Diatribes of Jay

This is a blog of essays on public policy. It shuns ideology and applies facts, logic and math to economic, social and political problems. It has a subject-matter index, a list of recent posts, and permalinks at the ends of posts. Comments are moderated and may take time to appear. Note: Profile updated 4/7/12

21 January 2010

“I’ve Got Mine, Jack!”: The American Recipe for Dystopia

Faithful readers of this blog may wonder why it has been silent for nearly two weeks. The answer is simple. Like a bystander watching a gruesome car accident happen right in front of him, in seeming slow motion, I’ve been mesmerized. On Tuesday the crash finally came, putting an unknown Republican state senator named Scott Brown in the seat that Ted Kennedy held for nearly half a century. That election not only failed to remedy dysfunction and gridlock in Congress; it enhanced it.

To be sure, the sky is not falling any more than it was two weeks ago. Democrats’ so-called “filibuster-proof majority” was always a myth concocted by the right-wing propaganda machine for the purpose of blaming dystopia on Democrats.

Anyone who has followed the painful limp of health-insurance reform knows that real Democrats have no filibuster-proof majority because those who call themselves Democrats cannot agree among themselves. Moderates have fled the Republican party almost entirely. Those who claim that mantle, as Susan Collins and Olympia Snowe occasionally do, invariably vote with their party when the chips are down. In contrast, the Democrats have a number of so-called “Blue Dogs,” who vote with the Republicans on key issues in an apparent effort to keep their seats without regard to the nation’s welfare.

In other words, the Democrats’ “big-tent” party has more dissension inside it than the opposition. Big surprise. As a result, its nominal “filibuster-proof majority” is in practice an illusion. If it were more, we would have had real health-insurance reform, with a public option, at least by last fall.

Now reality has sunk in. There never was a filibuster-proof majority. Our nation is divided. The Democratic party is divided.

So in a time of crisis and increasingly rapid global change, our nation will continue to drift and decline as the branch of government that most determines our response to long-term challenges continues to do nothing. Despite all the hope of the President’s election and all the competence and energy of his team, the stagnation, paralysis, and neglect of our fundamental national values that characterized Dubya’s tenure in office likely will continue, except to the extent that the President can make change through executive action alone.

Before we can hope to alter this abysmal state of affairs, we must know what caused it. I can see only two causes. First, Fox News and rest of the right-wing propaganda machine have convinced a substantial majority of independent voters that the President and the Democrats are responsible for our nation’s current sorry state. Never mind that this view beggars memory, intelligence, knowledge of history, and common sense. Popular views don’t have to make sense; they just have to be held by enough people. That’s why propaganda like Fox News’ is still an attractive enterprise, though Goebbels and Stalin are long dead. If you can get enough people to buy deeply into a false ideology, you can rule in your own interest almost as securely as if you were king.

But the second reason for our sorry state, although equally likely, is far more profound. Scott Brown’s well-executed campaign had a single theme that probably insured his victory. Massachusetts already has universal (or near-universal) health care, under state law. The people of Massachusetts apparently like it. So Brown argued to his fellow citizens, in effect: “We’ve got ours. Why should we pay for the rest of the nation to have what we have, especially when the bloated bill that a divided Congress produced may have unintended consequences like short-term increases in premiums.”

Why is this reason so profound? Because it goes to the heart of our democracy. If citizens in a democracy vote on the basis of their own short-term interests, with no thought for the general welfare, let alone the long term, can society advance? Brown’s campaign may have furnished the final practical proof that our rampant individualism, which so troubled Alexis De Tocqueville nearly two centuries ago, is indeed the Achilles heel of our democracy. In Tom Friedman’s “flat world” of ever-closer communication and ever-closer global economic interdependence, a national credo of “I’ve got mine!” is hardly a recipe for success.

Economists have understood this point for about seven decades. In 1937, an economist named Ronald Coase published a paper in which he reasoned that private bargaining by individuals can reduce so-called “external” costs regardless of how property rights are distributed. But, as he recognized, this theory only works as long as “transaction costs” are negligible.

“External costs” are ones external to the marketplace. They include things like poor health care, pollution, decaying infrastructure, etc. That is, they are the major impediments to the “good life” in our modern globalized society. “Transaction costs” are things that make “bargaining” among large numbers of people difficult or impossible, like our continuing gridlock in Congress.

Coase understood that only when transaction costs are small can a system of private bargaining based on individualism and individual rights work to control external costs. Otherwise, everyone will increase those costs in pursuing his or her own self-interest, just as we have done with health care and did with pollution before we tried regulation and discovered cap and trade. This key insight into the relationship between external costs and bargaining costs is known as “Coase’s Theorem.” In 1991, Coase won the Nobel Prize in economics, in part for its discovery.

A corollary of Coase’s Theorem—that external costs are hard to address when there is gridlock—may ring the death knell for our society. For according to media analysis, many independents voted for Scott Brown because they wanted to increase transaction costs and make it hard for Congress to do anything. They so distrusted our entire political system as to blame our present sorry state equally on Democrats and Republicans, despite the fact that the latter have governed us for all but a fraction of the last forty years.

Coase’s Theorem is a just modern, analytically sophisticated twist on an ancient theme: the tension between the desires of individuals and the needs of society. That theme goes back at least to the Bible, from which that wonderful verse in Handel’s Messiah comes: “Oh we like sheep, have gone astray-ay-ay-ay . . . every one to his own way.” De Toqueville mused upon the same theme in 1835, in his famous book “Democracy in America.”

At that time, the world was just emerging from an era in which kings (occasionally queens), emperors and other monarchs and despots ruled. When they ruled wisely and in the public interest, their societies flourished. When they ruled stupidly or in their own selfish interest, their societies languished or decayed. De Tocqueville wondered how replacing a monarch with rule by the whole people would work when all of them went their own ways.

No one has ever answered that question satisfactorily. The short history of our own nation—especially recent history—suggests that our brand of democracy may mutate into a form of “soft” oligarchy. A class of wealthier, better-educated and less public-spirited people may perpetuate their own advantage by convincing the rest that their supremacy gives the rest better opportunities for the future. The only notable progress that we seem to have made since the Gilded Age is that the dominant social class is no longer so heavily based on race.

Today’s Supreme Court ruling allowing both corporations and unions (guess which have more money!) to spend more freely on political “speech” will only entrench that oligarchy. Whether our government will still resemble a democracy in fifty years is anyone’s guess.

As for the gridlock in Congress, it will continue and increase. Both Congress and our Supreme Court continue to be deeply divided. So for the foreseeable future, our representative “democracy” will continue to degenerate into another form of “soft” oligarchy, in which a vanishing breed of “moderates” and “centrists” like the two female senators from Maine, Ben Nelson (D., Neb.) and Justice Anthony Kennedy fix our fate.

God help us if these oligarchs-by-default are not both smart and wise. We are in a race with “hard” oligarchs—the technocrats of modern China. They seem far smarter than our average politician, let alone John Boehner. So at the moment, our prospects for winning are not particularly encouraging.


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08 January 2010

“Our gall is not like your gall.”

A lifelong nerd, I once liked Intel’s current series of chest-beating “mood” ads. What nerd wouldn’t thrill to cuddly blondes screaming like Beatlemaniacs at the sight of the rather homely inventor of the USB port? What aging nerd, like me, doesn’t smile when superimposing the gleaming, ultramodern, transparent dry board of the “Our jokes aren’t like your jokes” ad over the dusty, dingy blackboards of his memory? In our anti-intellectual, kill-all-the-experts culture, obsessed as it is with nitwit celebrities, any celebration of brains is a good thing, right?

Not necessarily.

It wasn’t long before I began to wonder why Intel would spend all that money advertising itself, rather than its products, and to the wrong audience. Viewers of the PBS Newshour don’t buy Intel’s chips. Only a tiny fraction of them would even know which end goes where on a circuit board. Engineers buy its products, and they do so on price and on performance specifications that most viewers of those ads couldn’t even begin to understand.

So what’s the point? Why in a down economy spend all that money on high-quality, impressive ads to people who don’t buy your products and never will?

I didn’t have to ponder long. Just weeks after the ad campaign began, the FTC filed suit against Intel for monopolizing and attempting to monopolize markets for various computer chips, including microprocessors and video processors. In an instant, the ad campaign made sense to me. Intel is preparing to fight the FTC in the court of public opinion, not the courts of law.

Then I remembered. A few years ago, an upstart chip maker named Advanced Micro Devices (AMD) had made a strong play for the low end of the PC chip market. It challenged Intel with good, solid chips that were not the fastest and most versatile but were competent, reliable and cheap. It extended the low-price end of PCs, including laptops, and made Intel fight for market share. Then slowly AMD faded, but not for any technical reason or product deficiency that I could discover by reading the industry or business press. It just seemed to lose steam.

Now the FTC claims that Intel did to AMD what Microsoft did to Netscape and tried to to do Real Player and others: tilt the playing field by using its monopoly power to bully suppliers, customers and intermediaries to push AMD off the field. These are not rivals making these accusations. They are trained and neutral professional lawyers and economists who have a million other things to do and no axe to grind.

This realization hit me pretty hard. Our nation has (or should I say “had”?) few stars of technological innovation as bright as Apple, Boeing and Intel. (Microsoft sold its soul to the devil over a decade ago. Just look at that famous video of Steve Ballmer after he took the helm. It’s enough to make a technically trained realist believe in possession and exorcism.)

Once, when I thought of technological leadership, I automatically thought of Andy Grove. A Hungarian refugee from Communism and Intel’s intellectual founder, he established the credo, “Only the paranoid survive.” What he meant was you don’t stop when you’re ahead, even far ahead. You keep innovating in products, science, technology and engineering. You keep pushing the envelope until no one can catch up.

I wonder what Andy Grove would think of an expensive PR campaign to confuse the public and maybe a jury and cover up dirty business tactics used to dispatch a smaller rival when innovation couldn’t.

I don’t mean to prejudge the case. Intel will have its day in court. But I can’t imagine Andy Grove, Bill Hewlett, David Packard, or any of the other justly venerated founders of Silicon Valley putting real money into that kind of amusing but vapid PR campaign.

For them, the only battle that mattered was on the circuit board and inside the semiconductors. Hewlett, in particular, was famous for creating the first hand-held digital scientific calculator. He approved the project and bet his nascent company on it without even doing a marketing study. He knew it would sell, because he was an engineer and knew thousands of others who hated the imprecision and inconvenience of their slide rules and wanted something better. He was right: that calculator became one of HP’s most successful products ever (although now you can get much the same functionality from Google through any browser).

But those giants are gone. Now we have lawyers, accountants and advertisers running businesses built by engineers. We have bankers and health insurers telling us that “products” that swindle buyers by repeatedly failing to produce what buyers reasonably expect are “innovations” that strengthen us, mostly by parting rubes from their money. We have Steve Jobs accused of backdating his stock options. We have the greatest aircraft company in human history caught in unethical shenanigans related to a tanker plane, which still has made no appearance after four years of legal wrangling. We have Boeing’s most advanced product ever two years late into production, and we have reports that significant engineering problems may have been concealed [subscription required].

“Our gall is not like your gall” is a cute title for this post. But the sad fact is that Intel is hardly alone. It is far from the first American industrial icon to turn to professional liars when reality bites. It is one of the last. With engineering paragons like Intel joining the sad pack, we are well on the way to becoming a nation that responds to unpleasant reality by denying it, rather than facing it. Just get the rubes to believe, and reality will go away!

The wonder is how slow people are to react to misconduct on a cultural level that, on a personal level, would win a swift rebuke. We all know how far lies like “I really do love you,” “I feel your pain,” or “The check is in the mail” get us. But somehow we expect slicker, subtler lies produced by professional liars to achieve a different result in a business or industrial setting.

They don’t. In the long run, businesses and cultures that rely on lies earn not love, nor fear, nor respect. Like Ahmadinejad, they earn scorn, pity and rage. The clock is ticking off the days before that sad fate applies also to us, in fighting climate change as in so much more.


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