Wednesday, May 17, 2017

Immigration and the West: a Backlash Fueled by Debt

I've written before about why racism will always exist and its interplay with immigration and economic sentiments. (See HERE.)  Today, we are in a curious situation: the best lack practicality, while the worst lack tolerance.

We have learned that absent de jure discrimination, more homogeneous communities do better in terms of trust while more diverse societies tend to fracture and segregate in the absence of perpetually rising job growth. Every society's majority attempts to carve out protections and privileges for their own ways of life and thinking. When secure, they feel more open to outsiders; when less secure, they feel less open to outsiders and non-conformity. Some societies enforce their rules through exclusion, whether social or economic; others through individual violence (think lynchings); and others through the law using the state's resources for the threat of violence and order (think jails or costly litigation). Every single society, over time, diminishes if it resorts to exclusion or violence because not only do such tactics cost money, they also scare off potential entrants.

All over the world, voters are rejecting the status quo. America elected Trump; France may have rejected Le Pen, who defended often brutal colonialism, but she still received about 30% of the vote; Nazis are rising in Scandinavia, as chronicled by journalist Stieg Larsson; the Dutch have Geert Wilders; and even the bohemian Czech Republic has its own non-politically-correct president, Miloš Zeman.  All of these so-called populist candidates have risen on the tide of anti-illegal-immigration and anti-refugee sentiments, not because of racism per se, but because voters believe 1) Europe is not a nation of immigrants; 2) a generous welfare state cannot support too many outsiders who have not paid into the system; 3) a generous welfare state cannot avoid higher taxes if it imports poor people, especially when existing taxes are already high; 4) outsiders will not assimilate to their way of life; and 5) outsiders will try to impose their values on the majority (whether true, it matters not as long as voters sincerely believe it).  With respect to #3, people are more concerned about rising prices of essential items like housing than taxes, but feel they cannot personally do much about inflation and so focus on taxes.

In reality, Western democratic institutions are in denial about why their systems are in decline and like most people in denial, seek to find scapegoats. At the extreme, such scapegoating leads to the Holocaust; at a slow boil, it leads to a "soft revolution" like electing Donald Trump and attempting to close borders. What has really happened to cause so many voters to lose faith in their governments and immigration?

1.  Post 9/11, military and intelligence agencies disregarded the rule of law and used their influence to divert government funding to their interests and friends.  Such tactics range anywhere from government hiring preferences for veterans to increasing jobs in security and security-related agencies (TSA, DHS, etc.).  In the U.S., because debt has been used to sustain the unsustainable, once a job is created within an agency, it is rarely eliminated.  As economist Milton Friedman once remarked, "Nothing is so permanent as a temporary government program."

Reducing accountability and relying on perpetual war or fear to prop up government spending and to set priorities will lead to backlash--but not necessarily against the military, especially if it has become the employer of last resort for men. Yet, when the rule of law weakens, all society suffers because the easiest enforcement method is voluntary compliance, and the fewer people who believe the rule of law is efficient and consistent, the harder it is to have voluntary compliance.

A lack of voluntary compliance usually leads to a greater acceptance of evading the law, whether legally (Panama Papers, applying for disability benefits based on hard-to-measure psychological ailments, etc.) or illegally, which then results in dissatisfaction and increased spending on non-productive jobs, such as compliance and navigating an ever-increasing web of laws designed to combat non-compliance.  As society fractures, governments find it harder to increase the tax base, leading to special interest groups protecting their own jobs through political influence rather than focusing on long term results.

By the way, I single out the military's extended influence worldwide because:

1) increased military spending that could have been avoided increases debt, leads to higher taxes, or forces cuts to other government programs. Such spending drains resources for more productive expenditures such as practical education, more efficient healthcare, and better infrastructure or causes countries to limit their future spending flexibility while pitting their older generations vs. their younger ones or insiders vs. outsiders; and

2) increased military spending by one country forces more military spending by allies and enemies alike, leading either to more cooperation, best-case (think NATO or sharing military bases in Djibouti by China and America) or less cooperation and more complexity and therefore unpredictability, worst-case (think Russia not being pleased with so many military bases being placed near its country or the current actions in Syria).

But don't listen to me--President Eisenhower said it better:

"Every gun that is made, every warship launched, every rocket fired signifies, in the final sense, a theft from those who hunger and are not fed, those who are cold and are not clothed.This world in arms is not spending money alone. It is spending the sweat of its laborers, the genius of its scientists, the hopes of its children. The cost of one modern heavy bomber is this: a modern brick school in more than 30 cities. It is two electric power plants, each serving a town of 60,000 population. It is two fine, fully equipped hospitals. It is some fifty miles of concrete pavement. We pay for a single fighter plane with a half million bushels of wheat. We pay for a single destroyer with new homes that could have housed more than 8,000 people."

So did James "Jamie" Dimon, CEO of JP Morgan Chase (2016 Annual Report): "Over the last 16 years, we have spent trillions of dollars on wars when we could have been investing that money productively. (I’m not saying that money didn’t need to be spent; but every dollar spent on battle is a dollar that can’t be put to use elsewhere.)"

2.  The largest single factor in voter dissatisfaction is a failure to understand that public institutions aren't doing their jobs and may in fact be working against their own people's long term interests.  In Europe, it's no secret countries are having difficulties assimilating recent immigrants.  Few people realize it's not recent immigrants who are causing problems, but their native-born children, who have been fed a lifetime of "liberté, égalité, fraternité," only to realize they were victims of well-intentioned propaganda.  

Indeed, most of Europe is experiencing widespread job discrimination and a lack of social mobility. In response, European voters can believe their public institutions are not working well, in which case they must admit their own culture and ways of life--into which they are demanding assimilation--are not ideal for everyone or are unable to integrate newcomers sufficiently; or, they can blame everything that isn't like them, such as different religions, different beliefs, and different work ethics.  One doesn't need a psychology degree to understand denial and a lack of self-awareness can apply both to individuals as well as entire societies.

In short, it's easy not to blame one's own institutions if one truly believes one is hard-working or useful, and far more difficult to believe that one's own failure to sacrifice or be open in substantive rather than abstract ways is the cause of decline.  Such phenomena is not unique to Europe, of course.  An older American law school professor part of a private institution whose job is protected by an MOU--making it almost impossible to fire her--is not likely to believe problems arise from her own failure to make sacrifices in pay, failure to step aside once her practical experience becomes more attenuated, failure to effectively protest constant tuition increases, and failure to do something to mitigate higher debt loads for students.

Yet, an outsider like myself once part of the same school can easily see the college now exists primarily as a conduit for privileged children from K-12 private schools to gain access to an affluent job network and political influence (almost everyone on the local political councils went to private Catholic schools and the last two mayoral candidates attended the same Catholic high school), with the occasional immigrant or outsider thrown in or promoted to a visible position to give the appearance the entity is doing something other than ensconcing a caste system based on the ability to access certain schools at a young age. (I almost balked at attending the school when tuition was around 21K annually--I and most people in the middle class wouldn't even look at a law school charging 55K a year in tuition when we know our parents are unable to assist financially.)  At the end of the day, as tuition increases, colleges with expensive tuition may continue to attract a small percentage of outsiders, but such persons will gain the privileges accorded to everyone else only if they are spectacular in their skills or if government jobs are left over after being given to the insiders.

Ironically, by promoting certain people based on personal traits such as race or background to give the appearance of inclusion, governments and other entities are reducing morale within their own ranks as well as fueling voters' beliefs that elites care more about newcomers/immigrants and arbitrary personal traits rather than merit and accountability.  This belief occurs despite the fact that most employees within any government agency tend to reflect connections built over decades and therefore unavailable to immigrants and newcomers.

Remember: reducing accountability will lead to backlash, even against deserving persons within an agency or entity.

3.  A society filled with hypocrisy cannot survive--at least not without miserable or angry people.  As fewer elites admitted to themselves that their positions and benefits were unsustainable if applied to the entire population or without cheap debt, they became disconnected from the most important sustainability project of all--economic sustainability. Within a country where physical segregation has been the norm, the combination of growing inequality, higher living costs, and D.C. disconnectedness with non-elites has led to political combustion.  When the elites responded with scorn and name-calling rather than an acceptance they were party to laws and legal agreements favoring them under separate or unequal employment and compensation systems, the powder keg was lit. If Langston Hughes were alive today, he would ask, "When does it explode?"

4.  A country with a "middle class" soaked in debt has a middle class in name only.  Debt makes people expect certain returns and increases expectations.  Someone who buys a taxi medallion--a license that allows him or her to be part of an established cab fleet--isn't going to support Uber, even if Uber increases economic diversity as well as convenience for the disabled and able-bodied. That same person who takes out a loan to buy the medallion/license won't limit defiance to protesting Uber--s/he will do whatever it takes to demonize Uber, regardless of the facts.

Countries and people in debt must prioritize debt payments first, and customer service and the public good second.  Debt causes people not to empathize and therefore not to understand differing points of view to the extent such views are held by persons interfering with plans to pay off their debt and/or expectations of return.

How do so many so-called "poor" nations still manage to have social cohesion despite high levels of wealth inequality?  It's simple--they don't force their poor people to go in debt for the basics, they don't usually tax small businesses (e.g., Cuba doesn't have a sales tax--Dunhill cigarette packs are 1.75 USD), and they don't have as much physical segregation, usually because they have cheaper or better public transportation.

Also, because loans in developing nations aren't available except for the rich, automatic inflation everywhere doesn't occur. and it's possible to live in areas--like Jakarta--where an upscale Starbucks is across the street from delicious street food costing one dollar a plate. In short, segregation exists everywhere, but in most non-American and non-European cities, it's not the kind that makes you despise your neighbor.

In Thailand, I once ate at a sit-down restaurant and saw laborers and suits in the same place. A picture of the award-winning chef hung on the wall of the otherwise unassuming restaurant, located next to a convenience store. How many local award-winning chefs can afford to open their restaurant in a major city in America without a loan?

Poor and rich Filipinos admire President Duterte, a lawyer, while left-leaning American media outlets castigate him whenever possible--even though their own lawyer-politician, Hillary Clinton, is disliked by most Americans. A world soaked in debt becomes hypocritical and epithet-seeking almost by default.  I weep for the future of developed countries. A world where debtors accept their financial slavery and rely even partly on prescription drugs for happiness or health is poor, regardless of GDP.


Debt leads to inflation, and unrestrained debt leads to a political class that can forestall accountability by refusing to make hard choices on behalf of its citizenry. To sum up,

1.  Reducing accountability will lead to backlash.
2.  Reducing accountability for some workers but not others while paying the less accountable workers more benefits will lead to more segregation as residents attempt to create or find more accountable entities or loopholes for themselves to avoid being ensnared in the general public's inability to avoid reduced accountability.
3.  Reducing accountability while increasing debt and segregation will lead to lower trust among all groups, which will seek to justify their segregation from the goods and services available to the public.
4.  Reducing accountability and trust while increasing debt will fracture society by making it less empathetic, leading to the search for scapegoats, which tend to be immigrants or minorities.

The future of the political class depends on which systems will provide cost-effective and streamlined healthcare, public safety, and public education for all. If an authoritarian government is able to best deliver results, it will gain more popularity than a democratic government unable to reverse debt-fueled inflation in essential items running higher than wage or job growth.

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