Rocky Mountain Party Shift?

An article today by Thomas Edsall at the Huffington Post looks at the demographics of the Rocky Mountain states to make a case for a shift that favors the Democrats. The reason is the increase in the population of white college-educated professionals and Hispanics.

The problem I see with this analysis is that it assumes these two groups favor the urban liberal orthodoxy. If the ideological differences of our parties are based on lifestyle preferences rather than racial and ethnic identity or education, then these voters may vote more conservatively than their counterparts in urban areas. Edsall concedes that these voters are more libertarian than liberal, which points out why it's unlikely they will vote in lockstep with urban coastal voters. Gun control and redistributive tax policies come to mind.

It's unclear to me how liberal ideology can prevail in a country that still views itself as center-right.

Doha and a Better Deal for trade

Jagdish Bhagwati wrote an op-ed in todays Financial Times on Doha and the failures of US trade policy.

I would agree with his basic analysis of the US hegemonic role in international trade and how to square these with the WTO. His basic points:

Change is indeed in order, although along totally different lines. It must reflect a holistic view of the new reality that the US confronts. In particular, the economic anxiety that overwhelms US workers today stems from the increased fragility of their jobs.

First, as with Japan in the 1930s, when one-dollar blouses flooded the world, India and China today are growing and exporting rapidly. They are like Gullivers in a Lilliputian world economy. They create tsunamis for specific industries where their exports concentrate.

Second, competition has intensified. As exemplified by the Boeing-Airbus saga, the margins of competitive advantage have shrunk. No chief executive or any of his workers in tradable industries leads a happy life any more as there is always someone, from somewhere, breathing down his neck. I call this new phenomenon “kaleidoscopic comparative advantage”. It leads to volatility of jobs, as you have an advantage today and can lose it tomorrow.

Third, labour-saving technical change continuously threatens assembly-line jobs for the unskilled. The assembly lines continue but increasingly do not have workers on them; they are managed from a glass cage by skilled operators whose jobs increase instead.

The agenda for institutional change has to address this fragility of jobs, enabling unskilled and skilled workers to face the new uncertainties. To illustrate: higher education will have to be recast to reduce the proportion of time spent on specialisation: this would enable an easier response to shifting skill requirements as the kaleidoscope turns. Unskilled workers will have to be helped and encouraged to acquire skills and therefore increase their ability to shift to other jobs, even as they continue to work.

Then he adds a curt assessment of Obama's campaign prescriptions:

Senator Barack Obama does not quite get this. By asking, as part of his agenda for change, that the US should now impose even more draconian labour requirements in future PTAs, and that the North American Free Trade Agreement should be revised to incorporate yet tougher labour requirements, he is making export protectionism, and the reputation of the US as a selfish hegemon, worse, not better. Some change.

In previous posts I've made the case that we need new thinking for the domestic management of trade. The key objective is flexibility and adaptability to manage a fast changing, uncertain, but open, world economy. This goes beyond wage incomes, benefits, training and skill sets. It requires greater diversification of income sources that distribute the benefits of trade more widely. Diversification beyond labor incomes mitigates against fast changing competitive advantages that can concentrate losses on a single industry and its workers.

Neither party, obsessed with short-term electioneering, seems particularly attuned to the larger institutional context this will require. We don't need a new New Deal, we need a Better Deal that reflects the technological changes of the 21st century.

Why A Wiki?

In a previous post I suggested that wikis might be good tools for democratic processes. Here I explain in more detail how a policy wiki might work and why:

What is a Wiki?

A wiki is an Internet-based technology that facilitates mass collaboration among peers. A wiki is a collection of web pages designed to enable anyone who accesses it to contribute or modify content, using a simplified markup language. Wikis are often used to create collaborative websites and to power community websites. Some defining features:

• A wiki invites all users to edit any page or to create new pages within the wiki Web site, using only a plain-vanilla Web browser without any extra add-ons.
• Wiki promotes meaningful topic associations between different pages by making page link creation almost intuitively easy and showing whether an intended target page exists or not.
• A wiki is not a carefully-crafted site for casual visitors. Instead, it seeks to involve the visitor in an ongoing process of creation and collaboration that constantly changes the website landscape.

Advantages of Wikis

1. Low cost organization – free software and hosting
2. Enables mass collaboration – ground-up creation process
3. Open participation  sense of ownership and control over product
4. Easy to make and correct mistakes
5. Converges solutions: thesisantithesissynthesis
6. Solves collective action problems by reducing costs and raising benefits of participation
7. Integrates ideas across many levels and issues
8. Promotes public goods public commons
9. Many-to-many network
10. Favors populism over elitism by offsetting organizational power, money and fame.
11. Power and control resides with the users
12. Saves history of changes, reversible, archival

Why a Policy Wiki?

A wiki enables mass collaboration among peers by reducing the costs of collaboration and providing the necessary incentives for participation. This changes the costs and benefits of collaboration and facilitates collective action. This is especially significant for the provision of public goods.

Government policy design, implementation and adaptation is a public good that requires mass collaboration of citizens, experts, NGOs, government agencies and those involved in the political process. This collaboration is costly, requiring subsidies from a variety of sources including philanthropic foundations, research and educational institutions, ideological or partisan organizations such as unions, political parties or business organizations, politicians, and bureaucrats. The process is top-down and suffers many disadvantages of institutional dynamics while citizen participation is minimal.

A policy wiki will be bottom-up, virtually cost-free and administered with a minimal of effort. It will be a network of dynamic intelligence integrating many different issues and levels of analysis. A policy wiki will not be a forum for partisan propagandizing. The wiki will link local, state, and federal levels of policy so that users can quickly locate the specific issue they wish to address. It will engage the public in a much more direct and effective way than traditional methods of political activism or writing to one’s congressperson. In a sense, the wiki will be like a local to national community bulletin board that constantly informs and adapts. An important advantage is that by establishing a collective online history, a wiki is long-lived, reducing the problem of reinventing the wheel. Most critical, a policy wiki will be productive by converging on solutions rather than splintering policy debates into various opposing camps.

The initial administration will require a ‘board’ of policy experts to provide informed oversight on policy ideas and promote convergence through empirical testing. Eventually, this professional oversight can give way to a participant board voted on by popular nomination based on reputation. In essence, a policy wiki creates a competitive and productive open marketplace for ideas.

Illustrations of Moral Hazard

The NY Times has an editorial today that illustrates perfectly the problems of moral hazard for social insurance: low savings.

The Economist has an article pointing out the consumer choices people will have for elective health issues through low cost international health care facilities.

Problems with Expansion of Social Security, Medicare

In a previous post on a "New New Deal" for globalization I argued why this should be approached with a good deal of circumspection. The lessons of the 20th century, and the New Deal especially, may not be what they seem. Frankly, I would argue that the New Deal was appropriate in its time and national social insurance programs should probably now be considered only as the last line of defense against economic insecurity and non-systemic risk. This is contrary to what many pro-government advocates have been proposing for the twin problems of retirement and health care funding through employer mandates under centralized government control. Expanding such programs as Social Security and Medicare are probably the wrong way to go for the following reasons:

First, do we really want to treat retirement and health care as social goods? It seems to me these are private goods and demand can be mostly fulfilled by functioning, competitive markets. Our modern financial technology and the scale and breadth of financial markets is such that many of the reasons for socializing risk through government programs no longer apply. Want to insure against a weak North American economy? Buy an Asian mutual fund. Financial markets together with IT offers all kinds of solutions to manage and hedge risks across time and space. There is a role for government here, but it is not the provision of these goods—it’s to insure functioning, competitive asset markets and promote the completeness of private insurance markets.

Second, there are all sorts of disadvantages to national social insurance programs that should weigh in the debate:

1. Moral hazard – Moral hazard is a structural problem of insurance pooling where the economic incentives encourage the risky behavior insurance is attempting to manage. Does Social Security reduce private savings and encourage a “live for the day” mentality? Does easy or cheap medical care encourage people to abuse their health?

2. Regulatory costs – These include not only the excessive monitoring costs to counteract moral hazard, but also the introduction of all kinds of inefficient bureaucratic incentives. Think USPS. Regulatory promises, such as those that will supposedly police our financial markets and health providers, cannot manage the moral hazard problem. Moral hazard is a structural problem while regulatory oversight targets implementation. If we have rampant moral hazard, regulatory oversight can’t save us, but policy designs that reduce moral hazard mitigate the demand for regulatory oversight. Let’s get the cart before the horse here.

3. One-size-fits-all government policies – It seems to me that one sign of progress in a democratic capitalist society is greater freedom of choice. The demand for health care and pension plans is as varied as anything else in a market economy and I fail to see how universal mandatory policies will enhance efficiency or greater satisfaction. The added value of markets for individual choice is that costs and benefits are internalized and thus align with the desired economic incentives. It’s an age-old financial truth that if it’s your money, you tend to be more careful with it.

4. The imprisonment of employment – Who wants to be married to their job or corporation just for reasons of benefits? This is what occurs too often now – people who would be inclined to be entrepreneurs or career risk-takers fear losing their security. We should remember that the reason to enhance economic security is so that people can take on more socially desired risks, like innovation and creative endeavors.

5. Increasing direct labor costs in a competitive world economy – What good does it do to reduce business competitiveness in a global economy? The bottom line is that health care and retirement security are goods we must earn, individually and collectively. They cannot be granted by government fiat. The question is what policy design will maximize and distribute national wealth so we can afford all these necessary benefits?

6. Socializing a private good – Why? I would prefer policy that rewards my propensity to save and my desire to take good care of my own health. Then I can buy reasonably priced private insurance to cover unforeseen contingencies and catastrophic illness. Our government policies in many cases mitigate against private solutions to economic security; we should start by correcting these. How about rewarding savings and asset accumulation? How about health insurance that rewards diet and exercise?

Weighing the costs and benefits of big government solutions against alternatives makes me think we should be figuring out how to get out of the way of creative private solutions to our policy dilemmas. Government can then perhaps play the much more circumscribed role of being the umpire on the field, rather than trying to field the team and then make all the rules.