The problem of political irrationality is the greatest social problem humanity faces. It is a greater problem than crime, drug addiction, or even world poverty, because it is a problem that prevents us from solving other problems. Before we can solve the problem of poverty, we must first have correct beliefs about poverty, about what causes it, what reduces it, and what the side effects of alternative policies are. If our beliefs about those things are guided by the social group we want to fit into, the self-image we want to maintain, the desire to avoid admitting to having been wrong in the past, and so on, then it would be pure accident if enough of us were to actually form correct beliefs to solve the problem.
Based on the level of disagreement, human beings are highly unreliable at identifying correct political claims. This is extremely unfortunate, since it means that we have little chance of solving social problems and a good chance of creating or exacerbating them. The best explanation lies in the theory of Rational Irrationality: individuals derive psychological rewards from holding certain political beliefs, and since each individual suffers almost none of the harm caused by his own false political beliefs, it often makes sense (it gives him what he wants) to adopt those beliefs regardless of whether they are true or well-supported.
The beliefs that people want to hold are often determined by their self-interest, the social group they want to fit into, the self-image they want to maintain, and the desire to remain coherent with their past beliefs. People can deploy various mechanisms to enable them to adopt and maintain their preferred beliefs, including giving a biased weighting of evidence; focusing their attention and energy on the arguments supporting their favored beliefs; collecting evidence only from sources they already agree with; and relying on subjective, speculative, and anecdotal claims as evidence for political theories.
Political advice bestowed on Richard Nixon by Nikita Khrushchev:
If the people believe there’s an imaginary river out there, you don’t tell them there’s no river there. You build an imaginary bridge over the imaginary river.
Charlie Rose Talks to Jeremy Grantham [Businessweek]
History speaks pretty clearly that the markets do better with Democrats. Republicans’ ideas of what constitutes fiscal responsibility simply are not good for the stock market. Democrats have many tendencies, but one of them is to look after the workers, and actually that tends to be good for demand and good for markets. These capitalists who are desperate to elect Republicans should study their history books.
—Jeremy Grantham, co-founder, GMO asset management.
Contrary to popular belief, people generally do not become more conservative as they age:
Amidst the bipartisan banter of election season, there persists an enduring belief that people get more conservative as they age — making older people more likely to vote for Republican candidates.
Ongoing research, however, fails to back up the stereotype. While there is some evidence that today’s seniors may be more conservative than today’s youth, that’s not because older folks are more conservative than they use to be. Instead, our modern elders likely came of age at a time when the political situation favored more conservative views.
In fact, studies show that people may actually get more liberal over time when it comes to certain kinds of beliefs. That suggests that we are not pre-determined to get stodgy, set in our ways or otherwise more inflexible in our retirement years.
Do people become more conservative as they age? [DiscoveryNews]
A lot has been said recently about Slovakia’s “unwillingness” to financially support the expansion of the bailout package orchestrated by the fellow members of the European Union and the European Financial Stability Facility (EFSF). I thought I’d share some of my own thoughts on the issue.
First and foremost, let me state the following: I am a Slovak citizen. I was born and raised there and left for United States in 2002 at the age of 20. I am currently not affiliated with any Slovakian political party, nor have been in the past.
Now let me lay down some basic economic facts about Slovakia and Greece.
– Slovakia, which only adopted the Euro last year, is the EU’s second poorest member and currently has some of the lowest salaries, averaging about €780 a month vs. Greece’s minimum of €750.
– Slovakia has a per capita GDP of USD $23,000 to Greece’s USD $27,000 at purchasing power parity.
– The average monthly pension in Slovakia is less than €400 compared to €1,400 in Greece.
Greece has a long history of corruption, government mismanagement and tax evasion (remember the outdoor pool story?). The Greeks have been living beyond their means for years, and their country’s rising debt level has placed a huge strain on it’s economy. The Greek government also borrowed and spent heavily after it adopted the Euro and in 2010 had a public debt of nearly 143% of its GDP – a staggering number by all means.
So no wonder the Slovaks are furious over the bailout.
Earlier today I had a conversation with an old college friend from Slovakia. He points out an important and mostly overlooked fact: Slovakia will not be paying for the bailout from some sort of financial reserves. It has to borrow money in the market and pay interest on it; and the more it borrows, the more it will cost it to borrow in the future.
But here’s what my friend had to say about the logic behind the bailout opposition:
Come back home to Slovakia, work for 600 Euro a month like most Slovaks and maybe then you will understand. Looks like you have been away for too long. Enough is enough. The thing is the bloody bailout will pass anyway, however, I strongly believe there is nothing wrong about expressing your own opinions in democracy. Or is there? We can argue if this was the right or wrong vote, but at least we are strong enough to have our say. Isn’t this something we were deprived from in communism and have long fought for?
This quote from Richard Sulik, the speaker of the Slovak parliament and head of the Freedom and Solidarity (SaS) party, sums it up best:
“It is no longer about Greece, it is about the euro.” This, and similar nonsense, is what the European politicians use to frighten their voters and explain them why they must continue in moral hazard. Just like it is impossible to extinguish fire with a fan, it is equally impossible to solve the debt crisis with new debts. The only thing that will help is to face the truth. Greece must declare bankruptcy, Italy must start saving and the rules set up by the eurozone upon its establishment must finally start being observed. It will hurt, but it is the only solution.
Btw.. I strongly recommend you read this brochure (PDF, in English) on the SaS website which explains the party’s refusal to back the ESFS.
The way I see it is that you cannot solve the ‘Greek problem’ just by throwing money at it. What Greece needs is a major government and financial restructuring, better fiscal spending policy and tougher tax regulations. But what the Greeks need most is the actual will and courage to implement and enforce such changes and policies in the first place. Any sustainable long-term solution to their country’s problems must come from within themselves first – not from the EFSF or coutries like Slovakia. If not, it will cost Greece and the European Union only more and more money over time.
Richard Sulik, the speaker of the Slovak parliament and head of the Freedom and Solidarity (SaS) party, explains why he hopes the Euro bailout fund will fail and why troubled countries like Greece shouldn’t be bailed out:
[The banks] took on too much risk. That one might go broke as a consequence of bad decisions is just part of the market economy. Of course, states have to protect the savings of their populations. But that’s much cheaper than bailing banks out. And that, in turn, is much cheaper than bailing entire states out.
A few years back, we [Slovakia] survived an economic crisis. With great effort and tough reforms, we put it behind us. Today, Slovakia has the lowest average salaries in the euro zone. How am I supposed to explain to people that they are going to have to pay a higher value-added tax (VAT) so that Greeks can get pensions three times as high as the ones in Slovakia?
The Washington Post columnist Ezra Klein (@ezraklein) on the ongoing Occupy Wall Street movement:
These are not rants against the system. They’re not anarchist manifestos. They’re not calls for a revolution. They’re small stories of people who played by the rules, did what they were told, and now have nothing to show for it. Or, worse, they have tens of thousands in debt to show for it…
This is why I’m taking Occupy Wall Street — or, perhaps more specifically, the ‘We Are The 99 Percent’ movement — seriously. There are a lot of people who are getting an unusually raw deal right now. There is a small group of people who are getting an unusually good deal right now. That doesn’t sound to me like a stable equilibrium…
What gives their movement the potential for power and potency is the masses who just want the system to work the way they were promised it would work. It’s not that 99 percent of Americans are really struggling. It’s not that 99 percent of Americans want a revolution. It’s that 99 percent of Americans sense that the fundamental bargain of our economy — work hard, play by the rules, get ahead — has been broken, and they want to see it restored.
Former White House advisor for the U.S. Consumer Financial Protection Bureau and U.S. Senate candidate Elizabeth Warren on fair taxation:
There is nobody in this country who got rich on his own – nobody. You built a factory out there? Good for you. But I want to be clear. You moved your goods to market on the roads the rest of us paid for. You hired workers the rest of us paid to educate. You were safe in your factory because of police forces and fire forces that the rest of us paid for. You didn’t have to worry that marauding bands would come and seize everything at your factory – and hire someone to protect against this – because of the work the rest of us did. Now look, you built a factory and it turned into something terrific, or a great idea. God bless – keep a big hunk of it. But part of the underlying social contract is, you take a hunk of that and pay forward for the next kid who comes along.
Forget the upcoming election battle. This is spot on and I could not agree with her more.
A famous 1951 U.S. civil defense propaganda short film for children in which Bert the Turtle shows what to do in case of nuclear bomb attack.
Duck and Cover was a suggested method of personal protection against the effects of a nuclear weapon which the United States government taught to generations of United States school children from the early 1950s into the 1980s. This was supposed to protect them in the event of an unexpected nuclear attack which, they were told, could come at any time without warning. Immediately after they saw a flash they had to stop what they were doing and get on the ground under some cover—such as a table, or at least next to a wall—and assume the fetal position, lying face-down and covering their heads with their hands.
Here’s some rather depressing facts about the current state of the U.S. economy and its middle class from Robert B. Reich, the former secretary of labor and a professor at the University of California, Berkeley:
THE 5 percent of Americans with the highest incomes now account for 37 percent of all consumer purchases, according to the latest research from Moody’s Analytics. That should come as no surprise. Our society has become more and more unequal.
When so much income goes to the top, the middle class doesn’t have enough purchasing power to keep the economy going without sinking ever more deeply into debt — which, as we’ve seen, ends badly. An economy so dependent on the spending of a few is also prone to great booms and busts. The rich splurge and speculate when their savings are doing well. But when the values of their assets tumble, they pull back. That can lead to wild gyrations. Sound familiar?
The economy won’t really bounce back until America’s surge toward inequality is reversed. Even if by some miracle President Obama gets support for a second big stimulus while Ben S. Bernanke’s Fed keeps interest rates near zero, neither will do the trick without a middle class capable of spending. Pump-priming works only when a well contains enough water.
Also check out the eye-popping infographic here.
The Limping Middle Class [NYTimes]