Monday, March 12, 2018

Unintended Consequences and the Difficulty in Understanding the United States

State Statistics

Let's take two states. State "LI" has a pro-government spending bias. It spends much more on public welfare and education than conservative State "NT." Like many Southern states, NT has a history of de jure racism ("In 1870 the state Constitution was amended to prohibit interracial marriage.") and defied Brown vs. Board of Education by increasing privatization of education. As of 2008, 17 of its school districts continued to be under a court-supervised desegregation order

LI is the opposite--it was first to ratify the Thirteenth Amendment to the United States Constitution, which abolished slavery nationally. Other than housing laws, it did not participate in expressly racist legislation. A billionaire philanthropist built several prominent institutions, including a top-ranked private university, in the state. The country's first African-American president came from LI in 2008. 

NT also had a private philanthropist build a major private university, but unlike LI, it has no nationally-recognized public universities. In 2016, while LI voted for liberal presidential candidates, NT voted overwhelmingly for conservative candidates. 

As of 2016-2017, NT's per capita personal income was 44,317 USD annually, and LI's per capita personal income was 51,817 USD annually. NT's population was about 74 to 79% white; LI was more diverse, being 62 to 77% white. LI had higher union membership than NT: "In 2017, union members accounted for 15.0 percent of wage and salary workers in [LI], compared with 14.5 percent in 2016." NT, a right to work state, had union membership of around 5.7% in 2016. In 2013, NT spent 8,208 USD annually on primary and secondary school pupils; LI spent 12,288 USD annually.

You might say it's obvious LI is doing better than NT, but you'd be wrong. In 2015, LI had 863 homicides and 1,220 firearm deaths. Its infant mortality rate in 2016 was worse than the average American state, with some counties alarmingly worse. Although NT's infant mortality rate was actually higher than LI's, it had a lower homicide death rate

LI's pension deficit was the largest of all 50 states; in contrast, NT had one of the highest funding ratios. Even on citywide level, LI's Ogacihc was the worst city in terms of underfunding, while NT's Ellivhsan was one of the best (See pp. 22 and 23). 

Homeownership? NT prevails with 67.2% ownership in 2017 vs. LI's 65.4%. 

Don't count out LI, though: 

LI had a higher average ACT score of 20.7 (or 21.4, depending on which data set you use) compared to NT's 19.8. (Counterpoint: the average nationwide score is 21, and after adjusting for random factors, one could argue there's not much difference between the two states.) 

What about interracial marriage? Some NT cities (Agoonattahc) rank the worst/least on this measure, while one large metro in LI ranks among the best/most. 

Passport issuance? In 2017, LI had 791,802 passports (0.0618 rate) while NT had 242,532 (0.0361 rate). 

Except for pollution, most health statistics, including infant mortality, favor LI. 

What's the point of reviewing these statistics? Well, they don't actually show anything useful if you want to relocate. A person looking to buy a home would probably prefer NT's largest metro area over LI's, but someone interested in price appreciation and public transportation might prefer LI. 

Also, NT might have fewer homicides than LI, but what if it's because of underreporting or a corrupt coroner misclassifying deaths? What about police shootings of civilians? Did anyone think to consider divorce rates or the quality of public schools when factoring in local housing prices? How about the number of public parks and/or development-protected areas? 

We have all heard "there are lies, damn lies, and statistics," but it's important to highlight a mathematical aspect of capitalism few people understand: 1) it is much harder to maintain rising wages and disposable income than to control inflation in essential items; and 2) higher populations, especially if including many new entrants, impact data tremendously. Thus, NT might be a much better place to live today because its wages and wage growth are more likely to allow residents to buy a home than in LI, but no solid evidence indicates higher property taxes or corporate closures will make this true 10 to 15 years from now. In addition, if NT has gained thousands of new residents in the last few years, its supply/demand data will be skewed because there is no guarantee of continued inward-migration, and at some point, taxes or expenditures must rise to meet the increased population demand. 

Finally, although the data indicates NT should be less racially-tolerant than LI, a) it depends on which city you visit; and b) NT's general hospitality may trump any of its residents' underlying opinions about groups in general. More below on b): 

"Sure, up there [New York City] black and white work side by side. But at night the black goes home to his ghetto and the white to his suburb. Here in the South we've been living together for 250 years, talking to each other every day. That gives you something solid to build on." -- Mayor Johnny L. Ford [National Geographic (October 1975), pp. 569] 

"It struck me as notably ironic that Southerners could despise blacks so bitterly and yet live comfortably alongside them, while in the North people by and large did not mind blacks, even respected them as humans and wished them every success, just so long as they didn't have to mingle with them too freely." -- Bill Bryson [The Lost Continent, paperback, pp. 63 (1989)]

The lesson? Statistics do not provide useful guidance in evaluating a state because they are not set up to capture direct, honest feedback even at a local level, which means they cannot reliably predict inward or outward migration patterns. Even if one asks the right questions, experiences vary so much across different cities in the same state, it is difficult to get a clear picture on anything meaningful. Never before have we had so much data; never before has such data been so useless. The older I get, the more I realize economics and sociology need to be merged to be a useful discipline. 

Debt, Debt, Baby

Setting aside social and cultural dynamics, modern American capitalism works by capturing platforms and using debt to continue to gain market share. This model works only if interest rates remain low and if banks are willing to roll over maturing debt or if private equity investors are willing to loan/invest more funds. 

When someone complains Uber or Amazon are not as profitable as other companies, you can safely ignore them on macroeconomic issues--they don't know how the modern economy works. (Even Nokia needed 17 years before it turned a profit on electronics--and that was before any newfangled financial "innovation.") Indeed, every single successful American city has become financially successful because it has carved out some unsustainable federally-linked advantage (security spending, educational loans, ethanol subsidies) or loophole (segregation, lax antitrust enforcement, etc.). Seen this way, "capitalist" America is not much different from "socialist" China, except China's national government has recently become stricter, functioning as a proper check and balance against local corruption--and growth at any cost. 
America or China? From Duncan Clark's Alibaba (2016)

Today, a debt-fueled strategy might be essential in an era where countries from China to Singapore practice a hybrid public-private model, practically picking winners and losers by governmental association. Alibaba infamously transferred Alipay, an online payments business worth at least 1 billion USD into a structure held 100% by a Chinese domestic company "[t]o expedite obtaining an essential regulatory license." [See Duncan Clark's Alibaba (2016), Ch 11.] The payment to international investors was 51 million USD. Alipay--not Alibaba--subsequently "was the first of 27 [Chinese] companies to be issued licenses and was awarded license number 001" by the PBOC. [Id.] 

Seen in a non-ideological light, countries and municipalities that attract capital--especially at lower interest rates--and roll over debt without asset sales will be successful. It has nothing to do with democracy, socialism, or any other "ism." The modern world--from international relations to the smallest city--runs on debt and the perception and confidence such debt will be paid. Public-private partnerships, with their more assured outcomes, are probably the future, and America needs a strategy apart from overspending on military R&D, both domestically and internationally, then trickling down innovations through private companies to the civilian sector. 

In such a convoluted world, numbers and statistics are not as helpful as they should be because every entity, not just ratings agencies, has incentives to optimize the numbers. Given the necessity of a strong banking sector in a debt-fueled economy, America's 2008-2009 banking bailouts should now make sense, except the lack of substantive reform, especially in the "shadow banking" sector, foretells another crisis. Unsurprisingly, debt-fueled economies prioritize economic growth and productivity over all else because growth makes it easier for debts to be paid both directly (newer debtholders maintain the cycle) and indirectly (inflation in assets renders past debts less valuable). It is unclear whether younger generations in developed countries are willing to accept such a paradigm. 
From Marilynne Robinson's What Are We Doing Here? (2018)

More troubling, some states have used lower interest rates and debt to pay off vested interests such as government unions rather than investing in the future. LI's pension issues are one obvious consequence of such an approach as well as an example of unintended consequences. When the Federal Reserve lowered interest rates, making it easier for tech companies to gain national and international market share, it did not intend for some states to handicap future generations by paying off vested or corrupt interests through complex political machinations. It may not have even intended the privatization that eventually came after such methods sapped cash flow from local and state budgets. Regardless of intentions, if growth must be maintained, especially through debt, then we must all "publish or perish," and quality and integrity aren't guaranteed in such single-minded productivity, either in products and people. I have spent much of my life studying numbers only to realize the "optimization bias" I mentioned earlier means any conclusions I've derived from "objective" data is inferior to an in-person daily stroll in an area. 

What's Next?

If a paradigm deficient in quality or meaningfulness is an unintended economic result, how can we create a better one?  "The fundamental problem [of economics] is not our lack of information but our limited ability to process it." (Ha-Joon Chang, 23 Things They Don't Tell You about Capitalism (2010)] I've traveled extensively for two years and I have processed why developed countries are faltering. Their systems--economic, social, and cultural--no longer prioritize justice. As stated above, they prioritize debt and debt repayment, which require deference to banking and military sectors. Security is good, but it does not make the soup taste better. Let me explain more clearly.

Society 1 is able to have as much as it wants--as long as Societies 2 and 3 buy its loans/debt. Society 1 creates systems based on x, y, and z values--and then builds numerous institutions around those purported values. The problem is that Society 1, flush with almost unlimited possibilities because of its ability to issue debt, eventually forgets to cross-check whether its values--democracy, capitalism, meritocracy--are actually reflected in its institutions. As its institutions become larger and more entrenched, they rely on perception to increase numbers, and it becomes easier to use the media--especially visual images--to convince voters to go along. (
For example, even if Society 1's military has lost every non-Grenadian war since Vietnam, most recently in Syria, producers--financed partly by government money--will greenlight another Churchill or WWII movie.) 

Of course such maneuvering has limits. As it becomes more obvious something is wrong, distractions and misinformation are used to maintain debt aka the status quo. In such a world, having multiple layers of complexity becomes useful to survival even if not a single layer benefits non-insiders. 

Over time, a few people start to realize Society 1's true values aren't whatever it claims, such as freedom--it's the opposite. The inability to do certain things--copying IP, threatening harm, silencing speech, invading a private citizen's privacy, etc.--is a free society's foundation. The trick is achieving a balance where citizens don't rely on insurance companies and their lawyers to receive a fair, predictable result while avoiding a nanny state. As of 2018, the balance in America, er Society 1, had gone so far awry, the following disclaimer would arrive from a public university after having paid 450 USD for event tickets: 

For All Ticket Purchases: The Division of Intercollegiate Athletics of the University of Iowa does not guarantee the availability of tickets, and reserves the right to modify or cancel any of the conditions displayed on this website, including ticket pricing or availability, at its discretion and without prior notice. If the University does not fill a ticket order or request, it will refund the purchase price or credit the customer's charge account, and is not responsible for any other damages or fees which might be incurred. By using this website, you agree that any ticket transactions with the University of Iowa are governed by the laws of the State of Iowa, without regard to conflict of laws principle.

Why bother having a website selling tickets if there's no guarantee you'll get the ticket you paid for? The Iowa, er, Awoi, lawyer did a good job for his/her client, but a terrible job for society and America's citizens. Historians will ask whether Americans forgot that all three branches of government, along with the fourth pillar of media, were required for a functioning government. Debt makes a leading appearance here, too, because new lawyers with 100,000 USD in student loans will need to pay off the loans before valuing justice and fairness above personal preservation. Lawyers are fond of saying the law doesn't create justice, only a chance at justice. Yet, as legal fees, one-sided agreements, and complexity (look at the indemnification clause in any online agreement) increase, one can argue such chances have disappeared for most people. 

Without all branches fulfilling their roles, some Americans saw decline as early as 2009: 

“We are watching the decline and fall of the United States as an economic power — not hypothetically, but as we speak,” said Craig R. Barrett, the chairman of Intel.

While traveling, I have wondered what America will leave behind as its economic empire declines, and until now, I have omitted an important detail. China will indeed become the world's economic superpower, but it does not seem able to replicate the ideals America brought the world in just 55 years. A country that jails Liu Xiaobo--author of the words below--will never be admired except grudgingly. 

Throughout all these years that I have lived without freedom, our love was full of bitterness imposed by outside circumstances, but as I savor its aftertaste, it remains boundless. I am serving my sentence in a tangible prison, while you wait in the intangible prison of the heart. Your love is the sunlight that leaps over high walls and penetrates the iron bars of my prison window, stroking every inch of my skin, warming every cell of my body, allowing me to always keep peace, openness, and brightness in my heart, and filling every minute of my time in prison with meaning. My love for you, on the other hand, is so full of remorse and regret that it at times makes me stagger under its weight. I am an insensate stone in the wilderness, whipped by fierce wind and torrential rain, so cold that no one dares touch me. But my love is solid and sharp, capable of piercing through any obstacle. Even if I were crushed into powder, I would still use my ashes to embrace you.

Even Singapore, a healthy blend of American and Chinese influence, jails Jehovah's Witnesses and bans their literature. For all its practicality, Singapore's Chinese elite cannot bring themselves to make an exception to military conscription for a well-established religion--an issue America resolved in 1943: "Those who begin coercive elimination of dissent soon find themselves exterminating dissenters. Compulsory unification of opinion achieves only the unanimity of the graveyard." (Supreme Court Justice Robert Jackson)

It is true that America jailed Martin Luther King and spies on its own people with the same fervor as East Germany's Stasi, but MLK was released and Snowden is still alive. The perpetrators of Abu Ghraib may not all have gone to jail, nor received appropriately lengthy sentences when convicted, but because of American media (and the always delightful Errol Morris), no decent person hears the names Lynndie England, Charles Graner, or Megan M. Ambuhl without feeling pity and outrage. 

You see, every country is the same in the sense all of them lurch towards entropy, with the rate of decline contingent on its people's ability to reverse poor decisions and--apologies for the colloquialism--prevent "full-retard." It's not coincidental that America's decline and China's rise occurred when decisions post-9/11 were not reversed in a timely manner. Even before Abu Ghraib, the overbroad Patriot Act, Guantanamo Bay, and the trillion-dollar illegal invasion of a former allied country, America's failure to ensure a match between its institutions and purported values resulted in a mishmash of unmanageable fiefdoms, none of which were truly free, and--more importantly--none of which could be shut down quickly if on harmful trajectories (such as the cementing of the military-industrial complex). From The Atlantic (September 2016), by Steven Brill

DHS--which has had seven undersecretaries or acting undersecretaries for management--has perennially been on the GAO’s list of agencies whose overall management is considered “at risk.” From the beginning, the agencies thrown into the new superagency fought to keep their turf, often calling on congressional allies to help. “At one meeting early on, I mumbled something about why should the Coast Guard and Customs each have their own helicopters and planes,” Tom Ridge recalls. “Why couldn’t they combine to purchase the same stuff? Within a few days, we had calls from Capitol Hill warning us not to mess with the Coast Guard’s or Customs’ procurements.” (The two agencies still have their own air forces.)

In hindsight, the failure of America's lawyers and journalists to expeditiously reverse the mistakes of the executive and legislative branches was the beginning of the end of America's reputation. No nation can withstand hypocrisy for long; humanity's DNA rejects it like a lethal virus. But--and there was always going to be a "but"--at least America, in purporting to adhere to certain values, gave room for its idealists to reach for them. 

Interestingly, as of 2018, China also prioritizes economic success and uses debt to turbocharge its economy, but as the creditor of over one trillion USD, its export-driven economy has unique advantages as well as risks (currency devaluation, tariffs, etc.). If it does not continue to create jobs, why should anyone with an independent streak stay if they can leave? Countries like the UAE do not do well on the "daily stroll" test despite financial prosperity because they have not assimilated their best talent. Similarly, China's behavior towards nonconformists will rob them of the privilege of being emulated, which will limit its ability to keep its best people. There is a reason a young Jack Ma (Ma Yun) learned more in Australia than in China and does not trust people from Shanghai or Hong Kong. 
From Clark's Alibaba (2016)

In almost every country, the best residents are from somewhere else or have developed their ideas elsewhere, and in any time period, it will always be much easier to steal talent than to create it. Consequently, nations that do not provide the appropriate balance of security and freedom lose automatically because they do not promulgate values to be emulated as long as they silence critical or nonconformist voices. The singular act of silencing people who think different or differently repels the most talented, who are often outsiders. No amount of prosperity can resolve the hypocrisy of telling others they know what is best for them while expelling people who question the status quo. 

America may be in decline, it may have the world's highest incarceration rates, but it continues to uphold values other than financial prosperity. Such values, even if allegedly secondary, allow nonconformists to prosper, who then contribute to art, literature, sports, movies, and other distractions that may eventually provide non-obvious opportunities for cohesion, innovation, or collaboration. China may be on the rise, but as long as it chills nonconformity, it will lose talent to other countries, giving competitors the upper hand. 

One Big Family: Stupidity, Insanity, & Idealism

"I never dreamt that I would get to be / The creature that I always meant to be." -- Pet Shop Boys, "Being Boring." 

I've said before Trump was elected because voters rightfully realized if choosing between stupidity and insanity, at least insanity can provide advantages. (Had Bernie Sanders been the Democratic nominee, the election would have been a fair fight.) The difficulty in understanding the United States is that while it will make mistakes, including incredibly stupid ones, idealism and insanity are fraternal twins. It takes some level of delusion to think you can change the world, to ignore the vested interests already at the door ready to block your efforts. Weak countries tend to see one of the twins and not the other. They cannot see that by censoring one twin, they cause the other--and perhaps a level-headed cousin or two--to flee or opt out of public affairs, leaving a space that will be occupied by authoritarians who do not believe the purpose of security is to create diverse meritocracies with opportunities for all citizens. Humanity never knows in the present tense which fraternal twin it is dealing with, nor which extended family members will make positive contributions, but we do know America has benefitted the most from the world's migration in the 21st century, a migration that would not have occurred without purporting to stand for certain values. In the end, America's lasting contribution to the annals of knowledge might be far more than the fact that meritocracies are aided by "uninhibited, robust, and wide-open [public debate that] may well include vehement, caustic, and sometimes unpleasantly sharp attacks on government and public officials." It might be that without such an approach, the best migrants will not come, or if they come, will not assimilate. 

Any man more right than his neighbors should not constitute a majority in his neighborhood only if he lives by himself in the woods. 


Will Trump's insanity be better than Hillary's stupidity? As long as residents lack free mobility, which requires legal reciprocity, it doesn't matter. "Voting with one's feet" is not possible until immigration laws worldwide are modified, and even then, any reform will be based on subjective factors, an imperfect endeavor. Countries claiming to value human beings must work together to increase mobility, the ultimate check and balance on power's tendency to make mistakes. In the end, one cannot favor freedom without giving credit to its midwife, mobility, and the world's failure to properly resettle refugees makes me pessimistic for the future of freedom and justice. 

I also wanted to share what I've learned from my travels, but as usual, I've wandered far astray. I really only have three lessons: 

1. Living with a member of the opposite gender, even only for one week, changes your body's chemistry. 

2. There is no ideal place. Everywhere has tradeoffs, and the act of traveling makes it easier to determine what you really value. For example, I've known I value clean air since I traveled to India in 2010

3.  Living close to farmers means everything you eat tastes delicious--and is often cheaper because third-party transportation costs are absent. 

My travels are not over. I enjoyed Mexico City 

and Guanajuato city and will be visiting Houston tomorrow, then Iowa City in April. I look forward to touring several Iowa cities (believe it or not, Iowa has America's first mosque), and I'm interested in seeing how the generally conservative state will respond to my penchant for stirring the pot. That's my way of saying if Terry Brands punches me at the World Wrestling Cup, I probably deserved it. I'm still going to yell "Alireza Dabir" if I see him, though. I want to see how Middle America treats its dissidents. 

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