’s economic encyclical Rerum Novarum.

The main objectives of Finn’s talk were a) to encourage economists and theologians/ethicists, particularly within the Catholic academy, to engage in more interdisciplinary discussion, and b) to critique the tendency within academia for different subject areas to self-segregate into inward-looking cliques (he accompanied his introduction of this idea with a nice illustration of silos). As promised by his title, Finn made a compelling case for why popes and economists need to talk, but I had been hoping that he would deal more extensively with what practical steps might be taken to further promote and even institutionalize this kind of dialogue.

In the first half of the lecture, Finn summarized studies from a subfield known as behavioral economics that have sought to illuminate the psychological impacts of poverty. He focused in particular on an observation from the literature that the stress associated with a chronic lack of basic necessities leads to “reduced mental bandwidth,” and to shortsighted decision-making, poor impulse control, and weaker problem-solving abilities. This in turn can generate self-defeating patterns of behavior that can keep someone from rising out of poverty.

Such an empirical finding can have clear implications for public policy. Finn argued, for example, that accepting this understanding of why poverty persists would militate against imposing a fixed lifetime limit on the amount of welfare benefits that can be collected by a given individual, since this sort of restriction misunderstands the nature of “poverty-induced tunneling.” In other words, the intended incentive effects of such a limit will tend to be attenuated by the fact that the poor are focused not on making plans for far in the future, but on short-term subsistence. A better alternative might be to institute a cap on what can be collected during a given spell of poverty or unemployment (e.g. to allow a maximum of X dollars to be collected every Y months).

Although he didn’t deal explicitly with how “popes” might assimilate the fruits of such research into Church teaching, Finn did mention that Pope John Paul II is known to have consulted with economists when writing Centesimus Annus, his landmark social encyclical. At a more practical level, a better understanding of how to break cycles of poverty can assist Church-affiliated organizations like Catholic Relief Services in designing more effective strategies for promoting growth and development.

The latter half of the talk dealt with the contributions that popes and other churchmen, theologians, and ethicists can make to the dialogue with economists. In addition to simply reminding economists that their research ought always to be conducted with an eye toward fostering the common good, the exhortations of Church leaders can contribute to a deeper, more fundamental rethinking of what is possible in the realm of political economy. Finn quoted liberally from Benedict XVI’s 2009 treatise on the global economic order, Caritas in Veritate, to show what form this kind of rethinking might take. We can see hints of the Benedictine (and Franciscan!) vision of “commercial entities based on mutualist principles and pursuing social ends” in organizations like credit unions or grocery co-ops or health insurance co-ops, but these types of arrangements remain exceptions to the basic order of capitalism.

As Finn concluded his remarks, I was left wondering about what might actually be done to further the sort of dialogue he believes is necessary. Sure, popes have consulted with economists when they want to write about economics; have economists consulted with popes when they want to write about ethics? Do economists ever want to write about ethics? I approached Finn after the talk and asked him what he made of this asymmetry and how he thought it should be addressed. He acknowledged that this was a problem, and offered a few examples of forums and conferences that have modeled the kind of interaction wants to see become more widespread. Yet his examples were events that were sponsored by the Church! My point still stood.

The 2010 documentary Inside Job, in which Matt Damon explains the financial crisis, features a discussion about the uncomfortably close ties between the financial industry and business school/econ department faculty, and the ways in which these ties can distort and bias economic research. I personally am fortunate enough to work with morally upstanding economists on a daily basis, but the near-universal lack of ethical training as a component of degree programs in business and economics is something that worries me.

As insistent as recent popes have been that their social teaching is generally applicable to the whole of humanity, and rises above the level of ecclesiastical law binding only on Catholics, the Church will nevertheless have to build coalitions with those outside of Catholicism if it hopes to overcome the perception that its forays into discussions about political and economic concerns are driven by narrow sectarian interests.

I think that Finn and others like him have started in a logical place by zeroing in on Catholic universities, though. Kenneth Garcia, in a book called Academic Freedom and the Telos of the Catholic University, argues that Catholic colleges ought to focus more on recruiting intellectuals who are well-trained in both their own particular subject area and the broader philosophical and ethical tradition of the Church. This is a tall order, and at least one reviewer expressed skepticism that there are very many of these strange beasts out there to be recruited (not to mention that previous attempts to accomplish something similar, even at Garcia’s own university, have not necessarily ended well). But if Finn’s exercise in silo-breaking is to succeed, it would seem that these are the places where it will have to get off the ground first.

A day or two after Dan Finn’s talk, I read a review by Michael Sean Winters at the National Catholic Reporter of a forthcoming book by Andrew Abela and Joseph Capizzi entitled A Catechism for Business, which attempts to offer practical advice for Catholics seeking to integrate their moral principles with their professional work. Although Winters is critical of the free-market sympathies of its authors, one a moral theologian at Catholic University of America and the other the dean of CUA’s business school, he nevertheless believes that the book makes a unique contribution:

A Catechism for Business consists of quotes drawn from the Church’s teaching on issues of business and economics and one can only hope that many Catholic businesspeople will better acquaint themselves with that teaching via this medium. They certainly would be inclined to change some of their business practices and, what is more important, the whole way business is conceived in our hyper-commercial U.S. culture…

This Catechism is a worthwhile project and I hope it will be widely distributed and read. And, I believe the conversation between traditional advocates of Catholic social teaching and economists like Abela should continue, if only to convert him from his evident devotion to the fuzzy free-market thinking we associate with the Austrians not the Apostles. But, Abela is sincere, not sinister and his collaboration with Capizzi in producing this Catechism has yielded a fine compendium of Church teachings which, if taken seriously by the business community, could result in a far more humane economy than the one those businessmen have erected on their own.

Winters seems to equivocate about precisely how broad an audience the book might be able to attract, writing first that he hopes it will be read by “many Catholic businesspeople,” but then later that it would be wonderful to see it “taken seriously by the business community [in general].”

My own sense is that a book by two academics at CUA replete with quotations from papal documents will struggle to get a hearing outside of the Church. But in the age of Francis, who knows? People like Finn, Abela, and Capizzi are doing important work, but they should be cognizant of the fact that they may need to use different language when talking to different audiences. A multiplicity of approaches will be required if we really want to “build better economies.”

Will the Geographic Profile of the College of Cardinals Really Change Under Francis?

The Pope’s Promotions

Earlier today, Pope Francis formally elevated 19 Catholic prelates to the rank of cardinal in a ceremony known as a “consistory,” marking the first time that he has made such promotions since his election last March. As with all of Pope Francis’ “firsts,” the announcement of his first picks for the cardinalate had generated a significant amount of buzz in light of his evident intention to dramatically shift the geographic distribution of the red hats.

Since their main responsibility is to elect the next pope, there is naturally a great deal of interest in the cardinals – where they come from, who they are, and what issues they care about. In the run-up to the conclave that elected Francis last March, the Pew Research Center produced a graphic showing how the percentage of cardinals from each region of the world compared to the percentage of the world’s Catholics living in those regions. The visual was stark: while Europe only accounted for less than a quarter of the world’s Catholics as of 2013, it was home to over half of the cardinals eligible to vote in the conclave. Latin America, with nearly 40% of the global Catholic population, could claim only 17% of the cardinal electors as its own.

The conventional wisdom seems to be that Francis is accelerating a trend toward the “de-Italianization” or “de-Europeanization” of the College of Cardinals that has been at work for some time. National Catholic Register‘s Edward Pentin observed in January that “[f]ewer cardinals [from] the Roman Curia [the Vatican bureaucracy] will allow the Pope to choose more widely from the Church’s resident archbishops, thereby giving a more equitable distribution of cardinals from around the world.” In keeping with his emphasis on caring for the poor, Francis’ choices included clerics from developing countries like Burkina Faso, Ivory Coast, and Nicaragua. Bishop Chibly Langlois was selected as the first cardinal from Haiti, one of the most impoverished nations in the world.

But looking at how the nationalities of the cardinals have evolved over time only tells half the story. As the Pew graphic emphasized, one also needs to take into account the ratio of cardinals to Catholics in a given region to get a sense of whether that part of the world is represented as fairly as another.

Of course, when I talk about “representation,” I don’t mean to imply that the cardinals represent the laity in the same way that congressmen represent their constituents in the U.S. House of Representatives. While the College is a quasi-democratic institution with a protocol for electing the pope that resembles the protocol used by the Electoral College to elect the President of the United States, the cardinals do not literally poll the faithful on who they want to be pontiff. Moreover, the College’s role in the actual governance of the Church is generally very limited, despite the fact that it is sometimes referred to as the “papal senate” (though the amount of input that its members have varies from papacy to papacy, and may well be reaching a high-water mark under Francis).

That said, there are clear reasons to prefer a distribution of cardinals roughly commensurate with the global distribution of the Catholic population. One is that the issues that appear most pressing to the Church in Rome may not seem all that important or urgent to the Church in the Third World, and vice versa. For example, the European and North American bishops and cardinals are more likely to worry about secularism, church-state conflicts, the aftermath of the sexual abuse crisis, and bioethical controversies than their counterparts elsewhere. In Africa, the most pressing concerns are hunger, genocide, and Islamic extremism. In South America, starvation and poverty again top the list, along with environmental degradation and governmental corruption. A Church that becomes too myopically Eurocentric will be unable to react appropriately to problems in other parts of the world.

I was curious to see whether the geographic distribution of the cardinalate has in fact become significantly more or less equitable over time, so I fired up my copy of Stata 12 and starting crunching the numbers.


Data and Methodology

The first step was to find some data. Fortunately, virtually all of the hard work of compiling information on the College of Cardinals had already been done by Florida International University’s Salvador Miranda, who curates a wonderfully comprehensive website on “The Cardinals of the Holy Roman Church.” Since the majority of Catholics lived in Europe for most of the Church’s history, and since the cardinals were almost all of Italian descent until relatively recently, I figured it would be enough to begin my analysis around 1900 (this was also the earliest date for which I could find estimates of the global Catholic population, as I explain below). I pulled data from Miranda’s website going far enough back in time to be sure that I had included all men who were cardinals at the start of the twentieth century.

Counting cardinals at any given point in time is in fact a bit trickier than it might seem. Cardinals can exit the College either by dying, by being elected pope, or (in a couple rare instances) by resigning their position. The pope can also create “secret cardinals” or cardinals in pectore, whose names are kept “in his breast” until such time as he decides to publish them. Although the date of promotion of such cardinals is technically the date the pope promoted other cardinals he chose at the same time, I thought it would make more sense to count only cardinals whose names were known publicly on the date in question.

Moreover, assigning cardinals to a particular region of the world can also get complicated. Many have held positions in the Vatican at the time of their elevation despite having been born and raised elsewhere. I decided to assign cardinals to regions based on where they worked when they were promoted, not on their nationality at birth. Since I argued at the outset that we should care about the geographic distribution of the red hats because it can affect the Church’s global perspective, I figured it was logical to count men working in the Holy See as Italians/Europeans. (That said, I also redid my analysis with nationality at birth, and the results are very similar. These, along with all of my computations, are available on request.)

For population data, I turned to the World Christian Database (WCD), sponsored by the Center for the Study of Global Christianity at the Gordon-Conwell Theological Seminary in South Hamilton, Massachusetts. From the website of the WCD I was able to obtain estimates of the global Catholic population by continent in 1900, 1950, 1970, 2000, and 2010, as well as projections for 2020.

Following some work in the political science literature, I decided to employ the Gini coefficient – most commonly used in economics as a measure of income or wealth disparities – to get a sense of inequality in the geographic distribution of cardinals. I don’t want to bore non-econ geeks with a mathematical discussion of the Gini coefficient*, so I’ll stick to essentials: Gini readings close to zero represent more equal distributions (e.g. every region of the world having a number of cardinals proportional to its share of the global Catholic population) and readings close to one represent unequal distributions (e.g. one region having all the cardinals while the others have none). In other words, the lower the Gini coefficient, the better.

Although the Gini coefficient is constantly in flux as older cardinals pass away and/or as the world population of Catholics changes, I obviously had to limit myself to calculating it at a finite number of points in time. I chose to do so at the times of the consistories when new cardinals are inducted, and at the times of the conclaves when new popes are elected. Because I only have population data at select dates, I used simple linear interpolations to estimate population at the times of the consistories and conclaves (i.e. if I had population data at time t and time t+1, I assumed that population growth between t and t+1 could be modeled with a straight line).

Following the promulgation of Pope Paul VI’s apostolic constitution Romano Pontifici Eligendo in 1975, not all cardinals are permitted to cast votes for pope during conclaves; that privilege is reserved to those under 80 years of age. Since their right to vote for pope is the primary (but by no means only) reason we are interested in their nationalities, I do my analysis in the post-1975 period on both the entire set of cardinals and on a restricted sample of the sub-octogenarians.



The following figures provide the key takeaways of my investigation.

Fig. 1: Size of the College of Cardinals, 1900 – 2014


Fig. 1 illustrates how the size of the College has increased dramatically since 1900, even as the number of eligible electors has remained relatively constant in recent years (owing to a decree of Pope John Paul II that no more than 120 cardinals may cast ballots in conclave).

Fig. 2: Percentage Share of Cardinals by Continent, 1900 – 2014


Fig. 2 shows how the percentage of cardinals hailing from each continent has evolved over time. While Europeans have lost a lot of ground compared to the early twentieth century, the absolute share of European cardinals has remained roughly constant for the last thirty years or so.

Fig. 3: Estimated Percentage of Global Catholic Population by Continent, 1900 – 2014


Fig. 3 plots the population series I constructed from the WCD data, and gives a rough idea of how the Catholic populations of different parts of the world have changed in the last hundred-odd years. A comparison of Figs. 2 and 3 makes it clear that representation of the non-European continents in the College has not grown in proportion to the growth in their shares of the worldwide population of Catholics.

Fig. 4: Estimated Gini Coefficients for all Cardinals and Cardinal Electors, 1900 – 2020


This final graph presents the estimated Gini coefficients for the College of Cardinals from 1900 to the present. The solid lines denote computations using historical data, while the dashed lines indicate projections for 2020 based on the estimated future Catholic populations of each continent in the WCD data and the assumption that regional representation in the College will remain at current levels going forward.

The pattern seen in this graph runs somewhat counter to the conventional wisdom. The lines drop off sharply at the very end of the series, indicating that Francis’ recent set of picks is indeed moving the College toward geographic equity (the coefficient for all cardinals decreased from 0.359 on March. 13th, 2013 to 0.278 today, and the coefficient for the electors from 0.329 to 0.216). Yet it is also clear that the long-run trend over the past several decades has been toward greater inequity, reversing an earlier trend that stalled out around the time of Paul VI’s reforms. Even though Popes John Paul II and Benedict XVI made an effort to extend red hats to bishops from beyond the European continent, this analysis suggests that Catholic population growth outside of Europe has proceeded even faster than the “de-Europeanization” of the College.

On top of that, the projections for 2020 offer some cause for concern. Even if the present diversity of the College is maintained, the Gini coefficient is expected to actually rise modestly over the next few years (to 0.300 for all cardinals and 0.237 for the electors). This would imply that Francis and future popes might have to be even more aggressive about looking to the ends of the Earth for new “Princes of the Church” if they are serious about making the Catholic hierarchy more geographically inclusive.


*Readers interested in the technical details of how the Gini coefficient is computed can check out page 9 of a working paper entitled “How Has the Literature on Gini’s Index Evolved in the Past 80 Years?” by Kuan Xu of the Dalhousie University Department of Economics in Nova Scotia for a lucid, step-by-step derivation.

Media Consumption Trends for 2014: The Rise of the Upgrade

Joshua Topolsky, editor-in-chief of The Verge, recently penned a column in which he argues that “we have now become defined by our penchant and desire for the upgrade.”  His thesis is that heightened consumer interest in technology initiatives across most major industries, including finance, transportation, science, food, and more, is fueling “a collective dream” of revolutionary, epochal change at a faster pace than ever before.

Topolsky’s large-scale envisioning of a coordinated push for a massive social and cultural “upgrade” seems a little too hyperbolic and optimistic.  On a smaller-scale, though, I think his use of “upgrade” as a talisman for 2014 is unintentionally prescient.  I predict the following three kinds of “upgrades” will gain increasing prominence in 2014 and will become central to our cultural economy over the next three to five years.   

1) Component Upgrades

Phonebloks, a modular phone concept created by Duth designer Dave Hakkens, attracted a social outreach of 36 million people in the last four months of 2013.  The Phonebloks device features a base motherboard that allows the user to “plug in” other components – the screen, battery, processor, camera, etc. – based on his/her preferences or needs.   Hakkens created the concept as an alternative to current phone and electronic manufacturing conventions, wherein one broken or outdated component requires scrapping the entire device.  His goal was to decrease needless electronic waste and allow for greater personal customization. 

Google and subsidiary Motorola liked what they saw.  In late 2013 they brought Hakkens on to their Project Ara team and announced that they were developing hardware to make his vision a reality. 

The powerful social and corporate response to Hakkens’ concept suggests there is substantial demand for technology that features easily upgradable components.  Hakkens correctly identified the financial and ecological inefficiencies in many of today’s products and his insight resonated with consumers- it really does cost a good deal of money to upgrade your phone, computer, tablet, game console, and other electronic devices every product cycle.  Creating devices that allow for lower-cost incremental upgrades is a logical and potentially profitable solution to this problem.

Other tech companies seem to agree.  Razer recently announced its Project Christine PC concept, which features similar swappable hardware modules designed to make modding or upgrading performance a hassle-free experience.  I wouldn’t be surprised if other tech firms hop on the component upgrade bandwagon over the next year, especially if Google is able to create enough buzz about Project Ara by previewing working prototypes.  Expect pushback from entrenched companies like Apple, but the swappable, component upgrade platform seems like a concept that’s going to become a prominent alternative pretty quickly.

2) Ownership Upgrades

The purchase of digital files and software is not the future of media ownership.  Billboard reports that music download sales fell 5.7% to 1.26 billion units in 2013.  eBook sales were only up 4.8% through the first eight months of 2013, compared to double-digit growth rates in previous years. 

The streaming database model is replacing the necessity to buy digital files.  Netflix, of course, is the company exemplar for why streaming is profitable, but other firms are starting to offer subscription services in additional media sectors.  Spotify is credited for the reduction of music download purchases in 2013 and recently received a fresh injection of $250 million in investment money.  eBook subscription services like Oyster and Scribd seem poised to attract new customers in 2014, especially if they can agree to licensing terms with additional publishing houses.  Microsoft’s push for Office to become a subscription, cloud-based service indicates that software ownership is trending away from the cyclical upgrade model too.  My guess is that video games are the next industry to take the plunge; perhaps Valve could negotiate some sort of a package “rental” service that gives gamers access to large swaths of its Steam catalog for a (relatively hefty) monthly fee.

The purchase of a digital file is increasingly a less preferential option for consumers, who can spend their money on supplementary services that offer equivalent accessibility and additional variety.  The concept of digital ownership will become increasingly unpopular as customers choose to upgrade to subscription models. 

3) Physical Upgrades

Of course, there are some products that simply won’t be available via subscription service- a given out-of-print album or a movie that’s not included in Netflix’s catalog.  In these cases, physical purchases will become an increasing norm instead of digital file purchases.  Look for publishers to increase the value that their physical products provide by offering additional services and benefits inaccessible in a digital subscription model. 

Vinyl sales were up by almost 33% in 2013 to 6 million units and account for 2% of album sales.  This is still far short of digital album sales at 40.6% of the market, but vinyl offers superior sound quality as well as the option for bonus physical products bundled with the music.  (CD sales allow for the same bonus packaging as vinyl, but their inferior sound quality makes it more likely that they’ll continue to bottom out in the forseeable future.)

Hardcover book purchases were also up by 10% in the first eight months of 2013.  As consumers spend more and more time working with screens and consuming content on mobile devices, there will be a market opportunity for print books to be a “digital overload alternative.”  Lavish book covers and high quality designs will allow for physical books to be reborn as luxury items that serve a decorative purpose beyond functional reading.

The popularity of subscription services presents an opportunity for publishers to show why their products are valuable enough to warrant a specific purchase.  In this sense, I am bullish on the prospects of print and physical sales as an alternate kind of upgrade to digital media purchases.


Taken together, these three trends suggest individuals will pursue consumption patterns that involve:

  • Pooled streaming software and content that involve higher recurring costs
  • Occasional physical purchases that supplement the streaming pool
  • Interchangeable hardware that features lower, more infrequent costs

Hardware will still be integral to consumer purchases, since the device is the medium to access the content, but it seems that the trend going forward will be decreased annual spending on hardware upgrades.  This decreased spending might instead flow towards software and content. 

Content subscription services are no sure thing, of course.  There is a wide discrepancy between Netflix’s soaring stock price and Spotify’s inability to turn a quarterly profit.  Sustained consumer interest in modular hardware is also not guaranteed, since there will always be demand for self-contained devices that guarantee form and content work in perfect synergy (such as the iPhone).  

Yet the relative affordability of subscription services (at least with respect to their marginal utility) coupled with increasing market permeation suggests that streaming companies are poised for significant expansion in the coming years.  And the significant interest in interchangeable hardware products indicates this is an avenue worth pursuing in the short term.  These kind of upgrades might not precede the macro technological revolution that Topolsky envisions, but they do promise more choices and easier information accessibility going forward.  That is cause for celebration and, indeed, (moderate) excitement.  

Basic Thoughts on Basic Income’s Future

The feasibility of a national basic income model has become a hot conversation topic over the last couple of weeks, spurred by Switzerland’s upcoming public referendum on the implementation of a basic income guarantee for its citizens. In a basic income model, the government provides each of its voting-age citizens a monthly or annual stipend to replace the various social welfare payments the government normally distributes. The goal is to effectively eliminate poverty by ensuring that everyone has a minimum income for self-sufficiency while also creating a more efficient centralized payment system.

No widespread adoption of this model has occurred in the past, though a host of small towns and districts from around the world have enacted basic income guarantees with generally successful results. As Annie Lowrey mentions in her report on Switzerland’s ballot, beyond ridding these “test” communities of poverty, guaranteed income also spurred positive externalities such as higher education levels and lower hospitalization rates.

Of course, local-level implementation of the basic income model differs greatly from any sort of theoretical national implementation, especially in the United States. Many economists are skeptical or outright pessimistic about its efficacy and feasibility. Questions about currency inflation and monetary devaluation are inherent, as is the fear that this kind of lump-sum payment will either disincentivize people from working or lead to adverse spending on things that won’t actually reduce poverty. On the budget side, Danny Vinick calculates that it would cost $2.14 trillion to provide a poverty-line level of basic income to all American adults between the ages of 21 and 65. Even when the costs of programs rendered unnecessary by a basic income policy are credited to that total (such as food stamps and earned income tax credits), we would still be short about $1.2 trillion annually.

Although basic income may not be a viable policy proposal at present, it wouldn’t surprise me if it becomes an increasingly popular idea over the next few decades. I say this for two overarching reasons:

1) It appeals to both conservatives and liberals.

Well… sort of. For the most part, basic income appeals to libertarians and quasi-socialists who are operating on wildly different premises. Charles Murray, one of the faces of the libertarian basic income movement, argues that it’s a more efficient mechanism for disbursing government funding since it aggregates all social welfare payments into one check per individual. He believes it’s an avenue to make the market more efficient and less bureaucratic. On the left, scholar Philippe Van Parijs, who has published extensively on basic income, argues that it’s a means to achieve “true freedom” and one of the only mechanisms that justifies capitalism.

Despite these disparate philosophical positions on basic income, it’s promising to think that a common ground exists, especially one which solves the harms that both men identify. Not only do we realize greater economic freedom and poverty alleviation, but it’s done in such a way that makes American capitalism theoretically more efficient and reduces the role of government in managing a host of welfare programs. There should certainly be skepticism whether either of these outcomes could actually be achieved, but it’s heartening to imagine that we could find a relatively broad consensus on an issue that would nominally seem so divisive.

Actually seeing these ideas trickle down to a viable political level is no guarantee, especially since they’re coming from each party’s outer orbit. But I think this will become a more mainstream issue in the future because…

2) A permanently post-manufacturing society has to support its population somehow. This might be a way.

Much has been said about America’s loss of manufacturing jobs over the last 3-4 decades. Despite recurring reports about the small-scale American manufacturing revitalization, it’s unlikely that most of these jobs are coming back. Ideas- and service-based industries are already central to our economy and will likely become even greater components of U.S. GDP in the future.

Coupled with the likelihood of increased automation in service and production lines (including machines building and creating new machines), there will be fewer and fewer lower-skilled jobs in the future. A premium will be placed on people with ideas to create new things, but there will likely be fewer and fewer positions for people to actually make those things.

How will low-skilled people, who will probably make up a sizable proportion of eligible workers, be able to earn a living in this scenario? Perhaps this is where basic income could come in. The primary critique economists cite against basic income is that it disincentivizes people from working, but if there simply aren’t enough jobs to go around, then this disincentive becomes a potentially helpful mechanism to temper a swelling labor supply.

In this scenario, basic income serves as a mediating factor to ensure that all citizens are at least provided a minimum level of security and livelihood. It functions as a security hedge, too- unrest is always higher when people can’t work and can’t eat. The result is a new kind of social structure in which people can opt not to look for work and still have basic securities (food, clothing) or to look for a job and work to move beyond this minimum. Everyone has the basics but those who want to pursue further profit can do so.

This is a gross simplification of what would be a very complex situation, of course, and it doesn’t address the problems identified earlier that exist today. It’s unlikely we’re going to have an extra $1.2 trillion (2013 dollars) each year lying around in 2090 to spend on something like this. But I’d imagine the proposition of basic income will become more and more prominent as the years go by and we have to start confronting what a decidedly post-manufacturing society will look like. Given the potential for overlapping interest from the left and the right, basic income experiments in small towns might become more and more common as a means to test national feasibility.

I’m hoping Switzerland’s referendum passes. It’ll be fascinating to see whether this can work on a larger scale.

The Political Economy of New Jersey’s Minimum Wage

Barring any last-minute surprises, New Jerseyans are poised to head to the polls on Tuesday ready to take the paradoxical step of reelecting Republican Governor Chris Christie by an overwhelming margin at the same time that they amend the state constitution to raise the minimum wage to $8.25 and to provide for automatic cost-of-living adjustments (COLAs) in the future. Paradoxical because of the fact that Christie publicly opposes the ballot measure, and vetoed a bill passed by the Legislature earlier this year that would have enacted a policy almost identical to the one now being put to the voters.

In a statement following his conditional veto of a measure that would have raised the state minimum to $8.50 from the current federally-mandated floor of $7.25 while also instituting annual COLAs, Christie argued that the “sudden, significant minimum-wage increase in this bill, coupled with automatic raises each year tied to the United States Consumer Price Index, will jeopardize the economic recovery we all seek.”

Democrats in the Legislature argued at the time that Christie’s action was one he would come to regret, and that the opportunity to put the issue before voters in November would ultimately redound to their own political benefit. The electorate might not have been enthusiastic about the party’s little-known gubernatorial nominee, State Sen. Barbara Buono, but the minimum wage question would, according to this line of thinking, prod Democratic leaners to show up at the polls and allow the party to tap an otherwise unmotivated reservoir of anti-Christie votes. The excitement generated by a referendum campaign would help to make up for the enthusiasm gap left behind when better-known Democrats like Cory Booker – who, as the Star Ledger put it last December, “picked a cozy run for Frank Lautenberg’s Senate seat over a bare-knuckle brawl with the big man” – took a pass on the race.

But with polls now projecting that both Christie and Question Two will easily prevail, it is clear that this strategy failed to deliver. That said, the Democrats were not necessarily crazy for believing it would improve their chances; Christie just happens to be an exception to this particular rule of political thumb. The minimum wage has always been an effective cudgel with which Democrats can beat up Republicans. The policy is easy to understand and speaks to the personal experience of a sizeable fraction of the American population (even though only a small share of the workforce is earning the minimum wage at any given moment in time, the proportion of workers who have ever earned the minimum at some point in their lives is much higher).

The most common argument against raising the minimum wage, like many arguments proffered by Republicans in defense of less government regulation, relies on an apparent counterintuition. Claims that low-income people are hurt the most by policies that require employers to pay their low-income workers more, whatever their validity, resonate less with voters than the simple populist refrain that wealthy business owners can afford to (and therefore ought to) share more of their surplus with the little guys. For that reason, Republicans will almost always be at a rhetorical disadvantage whenever the issue comes up. Those who are worried about the party’s long-term viability and competitiveness in national elections should be eager to find some way to take it permanently off of the table.

Ten states have minimum wages that are indexed to inflation. Both Barack Obama and his former challenger Mitt Romney are supportive of inflation indexing at the federal level, yet congressional Republicans continue to block the proposal. By doing so, they only guaranteed that the issue will be resurrected by their opponents again and again. Perhaps Christie had all of this in mind, and vetoed the original bill in an attempt to let the Democrats resolve the issue for good without having to alienate his allies in the business community. Not that he didn’t alienate them anyway, though; some business groups are just as opposed to automatic minimum wage hikes as they are to ad hoc ones. The National Federation of Independent Business, a conservative advocacy group best known as the lead plaintiff in the Supreme Court case that upheld the Affordable Care Act, recently tweeted that it is inappropriate to use constitutional amendments as a vehicle for making economic policy (given their support for state amendments prohibiting individual health insurance mandates, one suspects that this position is one of expedience rather than principle).

NFIB believes that allowing a provision like this to make it into a state constitution will make it harder to remove or amend when the injurious side effects of an ever-higher minimum wage begin to materialize. Even if their warnings about these effects are overblown, they may have a point: on my reading, the ballot measure only provides for increases in the minimum during years in which the Consumer Price Index rises, meaning that it would remain flat in the event that the CPI stagnates (similar to the way that COLAs work for Social Security). This means that a relatively severe bout of deflation could lead to a sharp increase in the minimum wage in real terms, potentially increasing the severity of an economic downturn.

How exactly this scenario would play out is an open question that will have to be left to empirical economic research, but all else equal, policymakers would indeed find it more difficult to tinker with the law if it were embedded in the constitution rather than dictated by statute. Early in his first term, Governor Christie advocated amending the state constitution to cap local property tax increases, though he ultimately struck a deal with the Legislature to enact a statutory cap instead. This was seen at the time as a victory for the Democrats, since a statutory cap would be easier to undo if, as many of them predicted, towns and municipalities found it too onerous to abide by the caps without sacrificing vital priorities.

All of that said, conservatives should still on balance find the idea of minimum wage COLAs appealing. They reduce uncertainty for businesses and make it easier for them to plan for the future. Instead of large, discrete hikes in the minimum that can come at unexpected times and be driven by the vicissitudes of public opinion and the vagaries of the political cycle, all future increases under such a policy regime would be modest and would occur at regular intervals. In response to Christie’s conditional veto of the original minimum wage legislation, Senate President Steve Sweeney declared that “[Christie’s] action shows that he believes politics and politicians need to remain part of the process on minimum wage… I think they need to be removed from it entirely.” Shouldn’t conservatives worried about the threat posed to the private sector by uncertainty be supportive of making labor market regulations more predictable?

Both Christie and the business community will likely come to be thankful for the fact that the minimum wage will never again be a subject of debate in New Jersey (if they don’t quietly believe this already). Democrats, in achieving a spectacular policy victory, will have relinquished a reliable political weapon. Imagine the benefit to the national Republican Party if it too came to grasp the deep logic of this issue and disposed of it once at for all at the federal level. Can anybody think of some candidate who, come 2016, might be able to help it connect those dots?

Reconciling the Consumer and Producer Markets for Spotify & Streaming Music Services

Last week, musician David Byrne penned an extensive op-ed critique of streaming music providers in The Guardian. Byrne argues that subscription services like Spotify and Rdio will ruin the creative sustainability of young musicians due to their low compensation rates. He writes:

The amounts these services pay per stream is miniscule – their idea being that if enough people use the service those tiny grains of sand will pile up. Domination and ubiquity are therefore to be encouraged. We should readjust our values because in the web-based world we are told that monopoly is good for us… In the future, if artists have to rely almost exclusively on the income from these services, they’ll be out of work within a year.

Byrne cites examples of other artists who have voiced criticism of Spotify’s business practice, including Thom Yorke and Nigel Godrich, the latter of whom released another argument against streaming music on the same day Byrne’s editorial was published. In addition to quoting other musicians unhappy with Spotify’s compensation rates, Byrne provides examples of artists who have been paid pittance for their music:

The major record labels usually siphon off most of this income, and then they dribble about 15-20% of what’s left down to their artists. Indie labels are often a lot fairer – sometimes sharing the income 50/50. Damon Krukowski (Galaxie 500, Damon & Naomi) has published abysmal data on payouts from Pandora and Spotify for his song “Tugboat” and [David] Lowery even wrote a piece entitled “My Song Got Played on Pandora 1 Million Times and All I Got Was $16.89, Less Than What I Make from a Single T-shirt Sale!”

That Byrne and other artists are voicing their displeasure with Spotify is understandable given the low royalty rates that Spotify pays out. According to The Cynical Musician, artists earn a mere $0.00029 per stream through Spotify, and other subscription services pay similar rates. This seems grossly unfair and borderline ludicrous for artists like Krukowski and Lowerey, especially when Spotify’s net worth is currently estimated at around $3 billion and it pays out $500 million to the major labels for use of their catalogs.

These numbers, however, belie a much more complicated financial reality that streaming services must negotiate. The arguments against Spotify that Byrne, Godrich, and others make also extend beyond propositions for fair financial compensation and into normative assumptions on what new music businesses should encourage or provide. Accordingly, the backlash against streaming music adheres to a music production model that has different base assumptions than those of music consumers. A more comprehensive look into how the producer understanding of the market differs from the consumer understanding of the market shows areas where all parties involved – artists, consumers, labels, and streaming services – can adjust their expectations and practices for the long-term sustainability of commercial success in music.

Bryne, Yorke, and Godrich argue that more effective revenue sources need to be tapped in order to fairly compensate artists for digital music purchases. They suggest that the growing demand for streaming music requires equitable increases in how much artists are paid for providing their music on these services. Both Byrne and Godrich also tilt this argument to particularly focus on new artists who don’t have income from merchandise or touring that more established musicians might. Byrne: “What’s at stake is not so much the survival of artists like me, but that of emerging artists and those who have only a few records under their belts (such as St Vincent, my current touring partner, who is not exactly an unknown). Many musicians like her, who seem to be well established, well known and very talented, will eventually have to find employment elsewhere or change what they do to make more money.”

While Byrne’s intentions are admirable, his singular focus on new musicians leads to a muddied conception of exactly how streaming services should compensate artists. Why should an “emerging” artist without other income sources be treated differently than any other established artist with low streams or digital sales? When Byrne talks about “musicians” in his piece, shouldn’t we assume that every artist on Spotify deserves to enjoy the ability to earn a living wage from making music? He quotes the Black Keys’ Patrick Carney: “For unknown bands and smaller bands, it’s a really good thing to get yourself out there. But for a band that makes a living selling music,” streaming royalties are “not at a point yet to be feasible for us.” Is Byrne arguing that even artists who generate almost no activity or interest deserve to earn money from streaming that, at a minimum, supports basic “feasibility” or subsistence?

The implications of this question are an extrapolation from Byrne’s thesis, but they do call into question how Byrne divides budding artists and the rest of the lower-profile musicians on Spotify. Byrne, Godrich, and Carney believe that promising artists require better support to compose new, creative music, but by their own logic, all artists on Spotify should be entitled to similar levels of fair compensation.

This model, of course, is unworkable, and it’s why Spotify compensates artists based on stream counts. While it might be ideal for an innovative, lower-profile band to earn a healthy income despite only generating a slim number of streams, it’s not a sustainable business model. There are 80 million songs and tens of thousands of artists on Spotify, and the vast majority of traffic focuses on the same top-40 tracks that populate the Billboard and iTunes charts. To guarantee every single artist a basic guaranteed income (to guarantee fairness across the board) requires fixing a high base royalty rate to the lowest common denominator- say, a band that generates only 1,000 streams of their album in a year. Spotify is already operating at a quarterly loss with their current royalty rates; this increase would put the company out of business faster than the quashing of a Smiths reunion rumor.

This isn’t to say that the rate Spotify pays is fair. “Daft Punk’s song of the summer, “Get Lucky”, reached 104,760,000 Spotify streams by the end of August: the two Daft Punk guys stand to make somewhere around $13,000 each,” Byrne reports. That’s not a terrible number, but as it’s one of the top songs on Spotify, it doesn’t speak well for the vast majority of artists who don’t generate that kind of reception.

Perhaps an even better way to quantify the unfairness of Spotify’s rate is to compare the “per-stream” profit of Spotify vs. a paid music download. Most songs retail for $0.99 as individual downloads, and we might think of this retail price as the right to stream a given song in perpetuity or for life. Let’s assume a person buys a song at age 20 and will play that song an average 20 times each year for the next 60 years. That’s effectively 1200 streams, which theoretically generate revenue of $0.00083 / stream. Even if the artist only gets a fraction of that total as a royalty (the label probably takes a pretty good chunk of the $0.99 retail price), this amount is still substantially higher than Spotify’s $0.00029 / stream- and most people will only play a select few tracks this frequently over the course of their life. Based on this conception of what “purchasing music” entails, Byrne and co. are correct that Spotify’s royalty rate should be higher.

The problem is that roundly criticizing streaming services for low rates alone is not enough; a rising base royalty tide inherently raises all artistic ships, but too high of a tide washes everything away. The missing piece in Byrne’s argument is the presence of a discretionary mechanism for more effectively compensating artists who need that extra funding to support otherwise-unworkable projects. Without this mechanism, there isn’t a good way to fairly distinguish who deserves an even higher rate.

Godrich alluded to this issue in one of his earlier posts about Spotify:

Catalogue and new music cannot be lumped in together. The model massively favours the larger companies with big catalogues. They need the new artists to be on the system to guarantee new subscribers and lock down the “new landscape.” This is how they figure they’ll make money in the future. But the model pays pittance to the new artist right now. An inconvenient fact which will keep coming up. I feel a responsibility to speak up when I see something going on which I think is unfair. I’m not bitching about not getting paid. It’s about standing up for other artists’ rights. It’s up to streaming providers to come back with a better way of supporting new music producers. It’s not for us to think up how it could work. That’s your department.

In addition to the aforementioned issue of qualifying how to meter higher royalty rates, there are two problems with the argument Byrne and Godrich are making here. First: why are they placing agency on Spotify for low royalty rates and not music labels for trying to negotiate better deals? Godrich: “The big labels did secret deals with Spotify and the like in return for favourable royalty rates. The massive amount of catalogue being streamed guarantees that they get the big massive slice of the pie (that $500 million [which Spotify pays out to labels]) and the smaller producers and labels get pittance for their comparatively few streams.” This isn’t a just a problem on Spotify’s end; it sounds like oligopolistic behavior by major labels has resulted in a failure to consider their clients’ best interests (or, conversely, it’s creating crowding-out effects that give less leverage to smaller independent labels). Byrne and Godrich should continue to advocate for higher rates from Spotify, but to an equal or even greater degree, the target of their discontent should be labels for mortgaging artistic development for pure profit.

The other, more underlying problem with Godrich and Byrne’s arguments is their fundamentally different conception of individual artists’ value versus that of most music consumers. Byrne and Godrich recognize the unique creative potential of each individual artist and advocate financial support for these artists to encourage their development. In contrast, I hypothesize that most music consumers, influenced by the ongoing devaluation of digital music, view artists as producers of interchangeable products who have minimal unique value.

Let’s break this hypothesis down by first looking at the consumption trends of digital music purveyors. The Top 100 tracks on iTunes, Spotify, and other online music providers generally reflect the same broad consumption patterns, in that the same songs (usually pop radio hits) account for the highest of sales and traffic. This suggests the majority of music consumers use streaming music providers to primarily access the songs of the moment. Beyond hot tracks, consumers then find value in the back-catalog that contains their favorite artists- a small group of bands or singers that they follow closely and would support beyond casual streaming (going to concerts, buying albums, etc). The remaining value of streaming services comes from the long tail, or the extensive back-catalog that allows listeners to quickly and easily access a huge bank of tracks that fit a specific moment or immediate need. Soundtracks for parties, seeking out new artists, and other “one-off” listens fall into this category.

Herein lies a substantial difference from Byrne’s arguments. “A culture of blockbusters is sad, and ultimately it’s bad for business,” he says, but based on the listening patterns exhibited on major music services, this culture is currently the main driver of industry profit, with “new” artists often acting as simply a bonus for a sizable number of people.

In theory, many music listeners would agree Bryne’s assertion that “a culture of blockbusters is sad.” The problem, however, is that it’s not a culture of blockbusters that is crowding out new musicians, but a larger-than-ever supply of these new musicians. In Byrne’s excellent book How Music Works, he describes a number of changes in how record companies have operated since the mid-twentieth century. Two of those changes stand out in terms of how artists now make music:

1) Recording costs currently approach zero for many projects. “Now an album can be made on the same laptop you use to check email,” Byrne writes.

2) Manufacturing and distribution costs are also approaching zero. “Digital distribution is pretty close to being free. Digitally, it’s no more expensive to distribute a million copies than a hundred,” he says.

If there are minimal costs to both create music and disseminate it to potential listeners, basic economics dictates that the supply of music is going to increase since more people now have the ability to make and share it. And supply has increased, greased by improving technological standards that allow people to download and stream music in almost no time at all. We may be living in a “culture of blockbusters” as Byrne asserts, but we’re simultaneously living in an era of unprecedented musical flourishing spurred by the collapse of a hierarchical structure for getting music to the public. Anyone can make music and earn a following with greater ease than ever before.

Ironically, though, the increasingly horizontal nature of music creation is spurring the deleterious effects that Byrne discusses in his op-ed. When the supply of artists increases, I argue that consumers begin to place less value in a given individual artist because there are so many alternate songs or albums that can act as effective supplements. This problem is exacerbated by a service like Spotify, which people use primarily to find hits and see the long-tail artist catalog as a cherry on top. If there is a fixed percentage of long-tail streams (versus hot 100 or radio hit streams), and more artists continue to enter this fixed pool, the average individual attention for each artist is going to drop. More artists results in a devaluation of individual musicians since there’s simply more potential music to choose from.

The technology that has allowed more people to create music is also shaping how we conceive of the value of music and individual songs. That music is now so easily accessible on YouTube and via piracy suggests it is being assigned an inherently lower value than other forms of art. I believe that our modern conception of media value is increasingly a positive function of two factors: file size and length. The larger an object’s file size and the longer its length, the higher the price we’re willing to pay for it (notwithstanding the actual unit costs that are associated with each object). I’d maintain this is partly why people are willing to pay $50-60 for video games (large file size, 40+ hours) and $15 for films (medium file size, 2-3 hours). This isn’t to say every piece of media is inherently valued at these levels across the board, but it suggests a trend for what people expect a given media product should be worth.

Not surprisingly, music comes off pretty poorly in this equation. Low file sizes make it the easiest form of media to pirate and upload to YouTube, and short track lengths (usually 3-4 minutes) suggest a commodity that is exchangeable and transient. This is especially the case when there is no corresponding physical packaging.

The increase in music supply further affects the purchase of full albums beyond individual songs. The greater the quantity of available music to listen to, the less likely it is that a consumer will go all-in and splurge on only one album, especially if he/she is on a limited budget. The purchase of an album reflects a greater willingness to put more time into the music. It’s a deeper investment in the artist’s work. For most people, though, there is very little reason to pick up a random album on a whim. Even a $7 sticker price is asking too much for an unknown value. We put money into things that last longer because we have reason to think this length provides justifiable return. Most people only buy a select few games or watch a limited number of movies because they pick and choose based on subject material that’s likely to appeal to them. The other element is that the supply of available movies and games is much more limited than music today. Byrne’s rationale for cheaper music production extends to why people don’t value individual albums as much – more artists are around to make more music. When so many supplementary items are available, it’s unlikely a consumer will put his financial and temporal eggs in one basket to purchase a single album when others could fill a similar need.

All of this is to say that a fundamental shift has already occurred in how people consume music, and there’s no going back to the status quo of twenty or even ten years ago. We’re at a nexus where musicians fear they won’t be able to make sufficient profit to sustain their work and where consumers are placing less value on individual units of music, be they songs or albums. What can be done to have these trends coexist?

I’m no expert in music making or the music business, and many people smarter than me are trying to tackle this question. But a few potential avenues stand out:

1) People are more risk-averse when buying full albums due to the high cost associated with them. Record prices need to be lowered or additional physical content needs to be added to CD sets to further entice buyers to move beyond digital streaming. LPs that throw in extra photos and a free digital download of the record are a step in the right direction, for example.

2) Streaming rates need to be higher, as discussed above. Though services like Spotify are operating at a loss, discontent will continue to mount if rates are not increased. Artists should try to negotiate more equitable deals with record labels, too. Label revenue per stream on Spotify is $0.0016, according to The Cynical Musician, which is nearly five times as much as the average artist rate.

3) Creative marketing is imperative; bands are now, more than ever, responsible for their own financial destiny. Godrich’s admonishment to record labels of how finding new profit avenues is “your department” for finding a solution to low streaming rates doesn’t hold any water at all; this isn’t some problem that artists can offload and expect to be solved. While labels might bear the brunt of trying to find more profitable avenues, artists now exert greater control in getting their music to people in new ways.

I would imagine that Byrne would be pessimistic about these three suggestions, and I don’t think he’d be incorrect- they’re not enough to spark a sea change in how musicians are compensated. “Musicians might, for now, challenge the major labels and get a fairer deal than 15% of a pittance, but it seems to me that the whole model is unsustainable as a means of supporting creative work of any kind. Not just music,” he says.

But Byrne’s pessimism about the future of artistic innovation in music and other spheres of culture seems, on the whole, too pervasive. He suggests in How Music Works that many, if not most, musicians would make music without any incentive for profit because it’s something they love to do. The ubiquity of great music today suggests that even if making music becomes increasingly less of a career-sustaining activity, the impulse to create something completely new will still exist. And the technology is there to get people to hear it. Perhaps record labels will become an institution that, in addition to marketing the biggest pop starts, fund projects that require a prohibitive up-front investment that couldn’t be accomplished on a DIY level.

So yes, streaming music is having negative effects for a number of musicians, and that needs to change. But the problem isn’t so cut-and-dry as to say that providers like Spotify are the problem and a culture of hits is an inevitable outcome. The underlying changes in how people create and value music need to be more thoroughly considered in order to find new best practices to solve this problem. Rectifying these differing consumer and producer views of the market is the first step to a more nuanced understanding of digital music consumption and finding ways to equitably satisfy artists, consumers, labels, and providers.

Who Will Win the Economics Nobel?

Tomorrow morning will see the announcement of the winner(s) of the 2013 Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel, colloquially known as the Nobel Prize in Economics.

Thomson Reuters has a tradition of offering predictions as to who will take home the Economics Prize, as well as the Nobels in Medicine, Chemistry, and Physics (for whatever reason they don’t try their hand at guessing Literature and Peace). Their performance this year was hardly stellar – the only correct prediction was for Physics, which was awarded to Francois Englert and Peter Higgs last week for their own correct prediction about the existence of the Higgs Boson – so perhaps we shouldn’t put too much stock in their forecasting ability.

In any case, Reuters identifies three groups of economists as possible recipients: MIT’s Joshua Angrist, Berkeley’s David Card, and Princeton’s Alan Krueger for their work in empirical microeconomics; Oxford’s David Hendry, Cambridge’s M. Hashem Pesaran, and Yale’s Peter Phillips for their work in time series analysis; and Chicago Booth’s Sam Peltzman and Chicago Law’s Richard Posner for their work in the economic theory of regulation.

The New York TimesEconomix blog and the Wall Street Journal’s Real Time Economics also weigh in with a host of other guesses. Marginal Revolution’s Tyler Cowen notes that his “personal prediction (which never once has been correct, at least not in the proper year) is for an early ‘shock’ prize to Banerjee, Duflo, and Kremer…” The second, MIT’s Esther Duflo, is a winner of the American Economic Association’s John Bates Clark Medal, many former recipients of which have ultimately gone on to become Nobel laureates.

My own bet is for a prize in applied micro or econometrics, given that fields such as game theory and macro have been recognized multiple times in the last several years. If it’s the former, then I’ll follow Reuters’ lead in betting on Card and Krueger. If the latter, then I think Real Time Economics is justified in claiming that Chicago’s Lars Hansen, who developed the technique known as the “generalized method of moments”, “is seen by many as a shoo-in.”

Update: I got one! (Correct, that is. I did not win one myself.)

Opposing Debt Ceiling Hostage-Taking is the Reasonably Moderate Thing to Do

Chris has offered a clarification of what he wrote last week about the “debt ceiling consequences of the [government] shutdown” in which he explains that he was not so much focused on how the shuttering of federal agencies might change the House Republicans’ calculations about how to approach the matter of increasing the debt limit as he was on the fact that a prolonged closure of the government would inevitably see the two disputes fused into one mega-dispute that would be much harder to resolve.

Given that these issues have been impossible for the two sides to dispose of separately, there is little reason to think that it will be any easier to do so if they are combined. Late last week, reports began surfacing that GOP leaders were coming to believe the only way out of the quagmire would be to finally strike a hitherto elusive “Grand Bargain” on taxes and spending with Obama and the Democrats. Business Insider’s Josh Barro posted on Twitter that “[t]he idea that resolving the shutdown becomes easier if you try to reform entitlements at the same time is so insane.” Convincing the Republicans to reopen the government and extend federal borrowing authority in one piece of legislation when they have been completely opposed to doing either separately will not be an easy task. Convincing them to do both of these things while also negotiating a fiscal accord that could not be concluded during any of the many attempts made since the wave election of 2010 – and to do all of that before the end of next week – would be downright Herculean.

Talk of the Grand Bargain may have faded, but the October 17th deadline is approaching fast and time to develop alternative plans is running short. This Week host George Stephanopoulos maintained on his ABC show this past Sunday that “the chances of actually tripping over into default are higher than they’ve ever been.” Ezra Klein’s Wonkblog has debuted a fun (but frightening) feature called the “Daily Default Dashboard” that uses a composite index of financial market indicators and online betting statistics to keep track of just how likely that outcome might be. As of yesterday, the needle had moved from “something’s not quite right” to “getting kind of scary” on account of interest rates on one-month Treasuries nearly doubling overnight.

I agree with Chris that the case for pessimism is strong. Yet I still think we as a nation are in a better position right now than if the Republicans had totally capitulated on the government funding issue and provoked the “whale of a fight” over the debt ceiling that House Speaker John Boehner promised back in August. For one thing, polls are beginning to show that the Republicans are indeed taking more of the blame than either Obama or congressional Democrats for the shutdown, and that even their own co-partisans are doubtful of the ultimate merits of their scorched-earth strategy (if one can call it a strategy). Unity in the Republican ranks is breaking down, even if the process of disintegration has so far proceeded in fits and starts.

By contrast, congressional Democrats – and especially Senate Democrats – have preserved their cohesiveness to a remarkable degree, selling even vulnerable red state members up for reelection next year on the benefits of maintaining a united front against the GOP. As a result, the Republicans have repeatedly downsized their demands and now seem willing to settle for relatively small-bore concessions like a repeal of the Affordable Care Act’s medical device tax or further means-testing of Medicare. Of course, the president’s position is still that any concessions are too many, but it is only because of his having adopted such an uncompromising stance in the first place that the opposition appears ready to end the crisis in exchange for token gestures.

On a related note, I think it’s important to flesh out a meta-point Chris made about his thoughts on the debt ceiling, namely why he felt the need to “come down so hard against the GOP.” He writes:

Negotiating over the specifics of a budget deal is one thing. A minority party’s use of its standing to block spending bills and dictate the legislative process is something else entirely. There will be a Republican President and Senate in the future; what happens if they encounter a Democratic House? Would we really want to go through this mess again? Establishing strong principle is imperative here, not for the benefit of the Democratic Party but for the integrity of the governing process.

Liberal commentators and politicians bemoan what they see as a “false equivalence” promoted by journalists, whom they perceive as reluctant to report on any example of bad behavior by members of one party without simultaneously highlighting a commensurate transgression on the other side of the aisle. While that is indeed a real problem, the current crisis has actually seen a range of nonpartisan media outlets displaying a greater willingness to assign blame solely to the Republicans.

To anyone who might charge us with abandoning our commitment to reasonable moderation by not offering up equally forceful criticisms of both parties, we answer that opposing debt ceiling hostage-taking is the reasonably moderate thing to do. As Chris pointed out, there are aspects of healthcare reform that can and should be changed, and we ought to having a vigorous debate about the fixes that need to be made as implementation proceeds. I suspect that he and I differ on what those fixes should be; maybe we can hash that out sometime soon. But for now, we are in agreement about the fact that the Republican Party’s current conception of the rules of American political engagement is a dangerous one. If we are ever again to be a fully functioning democracy, putting an end to these tactics is critically important.

More on the Budget Battle and Debt Ceiling Consequences

Matt’s post yesterday elucidated why the current budget battle might provide calmer waters for the upcoming debt ceiling debate. I hope he’s correct. The consequences of the government shutdown are harmful, to be sure, but they pale in comparison to the effects of breaching the debt ceiling. If the former precludes the latter, the argument can be made that our current squabbling was, in some unsatisfying ways, justified.

Unfortunately, it’s not guaranteed that the budget fight will assuage the Tea Party’s insistence on getting something out of the debt ceiling debate. Matt provides testimony from Evan Soltas, Ezra Klein, and Noam Scheiber about how the budget fight should temper the Republicans’ drive for extraction, but it’s still very much uncertain whether the House will roll over and lie down. Matt acknowledged this: “It is not necessarily the case that a shutdown-induced PR nightmare will diminish [the hard Right’s] appetite for further escalation. In fact, it might even do the opposite.”

More worrisome is the fact that the budget situation and the debt ceiling debate are increasingly joined at hip. Matt correctly points out that I didn’t clearly discuss the connection between the two in my previous post, and I apologize for that. By “possible spillover effects,” I meant that the entrenched disagreement between the House and the Senate / President Obama would carry on from the budget battle into the debt ceiling debate. Based on the risk of this entrenched opposition, the debt ceiling debate becomes a potential consequence of the budget battle when:

1) It’s decided that they should be addressed together, either by necessity or by agreement.

2) A limited timeframe for solving both mandates a sweeping policy proposal for immediate resolution.

Point number 2 becomes increasingly unavoidable as each day passes, and point number 1 is already happening. On September 28, House Budget Committee Chairman Paul Ryan (W.I.) told National Review Online that “I think (the government shutdown) will fold into the debt ceiling fight. I think that’s inevitable. And preferable in my opinion. I like combining all of our leverage, which is sequester and the debt limit.” Perhaps more disconcertingly, even Democrats acknowledge this is a desirable outcome. “We’d like to move them both together,” says Sen. Charles Schumer (N.Y.), the third-ranking Democratic leader. “I think having them together is a good thing because who wants to go through this again. The hope is maybe once the Tea Party has realized it’s not getting its way on shutting down the government that they won’t try the same stunt on debt ceiling.”

(Another scenario not suggested by Ryan or Schumer: the GOP gives up on the budget battle and focuses solely on negotiating a non-Obamacare deal, such as additional sequester, with the leverage of the debt ceiling. This idea was adamantly supported by a host I briefly heard on the radio earlier this week. You know, because bargaining with the full faith and credit of the United States in the balance should always be the go-to strategy.)

Ryan and Schumer’s quotes are equally disturbing. Ryan speaks to the main reason why the Tea Party will continue to advocate for a government shutdown: it forces Congress to deal with both issues at once, supposedly giving the GOP a stronger hand against the Senate and President. This is the opposite outcome of Matt’s scenario and risks creating even further deadlock. Schumer, on the other hand, assumes Matt’s outcomes but uses Ryan’s rationale to come to them. It’s problematic if Democrats believe that combining the debates and giving Republicans a power play will somehow lessen the danger of toying with the debt ceiling.

Of course, one Senator and one Congressman do not a collective decision make. More importantly, John Boehner’s staff indicates that he will not allow House Republicans to wage a debt ceiling coup and will instead rely on a combination of Democratic and Republican votes to push a raise through regardless of the Tea Party faction’s objections. Most financial organizations are assuming this will be the outcome of the current squabbling; I read a quote (can’t recall the source) from one analyst saying that people are delusional if they think the U.S. would actually default on its debt obligations.

Although it’s highly unlikely we’d cross that line, it’s still a little unnerving to see some banks and organizations prepare for worst-case scenarios just in case. And even if a solution is reached before the October 18 deadline, consequences will still be felt if a lengthy negotiations process occurs. A drop in consumer confidence, declines in the stock market, and a credit downgrade all occurred in advance of the last-minute 2011 debt ceiling deal and economists are already warning about similar effects this time resulting from protracted negotiations.

Beyond the economic effects of continued squabbling over the debt ceiling, it would be supremely frustrating to have endured multiple weeks of government shutdown only to see the House force-pass a clean continuing resolution and an uncontested debt ceiling increase. The exact same outcome could have been achieved without any collateral costs had the same decisions been made in early September. Economists indicate that 0.1 to 0.2 percentage points of 4th quarter GDP growth could be lost with the government shutdown when all is said and done, notwithstanding any effects from a loss of consumer confidence linked to debt ceiling uncertainty. That’s in addition to the personal, social, and cultural effects of the shutdown, a number of which I listed in my previous post.

Matt correctly argues that this entire process could be an attempt by Tea Partiers to gain credibility with their caucuses via a major battle with President Obama. While it might be a cunning political decision for select Tea Party Congressmen to spend two weeks’ demonstrating their hearty opposition to Obamacare, the intent reeks of opportunism and selfishness. I wrote in my earlier post that the GOP can’t win this fight and I still don’t think they’ll be able to extract any meaningful concessions from the Democrats, which is ultimately why this whole process was a waste of time and resources. This might be how the political game is played but it doesn’t make it less sickening to watch.

Matt raises an excellent point about the potential risk of another debt ceiling fight in the run-up to the 2014 elections. Perhaps this is the ultimate goal of the Tea Partiers: go to the limits now to demonstrate their opposition to Obamacare, and agree to a new debt ceiling increase without any blowback next year. They’ll argue how they fought to the end without any success in 2013 and don’t want to risk another series of ill effects this year when, clearly, this President just won’t budge. Again, politically cunning but a disheartening use of force that causes more harm than good.

A brief word on why this writer is coming down so hard against the GOP. First, there’s the rationale that Ezra Klein gives on behalf of the White House:

Top administration officials say that President Obama feels as strongly about this fight as he has about anything in his presidency. He believes that he will be handing his successor a fatally weakened office, and handing the American people an unacceptable risk of future financial crises, if he breaks, or even bends, in the face of Republican demands. And so the White House says that their position is simple, and it will not change: They will not negotiate over substantive policy issues until Republicans end the shutdown and raise the debt ceiling.

Negotiating over the specifics of a budget deal is one thing. A minority party’s use of its standing to block spending bills and dictate the legislative process is something else entirely. There will be a Republican President and Senate in the future; what happens if they encounter a Democratic House? Would we really want to go through this mess again? Establishing strong principle is imperative here, not for the benefit of the Democratic Party but for the integrity of the governing process.

I also maintain that the GOP would have been better served fighting for smaller concessions right up to the October 1 deadline. Had they avoided a budget shutdown, they could have seized the difficulty-registering-for-Obamacare narrative immediately and added evidence to their case of why Obamacare, as currently constructed, is not necessarily the best path forward. This would afford them two avenues in advance of 2014: a better rationale for why the law should be repealed, or specific policy fixes that could be used to make the law more efficient. (I’d prefer to see the latter but I imagine Republicans would take the former.) Either way, it seems like they would have been better served, and would have better served the American people, by avoiding obstructionism. Their political gambit went the other way. Perhaps Matt’s forecast is correct and it will reap rewards for them down the road. Perhaps it won’t.

To extend Matt’s comparison, it might well be the case the shutdown is comparable to The Purge. Given the uncertainty we still seem to be facing, though, it’s possible that we’ll wind up with two separate purges or one big combined purge, either of which defeat the whole point of a purge in the first place.

The Government Shutdown is Kind of Like That Movie “The Purge”

Chris had a very thorough post on the debt ceiling crisis earlier this week that looked at both how we got here and at what might happen if Congress fails to increase the Treasury’s borrowing authority in the next couple of weeks. I think his analysis of the situation is correct: Congressional Republicans backed themselves into a corner in the course of their attempt to delay, defund, or repeal Obamacare in exchange for keeping the government open, and had better figure out a way to end the shutdown and raise (or “suspend”) the debt ceiling as expeditiously as possible. Whereas the shutdown “is more of an inconvenience than a minor cataclysm” (although “each passing day makes the situation increasingly worse for more and more people”), failure to raise the debt ceiling would at best result in unthinkable levels of austerity – and at worst an international financial crisis.

I was somewhat disappointed when I finished the piece though, since it was titled “The Debt Ceiling Consequences of the Shutdown” [emphasis added] and yet it never actually discussed the connection between the two events. Chris writes:

More problematic is that the largest potential consequences of the shutdown are still yet to come. It’s possible that the budget battle will have spillover effects for this month’s upcoming debt ceiling vote, a critical legislative process that could have global financial consequences if not handled responsibly.

He then presents us with some quotations about the negative impact of the 2011 debt ceiling debate on the U.S economy and on our reputation in the eyes of at least one of the major ratings agencies, as well as the likely result of letting the current standoff continue to escalate. But what exactly are the “possible spillover effects” of the current crisis on the next one? He never tells us.

I’m curious to hear more detail about how Chris thinks the two fights are linked, because I agree completely that they are. It seems to me, however, that the connection is much less ominous than you might think after reading his screed about how the House Republicans need to put an end to their “spitfire histrionics.”

In fact, I actually think it’s a good thing that we’re experiencing a shutdown right now, given the political climate in which we find ourselves. There were early signs that House Speaker John Boehner, who served under Newt Gingrich during the shutdowns of the 1990’s and knows from firsthand experience that the Republicans were widely perceived as having sustained more political damage from that debacle than Bill Clinton, would attempt to avert a shutdown by convincing his members that the best time for staging an apocalyptic confrontation with Obama would be when the debt limit needed to be increased.

The U.S. never having defaulted, the aftermath of a debt default is largely a collection of hypotheticals and unknowns. This means that, unlike in the case of a shutdown, there is no precedent for a failure to raise the debt ceiling having gone badly for Republicans. Therefore, according to this line of thinking, failure to raise the debt ceiling has more potential upside for the GOP than failure to pass a continuing resolution that keeps the government running. This may or may not seem like a strange argument, depending upon how risk-averse you are and how much you believe the warnings of economists and financial analysts who say that this is a very dangerous game to be playing.

Wonkblog’s Ezra Klein wrote back in August that “trading a government shutdown for a debt-ceiling breach is like trading the flu for septic shock” and that Boehner’s apparent attempts to “talk his party down from this tree [allowing a shutdown]” would only make it that much more difficult to get it down from “that higher, more dangerous, tree [allowing a breach of the debt ceiling]” in a few months’ time.

By the last week of September, Wonkblog was featuring a post entitled “We may have a shutdown after all. And that may be a good thing.” Echoing the logic of his earlier tree metaphor, Klein and his co-blogger Evan Soltas reacted to the view of Politico reporters Jake Sherman and John Bresnahan that if “unified Democratic opposition forces Republicans to swallow a government funding bill they deem less-than-satisfactory, House Republicans will certainly counter by increasing their demands for reform when it comes to the debt-ceiling legislation.” Soltas and Klein reply that

when it comes to the final compromise on the bill, Sherman and Bresnahan are surely right: House Republicans are going to be more resistant to raising the debt ceiling if they feel they didn’t even stand and fight on the CR [continuing resolution]. If avoiding a government shutdown means breaching the debt ceiling — or even just increasing the likelihood of a breach in the debt ceiling — that’s a very bad trade. The corollary, of course, is that accepting a shutdown for a much lower likelihood of a debt-ceiling breach might be a good trade…

It’s a mark of the insane and reckless turn in our politics that shutting down the government so one of our [two] major political parties can get the brinksmanship out of its system is emerging as the sober, responsible thing to do. But here we are, greatest nation the world has ever known.

It might be helpful to think of the shutdown as kind of like that movie The Purge, which I have never seen. My understanding of the premise is as follows: at some point in the near dystopian (utopian?) future, society figures out that the most effective way of keeping crime rates low is to designate a single day every year on which all criminal activity is temporarily legal. A twenty-four hour period in which everyone is free to unleash his darkest impulses functions as a sort of emergency release valve that keeps violent and anarchic tendencies from erupting unexpectedly at other points during the year. (Yes, I realize that this is a strange model of human nature, and that this “cure” is in many ways worse than the disease, and that we’re actually discussing this movie as if it offers meaningful insights about reality. But just suppose for a moment that there’s something to it.)

All politicians talk about “fighting” for their constituents and for their agendas, but the rhetoric of the Tea Party movement is imbued with military imagery to an unusual degree. Insurgent conservative politicians nowadays are loath to express a willingness to work with members of different ideological persuasions. It’s natural to expect that constant assurances by Tea Party-backed congressmen that there will soon be an epic battle with Obama that never actually takes place will only result in an unhealthy cycle of heightened expectations followed by crushing disappointment.

At some point, these congressmen will actually need to deliver on their promises to avoid facing primary challenges and the wrath of their donors. Better for them to force a real-life showdown when failure to reach a deal implies as little actual damage as possible. At least they’ll retain some credibility in the eyes of their supporters when the time comes to cave on something else. As Klein and Soltas put it, maybe it would be best for everyone if the extreme wing of the GOP “got the brinksmanship out of its system now” and gave itself permission to behave more responsibly during the next crisis. Perhaps the shutdown will see to it that the darker thoughts swirling around in the Tea Party id are purged for the foreseeable future.

A related argument says that allowing the more belligerent members of the GOP caucus to experience the political blowback of precipitating a government shutdown will deter them from wanting to endure the presumably greater pain associated with a default. Writing before the shutdown began, The New Republic’s Noam Scheiber concurred with this line of reasoning:

Suppose Boehner surrenders… and avoids a shutdown. The only way he’s likely to keep his job in the face of the inevitable conservative backlash is to promise a for-real-this-time confrontation a few weeks later, in which the House insists on a year-long delay for the individual mandate, the linchpin of Obamacare, in exchange for raising the debt ceiling…. Problem is, Obama has absolutely refused to negotiate over the debt limit in any way…. [E]ither Boehner gets it or the global economy gets it….

If Boehner resigns himself to a shutdown, on the other hand, suddenly the future looks manageable. After a few days of punishing political abuse, Boehner will be able to appear before his caucus, shrug his shoulders in his distinctive Boehnerian way, and bleat that he executed the strategy conservatives demanded… The demoralized conservatives will realize they’re out of moves – at least in this particular battle – allowing Boehner to raise the debt limit a few weeks later with little drama.

The problem, as we have already seen, is that the prospect of a default seems legitimately not to frighten many of the hard-liners in the House (and Senate). It is not necessarily the case that a shutdown-induced PR nightmare will diminish this faction’s appetite for further escalation. In fact, it might even do the opposite.

There is one other point that isn’t entirely related but that I think has been largely overlooked in the commentary on the GOP’s strategic morass and bears mentioning. The assumption seems to be that any debt ceiling increase would last for one year, with even a leaked copy of a Boehner proposal from a couple weeks ago containing a provision to “suspend” the borrowing limit for exactly that long (until December 2014). Scheiber mentions the House’s push for a one-year delay of the individual mandate, which seems to have been designed to give the appearance of a fair trade: conservatives would get a one-year reprieve from the Affordable Care Act in exchange for Obama and the Democrats (or rather, the country and global economy) getting one more year without utter calamity.

Assuming that the Republicans do end up taking more heat than Obama from the public as a result of this brinksmanship, why would they possibly want to replay this entire debacle in the run-up to the 2014 midterm elections? The GOP has a real shot at taking over control of the Senate and would presumably want to do everything in its power to wipe this egregious episode from the electorate’s memory far in advance of next November. It is often said that politicians think too much about politics and not enough about doing the right thing for the country. It’s clear that at least some of them don’t think much about politics either.

In less than two weeks, we’ll find out whether this theory is correct. If it isn’t, then maybe we all need to watch The Purge and learn how to stay safe when the world ends.

The Debt Ceiling Consequences of the Shutdown

The current government shutdown is an embarrassing and deeply unfortunate byproduct of the Republican Party’s calcified rejection of Obamacare.  It’s one thing for Republicans to continue to question the efficacy of the health care law, as Ramesh Ponnuru points out.  But it’s entirely another matter when they refuse to pass a budget bill that does not include funding for Obamacare, even though the Senate and the President have made it clear that these bills will not be passed.  Rod Dreher’s thoughts on this extremely frustrating and irrational position are ringing quite true.

More problematic is that the largest potential consequences of the shutdown are still yet to come.  It’s possible that the budget battle will have spillover effects for this month’s upcoming debt ceiling vote, a critical legislative process that could have global financial consequences if not handled responsibly.  James Surowiecki:

The ceiling is the legal limit on the amount of money that the government is allowed to borrow, and raising it is necessary not just to keep the government running in the future but to allow it to pay for obligations it’s already incurred. As Justin Wolfers and Betsey Stevenson convincingly showed last year, the 2011 imbroglio over the debt ceiling put a significant dent in both business and consumer confidence, held back hiring, and further weakened the recovery. It also sent the stock market tumbling—even though a debt-ceiling deal was eventually reached, the Dow fell almost fourteen per cent in less than a month during the crisis, in part because it made people realize that a U.S. default was no longer unthinkable. (It also led to the first downgrade of the U.S.’s credit rating in history.) So it’s hardly surprising that the standoff in Washington is spooking—if not yet terrifying—investors. Markets dislike uncertainty, and what the Republican hard-liners in the House of Representatives have done, most significantly, is to make the future look uncertain by suggesting that, if they do not get the concessions they want (above all, the repeal of Obamacare) they are willing to let the U.S. default.

Martin Wolf looks at the consequences of a debt ceiling debacle:

At best, a failure to raise the debt ceiling would necessitate a sharp cut in spending. At worst, the US would default. Analysts at Bank of America Merrill Lynch argue that hitting the ceiling would require the US to balance its budget at once, cutting spending by about 20 per cent, or 4 per cent of GDP. That would push the US into another recession – even if there were no default. The consequences of an actual default, particularly one that lasted for some time, are beyond prediction. Unlike a shutdown, there is no precedent, for good reason. The notion is suicidal.

Michael Mackenzie, also of the Financial Times, has more information on the consequences of hitting the ceiling.

Right now, the government shutdown is more of an inconvenience than a minor cataclysm.  But each passing day makes the situation increasingly worse for more and more people.  Brad Plumer recaps the nine most harmful effects of the current closure, including cuts in nutrition and health programs, potentially delayed benefit remittance to veterans, and a hit to fourth-quarter GDP growth.

With the debt showdown looming as an ominous potential climax, it would behoove the Republican Party to resolve this situation as quickly as possible.  The Democrats in the Senate should be open to small negotiations on non-Obamacare policies to facilitate this process, but the onus is on the GOP to face the reality of the situation.  Its best bet was to allow the implementation of Obamacare and then emphasize the most inefficient parts of the plan throughout 2014 while simultaneously offering counterproposals for a new system.  That the public currently opposes the health care law 47% to 45% suggests demonstrated failures in the system would have lent credible evidence to buttress the Republicans’ case against the law.  Now, they’ve gone all in without any road map to extricate themselves from the reality that Obamacare will not be defunded, despite the fact that 72% of Americans oppose their shutdown strategy.  The faster the Tea Party wing of the House acknowledges this mistake, the more smoothly the next two weeks will go.

Enough of the spitfire histrionics that are engulfing the House.  It is unconscionable that veterans stand to lose access to benefits over an unnecessary fight that the Republicans cannot win, and it is obscene that this risk could extend to policy that affects the health of the global economy.

Religion and Rational Choice Theory

I think Chris vastly overstates my level of expertise when he says that I’ve done “extensive research” on how people choose their religious affiliation, but it is a topic in which I’m very interested; I wrote my undergraduate thesis on mathematical models that can be used to analyze this question and similar questions in economics and political science. I’ve actually never read the Hirschman book that Margaret Steinfels discusses in the Commonweal column that Chris has linked to, but the framework that she alludes to – conceptualizing religious institutions as something like “firms” competing with one another for adherents in an active “religious marketplace” – is a helpful one for thinking about issues of religious participation in the modern West.

There is a diffuse literature in economics and sociology known as the “rational choice theory of religion” which posits that individuals do not simply decide to remain or to become a member of a religious body because they have been socialized into it or because they feel pressure from their friends and relatives, but rather that they actively weigh costs and benefits in order to determine whether a particular group is right for them.

“Costs” might consist of frequent participation in services, fasting, tithing, volunteering, etc. “Benefits” can be either supernatural (rewards in an afterlife) or more mundane (a sense of spiritual well-being, a feeling of belonging to a supportive community, etc). This helps to explain why fringe cults that the vast majority of people would see as extreme can actually manage to cultivate a following (pun intended): while they may make extraordinarily onerous demands of their followers, they often promise immense otherworldly rewards to those who join the flock.

It turns out that integrating the economic notion of rational-self interest into the study of religion can provide plausible explanations for otherwise puzzling phenomena. Peter Berger’s The Sacred Canopy advances the theory that religious pluralism ultimately erodes religiosity, since the recognition and acknowledgement of competing theological ontologies and ethical systems causes one to become less sure of one’s own commitments. When one religion is dominant in a given area or among members of a certain population, it casts a “sacred canopy” over even those who do not belong. The emergence of other religious groups discredits not only the hitherto dominant tradition, but those newer groups as well. The canopy that had previously sheltered the very idea of religion from the raging storms of secularism becomes tattered and frayed.

It turns out that there are serious problems with such a view of religion, though. There is actually empirical evidence suggesting that religious pluralism, or what we might call religious competition in the market metaphor, actually promotes religious participation rather than eroding it. The rationale is easy to understand if you think through the implications of the metaphor. Healthy competition among firms is, all else equal, generally thought to lead to the production of higher quality and more affordable goods and services, since producers must give their customers what they demand or risk losing business to a competitor. Monopolies, unburdened by such a constraint, know that they can slack off and still do fairly well.

The United States, which has had a constitutional guarantee of freedom of religion since its inception, is the most religious industrialized nation in the world. The United Kingdom, on the other hand, has a state-sponsored church but far lower rates of attendance at services and lower self-reported religiosity. While there are obviously myriad other cultural and historical reasons why religion might play the role that it does in both countries, the apparent inverse relationship between pluralism and participation is suggestive. Richard Dawkins, a fierce advocate of the separation of church and state, has noted that people often ask him why quarantining religion from government seems to have the paradoxical effect of increasing religious activity rather than diminishing or suppressing it. He claims to have no explanation to offer, despite the fact that rational choice logic seems to yield a solution to the apparent conundrum.

In Acts of Faith: Explaining the Human Side of Religion, a comprehensive book-length exposition of the rational choice approach, sociologists Rodney Stark and Roger Finke argue that all human beings have some sort of innate religious preference, and that these preferences tend to follow a bell curve-shaped distribution. Some people have an inborn sense that religion should be strict and should guide every aspect of their lives. Such people will likely be drawn to demanding varieties of religion, like Mormonism or the Jehovah’s Witnesses or Orthodox Judaism. Others have a preference for more liberal faiths that offer a greater degree of individual autonomy and that leave a wider range of decisions to personal choice.

The majority, however, falls somewhere in between. In America today, both austere sects like the Amish and progressive churches like the Unitarian Universalists command relatively small followings. Although aggregate religious participation has dropped off steeply over the last few decades, it is still the case that the groups dominating the scene are those that are strict, but not too strict. They may require their congregants to attend weekly services or undertake periodic fasts, but they probably don’t ask them to sell all their possessions and become itinerant preachers (well, maybe they do, but they don’t really press the issue).

Where does the notion of the Catholic Church as a “lazy monopoly” fit into this framework? Chris, following Steinfels, suggests that the Church might be growing rather than shrinking if the hierarchy were more responsive to the concerns of the laity, treating them like adults rather than infantilizing them. While Francis might possibly be moving toward a “flatter” vision of the Church (more on that in an upcoming post), Benedict XVI seemed to embrace the idea of a pyramidal ecclesial structure wholeheartedly. He did not see the Church as a lazy monopoly but as a monopoly that knew exactly what it was doing, and mused about whether it might not be better if we ended up with a “smaller, purer Church.”

There is a sense in which this line of argument is beyond critique. Chris rightly points out that there is little an institution that understands itself to be dealing in “immutable truths” can do to appeal to the masses if people are simply nonreceptive to those truths or to the meta-notion that any truth can be immutable. Moreover, there are those who embrace Benedict’s approach but reject his false choice between purity and mass appeal. As Ross Douthat has written, both in his 2012 book Bad Religion and in several of his Sunday New York Times columns, it is the churches that have most enthusiastically embraced the innovations of modernity that have been most seriously impacted by the decline in churchgoing. If you have nothing to offer people that they can’t get from, for example, participation in secular politics, then why would anyone give you a second look? Liberalizing is not as promising an option as it might seem for churches seeking to revitalize themselves.

The problem with this hypothesis is that it fails to account for the idea that individuals might have heterogeneous religious preferences. Another way to think about the prediction that greater competition leads to greater participation is to imagine that there are a variety of “market niches” that are ill-served by the presence of a single religious monopolist but that are more likely to see their personal spiritual needs met when there are a variety of available options.

While some niches may respond negatively to a lack of theological rigor or to a perceived doctrinal flexibility in their religious leaders, others may be drawn to such things (although they would no doubt frame them in more positive terms). Any shift in dogma or practice will please some and offend others. What matters is the relative size of the constituencies that are pleased and offended. So while it could very well be that Episcopalianism would collapse if it adopted every idea ever pushed by John Shelby Spong, it might also be the case that the Amish population would grow if they allowed themselves to start using microwaves.

This argument that liberalization, or what Stark and Finke would call a lessening of “tension with the social environment,” is intrinsically fatal to the robustness of religious congregations carries an implication that there is but one way to reinvigorate religion, and that is to cling firmly to “orthodoxy.” Acts of Faith contains a helpful example that shows why the rational choice approach cannot be used to make definitive recommendations about the path that should be taken by ailing religions. Stark and Finke consider the steep dropoff in vocations to the Catholic priesthood since the mid-1960’s, and conclude that

[t]he collapse of Catholic vocations was self-imposed, not merely incidental to the process of modernity. It was the assembled bishops of the Catholic Church who, after collective deliberations [at Vatican II], withdrew many of the most compelling motivations for the religious life [e.g. intimating in Lumen Gentium that priests and religious are not superior in holiness to the laity], while retaining the most costly aspects of vocations [e.g. celibacy]. Perhaps orthodox Freudians and other proponents of irrational choice theories might have expected that Catholics would still flock to the religious life out of neurotic need. The fact that the “flocking” went in the other direction testifies that humans subject even their most intense forms of religious commitment to reasoned evaluation. This point is additionally confirmed by the exceptions: some dioceses still generate vocations, and some religious orders still attract new members – those able to revivify perceptions of a positive ratio between the costs and rewards of the religious life… We do not propose that the Catholic Church ought to retain its reliance on costly religious vocations – on a church staffed by a corps of what Max Weber called “religious virtuosi.” Centuries of Protestant experience demonstrate the adequacy of less costly vocations.

According to this analysis, the effect of retaining “costly” practices like celibacy while reemphasizing the exalted status of the priest would have a similar effect to abandoning or reforming those practices but continuing to put laypeople and priests/religious on equal footing. The tenor of Francis’ papacy so far, as well as remarks made to reporters by his newly-appointed Secretary of State Pietro Parolin, suggest that the latter path is more likely than the former.

As a budding economist who obviously spends a great deal of time thinking and reading about religion and culture, I worry about attempts to overextend economic logic and to apply it to situations where explanations from sociology or anthropology or other related fields might be more effective. And so even I myself sometimes find it strange that I’m drawn to the approach promoted by people like Stark, Finke, and Hirschman. Yet maybe it isn’t all that unusual. Just as economists need to develop a sense of where and when and in which contexts their preferred assumptions are appropriate and where they break down, so too should scholars of religion appreciate the fact that religious behavior is not entirely unlike other kinds of human behavior. Maybe the sacred and the profane are not mutually exclusive.

Is the Church a “Lazy Monopoly”? To What Extent?

Margaret O’Brien Steinfels reports that “one out of every three Americans raised in the church is no longer a Catholic.”  She looks to economist Albert O. Hirschman’s study Exit, Voice, and Loyalty for a potential explanation for this exodus.  In the study, Hirschman argues that “lazy monopolies” are organizations that fail to satisfy their members (who either “exit” or stay but “voice” their displeasure) and yet do little to address the concerns of their (ex) constituents.

Steinfels correctly points out that the Church differs from other monopolistic organizations because of its role as guardian of immutable truths.  Indeed, its inherent credibility is based on upholding doctrines regardless of the will of a given era.  At the same time, though, one can’t help but feel there hasn’t been enough of an outreach to more effectively address the root causes of why the faithful are leaving.

According to Steinfels, 12 million people have moved from Catholicism to other religions and 12 million more are unaffiliated with any religious group.  I would like to see further subdivisions of these numbers that identify specific reasons for people exiting the Church.  Is it because they no longer believe in God or the divinity of Jesus, or was their faith poisoned by specific policies or errors such as the errant handling of the child sex abuse scandal?

I think the Church is guilty of being a “lazy monopoly” to different extents in each of these cases.  A loss of belief in the former is usually spurred by doubts about fundamental Church doctrine or theory, meaning the Church is less culpable- its credibility on guarding eternal truths is nullified if they’re constantly changing.  But if millions of people are leaving because they no longer believe in God, the Church does bear responsibility for failing to engage in convincing dialogue with its body.  It needs to provide clear, strong, and well-argued answers to Catholicism’s toughest critiques, and it needs to make these answers readily available to the people.

A difference of opinion as to what constitutes fundamental doctrine or theory may itself be a cause of abandoning Catholicism, too.  The Church’s unwavering stance in the substance of the Eucharist is one thing, but taking a hard-line doctrinal approach to issues such as banning women priests or gay marriage could be a substantial deterrent for some faithful.  I realize that policy shifts on these issues could be judged as undermining the Church’s credibility as discussed above, but it would seem the Church’s emphatic rejection of ongoing debate about these issues is symptomatic of the “lazy monopoly” model, especially if coherent arguments are paired with popular support of the banned practices.  (See John Paul II’s letter on the ordination of women for reference and take note of the absolutist tone of the final sentence.)

In the case of the faithful leaving because of events like the sex abuse scandal, the Church has acted as a lazy monopoly.  It did not take forceful action against the offending parties and it suffered deserving criticisms of hypocrisy as a result.  The Church has certainly undergone changes in the past to better suit the will of the people (the English mass after Vatican II comes to mind), but given that many have left recently in the wake of poor response to internal crises, a better job still needs to be done to restore confidence.

I hope Matt weighs in on this issue and evaluates Steinfels’ article beyond what I’ve jotted down here.  Matt has done extensive research on choice theory among religions, and I think he’ll provide us with some insightful commentary about Hirschman’s model.

China, Africa, and Poverty Alleviation through Economic Growth

According to an Economist article published last June, nearly 1 billion people were taken out extreme poverty between 1990 and 2010.  In developing countries, the percentage of people living under the $1.25 dollar per day line (the international delineation of extreme poverty) dropped from 43% to 21%.  Much of the decrease in extreme poverty was on account of China’s rapid growth, which helped raise 600 million people over the line.

These are incredible and encouraging statistics, but more can be done.  1.1 billion people still live in extreme poverty and an additional 1.3 billion people subsist on between $1.25 and $2.00 per day.

The Economist notes that capitalism is the primary cause of the reduction in extreme poverty over the last two decades:

Most of the credit, however, must go to capitalism and free trade, for they enable economies to grow—and it was growth, principally, that has eased destitution.

Poverty rates started to collapse towards the end of the 20th century largely because developing-country growth accelerated, from an average annual rate of 4.3% in 1960-2000 to 6% in 2000-10. Around two-thirds of poverty reduction within a country comes from growth. Greater equality also helps, contributing the other third.

A separate Economist article says that growth is likely to continue to spur poverty reduction, though there are potential areas for concern:

To keep poverty reduction going, growth would have to be maintained at something like its current rate. Most forecasters do expect that to happen, though problems in Europe could spill over and damage the global economy. Such long-range forecasts are inevitably unreliable but two broad trends make an optimistic account somewhat plausible. One is that fast-growing developing countries are trading more with each other, making them more resilient than they used to be to shocks from the rich world. The other trend is that the two parts of the world with the largest numbers of poor people, India and Africa, are seeing an expansion of their working-age populations relative to the numbers of dependent children and old people. Even so, countries potentially face a problem of diminishing returns which could make progress at the second stage slower than at the first.

There is no sign so far that returns are in fact diminishing. The poverty rate has fallen at a robust one percentage point a year over the past 30 years—and there has been no tailing off since 2005. But diminishing returns could occur for two reasons. When poverty within a country falls to very low levels, the few remaining poor are the hardest to reach. And, globally, as more people in countries such as China become middle class, poverty will become concentrated in fragile or failing states which have seen little poverty reduction to date.

Going forward, further reduction in both poverty and extreme poverty will be more difficult but still very much attainable, especially if consistent growth is seen across the developing world.  The United States can do its part by promoting free trade with these countries and supplying aid, when warranted, to serve as temporary alleviation.

An additional viable option for the United States is increased investment in and trade with African economies, a strategy that is already paying dividends for China.  In 2012, China had a trade volume of $198.5 billion with Africa against a U.S. volume of $108.9 billion.  Sino-African trade is expected to jump to $385 billion by 2015.   Fortune reports that China’s investment does include engagement in some autocratic regimes the U.S. won’t engage, but the fact that seven of the world’s ten fastest growing economies are in Africa suggest increased investment and trade would be highly profitable for U.S. companies.  Increased economic growth in Africa should subsequently reduce levels of poverty once these monetary infusions begin to spread.

Howard French, a longtime journalist in Africa who has been traveling the continent for the last three years, agrees.  “Return on investment in Africa is among the highest in the world,” he says, also noting that companies like IBM and Walmart have made significant investments in recent years.  French argues that the problem is that Western media attention and attitudes towards Africa fail to take into account these promising prospects:

I have spent the last few years working on a book about China’s relationship with the continent, and could not have been more struck by the differences in attitude in the United States and China toward Africa. More than a million Chinese have moved to Africa in the last decade, largely because they see the continent as an arena of almost limitless opportunity. This holds true from big company executives to mom and pop entrepreneurs from China’s inland, second tier cities.

Americans, meanwhile, despite their far deeper historical associations with the continent, including 13 percent of the population that traces its ancestry to Africa, cling to deeply engrained attitudes toward this part of the world, as a place of war, of misery, of strife, etc. For this reason, and because we cannot get over a long-running sense of Africa as a place to be aided, we are ill equipped to see or appreciate the opportunities that Africa offers.

This isn’t to say that every country in Africa affords an identical risk-free atmosphere for the conduction of business.  It’s understandable that American companies would be hesitant to invest in countries where corruption, the threat of instability, poor infrastructure, or other risk factors could undermine their prospects for growth.  But French makes it clear that the opportunities for profitability are only going to increase as the continent continues to develop.  He implores the Obama administration to promote trade and investment in African countries:

The administration needs to be much more energetic and resourceful in encouraging American businesses to seek out opportunities in Africa. The profit motive is the best cure for the deep-seated strain of paternalism that runs through our relations with the continent. During my book research travels, I was surprised to learn in country after country that construction projects, worth as much as $200 million that are American financed through the Millennium Development Corporation, drew no bids from American companies. China was gobbling up this work until Congress passed a law saying that funding from the MDC could not be given to state owned companies.

If economic growth is indeed the fastest way to reduce poverty, investment in African countries (and other countries with high poverty rates) effectively kills two birds with one stone: it’s a promising economic opportunity that benefits American business interests, and it eventually helps improve the standard of living across the board.  If the goal is to eradicate extreme poverty by 2030, as the Economist proposes, increased investment seems like a very good place to start.

The Federal Reserve and Politico’s Narrative Bias

Politico is a fascinating site. I wrestled a bit with the decision to include it in RM’s blogroll, since it suffers from bad journalistic habits like the tendency to exaggerate and sensationalize what are actually mundane or superficial stories. This is of course a problem with contemporary political reporting in general, but it’s particularly acute at Politico. RM’s goal is to try to think through contentious issues in a cool and levelheaded way, so publishing articles that we hope are reasonable and moderate while simultaneously linking you to a media outfit that thrives on depicting politics as a permanent bloodsport seemed hypocritical somehow. That said, our posting a link to a given blog or site is not an endorsement of everything that it does or says, but only an indication that we’ve found worthwhile content and perspectives there in the past – and a suggestion that you might too.

FiveThirtyEight’s Nate Silver recently attacked Politico’s editors and contributors for “operating within a ‘post-truth’ worldview” and for lacking “perspective about the role that Politico plays in formulating the conventional wisdom which they then ‘report’ upon.” I found an article on the site Friday morning that I thought was an especially striking example of this. It sported the slightly puzzling title “The real jobs numbers: 2014, 2016″ (possibly a joke that didn’t quite work out as planned) and dealt with the skittish reaction of bond traders to the Labor Department report on job creation for the month of June.

Immediately after identifying the “better-than-expected gain of 195,000 jobs in June” as a “heartening sign… that the economic recovery continues to move ahead at a modest pace,” the piece goes on to claim that this “could ultimately turn out to be bad news, especially for Democrats, because it means that the Federal Reserve might start winding down its extraordinary efforts to boost the economy later this year.” The author of the article presumably believes that a healthy economy is a political boon to the Democratic Party. This is not a totally unreasonable assumption, even though there’s a plausible counterargument that strong growth could benefit incumbent politicians in general and in turn solidify the Republican majority in the House of Representatives. On balance though, the party of Obama probably stands to gain the most from an improvement in the economic outlook. So far, so good.

The author also maintains that positive economic data could lead to a premature tightening of monetary policy by the Fed, precipitating another slowdown that will hurt the Democrats. In other words, he assumes that the Fed will do exactly as bond traders seem to believe: it will take its foot off the gas too soon. Strange as this prediction might sound, the bond markets do seem to be taking an awfully pessimistic view of the Fed’s ability to safely and responsibly draw down its quantitative easing program, so it’s not as if Politico is pulling this storyline out of thin air. It also isn’t totally irrational to believe that the FOMC’s more hawkish members could ultimately convince their colleagues that the risks of continued easing outweigh the benefits, and that pulling back sooner rather than later is the best course of action.

Nevertheless, the article takes this narrative in a wildly alarmist direction:

If the Fed takes the juice away too soon it could tank the stock market, crush housing price[s], snuff out the four-year-old economic recovery, and make life exceedingly difficult for any Democrat who hopes to run in 2016 for what will essentially be President Obama’s third term.

2016 is quite a long way down the road! To speculate about what a single unemployment report in the middle of 2013 could augur for a presidential election three years out is borderline ludicrous. Beyond that, this line betrays an astonishing lack of faith in the ability of the Fed to respond effectively and in a timely manner to facts on the ground. Fed Chairman Ben Bernanke and several presidents of regional Fed banks have repeatedly tried to emphasize that reducing the pace of bond purchases does not foreclose the possibility that the pace can be increased again at some point in the future if conditions warrant.

But the real kicker comes later. Right after noting that the “jobs being created are not the kind of high-wage positions that tend to drive a robust economy” and that the “average workweek was unchanged at 34.5 hours, suggesting employers do not see much need to try and [sic] boost production,” the article laments the fact that

[d]espite all this [emphasis added], the Fed still appears to be planning to start winding down its asset purchases as soon as September, a precursor to eventually increasing interest rates, on the theory that economy will soon be able to stand on its own.

It isn’t at all clear what the word “despite” could possibly be referring to here. Did Chairman Bernanke give a press conference in the hour between the release of the jobs report and the publication of this article stating his intention to tighten policy in September regardless of what happens in the real economy? Did any Fed governor or regional bank president make any comment to that effect? The fact that the sentence goes on to say that the Fed “still appears to be planning to start winding down purchases” seems to presuppose that it had some opportunity during that short hour to indicate otherwise, but chose to blithely declare a stubborn intention to adhere to current policy instead.

I should point out that current policy doesn’t even say anything about bond purchases being “wound down” in September. Current policy, as articulated by Chairman Bernanke and the latest FOMC decision in June, is that bond purchases will continue at a rate of $85 billion per month at least until the official unemployment rate reaches 7%. The projections published alongside the most recent FOMC statement seem to imply that the Fed believes that threshold will be reached in mid-2014. From this, and from Bernanke’s testimony to Congress in May, outside observers have deduced that the Open Market Committee could begin to “taper” bond purchases by September, a possibility that Bernanke has not denied.

The bottom line is that the Fed’s policy stance right now is far more nuanced and provisional than the Politico report is willing to admit. One could be forgiven for coming away from that article with the impression that the Fed has promised to tighten policy (or more accurately, stop loosening policy) in September 2013 no matter what. This is simply not the case.

Perhaps in some small way we’re aiding and abetting this kind of bad reporting by directing more potential readers to Politico. But the fact of the matter is that the site does have a number of redeeming qualities: it posts frequently and on a wide range of topics, it devotes a great deal of effort to gaming out the possible political implications of current events in addition to simply reporting about them, and, when it needs to insult people, it generally does so in a balanced and polite way. Boycotts are probably not the right way to deal with sensationalism in the media. The best we can do is model a different way of talking about politics, and hope that we can get people to pay attention.