Check out my latest post at Novel Stance about how economists need to incorporate sympathy more into their models. Here’s a bit:

Economic models’ overreliance on rational self-interest as the basis of human nature made their conclusions appear selfish and out of touch with reality. By not embracing a more nuanced view of human nature, economists lack a full understanding of how people behave and risk losing more credibility with the general public.

Read the whole thing here.

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What follows is the sixth installment in a series explaining the context and deeper meaning of all eight songs on my band’s album all about Adam Smith “Silent Revolution.”  Listen to the entire album with audio commentary/explanation here. This song is inspired by text found in Section 1, Chapter 1 of Wealth of Nations.

The reason why certain nations get rich and others don’t is from a country’s ability to utilize the gains from specialization and division of labor. If we are all left to independently grow our own food, tend to our own wounds, or build our own airplanes, we’d all have a material standard of living dramatically less than what we have by participating in a commercial society. The “Robinson Crusoe” scenario is an extreme example showing how much we gain by having people focus on fewer tasks and work together to produce more with this same amount of inputs.

Smith was inspired by this picture in Denis Diderot’s Encyclopedie that showed the different stages of pin production.

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Even in such a seemingly trifling trade, the tasks are split up between all the workers in a pin factory to significantly increase input.

One man draws out the wire; another straightens it…it is even a trade by itself to put them into paper; and the important business of making a pin is, in this manner, divided into about eighteen distinct operation, which, in some manufactories, are all performed by distinct hands…

Within a firm, division of labor increases output. Twenty people trying on their own and separately to do all tasks needed in pin production will surely turn out fewer pins in a given day than when they work together.

…But if they had all wrought separately and independently, and without any of them having been educated to this peculiar business, they certainly could not each of them, have made twenty, perhaps not one pin in a day; that is, certainly, not the…what they are at present capable of performing, in consequence of a proper division and combination of their different operations.

And within a society, specializing and utilizing division of labor increases output even more. A brain surgeon’s time is too valuable to force him or her to grow their own food and learn to program their computer. Instead, the brain surgeon goes to the supermarket where specialists in food production sell their services and resources. Or buys the iPhone that was programmed by the people who studied computer science.

It is the maxim of every prudent master of a family, never to attempt to make at home what it will cost him more to make than to buy.

The complete lyrics to Pin Factory:

From wire drawn until the straightening, pass through eighteen distinct hands
Ten people now could make more in a day than if left to do on their own
Cut then before put into paper, the pin comes out in completion
What seemed at first to be a trifling trade is revealed to greatly improve

And the master of a family knows this truth
That you don’t make at home what it costs less to buy

And the master of a family knows this truth
That you don’t make at home what it costs less to buy

What follows is the fifth installment in a series explaining the context and deeper meaning of all eight songs on my band’s album all about Adam Smith “Silent Revolution.”  Listen to the entire album with audio commentary/explanation here. This song is inspired by text found in Part 3, Chapter 3 of Theory of Moral Sentiments.

Despite our tendency to engage in sympathetic fellow-feeling, it’s abundantly clear that this is not infinite. We do not feel equally connected to everyone across the world. In Smith’s view, this is limited in part by our ability to put ourselves in the situation of others.

He tells us to consider a scenario where, as a Scottish person in the 1700s that hasn’t travelled much, you hear that an earthquake has happened in China:

Let us suppose that the great empire of China, with all its myriads of inhabitants, was suddenly swallowed up by an earthquake…[a man in Europe] would, I imagine express very strongly his sorrow and misfortune of that unhappy people…he would too, perhaps, enter into many reasonings concerning the effects which this disaster might produce upon the commerce of Europe.

So after saying “aw shucks, that’s so sad,” one would go on to thinking about how this might affect the commerce of Europe – in other words, how would it actually affect me? At the end of the day, this Scot wouldn’t lose a wink of sleep over this tragedy. Contrast this to a scenario that is clearly less severe than an earthquake swallowing up tons of Chinese people:

The most frivolous disaster which could befall himself would occasion a more real disturbance. If he was to lose his little finger tomorrow, he would not sleep tonight; but, provided he never saw them, he will snore with the most profound security over the ruin of a hundred millions of his brethren.

Philosophers over the ages observed this pattern in human nature and thought of a variety of remedies to correct this tendency. One group Smith mentions – the Stoics – believed that we should bring down our own feeling of pain and happiness to the level at which we naturally consider those of the anonymous humans we hear about across the globe. Another group – unnamed but implied to be Catholics – suggests that we should feel for others the same way we feel about ourselves; in other words, feel lots and lots of suffering. But Smith thinks neither of these methods gets the point, and is able to rationalize our asymmetric emotions towards our pinky finger and the millions of Chinese people. In his scenario, the Scot has likely never met a Chinese person, never been to China, and only knows vague stories about the country thousands of miles away. To the Scot, hearing of suffering in China is such a distant concept because the Scot finds it nearly impossible to put themselves in the shoes of a Chinese person and understand how this tragedy makes them feel.

Think of the saying “this really hits close to home.” It’s a suggestion that we feel stronger about intense events that happen to those we love, those that live near us, and those that we can relate to better. When a terrorist attack happens in Paris, American social media reacts much differently compared to when a terrorist attack happens in Jakarta. Of course these events are equally tragic in a human sense when lives lost are the same, but Americans are much more likely to know French people, have been to Paris, be ethnically French, or have studied in Paris than to have experienced similar things with Indonesia. If you hear of a school shooting in Iran, how does it make you feel compared to a school shooting in your town?

So maybe reacting to the terrorist attack in Paris differently than the attack in Jakarta can be rationalized by Smith’s conception of a finite level of fellow-feeling, but can we really consider it ethical? Well, here the Impartial Spectator comes back in. Given the tradeoff between our pinky finger and millions of Chinese lives, we would never pick our pinky finger.

“…would a man of humanity be willing to sacrifice the lives of a hundred millions of his brethren, provided he had never seen them…human nature startles with horror at the thought…It is not the soft power of humanity, it is not that feeble spark of benevolence which Nature has lighted up in the human heart, that is thus capable of counteracting the strongest impulses of self-love. It is a stronger power…the inhabitant of the breast, the man within…calls to us…It is from him only that we learn the real littleness of ourselves, and of whatever relates to ourselves, and the nature misrepresentations of self-love can be corrected only by the eye of the impartial spectator…it is a stronger lover, a more powerful affection, which generally takes place upon such occasions; the love of what is honourable and noble…

The Impartial Spectator thus tempers the absurdity of our self-love and makes us recognize that, although our instinctive fellow-feeling may make the loss of a pinky more intense at first, the honorable and noble thing is to care more about these millions of Chinese lives.

The complete lyrics to Chinese Earthquake:

Far away from where I’m sleeping, tragedy shakes the earth
Myriad of its inhabitants, the Chinese empire swallowed whole
Annihilated in a moment, reflect upon misfortune
But what for European trade? Return to pleasure all the same

He calls to me, the man within, showing a powerful reflection
What’s honorable, neighborly love, my fellow-feelings’s just so limited

But if you told me that tomorrow, my little finger would be gone
I’d lie awake in real disturbance, do you tremble at the thought?

He calls to me, the man within, showing a powerful reflection
What’s honorable, neighborly love, my fellow-feelings’s just so limited

He calls to me, the man within, showing a powerful reflection
What’s honorable, neighborly love, my fellow-feelings’s just so limited

 

What follows is the fourth installment in a series explaining the context and deeper meaning of all eight songs on my band’s album all about Adam Smith “Silent Revolution.”  Listen to the entire album with audio commentary/explanation here. This song is inspired by text found in Part 1, Chapter 2 of Wealth of Nations.

The book commonly referred to as “Wealth of Nations” is actually an abbreviation of its full-length title “An Enquiry into the Nature and Causes of the Wealth of Nations.” The question at this time was why, amidst millennia of abject poverty and subsistence-level living, a few countries mostly in the northwest of Europe had started to have a significantly better standard of living. For some, the answer was obvious: the farther from the equator you were, and the whiter your skin was, the more superior you were. For others, it was a country’s ability to hoard gold or other fine metals. Or maybe it was that good-ol’ Protestant work ethic? Smith rejected all of these explanations and instead used Wealth of Nations to argue that a nation’s standard of living is determined by its ability to utilize specialization and the division of labor.

Smith went farther than just rejecting the racial explanation as a determinant of wealth. He saw all humans as essentially equal in worth and dignity. What we perceive to be inequalities is actually the result of, and not the cause of, the division of labor.

The difference of natural talents in different men, is, in reality, much less than we are aware of; and the very different genius which appears to distinguish men of different professions, when grown up to maturity, is not upon many occasions so much the cause, as the effect of the division of labor. The difference between the most dissimilar characters, between a philosopher and a common street porter, for example, seems to arise not so much from nature, as from habit, custom, and education. When they came in to the world, and for the first six or eight years of their existence, they were, perhaps, very much alike, and neither their parents nor play-fellows could perceive any remarkable difference.

Smith uses the comparison of a street porter and a philosopher as extremes of social standing. One is near the lowest status of society as far as prestige and perceived skill level, the other considered to be a wise and distinguished profession. But before they enter into schools or the labor force, their skills are basically equivalent. Through different levels of education, parenting, and circumstance, these previously-indistinguishable individuals end up working two jobs with incredibly different reputations in society. Yet deep down the two people are not so different.

By nature a philosopher is not in genius and disposition half so different from a street porter.

This is a radical contrast to any “nature” arguments in a “nature versus nurture” debate. This specifically departs from Aristotilean thinking that certain people like the Barbarians were meant to be slaves (thus explains our lyric “so Aristotle was wrong about the slaves”). The commercial economy, in addition to giving us the capability to innovate and flourish, also gives us deep material inequality that deceives us into thinking we are less equal in worth or dignity than we actually are.

It is the necessary, though very slow and gradual, consequence of a certain propensity in human nature…the propensity to truck, barter, and exchange one thing for another.

Just as with Smith’s conception of sympathetic fellow-feeling, this propensity to engage in commerce is universal across people. In fact, it is what separates us from other animals. Unlike dogs, for example, humans are able to engage in trade and specialize.

It is common to all men, and to be found in no other race of animals, which seem to know neither this nor any species of contracts…The strength of the mastiff is not in the least supported either by the swiftness of the greyhound, or by the sagacity of the spaniel, or by the docility of the shepherd’s dog.

So the next time you go down to your corner store to buy a pack of gum or toothpaste, think to yourself, “damn, it feels good to be human.”

The complete lyrics to “The Street Porter & the Philosopher“:

Well at six years old we seem to be
In ability nearly the same soon changed by modernity
And our innate desire to truck barter or exchange
And you’re not any higher in worth or dignity

Whether you’re paid to think or move on street
Your disposition and genius were made in equity
In isolation they’d appear the same
Still that philosopher remains so vain

But the fellow dogs separately
Can’t utilize their different skills: strength, swiftness or docility
From no innate desire to truck barter or exchange
And you’re not any higher in worth or dignity

Whether you’re paid to think or move on street
Your disposition and genius were made in equity
In isolation they’d appear the same
Still that philosopher remains so vain

It’s our innate desire to truck barter or exchange
And you’re not any higher in worth or dignity

 

What follows is the third installment in a long-overdue series explaining the context and deeper meaning of all eight songs on my band’s album all about Adam Smith “Silent Revolution.”  Listen to the entire album with audio commentary/explanation here. This song is inspired by text found in Part 3, Chapter 2 of Theory of Moral Sentiments.

Man naturally desires not only to be loved, but to be lovely; or to be that thing which is the natural and proper object of love…he desires, not only praise, but praiseworthiness.

We are motivated, Smith says, to behave in a way that not only garners approbation of those around us but to live in a way that makes us the proper beneficiary of that approbation. Our love for society and the desire to share in the sentiments of others leads us towards cooperative and ethical behavior.

To judge our actions to the best of our abilities, we use our capacity for sympathetic fellow-feeling to put ourselves in the shoes of our peers and see what they would think of our actions. But oftentimes our interactions with others lack a third party to judge our actions and sometimes we engage in behavior without even a second party directly involved. Smith develops a mechanism for how we judge the propriety of our actions known as the “impartial spectator.” This spectator is an imaginary figure that looks onward at our behavior from the outside, full of all the information others may lack that is needed to judge our actions.

But in order to attain this satisfaction, we must become the impartial spectators of our own character and conduct. We must endeavor to view them with the eyes of other people, or as other people are likely to view them.

If we have the opportunity to cheat on an exam or find a wallet on the street, what pulls us towards “doing the right thing” when we could reasonably get away with unethical behavior? It is this desire to be lovely, the desire to be worthy of our peers’ praise. If we ace an exam and win lots of awards, we have an empty feeling inside, knowing we don’t deserve the accompanying accolades.

On the contrary, if we are doubtful about [being the natural object of approbation], we are often, upon that very account, more anxious to gain their approbation and provided we have not already, as they say, shaken hands with infamy…

This explanation is an interesting contrast to many predecessors, contemporaries, and later thinkers who explain human morality as coming directly from God or purely utilitarian motivations derived from expected reciprocity. Our innate desire to belong, be understood, and share in the sentiments of others is what drives us to live ethically and the impartial spectator is our best conception of how our peers’ will judge our actions.

The song is in a sense a love song to our own impartial spectator. Here are the complete lyrics to Impartial Spectator:

How am I to know if what I do is right or wrong
I’m seeking approbation from the need to get along
And to be lovely, but not just to be loved.
Not only loved, but lovely in your eyes

Tell me how it seems from the outside looking in,
I want to be worthy of your praise devoid of sin
And to be lovely, but not just to be loved.
Not only loved, but lovely in your eyes
And to be lovely, but not just to be loved.
Not only loved, but lovely in your eyes

The emptiness of fame when the public misconstrues,
Fills me with anxiety, ‘cuz you know it’s not true
And to be lovely, but not just to be loved.
Not only loved, but lovely in your eyes
And to be lovely, but not just to be loved.
Not only loved, but lovely in your eyes

Check out this artistic rendition of Smith’s Impartial Spectator on our very own unisex t-shirt (Available for purchase at the Theory of Moral Sentiments price of $17.59).

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What follows is the second installment in a long-overdue series explaining the context and deeper meaning of all eight songs on my band’s album all about Adam Smith “Silent Revolution.” The first post for the titular track can be found here. Listen to the entire album with audio commentary/explanation here. This song is inspired by the first section and chapter of Theory of Moral Sentiments.

Of the many misunderstandings of Adam Smith’s work, the idea that Smith saw humans as being motivated entirely by rational self-interest is the one that looms largest. The robotic Homo Economicus model of human nature so dominant in modern economic theory is far from how Smith explained human behavior. The first song on Silent Revolution, called “Fellow-Feeling,” invokes his idea that the basis of human behavior is not in rational utility maximization, but rather sympathetic fellow-feeling and a desire to share in the sentiments of others.

The first of Smith’s two books, Theory of Moral Sentiments, starts with this:

How selfish soever man may be supposed, there are evidently some principals in his nature, which interest him in the fortune of others…for this sentiment, like all the other original passions of human nature, is by no means confined to the virtuous and humane…

A few things to emphasize here: 1) as selfish as we may appear to be and often can be, we exhibit behavior suggesting we are interested in the well-being of others ; 2) there is universality in his analysis (“by no means confined to the virtuous and human”). Smith was writing specifically in contrast to David Hume and Bernard Mandeville‘s writings that took more of a utility maximization perspective. People’s tendencies to exhibit altruistic, sympathetic, or ethical behavior could be viewed through a redefined utility function, they argued. In other words, we are nice to each other and follow rules because it’s in our best interest. Smith is not convinced. He gives a number of examples where we put ourselves in the shoes of others, with no discernible self-interest or rational calculation.

When we see a stroke aimed and just ready to fall upon the leg or arm of another person, we naturally shrink and draw back our own leg or our own arm…the mob, when they are gazing at a dancer on the slack rope, naturally writhe and twist and balance their own bodies…persons of delicate fibers and a weak constitution of body complain, that in looking on the sores and ulcers which are exposed by beggars in the streets, they are apt to feel an itching or uneasy sensation…

As another example, consider instances where we cry while watching movies. Our tears will not help the characters in the movie and the characters are often fictional and/or experiencing fictional events; there can be no explanation for our tears being out of expected reciprocity or benefit to anyone. So what gives? Smith would say our impulse towards fellow-feeling has put ourselves in the shoes of the characters concerned, and though we cannot feel exactly as they do, we respond as if it were happening – in part – to us. In his examples, seeing someone about to be hit, struggling for balance on a tight rope, or experiencing severe discomfort from homelessness, our reaction is so instantaneous that it’s hard to imagine it being the result of a rational calculation or perceived personal benefit.

This tendency towards sympathetic fellow-feeling not only governs our behavior, it is the basis for explaining what we truly desire. Rather than pursuing a straightforward utilitarian life of wealth, fame, and prosperity, what we seek is for others to share our sentiments. We want them to understand how we feel, like what we like, and – more importantly – dislike what we dislike. We can all relate to the giddiness of sharing with friends works of art that we enjoy. Knowing that they enjoy it as we do gives us a deep pleasure.

A man is mortified when, after having endeavoured to divert the company, he looks around and sees that nobody laughs at his jests but himself…When we have read a book or poem so often that we can no longer find any amusement in reading it by ourselves, we can still take pleasure in reading it to a companion…But both the pleasure and the pain are always felt so instantaneously, and often upon such frivolous occasions, that it seems evident that neither of them can be derived from any such self-interested consideration.

Similarly, when our friends dislike people or things that we disliked, we are even more pleased (more on this in the future). To me, Smith believes that the deep pursuit of our lives is to feel we are correctly understood by the peers we care about, and to be worthy of accompanying praise.

Nestled towards the end of this section in TMS is a quick teaser on how Smith explains our ethical behavior.

We sympathize even with the dead, and overlooking what is of real importance in their situation, that awful futurity which awaits them, we are chiefly affected by those circumstances which strike our senses, but can have no influence upon their happiness. It is miserable, we think, to be deprived of the light of the sun; to be shut out from life and conversation; to be laid in the cold grave…It is from this very illusion of the imagination, that the foresight of our own dissolution is so terrible to us, and that the idea of those circumstances, which undoubtedly can give us no pain when we are dead, makes us miserable while we are alive. And from thence arises one of the most important principles in human nature, the dread of death, the great poison to the happiness, but the great restraint upon the injustice of mankind.

Through the mechanism of fellow-feeling, Smith says we put ourselves in the position of those we see that are dead and think “wow, that would really be a bummer to be that guy.” Again, mourning for someone that’s dead – especially one in fiction or someone you don’t know halfway across the world – cannot be explained through the lens of rational self-interest. Your tears cannot bring them back to life, being sad does not benefit you, and crying for a fictional character should have no real effect on your well-being. But from this tendency to sympathize with the dead, we refrain from killing each other and are given “the great restraint upon the injustice of mankind.” By understanding as best we can what it feels like to be dead – in the cold, dark grave, never again able to experience the pleasures of life – we aim to never put anyone in that situation nor put ourselves in that situation anytime soon.

So why can we sometimes be unethical? Aren’t there limits to our fellow-feeling? How does this square with the view of human nature found in Wealth of Nations and the market economy? Answers to all of that coming up later in this series!

 

The complete lyrics to “Fellow-Feeling”:

So I mourn for the dead, though they cannot hear my cries
What good is it unnoticed, what good is it to try
From that fear of cold and darkness, when imagined in that grave
Give power to restrain the injustice of mankind

The fortune of others, as I conceive
Not just the virtuous, or humane
However selfish that I may seem
Derive his sorrow
Though at ease I cannot feel his pain, imagination puts me in his place

The stroke is aimed (I shrink back) upon his arm
The beggar on the street, ulcers and sores
On the slackrope (I twist) the dancer writhes
Only conception
Yet enough to cause me that unease, the robust and feeble feel it too

To share the amusement of a book or a poem
And to enter in their sentiments just as if they were our own
The mortification when we jest and no one joins,
Feels so instantaneous that it cannot be self-love

 

P.S. here’s a selfie I took by the Adam Smith statue in Edinburgh last week

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Sam Hammond of the Niskanen Center wrote an excellent piece analyzing the under-appreciated complementarity of a strong social safety net and free market policies. Separating labor market and business regulation from social spending, Hammond goes on to argue that there is a steady equilibrium correlation between how free a country’s economy is and how generous their social safety net is. While I applaud his line of thinking on how free market policies and social insurance can be mutually reinforcing, I am not as convinced that there is necessarily a strong equilibrium relationship between the two, nor that the US is in an unsteady state that could lead it down the road to further reactionary populism.

Why the Market Economy Benefits from a Strong Safety Net

As an economy grows and adapts to changing demands, Joseph Schumpeter observed, a process of “creative destruction” leaves newly obsolete industries and skills in the dust. The displaced workers from this process can be enticed by populist revolts that threaten to counteract the productive forces of a market economy. Hammond’s paper “argues that the countries that have eluded Schumpeter’s dreary prediction have done so by combining free-markets with robust systems of universal social insurance.” In other words, if any polity wants to enjoy the fruits of a well-functioning market economy, it needs to cushion the blow for those that are harmed by the inherent dynamism that allows it to prosper. With its relatively stingy cash benefits, the United States is at risk of sliding into a policy environment that removes its unique dynamism.

Hammond argues a more generous social safety net can complement, rather than work against, the power of markets by, among other things: 1) promoting entrepreneurial risk-taking by spreading out risk across society; 2) address the painful adjustment costs embedded in a dynamic globalized market economy; 3) replace policies that ostensibly increase economic security but inevitably decrease economic flexibility; 4) increase labor market flexibility by detaching “important social benefits…from any particular employer or market structure.”

The False Dichotomy of Economic Policy-making

Many tend to incorrectly see economic policy regimes as necessarily being a bundled package. One political party may favor stronger unionization, have a more interventionist approach to industry, a more progressive taxation scheme, and a more generous welfare state, while the other wants to decrease the power of unions, privatize more government functions, lower top marginal tax rates, and cut social spending. In reality, it’s not one bundle or the other. It’s possible to have a generous social insurance system as well as a lightly-regulated economy. Hammond makes a distinction between a Swedish “social insurance state” that has generous social insurance policies but a relatively unregulated marketplace, with a Venezuelan “interventionist state” that relies on nationalization and inflexible labor markets. Both can be referred to as “socialist” or “social democratic” in political discourse, but of course their policy combinations are far from identical. The ideal scheme, according to Hammond (and one I agree with), is one that combines the powers of the market economy with a generous welfare state.

[As a slight aside, this overall point is something I want to increasingly shout from the rooftops. Opponents of “capitalism” or market economies tend to associate pro-market reforms with skimpy welfare states, neoconservative foreign policy, and low environmental regulation. The Niskanen Center is great at producing work that combines ideal policies outside this false dichotomy.]

What Economic Freedom Should Really Mean

Often times, country rankings of “economic freedom” from the Heritage Foundation or Fraser Institute imply a necessary bundling of economic policy decisions. Both of these foundations, Hammond notes, value economic freedoms related to economic regulation, but they also value low government spending and skimpy social safety nets. To better get to an analysis showing the kind of government presence he’s talking about, he develops an index that separates social expenditures and pro-market institutions from “government size.” The economic freedom index thus values government transparency, rule of law, and regulatory efficiency while the social welfare index suggests higher income transfers. Economic freedom does not need to mean low taxation and social spending. We’re left with this graphic:

Screen Shot 2018-05-08 at 10.47.48 AM

The graphic suggests a correlation between his measure of economic freedom and income security. But instead of just saying this is a correlation, he believes the relationship is in fact an equilibrium, and countries that diverge from the path by becoming either economically less-free or decrease welfare spending are at risk of falling down the path to populism found in the bottom left quadrant. In theory, these countries are in disequilibrium, as I see it, because an economically less-free country with generous welfare spending would have low-growth that couldn’t support its welfare state. Meanwhile, an economically free country with skimpy benefits wouldn’t be able to cushion the blow from an ever-changing economy.

But is there a Steady-state Equilibrium?

This is where I’m skeptical. The United States is a significant outlier here. An atypical amount of our government spending goes towards military ventures, but I don’t think that collapsing military spending would result in a more generous welfare state. I’m drawn to this Glaser et al paper suggesting that skimpier US welfare state spending comes from historical and cultural realities that are hard to undo by overnight Federal policymaking. Specifically, the paper suggests that “racial fragmentation is a powerful predictor of redistribution” across countries, and America’s cultural/racial heterogeneity could lead to an unwillingness to provide strong social welfare benefits that is difficult to overcome. The United States is atypical in many regards to other OECD countries, and a big difference is this diversity. Scandinavian countries with relatively homogenous populations could be seen as more willing to provide a social safety net because people perceive their tax dollars as going to people just like them. Countries like Italy or Spain, with relatively less national unity than Denmark or Norway, have administratively weaker welfare states.

Although Nordic countries have recently experienced a surge in “otherness” migration – and with significant frictions politically as they try to protect their natives and welfare states – it’s not clear to me that the dust will settle with these countries having their generous welfare states remain in place. I don’t mean to argue against diversity or say it can’t coexist with strong social spending; instead, I want to assert the common tension between the two and point out that America’s atypical cultural heterogeneity could be an endogenous force working against political willingness to increase social spending. Further, as Hammond notes, Sweden was in an equilibrium in the 70s and 80s more in line with the bottom left quadrant of his graphic than the top right. A particularly bad recession in the early 90s shocked the country and resulted in liberalization of markets but preserved strong social insurance programs. But if Sweden can suddenly switch quadrants, what makes Hammond so sure it can’t just as easily switch back?

A further argument against the inevitability of this equilibrium is in the United States’s long history. Sure, countries in the Anglo world are today on a more authoritarian path with Trump/Brexit than many other OECD countries, likely stemming from an inability to protect citizens who were displaced by globalization. But the United States has never had a particularly strong welfare state? The “pull yourself up by your bootstraps” mentality is a part of what is deemed American exceptionalism. The United States transitioned from an agricultural country to industrial without falling out of this bottom right quadrant. The transition didn’t come without side effects – agricultural subsidies today can be seen as a historical concession towards farmers harmed by the change – but the United States still never left its unique quadrant. Now, maybe I’m oversimplifying United States economic history here, or not involving the nuances of European economic history either. But if I really am misunderstanding history, it begs the question of whether Hammond can show that his graphic is robust enough throughout time in order to prove that this is indeed an equilibrium.

To say that a more robust welfare state counteracts the forces that led to Trump and Brexit also seems like a stretch to me. Specifically, Hammond believes that a well designed welfare state could alleviate “search and adjustment costs…with a system of subsidized employment for the long-term unemployed, combined with job search and relocation supports for geographically locked workers.” I’m skeptical the proverbial rust-belt Trump voter that used to thrive in a coal-fueled world or manufacturing-based American economy will be helped much by this. These workers have a strong connection to the identity their job provides them. I don’t just mean the purpose or community employment gives them. A coal miner isn’t suddenly going to become a male nurse just because that’s where the economy is producing jobs, no matter how much assistance the government gives them. The assembly line worker in West Virginia isn’t going to start to learn Python and move to Silicon Valley. The fact of the matter, as I see it, is that the economic displacement from globalization and automation interacts with a stubbornness of human nature that leaves many workers potentially unable or unwilling to participate in the new economy, regardless of government support. [I’d note that this job-identity relationship extends to professional-class workers who probably refused to work retail jobs during the Great Recession. Our employment opportunities are tied to how we see ourselves, and I think government spending can only do so much here.]

Hammond writes that “unregulated open economies are vulnerable to reactionary populist backlashes when the forces of creative destruction leave large swaths of society behind.” But take a look at his graphic showing OECD countries and their level of “cash minimum-income benefits.”

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Greece paints a picture of an unstable populist backlash, but what about other countries on the left-side of this distribution? Is Canada unstable? South Korea? Hong Kong and Singapore are atypical city-states, but I don’t see them as being at risk of going in a more authoritarian direction, either. Perhaps it’s possible for countries to exist as free-market states without having pressures to increase its social welfare spending. History, culture, demographics, or even size/government setup – something particularly unique about the United States – could lead countries to a steady-state outside the correlation Hammond’s graphic suggests. And if there is no equilibrium, can we really think of these as being necessarily reinforcing rather than just a correlation?

How to Improve American Social Insurance

Outside any theoretical equilibrium, I would like to see the policies Hammond argues for. While I may not be convinced the United States must do this in order to avoid becoming more of an authoritative populist country, I still believe a stronger safety net can complement the wonders of the market economy discusses previously. So how can the United States transition into more a top-right quadrant country? Hammond argues that social insurance schemes can be more politically viable and successful if they are designed to be “neutral” and “universal.” It’s important to be neutral – in the sense that as little as possible is left up to the discretion of policymakers that will likely pander to special interests – to avoid favoritism and cronyism. It’s important to be “universal” because programs perceived to be designated only for the poor are typically poorly-run and underfunded. Making social insurance schemes something that everyone benefits from and pays into will ensure more forces that lead to beauracratic quality and efficiency. Federalism and American attitudes could make this a relatively difficult process, but still one worth pursuing.