Month: February 2021

Why I am not an anarchist

PNRJ politics, public policy , , , ,

Feb 28 JDN 2459274

I read a post on social media not long ago which was remarkably thoughtful and well-written, considering that it contained ideas that would, if consistently followed, probably destroy human civilization as we know it.

It was an argument in favor of the radical view “ACAB” (for “All Cops Are Bastards”), pointing out that police officers swear an oath to uphold all laws, not only just laws, and therefore are willfully participating in a system of oppression.

This isn’t entirely wrong. Police officers do swear such an oath, and it does seem morally problematic. But if you stop and think for a moment, what was the alternative?

Should we have police officers only swear an oath to uphold the laws they believe are just? Then you have just eliminated the entire purpose of having laws. If police officers get to freely choose which laws they want to uphold and which ones they don’t, we don’t have laws; we just have police officers and their own opinions. In place of the republican system of electing representatives to choose laws, we have a system where the only democratic power lies in choosing the governor and the mayor, and from that point on downward everything is appointments that the public has no say in.

Or should we not have police officers at all? Anyone who chants “ACAB” evidently believes so. But without police officers—or at least some kind of law enforcement mechanism, which would almost certainly have to involve something very much like police officers—we once again find that laws no longer have any real power. Government ceases to exist as a meaningful institution. Laws become nothing more than statements of public disapproval. The logical conclusion of “ACAB” is nothing less than anarchism.

Don’t get me wrong; statements of public disapproval can be useful in themselves. Most international law has little if any enforcement mechanism attached to it, yet most countries follow most international laws most of the time. But for one thing, serious violations of international law are frequent—even by countries that are ostensibly “good citizens”; and for another, international politics does have some kind of enforcement mechanism—if your reputation in the international community gets bad enough, you will often face trade sanctions or even find yourself invaded.

Indeed, it is widely recognized by experts in international relations that more international law enforcement would be a very good thing—perhaps one of the very best things that could possibly happen, in fact, given its effect on war, trade, and the catastrophic risks imposed by nuclear weapons and climate change. The problem with international governance is not that it is undesirable, but that it seems infeasible; we can barely seem to get the world’s major power to all agree on international human rights, much less get them to sign onto a pact that would substantially limit their sovereignty against a global government. The UN is toothless precisely because most of the countries that have the power to control UN policy prefer it that way.

At the national and sub-national scale, however, we already have law enforcement; and while it certainly has significant flaws and is in need of various reforms, it does largely succeed at its core mission of reducing crime.

Indeed, the exceptions prove the rule: The one kind of crime that is utterly rampant in the First World, with impacts dwarfing all others, is white-collar crime—the kind that our police almost never seem to care about.

It’s unclear exactly how much worse crime would be if law enforcement did not exist. Most people, I’m sure, would be unlikely to commit rape or murder even if it were legal to do so. Indeed, it’s not clear how effective law enforcement is at actually deterring rape or murder, since rape is so underreported and most murders are one-off crimes of passion. So, a bit ironically, removing law enforcement for the worst crimes might actually have a relatively small effect.

But there are many other crimes that law enforcement clearly does successfully deter, such as aggravated assault, robbery, larceny, burglary, and car theft. Even controlling for the myriad other factors that affect crime, effective policing has been shown to reduce overall crime by at least 10 percent. Policing has the largest effects on so-called “street crime”, crimes like robbery and auto theft that occur in public places where police can be watching.

Moreover, I would contend that these kinds of estimates should be taken as a lower bound. They are comparing the marginal effect of additional policing—not the overall effect of having police at all. If the Law of Diminishing Marginal Returns applies, the marginal benefit of the first few police officers would be very high, while beyond a certain point adding more cops might not do much.

At the extremes this is almost certainly correct, in fact: A country where 25% of all citizens were police officers probably wouldn’t actually have zero crime, but it would definitely be wasting enormous amounts of resources on policing. Dropping that all the way down to 5% or even 1% could be done essentially without loss. Meanwhile—and this is really the relevant question for anarchism—a country with no police officers at all would probably be one with vastly more crime.

I can’t be certain, of course. No country has ever really tried going without police.

What there have been are police strikes: And yes, it turns out that most police strikes don’t result in substantially increased crime. But there are some important characteristics of police strikes that make this result less convincing than it might seem. First of all, police can’t really strike the way most workers can—it’s almost always illegal for police to strike. So instead what happens is a lot of them call in sick (“blue flu”), or they do only the bare minimum requirements of their duties (“work-to-rule”). Often slack in the police force is made up by deploying state or federal officers. So the “strike” is more of a moderate reduction in policing, rather than a complete collapse of policing as the word “strike” would seem to imply.

Moreover, police strikes are almost always short—the NYPD strike in the 1970s lasted only a week. A lot can still happen even in that time: The Murray-Hill riot as a result of a police strike in Montreal led to hundreds of thefts, millions of dollars in damage, and several deaths—all in a single night. (In Canada!) But even when things turn out okay after a week of striking, as they did in New York, that doesn’t really tell us what would happen if the police were gone for a month, or a year, or a decade. Most crime investigations last months or years anyway, so police going on strike for a week isn’t really that different from, say, economists going on strike for a week: It doesn’t much matter, because most of the work happens on a much longer timescale than that. Speaking as a graduate student, I’ve definitely had whole weeks where I did literally no useful work and nobody noticed.

There’s another problem as well, which is that we don’t actually know how much crime happens. We mainly know about crime from two sources: Reporting, which is directly endogenous to police activity(if the police are known to be useless, nobody reports to them) and surveys, which are very slow (usually they are conducted annually or so). With reporting, we can’t really trust how the results change when policing changes; with surveys, we don’t actually see the outcome for months or years after the policing change. Indeed, it is a notorious fact in criminology that we can’t even really reliably compare crime rates in different times and places because of differences in reporting and survey methods; the one thing we feel really confident comparing is homicide rates (dead is pretty much dead!), which are known to not be very responsive to policing for reasons I already discussed.

I suppose we could try conducting an actual experiment where we declare publically that there will be no police action whatsoever for some interval of time (wasn’t there a movie about this?), and see what happens. But this seems very dangerous: If indeed the pessimistic predictions of mass crime waves are accurate, the results could be catastrophic.

The more realistic approach would be to experiment by reducing police activity, and see if crime increases. We would probably want to do this slowly and gradually, so that we have time to observe the full effect before going too far. This is something we can—and should—do without ever needing to go all the way to being anarchists who believe in abolishing all policing. Even if you think that police are really important and great at reducing crime, you should be interested in figuring out which police methods are most cost-effective, and experimenting with different policing approaches is the best way to do that.

I understand the temptation of anarchism. Above all, it’s simple. It feels very brave and principled. I even share the temperament behind it: I am skeptical of authority in general and agree that the best world would be one where every person (or at least every adult of sound mind) had the full autonomy to make their own choices. But that world just doesn’t seem to be feasible right now, and perhaps it never will be.

Police reform is absolutely necessary. Reductions in policing should be seriously tried and studied. But anarchy is just too dangerous—and that is why we shouldn’t be getting rid of police any time soon.

In search of reasonable conservatism

PNRJ core principles, current events, ethics, politics, public policy , , , , ,

Feb 21JDN 2459267

This is a very tumultuous time for American politics. Donald Trump, not once, but twice was impeached—giving him the dubious title of having been impeached as many times as the previous 45 US Presidents combined. He was not convicted either time, not because the evidence for his crimes was lacking—it was in fact utterly overwhelming—but because of obvious partisan bias: Republican Senators didn’t want to vote against a Republican President. All 50 of the Democratic Senators, but only 7 of the 50 Republican Senators, voted to convict Trump. The required number of votes to convict was 67.

Some degree of partisan bias is to be expected. Indeed, the votes looked an awful lot like Bill Clinton’s impeachment, in which all Democrats and only a handful of Republicans voted to acquit. But Bill Clinton’s impeachment trial was nowhere near as open-and-shut as Donald Trump’s. He was being tried for perjury and obstruction of justice, over lies he told about acts that were unethical, but not illegal or un-Constitutional. I’m a little disappointed that no Democrats voted against him, but I think acquittal was probably the right verdict. There’s something very odd about being tried for perjury because you lied about something that wasn’t even a crime. Ironically, had it been illegal, he could have invoked the Fifth Amendment instead of lying and they wouldn’t have been able to touch him. So the only way the perjury charge could actually stick was because it wasn’t illegal. But that isn’t what perjury is supposed to be about: It’s supposed to be used for things like false accusations and planted evidence. Refusing to admit that you had an affair that’s honestly no one’s business but your family’s really shouldn’t be a crime, regardless of your station.

So let us not imagine an equivalency here: Bill Clinton was being tried for crimes that were only crimes because he lied about something that wasn’t a crime. Donald Trump was being tried for manipulating other countries to interfere in our elections, obstructing investigations by Congress, and above all attempting to incite a coup. Partisan bias was evident in all three trials, but only Trump’s trials were about sedition against the United States.

That is to say, I expect to see partisan bias; it would be unrealistic not to. But I expect that bias to be limited. I expect there to be lines beyond which partisans will refuse to go. The Republican Party in the United States today has shown us that they have no such lines. (Or if there are, they are drawn far too high. What would he have to do, bomb an American city? He incited an invasion of the Capitol Building, for goodness’ sake! And that was after so terribly mishandling a pandemic that he caused roughly 200,000 excess American deaths!)

Temperamentally, I like to compromise. I want as many people to be happy as possible, even if that means not always getting exactly what I would personally prefer. I wanted to believe that there were reasonable conservatives in our government, professional statespersons with principles who simply had honest disagreements about various matters of policy. I can now confirm that there are at most 7 such persons in the US Senate, and at most 10 such persons in the US House of Representatives. So of the 261 Republicans in Congress, no more than 17 are actually reasonable statespersons who do not let partisan bias override their most basic principles of justice and democracy.

And even these 17 are by no means certain: There were good strategic reasons to vote against Trump, even if the actual justice meant nothing to you. Trump’s net disapproval rating was nearly the highest of any US President ever. Carter and Bush I had periods where they fared worse, but overall fared better. Johnson, Ford, Reagan, Obama, Clinton, Bush II, and even Nixon were consistently more approved than Trump. Kennedy and Eisenhower completely blew him out of the water—at their worst, Kennedy and Eisenhower were nearly 30 percentage points above Trump at his best. With Trump this unpopular, cutting ties with him would make sense for the same reason rats desert a sinking ship. And yet somehow partisan loyalty won out for 94% of Republicans in Congress.

Politics is the mind-killer, and I fear that this sort of extreme depravity on the part of Republicans in Congress will make it all too easy to dismiss conservatism as a philosophy in general. I actually worry about that; not all conservative ideas are wrong! Low corporate taxes actually make a lot of sense. Minimum wage isn’t that harmful, but it’s also not that beneficial. Climate change is a very serious threat, but it’s simply not realistic to jump directly to fully renewable energy—we need something for the transition, probably nuclear energy. Capitalism is overall the best economic system, and isn’t particularly bad for the environment. Industrial capitalism has brought us a golden age. Rent control is a really bad idea. Fighting racism is important, but there are ways in which woke culture has clearly gone too far. Indeed, perhaps the worst thing about woke culture is the way it denies past successes for civil rights and numbs us with hopelessness.

Above all, groupthink is incredibly dangerous. Once we become convinced that any deviation from the views of the group constitutes immorality or even treason, we become incapable of accepting new information and improving our own beliefs. We may start with ideas that are basically true and good, but we are not omniscient, and even the best ideas can be improved upon. Also, the world changes, and ideas that were good a generation ago may no longer be applicable to the current circumstances. The only way—the only way—to solve that problem is to always remain open to new ideas and new evidence.

Therefore my lament is not just for conservatives, who now find themselves represented by craven ideologues; it is also for liberals, who no longer have an opposition party worth listening to. Indeed, it’s a little hard to feel bad for the conservatives, because they voted for these maniacs. Maybe they didn’t know what they were getting? But they’ve had chances to remove most of them, and didn’t do so. At best I’d say I pity them for being so deluded by propaganda that they can’t see the harm their votes have done.

But I’m actually quite worried that the ideologues on the left will now feel vindicated; their caricatured view of Republicans as moustache-twirling cartoon villains turned out to be remarkably accurate, at least for Trump himself. Indeed, it was hard not to think of the ridiculous “destroying the environment for its own sake” of Captain Planet villains when Trump insisted on subsidizing coal power—which by the way didn’t even work.

The key, I think, is to recognize that reasonable conservatives do exist—there just aren’t very many of them in Congress right now. A significant number of Americans want low taxes, deregulation, and free markets but are horrified by Trump and what the Republican Party has become—indeed, at least a few write for the National Review.

The mere fact that an idea comes from Republicans is not a sufficient reason to dismiss that idea. Indeed, I’m going to say something even stronger: The mere fact that an idea comes from a racist or a bigot is not a sufficient reason to dismiss that idea. If the idea itself is racist or bigoted, yes, that’s a reason to think it is wrong. But even bad people sometimes have good ideas.

The reasonable conservatives seem to be in hiding at the moment; I’ve searched for them, and had difficulty finding more than a handful. Yet we must not give up the search. Politics should not appear one-sided.

Love in a time of quarantine

PNRJ cognitive science, current events, personal , , , , ,

Feb 14JDN 2459260

This is our first Valentine’s Day of quarantine—and hopefully our last. With Biden now already taking action and the vaccine rollout proceeding more or less on schedule, there is good reason to think that this pandemic will be behind us by the end of this year.

Yet for now we remain isolated from one another, attempting to substitute superficial digital interactions for the authentic comforts of real face-to-face contact. And anyone who is single, or forced to live away from their loved ones, during quarantine is surely having an especially hard time right now.

I have been quite fortunate in this regard: My fiancé and I have lived together for several years, and during this long period of isolation we’ve at least had each other—if basically no one else.

But even I have felt a strong difference, considerably stronger than I expected it would be: Despite many of my interactions already being conducted via the Internet, needing to do so with all interactions feels deeply constraining. Nearly all of my work can be done remotely—but not quite all, and even what can be done remotely doesn’t always work as well remotely. I am moderately introverted, and I still feel substantially deprived; I can only imagine how awful it must be for the strongly extraverted.

As awkward as face-to-face interactions can be, and as much as I hate making phone calls, somehow Zoom video calls are even worse than either. Being unable to visit someone’s house for dinner and games, or go out to dinner and actually sit inside a restaurant, leaves a surprisingly large emotional void. Nothing in particular feels radically different, but the sum of so many small differences adds up to a rather large one. I think I felt it the most when we were forced to cancel our usual travel back to Michigan over the holiday season.

Make no mistake: Social interaction is not simply something humans enjoy, or are good at. Social interaction is a human need. We need social interaction in much the same way that we need food or sleep. The United Nations considers solitary confinement for more than two weeks to be torture. Long periods in solitary confinement are strongly correlated with suicide—so in that sense, isolation can kill you. Think about the incredibly poor quality of social interactions that goes on in most prisons: Endless conflict, abuse, racism, frequent violence—and then consider that the one thing that inmates find most frightening is to be deprived of that social contact. This is not unlike being fed nothing but stale bread and water, and then suddenly having even that taken away from you.

Even less extreme forms of social isolation—like most of us are feeling right now—have as detrimental an effect on health as smoking or alcoholism, and considerably worse than obesity. Long-term social isolation increases overall mortality risk by more than one-fourth. Robust social interaction is critical for long-term health, both physically and mentally.

This does not mean that the quarantines were a bad idea—on the contrary, we should have enforced them more aggressively, so as to contain the pandemic faster and ultimately need less time in quarantine. Timing is critical here: Successfully containing the pandemic early is much easier than trying to bring it back under control once it has already spread. When the pandemic began, lockdown might have been able to stop the spread. At this point, vaccines are really our only hope of containment.

But it does mean that if you feel terrible lately, there is a very good reason for this, and you are not alone. Due to forces much larger than any of us can control, forces that even the world’s most powerful governments are struggling to contain, you are currently being deprived of a basic human need.

And especially if you are on your own this Valentine’s Day, remember that there are people who love you, even if they can’t be there with you right now.

What happened with GameStop?

PNRJ critique of neoclassical economics, current events, ethics, financial fraud, inequality, market failure, public policy , , , , , , ,

Feb 7 JDN 2459253

No doubt by now you’ve heard about the recent bubble in GameStop stock that triggered several trading stops, nearly destroyed a hedge fund, and launched a thousand memes. What really strikes me about this whole thing is how ordinary it is: This is basically the sort of thing that happens in our financial markets all the time. So why are so many people suddenly paying so much attention to it?

There are a few important ways this is unusual: Most importantly, the bubble was triggered by a large number of middle-class people investing small amounts, rather than by a handful of billionaires or hedge funds. It’s also more explicitly collusive than usual, with public statements in writing about what stocks are being manipulated rather than hushed whispers between executives at golf courses. Partly as a consequence of these, the response from the government and the financial industry has been quite different as well, trying to halt trading and block transactions in a way that they would never do if the crisis had been caused by large financial institutions.

If you’re interested in the technical details of what happened, what a short squeeze is and how it can make a hedge fund lose enormous amounts of money unexpectedly, I recommend this summary by KQED. But the gist of it is simple enough: Melvin Capital placed huge bets that GameStop stock would fall in price, and a coalition of middle-class traders coordinated on Reddit to screw them over by buying a bunch of GameStop stock and driving up the price. It worked, and now Melvin Capital lost something on the order of $3-5 billion in just a few days.

The particular kind of bet they placed is called a short, and it’s a completely routine practice on Wall Street despite the fact that I could never quite understand why it is a thing that should be allowed.

The essence of a short is quite simple: When you short, you are selling something you don’t own. You “borrow” it (it isn’t really even borrowing), and then sell it to someone else, promising to buy it back and return it to where you borrowed it from at some point in the future. This amounts to a bet that the price will decline, so that the price at which you buy it is lower than the price at which you sold it.

Doesn’t that seem like an odd thing to be allowed to do? Normally you can’t sell something you have merely borrowed. I can’t borrow a car and then sell it; car title in fact exists precisely to prevent this from happening. If I were to borrow your coat and then sell it to a thrift store, I’d have committed larceny. It’s really quite immaterial whether I plan to buy it back afterward; in general we do not allow people to sell things that they do not own.

Now perhaps the problem is that when I borrow your coat or your car, you expect me to return that precise object—not a similar coat or a car of equivalent Blue Book value, but your coat or your car. When I borrow a share of GameStop stock, no one really cares whether it is that specific share which I return—indeed, it would be almost impossible to even know whether it was. So in that way it’s a bit like borrowing money: If I borrow $20 from you, you don’t expect me to pay back that precise $20 bill. Indeed you’d be shocked if I did, since presumably I borrowed it in order to spend it or invest it, so how would I ever get it back?

But you also don’t sell money, generally speaking. Yes, there are currency exchanges and money-market accounts; but these are rather exceptional cases. In general, money is not bought and sold the way coats or cars are.

What about consumable commodities? You probably don’t care too much about any particular banana, sandwich, or gallon of gasoline. Perhaps in some circumstances we might “loan” someone a gallon of gasoline, intending them to repay us at some later time with a different gallon of gasoline. But far more likely, I think, would be simply giving a friend a gallon of gasoline and then not expecting any particular repayment except perhaps a vague offer of providing a similar favor in the future. I have in fact heard someone say the sentence “Can I borrow your sandwich?”, but it felt very odd when I heard it. (Indeed, I responded something like, “No, you can keep it.”)

And in order to actually be shorting gasoline (which is a thing that you, too, can do, perhaps even right now, if you have a margin account on a commodities exchange), it isn’t enough to borrow a gallon with the expectation of repaying a different gallon; you must also sell that gallon you borrowed. And now it seems very odd indeed to say to a friend, “Hey, can I borrow a gallon of gasoline so that I can sell it to someone for a profit?”

The usual arguments for why shorting should be allowed are much like the arguments for exotic financial instruments in general: “Increase liquidity”, “promote efficient markets”. These arguments are so general and so ubiquitous that they essentially amount to the strongest form of laissez-faire: Whatever Wall Street bankers feel like doing is fine and good and part of what makes American capitalism great.

In fact, I was never quite clear why margin accounts are something we decided to allow; margin trading is inherently high-leverage and thus inherently high-risk. Borrowing money in order to arbitrage financial assets doesn’t just seem like a very risky thing to do, it has been one way or another implicated in virtually every financial crisis that has ever occurred. It would be an exaggeration to say that leveraged arbitrage is the one single cause of financial crises, but it would be a shockingly small exaggeration. I think it absolutely is fair to say that if leveraged arbitrage did not exist, financial crises would be far rarer and further between.

Indeed, I am increasingly dubious of the whole idea of allowing arbitrage in general. Some amount of arbitrage may be unavoidable; there may always be people people who see that prices are different for the same item in two different markets, and then exploit that difference before anyone can stop them. But this is a bit like saying that theft is probably inevitable: Yes, every human society that has had a system of property ownership (which is most of them—even communal hunter-gatherers have rules about personal property), has had some amount of theft. That doesn’t mean there is nothing we can do to reduce theft, or that we should simply allow theft wherever it occurs.

The moral argument against arbitrage is straightforward enough: You’re not doing anything. No good is produced; no service is provided. You are making money without actually contributing any real value to anyone. You just make money by having money. This is what people in the Middle Ages found suspicious about lending money at interest; but lending money actually is doing something—sometimes people need more money than they have, and lending it to them is providing a useful service for which you deserve some compensation.

A common argument economists make is that arbitrage will make prices more “efficient”, but when you ask them what they mean by “efficient”, the answer they give is that it removes arbitrage opportunities! So the good thing about arbitrage is that it stops you from doing more arbitrage?

And what if it doesn’t stop you? Many of the ways to exploit price gaps (particularly the simplest ones like “where it’s cheap, buy it; where it’s expensive, sell it”) will automatically close those gaps, but it’s not at all clear to me that all the ways to exploit price gaps will necessarily do so. And even if it’s a small minority of market manipulation strategies that exploit gaps without closing them, those are precisely the strategies that will be most profitable in the long run, because they don’t undermine their own success. Then, left to their own devices, markets will evolve to use such strategies more and more, because those are the strategies that work.

That is, in order for arbitrage to be beneficial, it must always be beneficial; there must be no way to exploit price gaps without inevitably closing those price gaps. If that is not the case, then evolutionary pressure will push more and more of the financial system toward using methods of arbitrage that don’t close gaps—or even exacerbate them. And indeed, when you look at how ludicrously volatile and crisis-prone our financial system has become, it sure looks an awful lot like an evolutionary equilibrium where harmful arbitrage strategies have evolved to dominate.

A world where arbitrage actually led to efficient pricing would be a world where the S&P 500 rises a steady 0.02% per day, each and every day. Maybe you’d see a big move when there was actually a major event, like the start of a war or the invention of a vaccine for a pandemic. You’d probably see a jump up or down of a percentage point or two with each quarterly Fed announcement. But daily moves of even five or six percentage points would be a very rare occurrence—because the real expected long-run aggregate value of the 500 largest publicly-traded corporations in America is what the S&P 500 is supposed to represent, and that is not a number that should change very much very often. The fact that I couldn’t really tell you what that number is without multi-trillion-dollar error bars is so much the worse for anyone who thinks that financial markets can somehow get it exactly right every minute of every day.

Moreover, it’s not hard to imagine how we might close price gaps without simply allowing people to exploit them. There could be a bunch of economists at the Federal Reserve whose job it is to locate markets where there are arbitrage opportunities, and then a bundle of government funds that they can allocate to buying and selling assets in order to close those price gaps. Any profits made are received by the treasury; any losses taken are borne by the treasury. The economists would get paid a comfortable salary, and perhaps get bonuses based on doing a good job in closing large or important price gaps; but there is no need to give them even a substantial fraction of the proceeds, much less all of it. This is already how our money supply is managed, and it works quite well, indeed obviously much better than an alternative with “skin in the game”: Can you imagine the dystopian nightmare we’d live in if the Chair of the Federal Reserve actually received even a 1% share of the US money supply? (Actually I think that’s basically what happened in Zimbabwe: The people who decided how much money to print got to keep a chunk of the money that was printed.)

I don’t actually think this GameStop bubble is all that important in itself. A decade from now, it may be no more memorable than Left Shark or the Macarena. But what is really striking about it is how little it differs from business-as-usual on Wall Street. The fact that a few million Redditors can gather together to buy a stock “for the lulz” or to “stick it to the Man” and thereby bring hedge funds to their knees is not such a big deal in itself, but it is symptomatic of much deeper structural flaws in our financial system.