The failure of supply-side social policy

The US is in the midst of two social crises. The first is an opioid epidemic that is decimating parts of rural and now urban America and the second is a surge in the number of migrants crossing the southern US border primarily from Central America. In any system that involves flow, either physical (e.g. electricity) or social (e.g. money), the amount of flow (i.e. flux) is dependent on the amount of supply (e.g. power station/federal reserve) and the amount of demand (e.g. air conditioner/disposable income). So if you want to reduce opioid consumption or illegal immigration you can either shut down the supply or reduce the demand.

During the twentieth century there was a debate over the causes of booms and busts in the economy. I am greatly simplifying the debate but on one side were the demand-side Keynesians who believed that the business cycle is mostly a result of fluctuating demand. If people suddenly decide to stop spending then businesses would lose customers, which would lead them to lay off workers, who would then have less money to spend in other businesses and thus reduce demand further and so forth, leading to a recession. On the other side there were the supply-siders who believed that the problem of economic downturns was inadequate supply, which would be solved by cutting taxes and reducing business regulations. The Great Recession of 2008 provided a partial test of both theories as the US applied a demand-side fix in the form of a stimulus while Europe went for “expansionary austerity” and cut government spending, which slashes demand. The US has now experienced over a decade of steady growth while Europe went into a double dip recession before climbing out after the policy changed. That is not to say that demand-side policies always work. The 1970’s were plagued by stagflation with high unemployment and high inflation for which the Keynesians had no fix. Former Fed Chairman Paul Volcker famously raised interest rates in 1979 to reduce the money supply. It triggered a short recession, which was followed by nearly three decades of low inflation economic growth.

In terms of social policy, the US has really only tried supply-side solutions. The drug war put a lot of petty dealers and drug users in jail but did little to halt the use of drugs. It seems to me that if we really want to solve or at least alleviate the opioid and drug crisis, we need to slash demand. Opioids are pain killers and are physically addictive. Addicted users who try to stop will experience withdrawal, which is extremely painful. If you do succeed you will no longer be physically addicted. However, you can always relapse if you use again. The current US opioid epidemic started with a change in the philosophy of pain management by the medical establishment with a concurrent development of new supposedly less addictive opioid pills. So doctors, encouraged by the pharmaceutical industry, began prescribing opioids for all manners of ailments. Most doctors were well intentioned but a handful participated in outright criminal activity and became de facto drug dealers. In any case, this led to the initial phase of the opioid epidemic. When awareness of over prescription started to enter public consciousness there was pressure to reduce the supply. Addicts then turned to illicit opioids like heroin, which started phase 2 of the epidemic. However, as this supply was targeted by drug enforcement, a new highly potent and cheaper synthetic opioid, fentanyl, emerged. This was something that was easy to produce in makeshift labs anywhere and also provided a safer business model for drug dealers. However, fentanyl is so potent that this is has led to a surge in overdose deaths. Instead of targeting supply we need to reduce demand. First we need to understand why people take them in the first place. While some drugs are taken for the experience or entertainment, opioids are mostly being used to alleviate pain and suffering. It is probably no coincidence that the places most ravaged by opioids are also those that are struggling most economically. If we want to get a handle on the opioid crisis we need to improve these areas economically. People probably also take drugs for some form of escape. This is where I think video games and virtual reality may be helpful. We can debate the merits of playing Fortnite 16 hours a day but it is surely better than taking cocaine. I think we should take using video games as a treatment for drug addiction seriously. We could and should also develop games for this purpose.

Extra border security has not stemmed illegal immigration. What does slow immigration is a downturn in the US economy, which quenches demand for low-skilled labour, or an improvement in the conditions of the originating countries, which reduces the desire to leave in the first place. The current US migrant crisis is mostly due to the abhorrent and dangerous conditions in Guatemala and Honduras. For Europe, it is problems in Africa and the Middle East. In both cases, putting up more barriers or treating the migrants inhospitably is not really doing much. It just makes the journey more perilous, which is bad for the migrant and a moral and public relations nightmare for host countries. Perhaps, we could try to stem demand by at least making it safer in the originating countries. The US could provide more aid to Latin America including stationing American troops if necessary to curb gang activity and restore civil order. This would at least help diminish those seeking asylum. Reducing economic migration is much harder since we really don’t know how to do economic development very well but more investment in source countries could help. While globalization and free trade may have hurt the US worker and contributed to the opioid epidemic by decimating manufacturing in the US, it has also brought a lot of people out of abject poverty. The growth miracles in China and the rest of Asia would not be possible without international trade and investment. Thus the two crises are not independent. More free trade could help to reduce illegal immigration but it could also lead to worsening economic conditions for some regions spurring more opioid use. There are no magic bullets but we at least need to change the strategy.

AI and authoritarianism

Much of the discourse on the future of AI , such as this one, has focused on people being displaced by machines. While this is certainly a worthy concern, these analyses sometimes fall into the trap of linear thinking because the displaced workers are also customers. The revenues of companies like Google and Facebook depend almost entirely on selling advertisements to a consumer base that has disposable income to spend. What happens when this base dwindles to a tiny fraction of the world’s population? The progression forward will also most likely not be monotonic because as people initially start to be replaced by machines, those left with jobs may actually get increased compensation and thus drive more consumerism. The only thing that is certain is that the end point of a world where no one has work is one where capitalism as we know it will no longer exist.

Historian and author Yuval Harari argues that in the pre-industrial world, to have power is to have land (I would add slaves and I strongly recommend visiting the National Museum of African American History and Culture for a sobering look at how America became so powerful). In the industrial world, the power shifted to those who own the machines (although land won’t hurt) while in the post-industrial world, power falls to those with the data. Harari was extrapolating our current world where large corporations can track us continually and use machine learning to monopolize our attention and get us to do what they desire. However, data on people is only useful as long as they have resources you want. If people truly become irrelevant then their data is also irrelevant.

It’s anyone’s guess as to what will happen in the future. I proposed an optimistic scenario here but here is a darker one. Henry Ford supposedly wanted to pay his employees a decent wage because he realized that they were also the customers for his product. In the early twentieth century, the factory workers formed the core of the burgeoning middle class that would drive demand for consumer products made in the very factories where they toiled. It was in the interest of industrialists that the general populace be well educated and healthy because they were the source of their wealth. This link began to fray at the end of the twentieth century with the rise of the service economy, globalisation, and automation. After the second World War, post-secondary education became available to a much larger fraction of the population. These college educated people did not go to work on the factory floor but fed the expanding ranks of middle management and professionals. They became managers and accountants and dentists and lawyers and writers and consultants and doctors and educators and scientists and engineers and administrators. They started new businesses and new industries and helped drive the economy to greater prosperity. They formed an upper middle class that slowly separated from the working class and the rest of the middle class. They also started to become a self-sustaining entity that did not rely so much on the rest of the population. Globalisation and automation made labor plentiful and cheap so there was less of an incentive to have a healthy educated populace. The wealth of the elite no longer depended on the working class and thus their desire to invest in them declined. I agree with the thesis that the abandonment of the working class in Western liberal democracies is the main driver of the recent rise of authoritarianism and isolationism around the world.

However, authoritarian populist regimes, such as those in Venezuela and Hungary, stay in power because the disgruntled class that supports them is a larger fraction of the population than the opposing educated upper middle class that are the winners in a contemporary liberal democracy. In the US, the disgruntled class is still a minority so thus far it seems like authoritarianism will be held at bay by the majority coalition of immigrants, minorities, and costal liberals. However, this coalition could be short lived. Up to now, AI and machine learning has not been taking jobs away from the managerial and professional classes. But as I wrote about before, the people most at risk for losing jobs to machines may not be those doing jobs that are simple for humans to master but those that are difficult. It may take awhile before professionals start to be replaced but once it starts it could go swiftly. Once a machine learning algorithm is trained, it can be deployed everywhere instantly. As the ranks of the upper middle class dwindle, support for a liberal democracy could weaken and a new authoritarian regime could rise.

Ironically, a transition to a consumer authoritarianism would be smoothed and possibly quickened by a stronger welfare state. A possible jobless economy would be one where the state provides a universal basic income that is funded by taxation on existing corporations, which would then compete for those very same dollars. Basically, the future incarnations of Apple, Netflix, Facebook, Amazon, and Google would give money to an idle population and then try to win it back. Although, this is not a world I would choose to live in, it would be preferable to a socialistic model where the state would decide on what goods and services to provide. It would actually be in the interest of the corporations and their elite owners to lobby for high taxes and to not form monopolies and allow for competition to provide better goods and services. The tax rate would not matter much because in a steady state loop, any wealth inequality is stable regardless of the flux. It is definitely in their interest to keep the idle population happy.

From creativity to anxiety

When I was a child, the toy Lego was the ultimate creative experience. There were basically 4 or so different kinds of blocks from which you could connect together into whatever you could think of. Now, most Lego sets consists of a fixed number of pieces that are to be assembled into a specific object, like a fire truck. Instead of just making whatever you can think of, you now must precisely follow an instruction book with the major anxiety that a crucial piece will be missing. Creativity has been replaced by the ability to follow detailed instructions. Maybe, this makes kids look for creative outlets elsewhere, like pretend play. Maybe, they become more compliant employees. Or maybe, the world is just becoming less a imaginative and duller place.

What liberal boomers don’t get

Writer Lionel Shriver recently penned an opinion piece in the New York Times lamenting that the millennial penchant for political correctness is stifling free speech and imposing cultural conformity the way the conservatives did in the 60’s and 70’s. The opinion piece was her response to the uproar over her speech at the 2016 Brisbane Writer’s Festival instigated by a young woman named Yassmin Abdel-Magied, who walked out in the middle and then wrote a commentary about why she did so in the Guardian. You can read Shriver’s piece here, Abdel-Magied’s here, and a blog post about the talk here. The question of cultural appropriation, identity politics, and political correctness is a major theme in the current US presidential election. While there has always been conservative resentment towards political correctness there has been a recent strong liberal backlash.

The liberal resentment has been spurred mainly by two recent incidents at two elite US colleges. The first was when Yale’s Intercultural Affairs Council recommended that students not wear Hallowe’en costumes that might offend other students. Lecturer and associate master of one of Yale’s residential colleges, Erica Christakis, wrote an email questioning the need to regulate student’s clothing choices and that students should be allowed to be a little offensive. This triggered a massive reaction from the student body strongly criticizing Christakis. The second incident occurred at Bowdoin College in which there was a “tequila” themed party at a College Residence, where students wore sombreros and acted out Mexican sterotypes. Two members of the student government attended the party and this led to a movement by students to have the two impeached. Both of these incidents led to pretty uniform condemnation of the students by the main stream media. For example, see this article in the Atlantic.

The liberal backlash is based on the premise that the millennial generation (those born between 1980 and 2000) have been so coddled (by their baby boomer parents, born between 1945 and 1965, I should add) that they refuse to be exposed to any offensive speech or image. (Personal disclosure: I am technically a boomer, born in 1962, although by the time I came of age the culture wars of the 60’s had past. I’m a year younger than Douglas Coupland, who wrote the book Generation X, which was partially an anthem for neglected tail-end boomers who missed out on all the fun and excitement of the cohort a decade older. The cruel irony is that the term Generation X was later appropriated to mostly mean those born in the 70’s making us once again, an afterthought.)

My initial reaction to those incidents was to agree with the backlash but the contrast between Ms. Abdel-Magied’s thoughtful heartfelt comment and Ms. Shriver’s exasperated impatient one made me realize that I have underestimated the millennials and that they do have a point. Many liberal boomers believe that while full racial equality may not yet exist, much of the heavy lifting towards that end was done by the Civil Rights Movement of the 60’s, which they supported. What these boomers miss is that the main reason that full racial equality has not been reached is because of cultural biases and attitudes that many of them may even possess. The millennial approach may be a little heavy handed but they at least recognize the true problem and are trying to do something about it.

The plain truth is that just being black does carry an extra risk of being killed in an encounter with law enforcement. Whites and blacks still live in segregated neighborhoods. Even in the so-called liberal enclave of academia, minorities are underrepresented in high level administrative positions. There are just a handful of East Asian women full professors in Ophthalmology in all US medical schools. Hollywood executives do believe that movies cannot be successful with Asian lead actors and thus they still cast white actors for Asian roles. Asians are disadvantaged in the admissions process at elite American schools. Racial stereotypes do exist and pervade even the most self-professed liberal minds and this is a problem. This is not just a battle over free speech as liberal boomers have cast it. This is about what we need to do to make society more just and fair. Shriver thought it was ridiculous that people would be upset over wearing sombreros but it does indicate that there are those that automatically associate a Mexican drink with a Mexican stereotype. Some of these students will be future leaders and I don’t think it is too much to ask that they be aware of the inherent racial biases they may harbour.

The nature of evil

In our current angst over terrorism and extremism, I think it is important to understand the motivation of the agents behind the evil acts if we are ever to remedy the situation. The observable element of evil (actus reus) is the harm done to innocent individuals. However, in order to prevent evil acts, we must understand the motivation behind the evil (mens rea). The Radiolab podcast “The Bad Show” gives an excellent survey of the possible varieties of evil. I will categorize evil into three types, each with increasing global impact. The first is the compulsion or desire within an individual to harm another. This is what motivates serial killers like the one described in the show. Generally, such evilness will be isolated and the impact will be limited albeit grisly. The second is related to what philosopher Hannah Arendt called “The Banality of Evil.” This is an evil where the goal of the agent is not to inflict harm per se as in the first case but in the process of pursuing some other goal, there is no attempt to avoid possible harm to others. This type of sociopathic evil is much more dangerous and widespread as is most recently seen in Volkswagen’s fraudulent attempt to pass emission standards. Although there are sociopathic individuals that really have no concern for others, I think many perpetrators in this category are swayed by cultural norms or pressures to conform. The third type of evil is when the perpetrator believes the act is not evil at all but a means to a just and noble end. This is the most pernicious form of evil because when it is done by “your side” it is not considered evil. For example, the dropping of atomic bombs on Japan was considered to be a necessary sacrifice of a few hundred thousand lives to end WWII and save many more lives.

I think it is important to understand that the current wave of terrorism and unrest in the Middle East is motivated by the third type. Young people are joining ISIS not because they particularly enjoy inflicting harm on others or they don’t care how their actions affect others, but because they are rallying to a cause they believe to be right and important. Many if not most suicide bombers come from middle class families and many are women. They are not merely motivated by a promise of a better afterlife or by a dire economic situation as I once believed. They are doing this because they believe in the cause and the feeling that they are part of something bigger than themselves. The same unwavering belief and hubris that led people to Australia fifty thousand years ago is probably what motivates ISIS today. They are not nihilists as many in the west believe. They have an entirely different value system and they view the west as being as evil as the west sees them. Until we fully acknowledge this we will not be able to end it.

Phasers on stun

The recent controversy over police shootings of unarmed citizens has again stirred up the debate over gun control. However, Shashaank Vattikuti points out that there is another option and that is for the police to carry nonlethal weapons like phasers with a stun option. Although, an effective long range nonlethal weapon currently does not exist (tasers just don’t cut it), a billionaire like Mark Zuckerberg, Peter Thiel, or Elon Musk could start a company to develop one. New York Times columnist Joe Nocera has suggested that Michael Bloomberg buy a gun company. There are so many guns already in existence that barring an unlikely confiscation scheme there is probably no way to get rid of them. The only way to reduce gun violence at this point is for a superior technology to make them obsolete. Hobbyists and collectors would still own guns, just as there are sword collectors, but those who own guns for protection would probably slowly switch over. However, the presence of a nonlethal option could lead to more people shooting each other so strong laws regarding their use would need to accompany their introduction.





Probability of gun death

The tragedy in Oregon has reignited the gun debate. Gun control advocates argue that fewer guns mean fewer deaths while gun supporters argue that if citizens were armed then shooters could be stopped through vigilante action. These arguments can be quantified in a simple model of the probability of gun death, p_d:

p_d = p_gp_u(1-p_gp_v) + p_gp_a

where p_g is the probability of having a gun, p_u is the probability of being a criminal or  mentally unstable enough to become a shooter, p_v is the probability of effective vigilante action, and p_a is the probability of accidental death or suicide.  The probability of being killed by a gun is given by the probability of someone having a gun times the probability that they are unstable enough to use it. This is reduced by the probability of a potential victim having a gun times the probability of acting effectively to stop the shooter. Finally, there is also a probability of dying through an accident.

The first derivative of p_d with respect to p_g is p_u - 2 p_u p_g p_v + p_a and the second derivative is negative. Thus, the minimum of p_d cannot be in the interior 0 < p_g < 1 and must be at the boundary. Given that p_d = 0 when p_g=0 and p_d = p_u(1-p_v) + p_a when p_g = 1, the absolute minimum is found when no one has a gun. Even if vigilante action was 100% effective, there would still be gun deaths due to accidents. Now, some would argue that zero guns is not possible so we can examine if it is better to have fewer guns or more guns. p_d is maximal at p_g = (p_u + p_a)/(2p_u p_v). Thus, unless p_v is greater than one half then even in the absence of accidents there is no situation where increasing the number of guns makes us safer. The bottom line is that if we want to reduce gun deaths we should either reduce the number of guns or make sure everyone is armed and has military training.