Monthly Archives: October 2012

Job Creation vs. Regulation

My friend Bob Cringely disagrees with me on what is causing the decline in entrepreneurial job creation, and that is okay. It will take academics a decade or two to figure out why the collapse is happening. But my experience in running companies is radically different from how academics talk about startups, which is why I trust my gut that the pressure from government regulators is crippling American hiring. In the real world, the degree of uncertainty is overwhelming and hard to quantify. My sense is that new health care legislation will add to the confusion and thus deter, or at best distort, hiring. This morning, I see that Robert Samuelson has written the single best essay on the tension between job creation and Obamacare. Quick slice of it is below, but you really should read the whole thing.

So there’s a balancing act: preserving jobs versus providing insurance. The problem isn’t small. In September, 34 million workers, about a quarter of total workers, were part-time, reports the Bureau of Labor Statistics (BLS). But the BLS defines part-time as less than 35 hours a week; Obamacare’s 30 hours a week was presumably adopted to expand insurance coverage. There are now 10 million workers averaging between 30 and 34 hours a week. To the BLS, they are part-time; under Obamacare, they’re full-time.

Jeffrey Sachs reviews Why Nations Fail

Jeffrey D. Sachs, professor at Columbia University, has a lengthy review of Acemoglu and Robinson’s Why Nations Fail in FOREIGN AFFAIRS.  Glenn and I  spent a lot of time thinking about WNF during our early brainstorms.  In short, we agree with the “mono-causal” explanation of growth based on institutions, as Sachs puts it. To be sure, other factors matter, but the issue is whether they matter in this era like they once did. Has the growth function changed?  We think so.  But enough about us — I’ll share some of our disagreements with WNF in the weeks ahead. For now, here is Sachs:

This tale sounds good, but it is simplistic. Although domestic politics can encourage or impede economic growth, so can many other factors, such as geopolitics, technological discoveries, and natural resources, to name a few. In their single-minded quest to prove that political institutions are the prime driver or inhibitor of growth, Acemoglu and Robinson systematically ignore these other causes. Their theory mischaracterizes the relationship among politics, technological innovation, and growth. But what is most problematic is that it does not accurately explain why certain countries have experienced growth while others have not and cannot reliably predict which economies will expand and which will stagnate in the future. (QUESTION FROM KANE – DIDN’T WNF EMPHASIZE THAT NATURAL RESOURCES ARE NOT RELEVANT IN A GLOBAL ECONOMY, AND USE THE EXAMPLE OF BORDER TOWNS DEFINITIVELY?)

… The authors also conflate the incentives for technological innovation and those for technological diffusion. The distinction matters because the diffusion of inventions contributes more to the economic progress of laggard states than does the act of invention itself. And authoritarian rulers often successfully promote the inflow of superior foreign technologies. A society without civil, political, and property rights may indeed find it difficult to encourage innovation outside the military sector, but it often has a relatively easy time adopting technologies that have already been developed elsewhere. Think of cell phones. Invented in the United States, they have rapidly spread around the world, to democracies and nondemocracies alike. They have even penetrated Somalia, a country that has no national government or law to speak of but does have a highly competitive cell-phone sector. (KANE – REALLY GOOD POINT)

… South Korea’s style of growth is far more typical than Acemoglu and Robinson acknowledge. Indeed, the pattern is so familiar that it has been given a name: “the East Asian developmental state model,” or, more generally, “state capitalism.” China, Singapore, Taiwan, and Vietnam all began with extractive political institutions and ended up with more inclusive economic institutions. In every case, economic development either preceded political reform or has so far not led to it. Whereas South Korea and Taiwan became democracies after the economic reforms of their authoritarian rulers, China and Vietnam have not yet democratized, and Singapore is semidemocratic. These outcomes contradict Acemoglu and Robinson’s theory that inclusive political institutions pave the way for growth and that without such institutions, economies will inevitably sputter out.

… By the early nineteenth century, the technologies that were first developed in Great Britain began to spread globally. The pattern of diffusion was determined by a complex combination of politics, history, and geography. In Europe, technology generally moved eastward and southward to the rest of Europe and northward to Scandinavia. Even authoritarian governments in Europe did not stand in the way for long, since fierce interstate competition meant that each country sought to keep up with its rivals. Reforms were rife, and where they were delayed, laggards often succumbed to military defeat at the hands of more industrialized foes. The need for state survival drove many elites to open their institutions to industrialization. (KANE — STRIKING A BLOW FOR FEDERALISM!)

Infants at the Naval Academy?

This post is off-topic, but I’ve been asked by some friends to comment on an article about the U.S. service academies (I am 1990 graduate of USAFA), so will do that here. Actually, there is a sense in which the military is very much ON topic. I’ve been struck how many Great Powers became imbalanced because of rent-seeking by their own armies. The Janissaries in Turkey. The Praetorians in third century Rome. It would be hubris to think that a potentially rent-seeking military is not a threat simply because it is not presently manifest. America is very fortunate to have the service-oriented culture in the U.S. military, and should be vigilant to continue nurturing that culture.

With that, I take exception to the incessant voices seeking to disband the U.S. service academies. They are incredibly short-sighted, usually ignorant (though not always, Tom Ricks), and rarely penned by veterans.  To wit: Bruce Fleming has been teaching English at the Naval Academy for 25 years and yesterday published a disturbing essay in the Chronicle of Higher Education.

So the service academies are no longer indispensable for producing officers. Their graduates now make up only about 20 percent of the officer corps in any given year.  It’s clear that we don’t need the academies in their current form—versions of a kind of military Disneyland. These institutions do produce some fine officers, even some leaders. But the students I respect the most tell me that those who succeed do so despite the institutions, not because of them.

… The best midshipmen—and, as I know through conversations and written correspondence, the best students at the other service academies—are deeply angry, disillusioned, and frustrated. They thought the academies would be a combination of an Ivy League university and a commando school. They typically find that they are neither.

… Is there anything good about the academies? Absolutely: the students, by and large. You won’t find a more focused, eager-for-a-challenge, desperate-to-make-a-difference group of young adults (whom we proceed to infantilize) anywhere.

My thoughts:

1. Fleming has plenty of insights. However, as a graduate of USAFA, my sense is that he was never a plebe. This reads like a caricature of a civilian professor in Jim Webb’s novel, A SENSE OF HONOR. Some of his policy recommendations are naive, some destructive to why the academies are great, and some are worthwhile.  To be clear, I would classify Fleming’s seven recommendations in these categories (naive: 6), (destructive: 1, 2*, 5), and (worthwhile: 2*, 3, 4, 7).

2. Fleming writes with flourish, but the essay is full of unsubstantiated assertions. Enlistees resent ring-knockers? Really? I am a grad, my dad was an enlistee. Come again? If a scholar is going to drop bombs like this, it is fair to expect some evidence to back them up, otherwise the entire piece and its conclusions are questionable.

3. He says the average midshipman is disillusioned and cynical. Paragraphs later he says the students are what make USNA great because they are such hard-charging idealists. He bashes the prep schools as back doors for underachievers, but then complains the institutions are elitist. Fleming is trying to have it both ways, but this is fundamentally incoherent.

I hope I don’t need to establish my bona fides as an outside-the-box critic of military orthodoxy (see my forthcoming book, Bleeding Talent, which relentlessly hammers the military personnel system), and I absolutely think the academies could add more value to their services by being less insular. But I fundamentally think the academies are vital institutions for the United States. The 4-year experience, particularly the freshman “plebe” year is one of the great American traditions that I think does indeed transform young Americans, and the nation is richer for it. I also think it is a huge error to ignore the meritocracy of the academies — many of my brightest classmates might not have attended any college, but thanks to the full ride scholarship were able to get a world class education. Many of my classmates who started at the prep school were the best of the best, and many would never have gone to college without this opportunity. That is the OPPOSITE of elitist, and instead fulfills the promise of America as land of opportunity, especially for those willing to commit to military service.

Fleming is inconsistent when he says that giving real authority to senior students is irresponsible while separately claiming the academies infantilize students by not giving them more authority. Which is it? Fleming is right that the “leadership laboratory” means that a lot of upperclassmen fail when first given command with real power over younger mids and cadets. But they learn. Underclassmen learn from the negative and positive role models as well. That is a feature, not a bug.

Most importantly, it is my belief that the academies have been a critical institution for not only the defense of American democracy, but for establishing a reliable service-above-self culture that keeps the republic itself balanced internally. I have little doubt that the vast majority of academy students would (1) want to reform their schools and also (2) disagree strongly with Fleming’s recommendations on how to do so.

Then again, I could be wrong about Annapolis. From what I hear, the drooling infants at Navy will never measure up to the demigods at Air Force. But hey, they are almost on par with the hyperactive toddlers of West Point!

Fix Polarization with More Partisanship: David Broder, 1972

Polarization is what bedevils American politics, say our intellectuals.  Actually, we tend to agree. Perhaps our conversation about polarization (what is it exactly?) would be clearer if we understood its roots in the early 1970s when intellectuals thought more partisanship – strengthening the role and ideological clarity of the two major political parties – would actually diminish the polarized discourse of informal groups. Consider this 1972 Atlantic essay  by David Broder (this may create some cognitive dissonance!):

Is there not a better way to resolve our differences, to move ahead on our common problems? I believe there is. The instrument available to us is responsible party government. The alternative to making policy in the streets is to make it in the voting booth. But if that proposition is to be more than a cliche, there must be real choices presented at election time -choices involving more than a selection between two sincere-sounding, photogenic graduates of some campaign consultant’s academy of political and dramatic arts.

…we have not seen responsible party government in this country–in Washington or in most states and cities–in the sixteen years I have been covering national politics. Instead, we have fractured, irresponsible nonparty government, and we have paid a fearful price for it.

… The habit of partisanship, once lost, may be very difficult to regain. … More minor-party or independent candidates may find their way into Congress, weakening the existing party structure there. (Broder means this would be a bad development!)

After a lengthy and touching essay about the chaos of the 1970s, Broder offered a dozen proposed reforms, including direct election of the President, of course, all aimed at strengthening the two parties. This one stands out:

Most important of all the structural reforms, we need to follow through on the recent congressional effort to discipline the use of money in politics, by setting realistic limits on campaign spending, limiting and publicizing individual and organizational gifts and channeling much more of the money (including, in my view, all general election spending) through the respective party committees rather than through individual candidates’ treasuries.

Broder closed with a scolding of the public for splitting the ticket. “It seems to me that we should ask, before splitting a ticket, what it is we hope to accomplish by dividing between the parties the responsibility for government of our country, our state, or our community. Do we think there is no difference between the parties?” This is shockingly naive stuff. Broder imagined that creativity and energy rest with the big organization, not the entrepreneurial individual. I think it’s fair to say that Broder would have been confused by the use of the term entrepreneur in terms of politics, or my belief that individual leaders matter more for change than political dogma. Interesting stuff, in any case.

Did Broder ever look back on the 1974 campaign finance reforms, which did precisely what he hoped, and realize that giving the two parties monopoly power over money in politics had backfired?