Thursday, May 25, 2017

The Next Deal

As I write this the House passed its version of a (lack of) health care bill but the Senate is still taking up its version.  It is unclear whether something will come out of this, though if it does it surely will be bad for the many.

Trying to make sense of things, if dollars could vote then the current situation would be readily understandable.  Concentrated dollars don't like paying taxes, especially if the benefits from the government spending don't accrue to the people possessing the concentrated dollars.  This seems to be what's happening with the Republicans in control.

But our system is supposed to be one where it is people who vote.  If that system endures, in part or whole, it is hard to reconcile what the Republican controlled government seems to be doing, as so many people will be harmed by these actions.

Thus, two questions emerge out of the current debacle.  First, how did we get here?  It wasn't always this way, correct?  Second, what might we do to bring us back from the abyss to a society where the system is functional and where the vast majority of people do okay in that system?  Most of the rest of this post will take on the second question, but I want to get at the first question some as a way to set the groundwork.

A few years back I wrote a longish post that I believe describes how we got here.  It is called Gaming The System Versus Designing It.   By gaming the system I mean playing it to one's personal advantage regardless of the consequence to others.  I argued that we've all become good game players, though some of us are better than good; these few have gotten exceptional in this role.  I also argued that most of us can't tell whether the system is functioning well or not.   We often use abstract principle to support a system we advocate for, and rely on that abstraction rather than a cost-benefit social welfare calculation to see whether the system is working well or not.  This is especially problematic, however, if it is those who are exceptional at gaming the system who are the ones that make the loudest so-called principled arguments.  Do those principles merely offer rules of a game that they know how to play all too well?

I want to give two specific examples here.  The first is from the world of finance.  The second is from politics.

Michael Milken should be a name familiar to all.  He invented the concept of the junk bond, securities that were both high-yield and high-risk (of default).  This happened in the late 1970s, while Jimmy Carter was President.  I want to note here that in the abstract the junk bond might be a good thing.  It is a way for a very risky venture to attain access to capital.  In other words, it is an instrument of venture capitalism.  As a way to finance startups, the junk bond makes sense.

However, after Reagan became President the financial regulatory environment became lax and we entered an era of the hostile takeover.  A corporate raider, often financed by junk bonds, would bid to take over companies where the raider claimed management was entrenched.  These companies were typically sitting on a pile of cash, which frequently was in a pension fund.  The corporate raider, if successful in acquiring the company, could gut the pension fund and fire many of the employees, earning much for himself but doing great damage socially in the process.  This form of predatory capitalism was popularized in the movie Wall Street.  More people likely know the name of the fictitious corporate raider in that movie, Gordon Gecko, than know the name of the real life Michael Milken.

Being a superior game player seems to require certain psychological attributes - ruthlessness, lack of remorse, and a disinterest in social consequences of one's actions.  It is not just being smarter than everyone else, though the game player himself might perceive it that way.  It is being willing to take actions that most others would refrain from.  The psychology notwithstanding, there is also expertise at root, fully understanding the game that is to be played and then playing it with consummate skill. 

Let's take this observation and apply it to our national politics.  Sometimes it is beneficial to get outside the current news cycle and look at the situation from a historical perspective.   This piece from seven years ago about the Koch Brothers and their role in financing the Tea Party movement is a fascinating if disturbing read, even now. 

Bruce Bartlett, a conservative economist and a historian, who once worked at the National Center for Policy Analysis, a Dallas-based think tank that the Kochs fund, said, “The problem with the whole libertarian movement is that it’s been all chiefs and no Indians. There haven’t been any actual people, like voters, who give a crap about it. So the problem for the Kochs has been trying to create a movement.” With the emergence of the Tea Party, he said, “everyone suddenly sees that for the first time there are Indians out there—people who can provide real ideological power.” The Kochs, he said, are “trying to shape and control and channel the populist uprising into their own policies.”

The piece shows the long  period that the Kochs have been at it, founding the Cato Institute in the 1970s.  It also demonstrates the depth and breadth of their effort.  They fund think tanks, political organizations such as the Americans for Prosperity Foundation, and do so in a way where, on the one hand, they operate completely behind the scenes, so seem to have no involvement yet, on the other hand, are very controlling of the direction the organizations they fund take.  As a result, they seem remarkably potent in the political consequences they are able to deliver.

Indeed, I found an eerie parallel between the Clinton administration and the Obama administration.   Take a look at this table of Congressional representation by party, which goes from the Reagan White House to the present.  (The data for the Senate and the House are readily available.  I put the information side by side in Excel for easier comparison.)   Clinton began with the 103rd Congress and there were Democratic majorities in both chambers.  Two years later the Republicans held the majority in both chambers, a stunning turn around. Likewise, Obama began with the 111th Congress and again there were Democratic majorities in both chambers.  Two year later the Tea Party ascendancy led to the great shellacking and the Republicans took control of the House.  In retrospect, the Contract with America looks a lot like the Tea Party rising as far as activating the base.  (The Contract with America was a Republican party document while the Tea Party was supposedly a grass root organization.  This difference may be more apparent than real.)

The Kochs have definitely been connected to the rise of the Tea Party.  The piece from the New Yorker linked a few paragraphs above makes that case quite strongly.  One wonders if the Kochs also had a significant hand in the Congressional races in 1994, not in the writing of the Contract with America, but in making it a rallying cry. 

It should be noted that the pattern didn't play out the same way with the Republican Presidents.   Ronald Reagan dealt with Tip O'Neill as the Speaker of the House for the first six years of his Presidency and with Jim Wright as Speaker the last two years, when the Democrats also had the majority in the Senate.  Those majorities continued through all four years of the George H.W. Bush administration.    The situation under George W. Bush was still different.  Recall that the election between Bush and Al Gore was highly contested and that Gore received more of the popular vote.  The Senate was evenly split initially.  (There was then some turnover in office so the majority switched back and forth.)  The House had a narrow Republican majority.  After September 11, the country rallied around the President and the Republicans won majorities in both chambers.  This survived for four years, until frustration with the War in Iraq and the handling of the aftermath of Hurricane Katrina created a swing back to the Democrats.

One might expect bad news while a President is in office to favor the opposition party.  (The Gulf oil spill clearly mattered in the Tea Party ascendancy.)   And bad news of this sort may be unavoidable.  Yet when a popular new President takes office, you might expect that popularity to endure for a while, at the least allowing the party to sustain a majority during the midterm elections.  Further, given how much we seem to have had legislative gridlock during the last six years of the Obama Presidency, those who are looking forward to 2020 to see if the Democrats can win back the White House should also be asking themselves how they might sustain majorities in Congress for a longer period of time.  Those considerations prompt the following.

* * * * *

The assumption that underlies the suggestion below is that the Democrats have the advantage on the number of voters, if only they participated and didn't get discouraged when things don't go their way.   In turn, much of voter discouragement stems from a perception that the system is rigged and doesn't have their own interests at heart.  So much of the politics must be about making the system work, making it fair, and making it inclusive for everyone.  Ironically, this can only be achieved by placing the burden for making the system work on the voters themselves.

The suggestion is to make the voters as citizens aware of their ethical obligations.  The emphasis must be on social conscience and social responsibility.  If the voter has benefited materially from the system, the voter must sacrifice some material benefit on behalf of others who have not fared as well.  If the voter has not experienced discrimination targeted at himself or herself, the voter must fight to end discrimination against others who have suffered at its hand.  If the voter sees injustice, the voter must struggle to bring that injustice to an end.  That is an obligation for the ethical person.  Walking away is unethical. 

Of course these ideas are not new.  They can be found in the words of President Kennedy in his inaugural address:

Ask not what your country can do for you.  Ask what you can do for your country.  

Every school child is taught these lines.  We all know the ideal it represents.  Yet as we live our lives now that ideal is unreal.  It has become just so many words.   Our politics must strive to make it real.  This will be incredibly difficult to do.  If the perception is that everyone else is gaming the system, where we are now, why shouldn't you do likewise?  Wouldn't it be extraordinarily naive to act based on social conscience under these circumstances?  Only a saint would do that.  The vast majority of us are not saints.

Yet we should pose the hypothetical the other way, to think that one through too.  Suppose the norm was to express social responsibility and that this behavior in others could be readily observed.  (In reality, some people will be very charitable or very noble in a quiet way, so as not to draw attention to themselves.  While this is understandable, perhaps even admirable, when we are considering social norms of behavior it is critical that the behavior be observed by others, so a determination can be made whether the person is abiding by the norm or not.)  Would you then still game the system to your own immediate advantage?  Or would you abide by the norm and behave in a socially responsible way yourself?

I don't know how a random sample of voters nationally would answer this hypothetical.  I don't have the wherewithal to conduct such a poll myself in a way to get statistically valid results.  I do know how I would respond, but I wondered if that is just me or if others would do likewise.  I had a guess about how my colleagues within the Learning Technology arena who have senior administrative responsibility would respond.  So I queried a handful of former colleagues.  I didn't want my questions to be too leading.  So I didn't ask the hypothetical question.  Below is the message I did send out.

Greetings from Central Illinois. I have an odd sort of query for you as a group, which was determined among my Facebook friends by these criteria: (1) Still working, (2) fairly high up on the food chain professionally, and (3) I don't recall any of you every posting stuff about national politics. If you do respond to this query either to the group or to me individually, I promise I will keep the response confidential. But know it will inform stuff I'm trying to think through. You are emblematic of the people I'd like to consider, except that you don't live in cities, and you are all involved in Higher Ed. Those factors may matter, a lot, but given that I’m asking friends that’s the sub-population I have access to. I think the answers should prove interesting even with those limitations.

The questions are these:
(a) In your non-work time do you devote a regular portion to following national politics?
(b) If so, do you discuss this at all with family and/or friends?
(c) Have the answers to (a) and (b) changed over the last 18 months or so?
(d) This question is about work - not politics. Do ethical issues come up not at all, rarely, sometimes, with some frequency, or quite often?
(e) I don’t want to get too personal here but If you’d consider (d) from the perspective of family rather than work, that would really help.

Thanks in advance for whatever response you might supply. Also know that in the not too distant future there will be some tome from me that uses this information, though exactly how I am not sure. 

The response had some variation to them, but pretty much confirmed my prior expectation.   Based on those responses I surmise that each of these folks would abide by the norm in the hypothetical.  Indeed, I'd go even further and say that each one of these people would much prefer to live in a world where the norm offered in the hypothetical prevailed generally.

Now let me return to the burdens of social obligation and add one more, a biggie.  It is important for people to call out particularly egregious breaches to the social norm, making it quite unpleasant for the person who committed the breach.  That doesn't guarantee that breach won't occur, but it does serve as a corrective to enforce the norm.  For those in Learning Technology reading this, I did this sort of thing back in 2008, writing about the Blackboard-D2L Patent Case.  I thought Blackboard's behavior was hitting below the belt and, more to the point, it was socially deleterious.  Many others wrote about the issue, but I don't think anyone else viewed it as a loss of social capital stemming from a lack of collegiality.  Social responsibility calls for such a response, one that hits the offender where it counts, in the pocketbook.

* * * * *

Let's amplify on social responsibility in this section, what it requires and why we should want to be part of a system that makes social responsibility focal. 
  • This is a grassroots idea that will spread on its own merits and then percolate up to the politicians, not vice versa.  Like any idea, the diffusion will take time.  People on the ground need to stick with it.  Early on the spreading of the idea might be very slow. So it will require patience.  In the first section of this essay I mentioned that people have their sights set on 2020.  That might be too ambitious.  Further, being anti-Trump might drown out everything else now.  So its very much slow and steady wins the race.
  • In considering the hypothetical I posed it as if it is a rational choice.  In fact, much of our behavior is habitual.  Gaming the system is an ingrained habit for most of us.  Politicians expect voters to vote their pocketbooks so make appeals along those lines.  Further, politicians tend to ignore non-voters.  The rhetoric within the Democratic party extols the middle class but makes nary a mention of poor people.  Implicitly, the message is that poverty is stigmatizing, an object of shame.  In a system that works and is fair, poverty would be something to overcome.  It would be the responsibility of all to help those in poverty lead a better material existence.   To break old habits is a difficult thing.  It requires learning, as much as or more than force of will.  For these ideas to diffuse, we need to make that learning as easy as possible.  Nonetheless, it will still be difficult for someone who has gamed the system for so long to embrace a different approach. 
  • Voters have pet issues that motivate them.  That can survive.  But voters can't be single issue.  Voters must be aware of others who are unlike themselves.  Voters must put in substantial effort to understand others.  This is the social equivalent of active listening in a group.  It is a skill that takes time to develop.  Armed with that skill, voters must take an interest in an issue that matters to others, simply because it does matter to them.  The system will work if there is reciprocation on issues in this way.  The system will not work if we're each entitled to care about what we care about and ignore everything else.  Since the system working is the heart of the matter, the latter can't be allowed to prevail.  This puts a high bar on what a system of social responsibility would be like.  We need to keep that bar high.  Then we need to get over it.
  • We live now in a world where pessimism is rife and where we wait for the next shoe to drop.  We need a system of social responsibility to restore optimism.  One should observe that in the years leading up to the burst of the housing bubble there were many practices that breached the trust.  (The movie The Big Short highlighted some of these practices.)  We may not see cycles of breach, that one breach of the trust leads to another, but it is those cycles which are so destructive.  A single aberrant breach can be recovered from.  A cycle where one breach begats another creates a sense of decline in the system and depression in the members of that system.  We now live in an America where that sense of decline is palpable.  A system of social responsibility may not be able to reverse it, but surely it can retard the pace of decline.
  • We need to take head-on the Libertarian philosophy and "the virtue of selfishness."  Here it is useful to retain where selfishness is desirable.  I teach my students that when they write a blog post, such as this one, they should try to please themselves. That is selfish, on the one hand, but is necessary, on the other, because the author should intuit what pleases himself.  How does the author know what will please anyone else?  If the author doesn't know how to please the reader but attempts to pursue that agenda nonetheless, won't the author develop writer's block and feel a sense of constipation?  So here, selfishness works where nothing else will.  But with that observation, we are far from done. One still needs to ask, does that writing matter to a reader? If not, the writing is of little to no value.  To get the writing to be of interest to a reader (when I'm teaching my students that reader is me) the writer must develop a sense of taste that embraces social values.  By appealing to that sense of taste, what pleases the writer then has a good chance to please the reader as well.  So now we have a scenario where selfishness makes sense and can create social value.  But then, let's separate the creative act from the rewards that accrue to the creator thereafter when others deem the creation valuable.  Selfishness about those rewards, unlike selfishness about the creative act itself, is hard if not impossible to reconcile with social benefit.  Indeed. an undo focus on these rewards (economists call these things economic rents and the activity I am referring to is rent seeking and rent preservation) has no social value and may be socially pernicious.  In this case selfishness is not virtuous.  It is piggishness.
  • Nowadays most creative acts are from collaboration in a group, not the works of some lone wolf who produces a masterpiece, even as our culture seems to reward that bygone image of creativity.  Group work benefits from the diversity of the group members who have different skills and perspectives to contribute.  But group work is especially challenging until a bond forms among group members.  Social responsibility in a group - when to put all effort into buttressing other group members and when to assert one's own point of view - is an art form that most of us could learn to do better.  Reconciling group productivity and individual reward becomes a great challenge.  Fairness and trust in the system matter a great deal here.  Surrendering oneself to the benefit of the group requires that.

* * * * *

Let's wrap up.  I want to note what 's not in this essay.   There is no discussion of the role of government versus expressions of social responsibility that happen at the individual level or in private organizations.  There is no discussion about taxation, how much it should be and who should bear the tax.  Likewise, there is no discussion of publicly provided programs and where the socially responsible agenda will lead.  The thought is that while each of these are very important, they are also each derivative from a more fundamental issue.  We can get to those later if we can agree on the fundamental issue.

Do voters buy into the notion that social responsibility as the right organizing theme for them to engage in politics?  I hope so.  What do you think about it?

Too much of our politics, I'm afraid, is waiting for the next Lincoln, the next FDR.  The Messiah will save us.  That is a fools errand.  We need to take social responsibility for ourselves.  Maybe nothing will save us.  But if something will, surely it is us working together.

Wednesday, May 17, 2017

Goodbye Game Theory

As I continue to procrastinate on a post that I want to write but is too high minded for my current temperament, I want to craft something else that is moderately constructive.  I will consider a bit of game theory as I knew it in the 1980s, when I was using it to write papers in economics, but try to explain it so a lay-person can follow the argument.  I'll give a little background first.  Then I will try to apply it to our current morass.

John Nash, made famous in the book and movie, A Beautiful Mind, extended a concept first developed by Augustin Cournot in his study of oligopoly, to apply to all non-cooperative games.  Here non-cooperative means the players make their choices without consultation with the other players.  There is no bargaining ahead of time, before the play of the game.  Conveniently, the acronym NE can stand for Nash Equilibrium or for Non-Cooperative Equilibrium.  It is characterized by mutual best response.

When I teach this to idea to my students, I say that each player makes a guess as to what the other player will do.  Economists like fancy words, so instead of guess economists call it an expectation.   Based on their expectations, each player then chooses the best possible play.  Sometimes this is referred to as a best response, as if the other player has moved first, so the other player's move has become known.  That interpretation is sometimes misleading, though the jargon persists.  Many games we consider in economics are simultaneous move.  Neither player goes first.  The expectation then serves the role in decision making about the move that observing what the other player did would have served if the game were sequential rather than simultaneous.

In a Nash equilibrium, expectations are self-fulfilling.  What the player expects the other player to do is what the other player chooses to do and vice versa.  It is a lovely concept that works well in predicting outcomes in simple non-cooperative games.

Some games, however, are more complex.  They have elements of private information.  For example, in the popular poker game hold 'em, each player has a couple of down cards, and then there are some common cards dealt up.  The down cards are private information, known only to that player.  The up cards are public information.  As the up cards are revealed sequentially, and there is betting after each round, the game illustrates an interesting sequential character as well.

The Nash Equilibrium concept has been refined in many different ways, because complex games of this sort have many different Nash Equilibria and not all of them are equally plausible.  One refinement, the one I will focus on here, is called Subgame Perfection.  It conveys the notion of "credible threats" versus incredible threats.  An equilibrium based on an incredible threat is not plausible.  A sequential game that is played in two stages, where the second stage is a game in itself, which is why it is called a subgame, should be solved by finding the equilibrium of the subgame first.  That's what players should predict will happen in the subgame.  So that play is credible.  Out of equilibrium play is incredible.  Then, in possession of equilibrium beliefs about play in the subgame, one determines the equilibrium in the first stage. The result is a subgame perfect equilibrium.  It illustrate hyper rationality and strategic insight.

With the game theory lesson over, let me try to apply it to Frank Bruni's column from today, Trump's Leaky Fate.  It is an interesting piece about those in the West Wing who are leaking information to the press.  They are characterized as good and conscientious people, who have contempt for their President based on their interactions with him (as well as the tweets and what they get from his appearances on TV) and who are looking to serve the greater good by getting the information out in the open.  Let's take that as accurate, though I'm not sure how Bruni knows this.  But I want to note that what I say next is applicable even if these people are quite bitter and are acting more out of a sense of betrayal than as a public service.

Here's the question that nobody seems to be asking, but they should. Would a person willingly join an administration when believing there would be a reasonable likelihood that the person would become a leaker because the administration had failed badly and the President had lied repeatedly to the American people?  Would a passenger have gotten onto the Titanic if there was some knowledge ahead of time that it might hit that iceberg?  Would John Dean have become a member of Nixon's White House team if he had a reasonable expectation of the Watergate break in?

In the case of John Dean, where he joined Nixon's team during the 1968 campaign, it is believable that at that time he had no inclination of how things would play out and that for a few years thereafter he remained entirely trusting of Nixon.  His views must have transformed in late 1971 or 1972.

With those leakers in Trump's White House, however, is it plausible to believe a rational actor would not harbor any suspicions about Trump at the time he took office?   Or is the only way for it to be possible to not harbor suspicions is to willfully suspend belief?  We are only four months into Trump's term as President.  The leaks seem to have been present from the outset.  And there was quite a lot of evidence about Trump before he took office.  What gives?

Let me pose a couple of other questions.  One is how many people are leaking?  People do make mistakes in their personal forecasts.  If it is only one or two people doing the bulk of the leaking, maybe they made a forecast error, erroneously trusting Trump when they shouldn't have done that.  If it is a couple of dozen people or more than that, however, forecast error is less plausible, particularly if the forecasts were made independently.    The other question is this.  Were the leakers on the Trump team during the campaign?   If members of the campaign team had contempt for the candidate then, why stay on the team?

There are puzzles here that must be solved to make this story consistent with a game theoretic explanation.  Blind ambition offers a more plausible story.  Rational players, which is what game theory posits, are not blind in this way.

In his column today Tom Friedman, focusing on Republicans in Congress, says they will not challenge the President.

Virtually all the good men and women in this party’s leadership have been purged or silenced; those who are left have either been bought off by lobbies or have cynically decided to take a ride on Trump’s Good Ship Lollipop to exploit it for any number of different agendas.

As lamentable as this may be, it offers no puzzle from a game theory perspective.   This is rational play however unsavory.   The leakers, however,  don't appear to be rational.  They pose a puzzle for us.   I wonder if we'll be able to understand their motives before too long.

Saturday, May 06, 2017

Comfort Jokes

Today is the first day of the Farmer's Market for this year.  My wife is a regular.  As she gets ready to leave I tell her - buy us a farmer.  She's expecting me to say that. It is a line we use repeatedly, perhaps every Saturday morning when the market is in season.

A different one of this sort is when someone in the family announces - I'm going to get a haircut.  To which another family member will respond - you better get them all cut.  We all use this one.  The kids are in on it too.

The last one in this vein I will offer up is done with less frequency, once a year in early October.  I will announce to my wife - you've got to take the world seriously.  This signifies that major league baseball's fall classic will soon be underway.

There is no originality whatsoever in uttering these lines.  Nonetheless, there is something reassuring in doing so.  I don't want to make any sort of conclusion from this other than to observe that I do this this and it is something I enjoy doing.