Saturday, September 17, 2016

Exit, Voice, and Loyalty in the 2016 Election

Donald Trump is a very unusual candidate for president, and as of today, he has a 30 percent chance of winning the White House, according to PredictWise. Why has he garnered so much support?

A lot of ink has been spilled on this question, and I won’t revisit other arguments that are very valid. Instead, I want to focus on one hypothesis: The U.S. is experiencing some signs of institutional decline, at least relative to the severity of its problems. And since voice and loyalty have not proven to be powerful enough to fix institutional decay, exit has become much more appealing. So our political system needs to empower voice and loyalty again in order to address its problems and prevent exit.

I’m referring to Exit, Voice, and Loyalty because of a brilliant 1970 book by the same name by the late Harvard economist Albert Hirschman. He presents exit, voice, and loyalty as the three options available to people in the face of institutional decline.

Empowering Voice and Loyalty

In the context of the election, fully supporting Hillary Clinton (who I support!) represents loyalty for the current political system. Loyalty could even involve developing new policy ideas or organizing for your favorite causes on the local and state level, to show what else is possible. But in general it involves loyal support. Supporting Hillary Clinton (or a right-leaning third-party candidate, since that's still a vote against Trump) but also criticizing her and national policies would represent the exercise of voice, to try to improve the system. And supporting Donald Trump—an unusual candidate promising to upend the status quo—represents exit.

It’s not an exaggeration to say that electing Donald Trump would represent a radical departure from politics as usual. And as forces for change, voice and loyalty are not as strong in America as they need to be.

If you’re just one ordinary person who has a lot of concerns about policy, can you get the government to change course? What if you organize or convince a lot of people—can you still make change happen? A lot of people would say, often not, since the government is too powerful and indifferent to the concerns of the people. This isn’t necessarily a bad thing—the government needs to represent the broad interests of the people rather than just the interests of activists. But it still needs to be responsive to people’s concerns, and instead it arguably pays a lot more attention to special interests, and is prone to inertia and complacency. Government is the ultimate monopoly. So to a large extent, it doesn’t really need to listen.

And so many people have chosen exit instead, since at least broad exit can create the possibility of new policies and institutions. The credible threat of exit can also force institutions to make voice and loyalty more powerful again. In fact, voice and loyalty don’t have nearly as much weight without the possibility of exit. Without the option of exit, loyalty is ultimately by force and not by choice. But when someone is willing to stick with a system and try to change it for the better—even when they can leave, and have very good reason for leaving—that shows a true commitment to making things better.

So I hope that the government can do a lot more to try to give people more of a say in what the government does. We need to empower voice and loyalty to keep the current system going and improve it. People need to feel like they're really being heard. The status quo has a lot of positives we often forget about, and it has mechanisms for internal reform that I hope can be strengthened—especially given that exit is a very real option.

On Exit

Peter Thiel, one of Trump’s most prominent supporters, seems to be a good example of someone who understands the power of exit. As an entrepreneur and investor, he’s rejected the status quo in favor of putting his own ideas, and other people's relatively new ideas, into practice. As a supporter of seasteading, he wants to make it feasible for people to exit government as it’s currently practiced. By creating the Thiel Fellowship for young people who want to start businesses instead of going to college, he wants to create the possibility of exit from higher education. And by supporting Trump, he’s exiting politics as usual.

I’m not weighing in here on these initiatives—I’m only observing that they’re examples of exit. And as controversial as these initiatives are, asserting the right to exit can empower new ideas and projects that are outside the box, and it can help make voice and loyalty more powerful for others. You need to have the freedom to exit in order for voice and loyalty to represent an authentic choice, instead of just something that’s taken for granted and then ignored. In America, we’re so used to using loyalty and voice (hi, Twitter and Facebook) that we can forget how important it is to have exit as an option.

[Update (9/18/16): A reader has sent me a video of this excellent talk by the entrepreneur and investor Balaji Srinivasan, where he delves into the importance of exit, as it's described in Exit, Voice, and Loyalty. He argues that "exit amplifies voice," that exit is going to become more important in the years to come, and that both the U.S. and Silicon Valley are "shaped by exit."]

In Exit, Voice, and Loyalty, Hirschman wrote that exit by “alert” consumers can force companies to change by giving them enough of a heads up that there’s a threat, while they take the time to improve quality while continuing to sell to “inert” customers. However, he wrote that too much exit at once can prove to be devastating, and not give companies enough time to fix their problems. “It is important that other customers remain unaware of, or unperturbed by, quality decline,” he wrote, so that companies still have enough time and money to reform themselves.

Hirschman also wrote that there aren’t enough exit options for government. In particular, he wrote: “The decision to exit from the government of the most powerful country is particularly and deplorably infrequent” (that is, emigrating from the U.S.), since “exit has an essential role to play in restoring quality performance of government.” He similarly criticized how public officials were no longer willing to resign out of principle, because of the lack of a meaningful exit option.

He's right. That said, I think exit from government is different from exit from a consumer-facing business, since laws need to apply to everyone in order to have full force. Laws are the common rules that enable countries to function. And countries are now having trouble asserting their sovereignty in a number of ways, including as big companies choose exit when it comes to paying their taxes. So even as we seek better policies and institutions, we need to be cautious when it comes to competition in government. People should be free to immigrate or emigrate as they'd like, and businesses deserve that freedom too -- the freedom to exit is important. You just want to make sure that the privileges of citizenship go hand in hand with its responsibilities.

Hirschman also noted that America is what it is today because millions of immigrants chose to exit their home countries for something new. “The United States owes its very existence and growth to millions of decisions favoring exit over voice,” he wrote. Exit is part of the American dream. Exit within the U.S. (for instance, through entrepreneurship) has helped drive American innovation, and the freedom to exit is a crucial component of liberty.

However, our ancestors’ choice to exit meant that they could not exit again—they had made so many sacrifices to come to America that they couldn’t leave again. So then they were forced to use voice to the best of their ability, and that’s a big reason why America thrived, according to Hirschman.

But that also means that when you choose to exit, what you’re choosing in favor of what you’re leaving behind better be pretty good, because you may never be able to go back.

As Hirschman wrote in Exit, Voice, and Loyalty:

“Yet, as love may suddenly turn into hate, so can the national infatuation with exit give way in certain crucial areas to its utter proscription. To some extent, exit is itself responsible for the emergence of its opposite. In leaving his country the emigrant makes a difficult decision and usually pays a high price in severing many strong affective ties. Additional payment is extracted as he is being initiated into a new environment and adjusting to it. The result is a strong psychological compulsion to like that for which so large a payment has been made. In retrospect, the ‘old country’ will appear more abominable than ever while the new country will be declared to be the greatest, ‘the last best hope of mankind,’ and all manner of other superlatives. And one must be happy.”

So whenever you choose to exit, make sure it’s to a place where you think you can be truly happy, or at least happier than before. Also make sure it's somewhere where voice and loyalty will still count. Because you may not be able to exit again.


[If you have other thoughts on Exit, Voice, and Loyalty, feel free to send them my way, and I may incorporate them into this post.]

Friday, September 16, 2016

Tradeoffs

Every choice involves tradeoffs, and it would be great if people thought more in terms of tradeoffs and opportunity costs. It would help not just for public policy debates and business decisions, but also for our own lives.

If you spend time or money on one thing, that’s less time or money to spend on something else.

If the government spends time or money on one thing, it has less time or money to spend on something else.

If you fight for one cause, you now have less time to fight for a different cause.

Your right to something may conflict with my right to something else. For instance, if we’re neighbors, your right to play loud and annoying music conflicts with my right to peace and quiet. Many other rights similarly can come into conflict.

Many choices are not zero-sum. But with every choice, there are still tradeoffs. Time, money, and energy are limited resources. So it’s good to weigh all the costs and benefits before deciding whether something is really worth it.

Every choice has both benefits and costs. This includes the opportunity cost—the best possible alternative to that decision. Moreover, some actions can hurt some people while helping others, or help in some ways while hurting in others. So don’t just look at the benefits—look at everything.

But make sure to ignore the sunk costs; they’ve already been incurred, whether you pursue that choice or not. And don’t be afraid to change your mind while you’re making a decision.

If you’re looking at non-monetary costs and benefits, how you measure them depends a lot on your own value judgments. So cost-benefit analysis isn’t just a distant, spreadsheet-like exercise just for economists—it’s good practice for everyone.

Ultimately, cost-benefit analysis is about taking into account the full impact of your decisions. It’s about rational decision-making. And it’s about choosing to live the best possible life for yourself.

I also think our public policy debates would be improved if politicians had more freedom to talk about costs as well as benefits. For instance, politicians seem too hesitant to propose broad-based tax increases, and the shared responsibility that goes along with that. Instead, some conservative politicians promise tax cuts for everyone (and especially the rich), and some liberal politicians promise to raise taxes only for a handful of distant rich people. In other words, benefits for us and costs for them. This may be partly because too many voters want to think only about benefits and not about the costs that go along with those benefits.

But if we want better government, we all need to take responsibility for it. And that includes participating more in government and society, helping hold the government accountable, and yes, being open to paying higher taxes when it makes sense. Ultimately, we won’t get the benefits of better public services without paying for it.

Tradeoffs are everywhere. They’re embedded in every decision, and the sooner they become a bigger part of everyday discourse, the better.

Tuesday, August 23, 2016

Two classical models of leadership: Achilles/Alexander and Aeneas/Augustus

Two of my biggest sources of comfort are music and books, especially old books. And the other day it occurred to me that the ancient Greeks and Romans depicted two important and different models of leadership in their mythology and history.

You can think of the first model as the Achilles/Alexander the Great model, or the conquer-and-destroy model. The second model is the Aeneas/Augustus Caesar model, where you ignore the haters and just focus on building.

These mythological heroes and historical figures go together naturally. First, the similarities. Achilles and Aeneas were both sons of goddesses, but still mortal, since they also had a mortal father. They also were known for their strength and leadership. Achilles starred in The Iliad, while Aeneas starred in The Aeneid. Meanwhile, Alexander the Great was ancient Greece’s great empire-builder, while Augustus Caesar was ancient Rome’s great empire-builder. However, their models of leadership couldn’t be more different.

Alexander the Great was frequently compared to Achilles; in fact, he's said to have sought to emulate him. Both died young after achieving great military victories. They were also both driven largely by wrath and a thirst for revenge and glory.

Achilles was largely responsible for the destruction of Troy, driven by his rage and desire for revenge, including for the death of his close companion Patroclus. Destruction was his legacy. And Alexander the Great is believed to have been responsible for burning the Persian Empire’s capital, Persepolis—including its library—to the ground, allegedly as payback for the Persians invading Greece and burning Athens over a century before.

The total destruction of Persian writings helped pave the way for the Greeks to be revered as the founders of civilization, even though the Persian Empire was richer and more powerful at the time, and even though the Persians had invented monotheistic religion with Zoroastrianism long ago.

Clever a general though he was, Alexander treated the Persians barbarically, raiding and burning Persepolis and forcing Persian women to marry his men. And his conquests did not last. When he died at the age of 32, his empire fell apart. So Alexander the Great ultimately didn’t build a lasting empire, and he completely destroyed the Persians’ writings (and legacy and ideas) in the process.

If you’d like an idea of how civilized the ancient Persians were in some respects, here are a few excerpts from Herodotus’ Histories. Herodotus was Greek, and is credited as being the world’s first historian. His Histories are a delight to read if you’re ever interested, and I wish more people wrote like him.

"Their sons are carefully instructed from their fifth to their twentieth year, in three things alone, - to ride, to draw the bow, and to speak the truth."

"To my mind it is a wise rule, as also is the following - that the king shall not put any one to death for a single fault, and that none of the Persians shall visit a single fault in a slave with any extreme penalty; but in every case the services of the offender shall be set against his misdoings; and, if the latter be found to outweigh the former, the aggrieved party shall then proceed to punishment."

"They hold it unlawful to talk to anything which it is unlawful to do. The most disgraceful thing in the world, they think, is to tell a lie; the next worst, to owe a debt: because, among other reasons, the debtor is obliged to tell lies."

It would be nice to know more about these ideas as the Persians viewed them—ideas like the importance of proportional punishment and truth-telling—but Alexander the Great destroyed the Persians’ writings, so you have him to thank for that. This wasn’t creative destruction; it was just destruction.

(For context, few writings between Alexander the Great and the Arab Muslim conquest of Persia in 651 A.D. survive either, since the Arab invaders then destroyed those writings. It's all the more reason to cherish the few writings that do survive, including Zoroastrian teachings.)

One last thing to note before I move on to the Aeneas/Augustus model: The United States today is arguably more like the Persians’ Achaemenid Empire than the ancient Greek city-states, at least in terms of its wealth, power, and size. So I think it makes sense to try to see things from the ancient Persians’ point of view—as well as everyone else’s—whenever you read about them, whether in Herodotus or elsewhere.

Now, the Aeneas/Augustus model. It makes a lot of sense to compare Aeneas and Augustus Caesar because Virgil wrote about Aeneas explicitly as the founder of Rome and precursor to Augustus Caesar, Rome’s first emperor. Virgil also wrote The Aeneid for Augustus Caesar.

In The Aeneid, Aeneas has fled from Troy with a band of Trojans—the Troy that Achilles has destroyed. And it is now his long and lonely mission to venture to Italy, battle the natives there, and found Rome. Virgil continually describes Aeneas as pius—in Latin, driven by his sense of duty. This is a stark contrast to Achilles’ driving emotions: wrath and thirst for revenge. In fact, Virgil sets up an epic conflict between two forces: pietas (sense of duty) and furor (rage). It is actually the queen of the gods, Juno, who is driven by rage that Rome will unseat her favored Carthage, so she tries at every turn to stop him. Many of Aeneas’ opponents also are guided by furor. But Aeneas stays pius through almost the entire epic (though there are some notable moments when he also gives into furor, showing that we're all still human). Other gods, including his mother Venus (Aphrodite), the goddess of love, keep supporting him. And his self-restraint and devotion to his duty—to the gods, to his family, to his men, and to his divine destiny—guide him to victory. At the end, his legacy is enormous: He’s just founded the beginnings of one of the greatest empires of all time.

Augustus Caesar, similarly, is known for ending Rome’s civil war, bringing about the Pax Romana (Roman peace), and founding the Roman Empire. He was great at strategizing not just about gaining power, but also about wielding it. He expanded the Roman Empire significantly, but even then, he was self-restrained and did not declare himself emperor—instead, he said he was simply “first citizen.” The Roman Empire lasted for about 400 years.

From the perspective of creative destruction, Troy needed to fall for Rome to rise. But the nice thing about being just one person is that you aren’t responsible for doing all the work.

I think we all face a choice between being destroyers and builders. We can choose to be Achilles or Aeneas—Alexander the Great or Augustus Caesar. We can focus on tearing down the things we don’t like, or we can focus on building things we like, in the image we want, to set a better example.

Sure, destruction is inevitable, but if you build something superior, then that destruction can happen naturally on its own, as what you have to offer outcompetes the status quo. But destruction without a better alternative to put in place is incredibly dangerous. Just put yourself in the place of the ancient Persians, who watched their capital city and writings get lost to a raging fire. I don’t think that’s a model anyone should support or emulate.


[I may edit this post later, and would welcome suggestions for changes.]

Tuesday, July 26, 2016

General Education Is One Of Democracy's Best Defenses


Here's the conclusion of Harvard's report General Education in a Free Society, which was published in 1945 -- right after the end of World War II. In light of recent events, many of these points seem to be relevant.

"General education is the sole means by which communities can protect themselves from the ill effects of overrapid change. For its concern is with what is the same throughout all changes and with the very process of change itself and the techniques of taking account of it. Political trends and upheavals naturally engage our attention to the neglect perhaps of wider and deeper changes. The coming of steam was a larger event in human history than all but the greatest changes in government, larger not as a material event only but in the spiritual transformations it is still inducing. With it man began to inhabit his planet as a planet. Increased physical mobility has naturally increased the scale of wars, which is a reminder that danger is inseparable from power. The press, radio, photography, television our progressive disembodiment - and indeed all increased means of mass communication have their dangers too. Propaganda, which is their political aspect, has attracted perhaps more than its share of critical attention. Advertisement has received some share, but chiefly in its quality of a potential threat to the consumer's judgment. More dangerous, because more general and because it threatens the spirit rather than the pocket, is the degradation which language undergoes when the greatest words are most often met in servitude to mean or trivial purposes. 'In a world of strife, there is peace in beer.' That slogan was no invention of a satirist. It adorned many a newspaper in the days before Pearl Harbor and is but one example, less harmful through its very fatuousness, of the modes of attack to which mass communications expose standards in all fields. Against them we can only oppose general education at all levels. With such possibilities in mind we do well to remember Hector's words in Troilus and Cresslda:

"The wound of peace is surety,
Surety secure.

"Or, as Poor Richard had it, 'He that is secure is not safe.'

"Such dangers, however, are a spur to a widened and livelier sense of responsibility, individual and collective. Enlargement of the common concern is indeed the distinctive character of our age. Not very long ago the mass of mankind could and did leave peacemaking, for example, to statesmen. Today most people feel some of its weight on their shoulders. Even one generation back, how other people lived was not their business; but all men are neighbors now. Among and beyond all the local and personal motives which drive men to pursue education, this budding collective responsibility year by year grows in power. And as it grows it profoundly influences some immediate motives. The desire to get on in the world or to advance the status of the workers, the two chief drives which have animated out-of-school education hitherto, are being transformed by it into wider interests far more favorable both to growth in democracy and to the final causes for which society itself is only a means. 'War is the great educator,' as enemy propagandists have said, though hardly with this in mind. It has shown us that in technical instruction we have been sadly unambitious and unenterprising. It has shown us equally that in general education the strongest incentive comes from the whole man's awareness of his share in the common fate, of his part in the joint undertaking,"

Sunday, March 1, 2015

Good Links

Here are two great blog posts that I thought would be worth linking to. I hope you enjoy reading them too.

Seth Godin: "Choosing those that choose you"

Key quote:
"A huge swath of human unhappiness is generated by selecting someone to pick you, only to have that person abuse the power, let you down or otherwise seduce you into pursuing something that's not going to happen. Unchoose those people as choosers.
"The person or organization you're seeking to be chosen by: Do they have a good track record? Do they choose wisely? Coherently? Reliably? Do they abuse their power, seducing you into acting against your interests? Do they make you miserable? Do they have good taste?...
"If you've signed up to be approved by, selected by, promoted by or otherwise chosen by someone who's not going to respond to your efforts, it's not a smart choice.
"And one last thing: The ultimate privilege is to pick ourselves."
The whole article is a thoughtful and fantastic exploration of how to choose a career, but here are two quotes that I thought were especially good:
"You shouldn't worry about prestige. Prestige is the opinion of the rest of the world.... If you do anything well enough, you'll make it prestigious.... Prestige is especially dangerous to the ambitious. If you want to make ambitious people waste their time on errands, the way to do it is to bait the hook with prestige."
"Don't decide too soon [on your career]. Kids who know early what they want to do seem impressive, as if they got the answer to some math question before the other kids. They have an answer, certainly, but odds are it's wrong."

Wednesday, April 9, 2014

Christina Romer: After A Financial Crisis, Economic Disaster Is Not Inevitable

These days, according to the conventional wisdom, financial crises almost inevitably lead to severe, prolonged economic downturns. Carmen Reinhart and Ken Rogoff, economists at Harvard, have come to this conclusion in recent research, and people tend to intuitively view financial shocks this way.

But none of this may actually be inevitable; instead, bad fiscal, monetary, and financial policy may be more to blame. That's the argument Christina Romer, the UC Berkeley economist and former CEA chair, made at a talk organized by the University of Michigan's Ford School of Public Policy yesterday. You can watch the video here.

Romer based her argument partly on new research that she and her husband David Romer, also an economist at Berkeley, are conducting. (They haven't written the paper yet, so the research is preliminary.) They examined financial crises in 24 OECD countries between 1967 and 2007, and after controlling for a number of factors, they found that the typical financial crisis hurt economic growth much less than Reinhart and Rogoff found, with its effects vanishing after about two years and reducing real GDP by roughly 3 percent, as opposed to Reinhart and Rogoff's findings of 9.3 percent.

(Update (4/10): A technical note: Here, for this particular comparison, the Romers analyzed only "moderate" financial crises, where countries reached a financial stress level of 8 out of 16, while Reinhart and Rogoff's number is an average from their entire sample.)

She said that she and David Romer tried to identify and measure financial crises more precisely than the existing literature. They used a scale from 0 to 16 of financial stress and tried not to let the findings be biased by crises that are known to have been followed by severe recessions. She also said they tried to conduct a more precise empirical analysis that would not be biased by how the economy was already doing.

She argued that when financial crises were followed by prolonged economic weakness, it often was due to contractionary fiscal and/or monetary policy (such as in the case of the Great Depression), or due to continued financial stress (as in the case of Japan) -- not because of the original financial crisis.

"I think fiscal contraction is an important part of why the recovery in this particular episode has been so slow," she said. "It's not that financial crises always lead to large and long-lasting falls in output; rather, contractionary policy dealt a second serious negative shock to many economies just as they were starting to recover."

I'd highly recommend watching the whole video. You can watch it here:


Thursday, March 27, 2014

Here's Why You Shouldn't Take Any One Study Too Seriously

Journalists often write about new studies as if they definitively prove or disprove something, when the study may not actually be all that great, and there have often been a lot of previous studies on the same topic that get little or no mention at all, and which may have conflicting results. Also, when a new paper gets posted online, it usually hasn't been vetted by very many people in the profession yet. Here is one more reason why you usually shouldn't take too much stock in any one new paper, courtesy of the 4th-year economics PhD students at the University of Michigan.

Every year, the Michigan economics department holds a skit night, and in the latest skit night two weeks ago, a 4th-year PhD student (who requested to remain anonymous) presented a supposedly typical job market paper. Mind you, this is all exaggerated and meant to be a joke. But I hope it can also serve as a reminder of how some studies aren't always the most robust, and people shouldn't be in awe of a piece of research just because it has numbers and jargon in it. There are differences in quality in academic research, just as in any other profession, and it's important not to take any one piece of research at face value.

Without further ado, here is the presentation, entitled "Every JMP [Job Market Paper] Ever":