Impunity vs. democracy

I’m at Ireland’s Edge, consistently the most interesting event I go to every year. It’s held in Dingle, which is on the westernmost edge of Europe and a place I’ve loved ever since I was a student. And what conference Centre anywhere has a backdrop like the one shown in the pic?

Yesterday, one of the sessions was on “A New Era of Investigative Journalism: Political Polarisation and Surveillance Capitalism”. It was moderated by Muireann Kelliher, co-inventor of Ireland’s Edge, and had a terrific panel: my Observer colleague Carole Cadwalladr, Peter Geoghegan of openDemocracy and Donie O’Sullivan of CNN. There was a spirited discussion of the way in which journalistic exposés of the blatant flouting of electoral and other laws in the Brexit referendum and the 2016 US presidential election by political parties, foreign and domestic actors and social media companies have not resulted in any meaningful penalties for the wrongdoers. The audience came away having been stirred by the manifest injustices and institutional dysfunctionality described by the journalists, but also (I think) deeply pessimistic that anything will be done about the problematique (to use the French term for a real mess) portrayed in the discussion.

On reflection, it occurs to me that the fundamental problem underpinning all this is impunity — i.e. the discovery that there are agents in liberal democracies which are able to behave badly without having to worry about the consequences. We saw this with the banks in the 2008 crisis, and we’re seeing it now with political activists, foreign actors and tech companies. And the reason this is so poisonous is that impunity goes to the heart of the matter. Democracy depends on the rule of law (not, as the Chinese regime maintains, rule by law). Its fundamental requirement is that no one or no institution is above the law, and what we’re discovering now is that that no longer holds in many democracies — and most shockingly in two supposedly mature democracies: the UK and the US.

How did we get here? One of the reasons is that since the 1970s governments and ruling elites have drunk the neoliberal Kool Aid which privileges markets — and the corporations that dominate them. One of the reasons the 2008 banking crisis happened is that in preceding decades the regulations under which banks operated were loosened (using the hoary old “red tape” trope) to create a legal environment in which they were able to screw the world economy with impunity. And our failure to anticipate the growth of tech power led to a failure to create a regulatory environment which would punish monopolistic and irresponsible business models. And now we’re living with the consequences.

Why redistribution matters

From an interesting blog post by Noah Smith:

But since the time of Vilfredo Pareto it has been well-known that every country has a substantial amount of market poverty – that is, poverty before taxes and transfers. Here is a graph from the Economic Policy Institute of market poverty rates vs. post-transfer poverty rates:

In other words, no matter how you set up your system, you’re going to get a lot of people who will experience relative poverty without government transfers. Hence, the social safety net matters a lot.

Capitalism is not a bad thing. Capitalism, in some form, is an amazing engine of wealth creation. Capitalism of some sort, as far as we know, is absolutely necessary to maintaining high standards of living and eliminating absolute poverty.

But capitalism is not omnipotent. Drowning government in a bathtub and leaving individuals to sink or swim on their own in a free market economy will result in some people failing and being poor, no matter how well they behave. Thus, any capitalist system can be improved with a social safety net.

Yep.This is news to many ideologues in the UK and the US. But it’s central to Nicholas Colin’s argument in his book Hedge.

How elites perpetuate themselves: the case of Harvard

I’ve thought for a long time that the best way to regard Harvard is as a hedge fund with a nice university attached. This perspective has been powerfully reinforced by the revelations emerging from an ongoing legal hearing on the extent to which Harvard operates discrimination against Asian Americans (relative to whites) and the extent of racial preferences in the university’s admissions. More generally, it turns out that the data provided in the lawsuit has revealed how preferences operate for other distinct applicant groups, including those in a group labelled ALDC where

  • A stands for recruited athletes
  • L stands for legacies
  • D those on the “dean’s interest list”; and
  • C children of faculty and staff

I’ve just been reading a fascinating analysis of these data published in an intriguing paper by Peter Arcidiacono of Duke university, Josh Kinsler (University of Georgia) and Tyler Ransom (University of Oaklahoma). Their aim is to provide a detailed analysis of Harvard ALDC applicants and their admissions outcomes relative to their non-ALDC peers.

Harvard is famously difficult to get into — at least for some kids. The admissions rate for those who will start there in 2023 is 4.5%. Another way of putting that is that 95.5% of applications are unsuccessful. So it’s hard to get in. But it seems that it’s not so hard for everyone, notably those in the ALDC group. While those applicants go through the full committee process with all other applicants, the researchers found that they are given special treatment in that their applications are closely monitored throughout the vetting cycle by the admissions dean, admissions director, athletic coaches, and others. And often ALDC applications are annotated in specific ways to aid in the monitoring process. As a group, for example, ALDCs are “about 20 times more likely to interview with a member of the admissions office”.

So who are these ALDCs?

Athletes: While Harvard does not offer athletic scholarships, “each of its 42 sports teams has a liaison that moderates contact throughout the admissions process between the admissions office and that team’s coach. Additionally, the admissions office sets aside a certain number of staff interview slots for athletes only, which can occur outside of the time frame for which staff interviews are made available to the general public”. So athletes get special treatment.

Legacies: These are are strictly children (but not other relatives) of alumni. The vetting procedures specify that these files “should be read by the Admissions Dean “following the normal reading process if the decision might require special handling or if another reading might be helpful”.

Dean’s Interest List: Here we get to the really interesting stuff. The researchers found no mention of the Admissions Dean’s or Admissions Director’s interest lists in the vetting procedures, but one of the documents unsealed in Court provides some detail about the handling of such applications. First, members of this list receive an additional rating which is separate from the profile ratings and which is tied to the applicant’s (or the family of the applicant’s) donation history and future donation prospects. [Emphasis added.] “When subcommittees discuss applicants on this list, the admissions dean may preemptively join the meeting to discuss members of this list, or may have individually discussed the applicant with the subcommittee chair beforehand… A similar process applies for the Admissions Director’s interest list”.

Children of Faculty or Staff: The reading procedures stipulate that these applications “should be sent to the Admissions Dean after the normal reading process has been completed.”

Analysis of how the ALDCs get on shows that they are admitted at substantially higher rates than non-ALDC applicants. Athletes seem to do particularly well with an admission rate of 86% (i.e.they are “over 14 times as likely to be admitted as those that are not recruited athletes”). Although recruited athletes are less than 1% of the applicant pool, they make up over 10% of the admitted class.

Legacy applicants (surprise, surprise) do pretty well. Their admission rate was 33.6%, which is 5.7 times higher than the admission rate for non-legacy applicants. “Legacies are the largest of the ALDCs”, the researchers write, “both in terms of number of applicants as well as number of admits, and make up 14% of the admitted class”.

Those on the Dean’s List, also do well — 42.7% of them were admitted. Ditto for Children of Faculty and Staff, 46.7% of whom got in.

In a way, these numbers merely confirm what sceptics have long suspected. The formula for getting into Harvard is really pretty straightforward. You need to be:

  • an outstanding athlete (the Winklevoss twins for example)

  • a child of an alumnus a relative of someone who has donated to Harvard in the past (or is judged likely to make a donation in future), or

  • a child of someone who works at Harvard.

In other words, a member of the elite.

Booming tech and rising inequality: correlation or causation?

This morning’s Observer column:

Here is one of the great paradoxes of our time. The world is dominated by a few corporations that are among the most profitable companies in the history of capitalism. In the US (the home of these giants) and in the UK (an enthusiastic vassal state), parts of the economy are booming and employment is at record levels. And yet, in the middle of this astonishing prosperity, inequality is at levels not seen since the period before the first world war. In the US, the share of total income going to the top 1% of the population is now back to the level it was in the 1920s. And in the UK, more than 4 million people are trapped in deep poverty.

Since this catastrophic rise in inequality seems to be correlated with the rise of the tech industry, it’s tempting to see a causal link between the two. Tempting, but too simplistic. For while digital technology has been a central factor in what’s happened, it’s only a part of the story. More often, it’s been an enabler of other forces rather than a prime mover.

The biggest force reshaping our world has been globalisation…

Read on

Our recent history, in a nutshell

From John Lanchester, opening a thoughtful and informative LRB essay on the idea of Universal Basic Income. “The broad outline of 21st-century history, its first couple of decades anyway”, he writes,

is starting to become clear. A period of credit-fuelled expansion and runaway financialisation ended with an abrupt crash and an unprecedented bank bailout. The public’s reward for assuming the bankers’ losses was austerity, which crippled the recovery and led to an interminable Great Recession. At the same time, increasing automation and globalisation, and the rise of the internet, kept first-world wages stagnant and led to an increase in precarity. Elites did fine, and in the developing world, especially Asia, economies grew, but the global middle class, mainly located in the developed world, felt increasingly anxious, ignored, resentful and angry. The decades-long decline in union power made these trends worse. The UK had its longest ever peacetime squeeze on earnings.​1 In response to this the political right played one of its historically most effective cards – Blame the Immigrants – and achieved a string of successes from Brexit to Trump to Orbán to Bolsonaro to Salvini and the AfD, succeeding in normalising its new prominence to such an extent that a quasi-fascist party scored 34 per cent in the French presidential elections, which were nonetheless hailed as a triumph for the ‘centrist’ winner.

That’s a pretty good summary, IMHO. Characteristically good piece by a terrific explainer. Worth reading in full.

Lessons of history

From a remarkable essay about Leonardo da Vinci by historian Ian Goldin1 in this weekend’s Financial Times, sadly behind a paywall:

“The third and most vital lesson of the Renaissance is that when things change more quickly, people get left behind more quickly. The Renaissance ended because the first era of global commerce and information revolution led to widening uncertainty and anxiety. The printing revolution provided populists with the means to challenge old authorities and channel the discontent that arose from the highly uneven distribution of the gains and losses from newly globalising commerce and accelerating technological change.

The Renaissance teaches us that progress cannot be taken for granted. The faster things change, the greater of people being left behind. And the greater their anger.

Sound familiar? And then…

Renaissance Florence was famously liberal-minded until a loud demagogue filled in the majority’s silence with rage and bombast. The firebrand preacher Girolamo Savonarola tapped into the fear that citizens felt about the pace of change and growing inequality, as well as the widespread anger toward the rampant corruption of the elite. Seizing on the new capacity for cheap print, he pioneered the political pamphlet, offering his followers the prospect of an afterlife in heaven while their opponents were condemned to hell. His mobilisation of indignation — combined with straightforward thuggery — deposed the Medicis, following which he launched a campaign of public purification, symbolised by the burning of books, cosmetics, jewellery, musical instruments and art, culminating in the 1497 Bonfire of the Vanities”.

Now of course history doesn’t really repeat itself. Still… some of this seems eerily familiar.

How to get into Harvard

It’s a simple formula (ALDC), really, as the New York Times explains:

Harvard gives advantages to recruited athletes (A’s); legacies (L’s), or the children of Harvard graduates; applicants on the dean’s or director’s interest list (D’s), which often include the children of very wealthy donors and prominent people, mostly white; and the children (C’s) of faculty and staff. ALDCs make up only about 5 percent of applicants but 30 percent of admitted students.

While being an A.L.D.C. helps — their acceptance rate is about 45 percent, compared with 4.5 to 5 percent for the rest of the pool — it is no guarantee. (One of those rejected despite being a legacy was the judge in the federal case, Allison D. Burroughs. She went to Middlebury College instead.)

Harvard’s witnesses said it was important to preserve the legacy advantage because it encourages alumni to give their time, expertise and money to the university.

Which is how you get to have a hedge fund with a nice university attached.

Dinner-table capital

Well, well. This from the Sloan School at MIT:

A new study shows that, thanks to inequality, the U.S. has potentially missed out on millions of inventors during that time — what the researchers refer to as “lost Einsteins.” Kids born into the richest 1 percent of society are 10 times more likely to be inventors than those born into the bottom 50 percent — and “this is having a big effect on innovation,” MIT Sloan professor John Van Reenen said.

The research also shows that innovation in the U.S. could quadruple if women, minorities, and children from low-income families became inventors at the same rate as men from high-income families. Making that happen is the hard part, though. It means exposing more children to innovation when they are young — and the younger they are, the better.

The researchers wanted to see what part childhood wealth plays on future innovation. And guess what? “The most striking thing was how sharp the relationship was between the wealth of your parents and whether you grew up to be an inventor or not” reported one of the researchers.

By linking patent records with de-identified IRS data and school district records for more than one million inventors, the researchers found that, while ability does play some part in a child’s chance of becoming an inventor in the future, it is far from the biggest factor.

Instead, wealth played a much larger role. Among children who excelled in math in third grade, those whose families’ incomes fell into the highest fifth of the population were more than five times as likely to be inventors than those whose families’ incomes were in the lowest fifth.

This disparity is amplified among children whose parents were in the top 1 percent of earners — they were 10 times more likely to be inventors than those in the bottom 50 percent.

Oh – and white children were three times as likely as black children to be inventors. And only 18 percent of inventors were women.

The life and death of helicopter commuting

I once spent a day during a general election campaign going round the UK in a helicopter. It was a fascinating experience, but not one I’d like to repeat. Choppers seem to me to be ludicrously primitive machines — a bit like steam-powered automobiles. They are also, of course, vanity toys for the very rich. And they are incredibly noisy. So this Bloomberg video brings a welcome dose of reality to chopper-worship.

HT to Ben Evans for the link.

Economics in an age of abundance

Brad de Long is one of my favourite bloggers — and economists. Here he is brooding on a problem that once preoccupied Keynes and is likely to surface again, if we do crack the problem of increasing productivity with robotics — and displacing employment. Sample:

There is no shortage of problems to worry about: the destructive power of our nuclear weapons, the pig-headed nature of our politics, the potentially enormous social disruptions that will be caused by climate change. But the number one priority for economists – indeed, for humankind – is finding ways to spur equitable economic growth.
But job number two– developing economic theories to guide societies in an age of abundance – is no less complicated. Some of the problems that are likely to emerge are already becoming obvious. Today, many people derive their self-esteem from their jobs. As labor becomes a less important part of the economy, and working-age men, in particular, become a smaller proportion of the workforce, problems related to social inclusion are bound to become both more chronic and more acute.

Such a trend could have consequences extending far beyond the personal or the emotional, creating a population that is, to borrow a phrase from the Nobel-laureate economists George Akerlof and Robert Shiller, easily phished for phools. In other words, they will be targeted by those who do not have their wellbeing as their primary goal – scammers like Bernie Madoff, corporate interests like McDonalds or tobacco companies, the guru of the month, or cash-strapped governments running exploitative lotteries.
Problems like these will require a very different type of economics from the one championed by Adam Smith. Instead of working to protect natural liberty where possible, and building institutions to approximate its effects elsewhere, the central challenge will be to help people protect themselves from manipulation.

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