In April of last year, I wrote a piece on the growing crisis in the misapplications of technology in my line of work: algorithms, machine learning, optimization, and data science. It seems appropriate to include the discussion here on my activist blog.
A special thank you to S. Kelly Gupta for invaluable suggestions, and to George Polisner and Noam Chomsky for taking the time to read an earlier draft and offer encouraging feedback.
A Casting Call for the Conscientious Data Practitioner
For some time now, I’ve planned on writing an article about the very serious risks posed by my trade of choice, data science. And with each passing day, new mishaps, events, and pratfalls delay publishing, as the story evolves even as I write this. For instance, Mark Zuckerberg testified before the Senate Judiciary Committee this week, sporting a smart suit and a booster seat ostensibly to improve morale. Though some interesting topics came up, the discussion was routine, with the requisite fear-mongering from Ted Cruz, the bumbling Orrin Hatch asking how money comes from free things (apparently he forgot to ask Trump about withholding pay from blue-collar contractors), and a few more serious people asking about Cambridge Analytica, such as Kamala Harris querying the lengthy delay in Facebook notifying users of Cambridge, and, surprisingly, John Kennedy panning Facebook’s user agreement as “CYA” nonsense.
The tired, public relations newspeak of the mythical well-meaning, self-regulating corporations accompanies happily the vague acknowledgements of responsibility around certain things we heard from Zuckerberg, along with references to proprietary and thus unknowable strategies almost in place. And though I doubt Congress in its current state can impose any reasonable regulations, nor would those in charge be capable of formulating anything short of a lobbyist’s Christmas list, my intention here is to argue for something more substantial : a dialog must begin among technologists, particularly data practitioners, about the proper role of the constructs we wield, as those constructs are powerful and dangerous. And it isn’t just because a Russian oligarch might want Donald Trump to be president, or because financial institutions happily risk economic collapse at the opportunity to make a few bucks; data has the power to confer near omnipotence to the state, generate rapid, vast capital for a narrow few at expense of the many, and provide a scientifically-sanctioned cudgel to pound the impoverished and the vulnerable. Malignant actors persist and abound, but complacency among the vast cadre of well-intentioned technologists reminds me of Martin Luther King, Jr.’s discussion of the “white moderate who is more devoted to ‘order’ than to justice.” So I must clarify that I’m writing not to the bad people who already understand quite well the stakes, but to my fellow conscientious practitioners, particularly those among us who fear consequences to career or suffer under the peculiar delusion that we have no power. Consequences are real, but we as technologists wield great power, and that power is more than additive when we work together. The United States is unusually free, perhaps in the whole of human history, in that we can freely express almost any idea with little or no legal ramification. Let’s use that freedom together.
A Lasting Legacy : Power and Responsibility
Fifty-one years ago last February, Noam Chomsky authored a prescient manifesto admonishing his fellow intellectuals to wield the might and freedom they enjoy to expose misdeeds and lies of the state. Much of his discussion dwells on the flagrant dishonesty of particular actors as their public pronouncements evolved throughout the heinous crime that is the Vietnam War, and in more recent discussions, such as those appearing in Boston Reviewin 2011, describe the significant divide between intellectuals stumping for statism versus the occasional Eugene Debs, Rosa Luxemburg, and Bertrand Russell:
The question resonates through
the ages, in one or another
form, and today offers a
framework for determining the
“responsibility of intellectuals.”
The phrase is ambiguous: does it
refer to intellectuals’ moral
responsibility as decent human
beings in a position to use their
privilege and status to advance
the causes of freedom, justice,
mercy, peace, and other such
sentimental concerns? Or does it
refer to the role they are expected
to play, serving, not derogating,
leadership and established institutions?
We technologists, a flavor of intellectuals, have ascended within existing institutions rapidly, for fairly obvious reasons. More specifically, those of us in data science are enjoying a bonanza of opportunities, as institutions readily hire us in record numbers to sort out their data needs, uniformly across the public, private, good, bad, large, small dimensions. We’re inheriting remarkable power and authority, and we ought approach it with respect and conscience. Data, though profoundly beneficial and dangerous, is still just a tool whose moral value is something we as its priesthood, if you will, can and ought determine. Chomsky’s example succinctly captures how we should view it :
Technology is basically neutral.
It's kind of like a hammer.
The hammer doesn't care whether
you use it to build a house or
crush somebody's skull.
We can ascribe more nuance, with mixed results.
Data is Good? Evidence Abounds
I suspect I’m preaching to the choir if I remark on the impressive array of accomplishments made possible by data and corresponding analyses. I believe the successes are immense and plentiful, and little investigative rigor is necessary here in the world of high tech to note how our lives are bettered by information technology. Woven throughout the many successes, more subtly to the untrained eye than I or similar purists would prefer, is statistics, and the ensuing sexy taxonomy of machine learning, big data, analytics, and myriad other newfangled neologisms. The study of random phenomena has made much of this possible, and I’d invite eager readers to take a look at C.R. Rao’s survey of such studies in Statistics and Truth.
I’m in this trade because I love it, I love science, I love technology, I love what it can do for you and me, and I’m in a fantastic toyland which I never want to leave. So I must be very clear that I am no Luddite, nor would I advocate, except in narrow cases (see below), technological regression; the universal utility of much of what has emerged from human ingenuity has served to lengthen my life, afford me time to do the work I want, and make me comfortable. Though the utility is so far very unevenly shared, I do believe we’ve made tremendous progress, and the potential is limitless. So I’d entreat the reader potentially resistant to these ideas to brandish Coleridge’s “willing suspension of disbelief,” then judge for oneself. My primary objective here is to begin a dialog. Now for some of the hard stuff.
Data is Bad? There is Evil, and There Are Malignant Actors
Evils of technology also are innumerable, as the very large, growing contingency of victims of drone attacks, guns, bombs, nuclear attacks and accidents, war in general, and so on, will attest. Surveying the risks of technology leaves the current scope long behind, but it’s worth paying attention to the malignant consequences of runaway technology. I’ll be reviewing Daniel Ellsberg’s The Doomsday Machine on my other blog soon; suffice it to say the book is good, the story is awful. The book is a sobering, meticulous analysis of the most dangerous technology ever created, and how reckless and stupid planners were in safeguarding said technology. Here, we’ll stick just to problems arising from bad data science, and the bad actors, be it ideologues, the avaricious, the careless, or the malevolent.
We ought consider momentarily the current state of affairs : Taylor Armerding of CSO compiled the greatest breaches of the current century, attempting to quantify the damage done in each case. Since the publication of his summary, the Cambridge Analytica / Facebook scandal has emerged, sketching a broad “psychographic” campaign to manipulate users into surrendering priceless data and fomenting discord. Quite dramatically, a 2016 memo leaked from within Facebook shows executive Andrew Bosworth quipping,
[m]aybe someone dies in a
terrorist attack coordinated
on our tools [...]
[a]nd still we connect people.
In other words, “don’t bother washing the blood off your money as you give it to us.” Slate offers an interesting indictment on the business model that has rendered the exigencies of data theft, content pollution, and societal discord concrete, imminent contingencies. And most recently, Forbes reports that an LGBT dating app called Grindr apparently permits backdoor acquisition of highly sensitive user data, endangering users and betraying their physical location. And the first reported fatality due to driverless technology deployed by Uber occurred in Arizona this month, generating a frenzy of concerns around the safety and appropriateness of committing these vehicles into the public transportation grid. The reaction I noted on the one social media platform I use, LinkedIn, was tepid, ranging from despairing emoticons to flagrant, arrogant pronouncements that this is the cost of the technology. I also observed a peculiar response to those unhappy about the lack of security around user data : blame the victims. The responses vary from the above declaration of cost of convenience to disdain for the lowly users in need of rescue from boredom, discussed by one employee of Gartner, a research firm :
let's be honest about
one thing: we all agree that
we give up a significant part
of our privacy when we decide
to create an account on Facebook[;]
[w]e exchange a part of our private
life for a free application that
prevents us from being bored most
time of the day.
I’d refer this person to Bosworth’s memorandum, though he, like CNN in 2010, likely hadn’t seen it before venturing such drivel. I interpreted their argument as a public relations vanguard aimed at corporate indemnification. Certainly, an alarming number of terms and conditions agreements aim to curtail class action lawsuits and, where legal, eliminate all redress through the court system. On its face, this sounds ludicrous, as the court system is precisely the public apparatus for resolving civil disputes. Arbitration somehow is a thing, with Heritage and concentrations of private power reliably defending it as freer than the public infrastructure over which citizens exercise some control, however meager. Sheer genius is necessary to read
[n]o one is forced into arbitration[;]
[t]o begin with, arbitration is not
“forced” on consumers[...] [a]n obvious
point is that “no one forces an
individual to sign a contract[,]”
and interpret it any other way than that the freedom to live without technology is a desirable, or even plausible arrangement; Captain Fantastic, anyone?
Maybe it’s a question of volume, as catechismic, shrill chanting that we have no privacy eventually compels educated people write the utter nonsense above. If one were to advance the argument further, it’s akin to blaming the victims of the engineering flaws in Ford’s Pinto; after all, the car rescues the lower strata of society from having to walk or taxi everywhere they want to go, and death by known engineering flaws is the cost of doing business. The arrogance evokes Project SCUM, the internal designation for a marketing campaign tobacco giant Camel aimed at gays and the homeless in San Francisco in the 1990s.
Governments cause even greater harm, exhibited in Edward Snowden’s whistleblowing on the NSA’s pet project to spy on you and me, code-named PRISM. Comparably disconcerting, Science Alert reported this week that the development of drone technology leaving target acquisition in the control of artificial intelligence is almost complete, meaning drones can murder people using inscrutable and ultimately unaccountable data models. State-of-the-art robotic vision mistakes dogs for blueberry muffins in anywhere from one to ten percent of static images analyzed, depending on the neural network model, meaning a drone aiming at a muffin would destroy one to ten percent of the dogs mistaken, and this is training on static imagery! Imagine the difficulties in a dynamic field-of-view with exceedingly narrow time windows necessary to overcome errors. Human-controlled drones already represent enormous controversy, operating largely in secret without legislative or judicial review under the direction of the executive branch of the American government. Who must answer for a runaway fleet of drones? What if they’re hijacked?
More locally, Guardian recently unmasked the racist facial recognition models deployed by law enforcement agencies, bemoaning the existence of “unregulated algorithms.” I’d wager the capability to reverse-engineer a machine learning model to steal private data receives great attention among adversarial actors and private corporations. I can remember in my first job many years ago being in a discussion over an accidental leak of a few lines of FORTRAN to a subcontractor, to which I naively queried, “Why are we in business with someone we think would steal from us?” A manager calmly replied that anyone and everyone would steal, and in any way they can. Maybe it’s true, but I’d like to believe there’s more to countervailing passive resistance than meets the eye. In any case, data science and artificial technology are tools co-opted for sinister and dangerous purposes, and we ought try to remember that.
Data is Ugly? Errors and Injustice, Manned and Unmanned
Data needs no bad actor or vicious intent to be misleading. Rao refers to numerous unintentional examples of data misuse within the scientific record, peppered throughout the works of luminaries such as Gregor Mendel, Isaac Newton, Galilei Galileo, John Dalton, and Robert Millikan, as documented by geneticist J.B.S. Haldane and Broad and Wade’s Betrayers of the Truth. For instance, the precision Newton provided for the gravitational constant is well beyond his capacity to measure, and Mendel’s genetic models could explain the recorded data only with astronomical probability, suggesting either transcription errors or blatant cherrypicking. Rao notes
[w]hen a scientist was
convinced of his theory,
there was a temptation to
look for "facts" or distort
facts to fit the theory[; t]he
concept of agreement with theory
within acceptable margins of
error did not exist until the
statistical methodology of
testing of hypotheses was
That is, statistical illiteracy can only compound the problem of “fixing intelligence and facts around the policy,” to paraphrase the infamous Downing Street Memo.
Statistical literacy doesn’t guarantee good outcomes, even with honest representation. Data can reinforce wretched social outcomes by identifying the results of similar failed policies of the past. For instance, everyone knows African Americans are more likely to be harassed by police. Thus, they’re more likely to be arrested, indicted, charged, and convicted of crimes. Machine learning algorithms identify outcomes and race as significantly interdependent, and new policy dictates that police should carefully monitor these same people. Asking why we ought trust an inscrutable model is unmentionable, reminding me that earlier propagandists invoked the “will of God” as justification for slavery, and later, the “free market” requires that some people be so poor that they starve. Maybe elites always require some ethereal reason for the suffering we permit to pass in silence. Anecdotally on racism, a myopic cohort once pronounced triumphantly to me that racists aren’t basing their prejudice on skin color, but on other features correlated with skin color. The Ouroboros, or some idiotic variant, comes to mind.
Weapons of Math Destruction : Destructive Models
Cathy O’Neil in Weapons of Math Destruction (WMDs) ponders such undesirable social outcomes of big data crippling the poor and the disadvantaged. Within the trade, dumb money describes the proceeds mined and fleeced from vulnerable populations. The money poor people have ranges from real estate to be reverse-mortgaged, poverty and veteran status to leverage for education grants and loans, desperation of the poor in the form of title loans, payday loans, and other highly destructive financial arrangements. Myriad examples of startups and firms abound, from for-profit online education firms like Vatterott and Corinthian Colleges targeting veterans and the poor to cash in on student loans, and their enabling advertising firms such as Neutron Interactive post fake job ads to cull poor people’s phone numbers to blast them with exaggerated ads. Thinktank Learning, and similar firms model student success, helping universities and colleges game the U.S. News and World Report ranking system, a perfect example of a WMD. Comstat and Hunchlab help resource-starved police departments profile citizens based on geography, mixing nuisance crimes with the more violent variant and strengthening racial stereotypes. Courts rely now on opaque models to assess risk of convicts, determining sentences accordingly, according to a piece in Wired last year. Ought we understand the reasons why two criminals convicted of the same crime receive different sentences? The book is very much worth a read. Her own journey is revealing, having been an analyst at D.E. Shaw around the time of the market crash.
Data has accumulated over the years that ETS’s prized Graduate Record Examination (GRE), a test required for candidacy in most American graduate programs,
operates in darkness, inscrutably like many such “psycho-social” metrics.
My own personal experience with the examination is kind of interesting and comical : I’m apparently incapable of writing. Being a south paw, my penmanship is atrocious, but I seem to remember having typed the essay… Kidding aside, acquiring feedback from them was impossible, and they led me to believe that the essay receives grades via an electronic proofreader. I guess no one remained who could interpret the algorithm’s outputs.
A more serious question O’Neil raises is that machine learning models suffer many of the same biases and preferences born by their architects; I think of ETS reinforcing malignant stereotypes, a kind of “graduate ethnic cleansing.” Algorithms running for Title Max target the poor, making them poorer still. More seriously, what are these models trying to optimize, and is it desirable behavior?
The Problem of Proxies
O’Neil offers that part of the problem with building opaque data models to inform real world decisions is that the real world objective we’d like to improve is poorly proxied: unsuitable substitutes seem to be hogging the constraints. For instance, how can an algorithm quantify whether a person is happy? Happiness is something we all seem to understand (or think we do), and we can generally spot it or its shaded counterpart with little effort. Millions of years have chiseled, then kneaded the gentle ridges of the prefrontal cortex to lasting import. Algorithms might read any number of interesting features, and unlike consciousness itself, I suspect happiness, or at least its biological underpinnings, is something an algorithm could predict, but any definition suffers limitations. My earliest intuitions in mathematics led me to believe that any state can be reproduced with sufficient insight into the operating principles. Though the academy has largely reinforced what I used to call the “dice theory” (and I was all-too-proud to have dreamed it up myself), Galileo lamented centuries ago, as have others more recently, including Hume, Bertrand, and Chomsky, that the mechanical philosophy simply isn’t tenable. More narrowly, we may be incapable as we are now to effectively proxy very important soft science social metrics. I believe misunderstanding this may be fueling the insatiable appetite of start-up funding for applications lengthening prison sentences, undercutting college applicants, burdening teachers with arbitrary, easily falsified standards, bankrupting the poor, and harassing and profiling the most vulnerable. Is society better off with young black men fearing to walk the street at night with the justified concern of being murdered?
A striking example of poor proxying is invoking the stock market as the barometer of the economy. And this is something I see in social media time and time again. Missing from the euphoria is that for nearly fifty years, the Gini index is positively correlated with the S&P 500, the former measuring economic inequality and the latter indexing the “health” of the stock market. That is, as the stock market becomes healthier, the distribution of the money supply drifts away from the uniform. Not coincidentally, this behavior seems to begin right around Nixon shock, or the deregulation of finance and the dismantling of Bretton-Woods. In his 2004 book The Conservative Nanny State, economist Dean Baker discusses “perverse incentives” in maximizing incorrect proxies in patent trolling, wasteful copycat drug development, and the like. The U.S. Constitution guarantees copyright protection to promote development of science, contravened by wasting sixty percent of research and development money on marketing and replicated research.
Even in a more seemingly innocuous setting, say social media, do we see deep problems in proxies. Shares and likes become the currency of interaction, and social desirability need not interfere for most. I’ve noticed in my own experiences in writing comments online that a frenetic vigilance overcomes me if I feel I’ve been misunderstood or have given the wrong sort of offense, as I’m (perhaps pathologically) hardwired to care about the feelings of others. By interacting online rather than in-person, a host of nonverbal cues and information are absent, forcing us to rely on very weak proxies. Psychology Todaytouched on this in 2014, and I suspect the growing body of evidence that flitting, vapid interactions online are damaging social intelligence demonstrates that the atomization of American culture is in no way served by social media.
Admittedly, the story seems dire, but belying the deafening silence is a groundswell of conscientious practitioners, fragmented and diffuse, but pervasive and circumspect.
The Courage to Speak
When I discuss any of the above with cohorts privately, a very large fraction agree on the dangers of misusing this technology; reflexive is incorrect habituated resignation, especially in America where illusory impotence reigns supreme. And so I see very little in the way of commentary on these issues from tradespersons themselves, though a handful from my network are reliable in discussing controversy. Perhaps the psychology is simpler : is it fear of blowback and risks to career of the kind Eugene Gu is experiencing with Vanderbilt? Certainly even popular athletes face blacklisting, Colin Kaepernick being an exemplar. Speaking out is risky, but silence strengthens what Chomsky calls “institutional stupidity“, of which some of the above quotes embody.
The point I’m trying to drive home is that the responsibility of we the technologists demands an end to controversy aversion; we simply MUST begin talking about what we do. Make no mistake, the ensuing void of silence emboldens demagoguery in malignant actors, such as the aforementioned projections on unmanned, computer-controlled drone warfare, further deterioration of the criminal justice system, exploitation of the poor and vulnerable, and wrecking the global economic system. Further, refusing to speak out assures a platform for desperately irresponsible, dangerous responses of blaming or ridiculing the victims, a sort of grinding salt in the wounds. Consider the extreme variant of the latter : Rick Santorum, Republican brain trust, has sagely admonished school shooting survivors to learn CPR rather than protest and organize to demand safety, and Laura Ingraham, shrill, imbecilic Fox host, has gleefully tweeted juvenile insults at one of the outspoken survivors. Why would we relegate damage done by runaway data science as the cost of doing business, if we can clearly perceive the elitism and cynicism in the above? Silence may seem safe, but is it really? Ignoring sharpening income inequality, skyrocketing incarceration rates, and stratification and segregation has a cost : Trumps of the world become leaders, the downtrodden looking to demagogues.
The Coming Storm Following the Dream
With each public relations disaster and each discovery of flagrant disregard for users and their precious private data, we hurtle toward what I believe are an inevitable series of lawsuits and criminal investigations leading to public policy we ought to help direct. C.R. Rao wrote some years ago regarding a lawsuit against the government failing to act to save fishermen from a predictable typhoon, plaintiffs’ chief issue being that the coast guard failed to repair a broken buoy :
[s]uch instances will be rare,
but none-the-less may discourage
statistical consultants from
venturing into new or more
challenging areas and restrict
the expansion of statistics.
The General Data Protections Regulation, or (GDPR), organized by the European Union, is perhaps one of the broadest frameworks ratified by any national or supranational body. This coming May, the framework will supersede the Data Protective Directive of 1995. The US government has regulated privacy and data with respect to education since 1974 with FERPA and medicine since 1996 with HIPAA. Yet court precedent hasn’t yet determined the interpretation of these acts with respect to machine learning models built on sensitive data. What will an American variant of GDPR look like? Practitioners ought have a say, and the more included in the discussion, the better the outcome. But this sort of direction requires coordination, and because of the unique and difficult work we do, we are fractured from one another and more susceptible to dogmatism around the misnamed American brand of libertarianism. The American dream is available to technologists (and almost no one else), whence a rigidity of certain non-collectivist values, enumerated in a study conducted by Thomas Corley for Business Insider : the rub is that wealthy people believe very strongly in self-determination, and assume they are responsible for their good fortune. I think of it as the “I like the game when I’m winning” phenomenon, and like most deep beliefs, some kernel of truth is there. We could spend considerable time just debating these difficulties, and my being married to a psychiatrist offers uncomfortable insight. In any case, discussions surrounding this are ubiquitous, and my opinions, though somewhat unconventional, are straightforward. Historically, collective stands are easier to make and less risky than those alone. In semi-skilled and clerical trades, we called these collections “unions.” Professional societies such as the AMA, the ASA, the IEEE, and so on, are the periwinkle-to-white collar approximations, with the important similarity that collectively asserting will just simply works better. And yet, we in data science have little in the way of such a framework. It’s worth understanding why.
Cosmic Demand Sans Trade Union
The skyrocketing demand for new data science and machine learning technology, together with a labor dogmatism peculiar to the United States have left us, so it would seem, without a specific trade union that is independent of corporations and responsible for governing trade ethics and articulating public policy initiatives. Older technology trades have something approximating a union in the professional societies such as IEEE and the American Statistical Association; like the American Medical Association and the American Psychological Association, these agencies offer codes of ethical practices and publications detailing the latest comings and goings in government regulation, technology, and the like. Certainly, the discussion occurs here and there, though Steve Lohr’s 2013 piece in the New York Times summarizing a panel discussion at Columbia hinted a common refrain in our trade:
[t]he privacy and surveillance
perils of Big Data came up only
in passing[...] during a
question-and-answer portion of
one panel, Ben Fried,
Google’s chief information
officer, expressed a misgiving[:]
“[m]y concern is that the
technology is way ahead of society[.]
That is, we all know we have a problem, but little is happening in the way of addressing it. A smattering of public symposia have emerged on certain moral considerations around artificial intelligence, though much of what is easily unearthed is some older articulations by Ray Kurzweil, Vernor Vinge, and older still those by Isaac Asimov. These often take the form of dystopian prognostications of robot intelligence, though I agree with Chomsky that we’re perhaps light years away from understanding even the basic elements of human cognition, and that replicating anything resembling that is not on the horizon. Admittedly, my starry-eyed interest in Kurzweil’s projected singularity is what pulled me into computer science, but Emerson warns us that intellectual inflexibility belongs to small minds. Fear-mongering of the future brings me to a spirit we ought exorcise early and often.
Unemployment and Automation : A New(ish) Bogeyman
No discussion of the impact of our technology would be complete without paying a little attention to the fevered musings and catastrophization of mass unemployment due to automation. We as a society of technologists ought have a simple answer to this, namely that the post-industrial revolution mindset of compulsory employment as monetized by imagined market forces is illogical, inefficient, and unnecessarily dangerous to who we are and what we do. Even less charitably, slavish genuflection to the free market mania is an obstacle, rather than a catalyst, to progress, as the complexities of civilization necessitate a more nuanced economic framework. Though we’d need another article or so for better justification for the foregoing, I’ll skip to the conclusion to say that we must restore and strengthen public investment in technology democratically and transparently, casting off militarization and secrecy. A good starting place is the realization that virtually all high tech began in the public sector, and that’s a model that serves both society and technologists. It also organically nurtures trade consortia of the variety described above. In any case, the principal existential threats we face have nothing to do with mass employment, though thwarting those threats, nuclear proliferation and catastrophic climate change, might require it.
Triage and Final Thoughts
Answering these current events demands responsible, courageous public discourse, appropriately supporting victims and formulating strategies to avert the totally preventable disasters above. We should organize a professional society free of corporate, and initially governmental, interference, comprised of statisticians, analysts, machine learning scientists, data scientists, artificial intelligence scientists, and so on, so that we can internally by conference
collectively educate ourselves about the ramifications of our work, such as reading work by trade specialists such as O’Neil,
jointly draft position papers on requests for technical opinions by government and supranational organizations, such as a recent request from NIH,
dialog openly about corporate malfeasance,
draft articles scientifically explaining how best to regulate our work to safeguard and empower the public (eloquently stated in Satya’s mission statement),
exchange ideas and broaden our trade perspective,
collectively sketch safe, sensible guidelines around implementations of pie-in-the-sky technology (such as self-driving cars), and
strategize how to redress public harm when it happens.
A few technologists, such as George Polisner, have very publicly taken stands against executive docility with respect to the Trump administration; his building of the social media platform civ.works is a great step in evangelizing elite activism, and, of course, privacy guarantees no data company will offer. Admittedly, we all need not necessarily surrender positions in industry in order to address controversy, but we can and must talk to each other. Talk to human beings affected by our work. Talk to our neighbors. Talk to our opponents. The ugly legal and political fallout awaiting us is really just a hapless vanguard of the much more dangerous elite cynicism and complacency. How do we ready ourselves for tomorrow’s challenges? It begins with a dialog, today.
Dean Baker, progressive, activist, economist, was kind enough to share some time for an interview. Readers following my blog from its earliest days will recall the extensive series of reviews of his book, The Conservative Nanny State, so scoring some time with Dean is indeed a coup. For those who bear cynicism toward establishment economics, Dean’s star shines brightly, having predicted and warned of the 2008 housing crash as early as 2002. Deeply committed to progressive causes, this powerhouse economist counters decisively the bipartisan consensus psychosis in Washington, dispensing easily with wrongheaded policy considerations such as Chicken Little on Social Security, or the commitment to endless, savage wars abroad. He also is the type of dog lover who adopts the infirm and elderly, a true class act. So without further delay, let us jump right into the discussion.
As with my previous interview, my cognitive difficulties of late slow my interaction, so bear with me; I’ve edited the discussion for ease of listening.
NP Slagle: Welcome to Scire Populum et Potentiam, to know the people and power. I’m very happy to have Dr. Dean Baker, economist at the Economic Policy Institute and co-founder and economist at the Center for Economic Policy Research, where he serves as a senior economist. He’s authored over 10 books in economics. One of which was my gateway drug into his works, The Conservative Nanny State. I wrote an extensive six-part review on this book as I found it in my own ignorance of economics a revelation. This is among a very short list of books I would recommend to every American. Dean regularly contributes op-eds to news journals such as the New York Times, the Washington Post, and Truthout. He’s an analyst that I believe should appear in every economic debate in the televised news media. Therefore, he’s not included in every economic debate. If I believe it should happen, it probably doesn’t. In any case, welcome Dean. I very much appreciate having you.
Dean Baker: Thanks for having me on.
NPS: Yeah. Absolutely. Just to give a little bit of background as I mentioned in the intro, your book, The Conservative Nanny State was my introduction to your works. I heard Noam Chomsky mention the “nanny state” a few times in different talks but it wasn’t until he mentioned your name that it occurred to me that the term might be more than just something that he had created. I looked it up and I found this book. The simplicity of the book, so therefore the reachability, the accessibility of it is incredible. Certainly, it jived with my own speculation about economics to begin with. Certainly makes it a lot clearer and coming from an expert like you, it’s pretty powerful stuff.
NPS: So before we get into your origins, what do you think an economist is? What is it that you do versus what is it do most economist do? Where are the conflicts?
DB: Yeah. I think economics inevitably involves some fairly complex issues, studying data, analyze data, and knowing how to make sense of statistics. From my view though, as an economist and obviously there’s division of labor here: I do do some primary analysis myself, but first and foremost I see my responsibility as making this information available and as understandable to people as possible. It’s common for economists to throw up their hands and go, “Oh, this is complicated. People can’t understand it.” I think that is really being a cop out. Our responsibility is to talk about this in terms people can understand. At the end of the day, I believe in democracy. People can’t make intelligent choices unless they understand what’s at stake. The big economic issues have huge impact on people’s lives. If they don’t understand how those choices are being determined, how those policies are being determined, you don’t have a real democracy. I think first and foremost, my job is about looking at important economic issues and trying to present them in ways that are understandable to people. I mean I don’t mind saying that. I’m not going to deny I have a progressive bent. I think we have too much inequality. I think people should be able to count on the necessities of life, all that. But I think we will get there best by making the issues clear to people. I think most people basically agree with those things. Any case, the point is people have to understand first and foremost what’s at issue. It can be done. I just think a lot of economist, I sometimes joke about it. I think the economy is too simple for economists to understand.
NPS: Right, right. I like that.
DB: I make things simple, not complicated.
NPS: Certainly, the abridged education that I’ve had in economics has been built around laissez-faire market ideology, that the free market will be able to deliver the very best products and services for the best value, [while d]iscounting considerable obstacles to that kind of optimization. I think that what I’ve seen at least in the limited social media that I look at on this topic and this is looking at what fellow technologists are thinking about these things. They’re pretty well hung up on this notion that profits proxy for everything that’s good. To me that seems more a dogma than something that’s actually underwritten by the facts.
DB: Yeah. Well, profits … what I always like to say we should think of the market as a tool. It could be a very, very powerful tool. The point is we structure, we decided how the tool will be used. We’re don’t want people to make profits selling heroin. We banned that now. Obviously, you have a black market but we do ban. We’re better off if people made profits on legally selling heroin. It’s an arguable point. I think probably not but that’s an arguable point. In any case, for now, at least we don’t allow that. We don’t allow it legally. The whole point of certainly Conservative Nanny State really much of my writings, we structure markets to decide how profits are made.
DB: My most obvious example here, patent and copyright monopolies. The idea somehow these are intrinsic; that Microsoft just has a copyright on Windows and they can make a huge amount of money on that. Well, you could argue that’s a good or bad thing. That’s not just the market. That was a government policy. We decide Microsoft can get a copyright and make a lot of money on it. We’re going to arrest people if they start mass producing copies of computers that contain Windows and they’re not paying Bill Gates’ money. Again, we could argue where there’s good or bad thing but that was something we designed. That was how we structured the market. What I do in Conservative Nanny State and other work is make a point: here’s how we’re structuring the market. Again, you could argue, someone could defend the copyright system and say the current system’s the best we could do and that’s an arguable proposition but we have to understand, that’s not simply a market that was given to us. That was how we chose to structure it.
NPS: Exactly. That there’s a legal framework underwriting all of that and that it’s not that somebody sat in a room and spent a long time working on some wonky optimization problem and said, “I know what will work best. We’ll just have a copyright system.” I always thought it was bananas that I would see popular songs that we might sing like Christmas carols and you’ll find that they have copyrights from one hundred and twenty years ago. At least whatever’s listed in the fake book. The fake book’s pretty old.
DB: Yeah. It gets pretty crazy and both copyrights and patents have bizarre applications. Some of the extreme ones I remember hearing that there’s… I’m forgetting the names of them [possibly General Patent and Web Defense Systems?]. Now, there’s two main services that are involved in enforcing copyrights. If a radio station plays copyright music, they have to pay a fee. If say you have a restaurant or a bar, and you’re playing copyrighted music, you’re supposed to pay. I’m sure most of them don’t but in principle, you’re supposed to pay. Anyhow, one of them was going after the campfire girls because they were singing copyrighted songs. You get some pretty wacky examples.
NPS: Right. That you have to have a powerful nanny state to enforce those kinds of things.
DB: Yeah, yeah. This is very far from a free market.
DB: They’re all sitting around the campfire and they’re singing whatever songs. Now, we’re going to have the government come in there and say, “Oh, you have to pay whatever amount to so and so has the copyright on these.”
NPS: Right. I doubt seriously that my coworkers and bosses over at Microsoft would want me to say this but I’ll say it anyway. I don’t believe that the patenting and the copyright system has done justice to the software industry at all. I feel like Microsoft, Gates and Allen were able to exploit the open architecture, hardware architecture and so on in order to be able to build an operating system on top of that that they made proprietary. Because of the fact that it is proprietary and they’ve spent all of this time trying to ensure that those copyrights stay in place, we end up with products that frankly are subpar. I even told them that in my interview there. I told them that in my interview.
DB: They hired you anyhow.
NPS: Yeah. They called me back that day.
DB: They really wanted you.
NPS: Yeah, yeah. Either it speaks to their desperation or their desperation I guess, either or.
DB: Yeah. Or maybe they had admirable respect for freedom of thought. We’d like to be optimistic about that. I don’t know that’s the case but we could be optimistic that way. I’m not an expert on software. You clearly know much, much more about it but I’ve heard that from many others, that much of what when the original DOS, the pre-runner of Windows was taken from various forms of open software-
DB: On the government tab. Of course, it becomes proprietary and I don’t know anyone as a regular user of Windows computers, which I am that’s very happy with if you gave me the option of the computer 20 years ago and the computer I had today, you know, there’re some things clearly better but a lot of things are not. It’s not as though we could look back over the last two decades and go, “Wow! There’ve been all this great innovations, the software I have today in my computer is so much better than what I had two decades ago.” I for one would be able to say that.
NPS: And actually internally at Microsoft, this is pretty well the opinion that we get every year when we do the internal surveys. Of the pillar issues that they ask opinions on, the most troublesome for the company are the tools that we have to use internally. And though they are slightly better than what you see on the outside, just because, we’re constantly being guinea pigged, and they’re constantly trying to make sure that our systems are reliable, it’s not a good thing. The other tech companies I’ve worked at where they’re basing their systems more on open source software, much more reliability. I mean the difference is night and day. But it also raises another interesting point that I’ve brought up with some of my coworkers when they ask questions about these kinds of things. It’s one thing to patent, or copyright a complex algorithm that you can use to achieve some particular goal. And let’s say that an individual wants to benefit from that and see that others are not able to steal his work, that’s different from a company doing it. And it’s also different when we’re talking about the scale and the scope of these algorithms. I like to ask them, “How would you like to have to pay a fee every time you used the addition operator in your code?” I mean, it gets to a point where it’s just obscene. That’s like having a plumber install a toilet in your house and then you have to pay for every time you flush it.
DB: Yeah. With our intellectual property system in general, I think there’s been very little thought in the design as to, “Is this really optimal?” And you could argue for patents, you could argue for copyrights, but I think you’d be very hard pressed to look at the system we have today and say, “This is the best we could do.” And you have a lot of things that are almost like, paying for every time you flush the toilet. I mean, particularly when you get to research tools, this comes up more with patents I think than copyrights, but a lot of times you have research tools, but because their patented, they hugely raise the cost of research.
NPS: Right, absolutely. And to say nothing of medical equipment and then the pharmaceutical industry. So my father-in-law worked for Dial and for Pfizer and he let me in on a lot of the tricks that they use for evergreening, that I wrote about actually in the book review that I did for your book because I wanted to augment it with some of the information that he was giving me about how they are able to, by virtue of the way that they do the research, you end up with a mirror copy of drug molecules and usually there’s some utility to those. And it’s not necessarily the utility you’d planned, but you get to double dip and get two patents for the price of one. But I think the number that bothers me the most is the copycat drug share of the market, to me it’s obscene. So tell me a little bit about that.
DB: Yeah. Well, again we get into a strange debate, at least I find often it gets very strange when we talk about parents and prescription drugs because of course, it costs a lot of money to do research and developing new drugs and someone has to pay for that. But the question, what is the best way to do that? And again, we’ve settled on the patent system where basically what we’re doing is we’re telling companies, “Go ahead, do research and then we’ll give you a patent,” and then you basically get a monopoly on it for 20 years. You were saying with evergreening, they often find ways to extend that for number of years. Another way it’s not quite evergreening, it’s kind of a variation, is that often times companies will have several patents on a drug, and the main one may expire, and then what they do is they have a very dubious patent that they claim to prevent competitors from marketing their drug, marketing as a generic. And even though it may not stand up in court, you have an incredible asymmetry: you’re looking to come in there as the generic entry, well, you’re looking to be able to sell it at a competitive market price, that might be a 10th, even a 20th, maybe even less of what the price Pfizer charges. So there’s an incredible asymmetry if you envision a lawsuit, Pfizer stands much more to lose than the generic does to gain, which means that they are prepared to spend a lot of money in the lawsuit. It doesn’t make sense for the generic spend anything remotely comparable, because they don’t stand to gain that much. So often, Pfizer could have a patent, but they know it’s very weak, but they’ll just tell a generic that’s trying to enter, “Well, we’re going to contest this and if we lose, we’re going to appeal it. We’ll appeal to the Supreme Court. You’re going to be buried in legal fees. It’s just not worth your while.” And that’s often a way to keep generics out of the market because for them it just doesn’t make sense. Getting back to the basic picture, this is one of the things I often say to people when I’m giving a talk. I often begin, “Drugs are cheap.” And they immediately think I’m nuts. And the point that I make with that is that almost invariably they’re cheap to produce. So if you just talked about manufacturing the drug profitably, in most cases that would be $10, $15, maybe $30 to outside per prescription, and we know this because there are generic drugs here and in other countries; India as a world class generic industry, they produce very high quality drugs and in almost all cases they’re very, very cheap, whereas if they’re patent protected, they could sell for thousands, even tens of thousands of dollars, and again, it’s because they have a monopoly on a drug people need for the health and need for their life. It’s an absurd situation where people are struggling in trying to get their insurer to pay [for] hepatitis C [drugs]. There’s been several drugs recently, but originally Sovaldi was the first breakthrough drug that could cure hepatitis C, which is a debilitating, sometimes deadly disease, for $80,000 per three month course of treatment, incredibly expensive. So insurers didn’t want to pay people who were on Medicaid, other government programs, government didn’t want to pay. And you had articles about this as a big moral dilemma. Should they pay it for everyone? A lot of people with hepatitis C have lived, they’re drug addicts, they’ve done things in their life that you might say weren’t very good, should we pay $84,000 for them to be treated? And I’ll just say, okay, that’s good question. I mean, I’d probably be inclined to pay it, but whatever, some people saying no. They go, “Well actually it doesn’t cost $84,000 to manufacture this drug. It costs $200 or $300.” Again, we know this because that’s what the generics in India could sell it for. And again, they make money. They’re not charities. Like $200 or $300, that’s really a no brainer. I mean, you’re only going to spent $300 to save someone’s life, to cure them of a debilitating disease? I mean, even if they got it because they were drug addicts or whatever, that’d be nuts. So we create this huge problem for ourselves with how are we going to pay for these expensive drugs, when they wouldn’t be expensive if we didn’t have the patent monopolies. As they say, it’s a very, very perverse way of financing drug research and again, we have to pay for it. So I don’t argue that, I talk about other ways to pay for it, mostly through direct pay for the funding research upfront. Pay for it upfront and have it be in the public domain. But the current system I just think is incredibly backward, and it’s a big deal economically, but even more so this is people’s health, people’s lives.
NPS: Right, yeah. Chomsky’s read on the history of technology has been something that’s similar, that in essence, the computers that we’re using right now to talk in the vast international and actually trans-national communications network, originally it was just going to be a coast to coast network for communication. All of it was developed in the public sector, and the public sector bore the risk and lots of things didn’t pan out that we don’t hear about, but nonetheless, it was not a free market that delivered computers to us or the internet or a lot of the R&D as you point out in your books, a lot of the R&D that goes into the development of these drugs.
DB: Yeah. And even as it stands, with the National Institutes of Health, they get $40 billion a year from the federal government. Again, most of that is more basic research, so it’s not common that they’re actually developing drugs, but there are cases, important cases, AZT, the first major AIDS drugs, that was actually developed by NIH money. It was developed as a cancer drug that turned out not to be an effective cancer drug. And then in the 80s, several, probably Burroughs Wellcome was the big one, they then tested it an AIDS drug where it turned out to be an effective treatment, but a very large chunk of the expense, certainly developing the drug originally and as I understand, even some of the research done by Burroughs Wellcome was financed by the federal government. So again, you look at drug after drug, someone did an analysis recently looking at drugs that were in the last, I forget how far back they went, like last decade. Every single one of them, had a major role for federal funding. That’s not to say the industry didn’t do something. In most cases they made substantial contributions, but the point was they were building on work done by the federal government.
NPS: Right. And probably like the big banks underwritten by the federal government at the same time. So you have this extremely skewed, loss function of no way to lose and every way to gain.
DB: Yeah. It often looks that way.
Bank Bailouts: There’s No Such Thing as a (Totally) Free Market?
NPS: So somebody that I had discussed this with had made the comment that copycat drugs were good because therefore there was market competition, as though prescription drug development occurs in a free market or laissez-faire framework. There seems to be this pervasive belief amongst intelligentsia that not only is this the usual course, but that it ought to be that way, challenging earlier points in our discussion. How do we dispel the myth?
DB: I mean, I like patents and copyrights just because they are such blatant interferences in the market; I love to point out, we can get drugs in India for, in some cases, less than 1% of what it costs here and if people want to be strict, libertarians go, “Fine, let me go to India. Let me import the drug from India.” And just to say Pfizer would go nuts if we just said, “Oh, we could just import all these generics from India. “They would put them out of business in no time. So, that’s a very clear mechanism, but there are so many other ways. I mean, one of the things that was striking to me when we had the bailout of the banks in 2008, well the market outcome of course is Citi Group and Goldman Sachs and Bank of America, they were all out of business. They got themselves in trouble because it made a lot of bad loans, and they couldn’t cover their debts. And well, in a market economy they’re out of business. People couldn’t race fast enough to engineer the bailout, to keep them going and somehow-
NPS: Basically, in both parties.
DB: And in both parties. So it was totally bipartisan. I was on the hill talking to skeptics, they were Democrats, and also skeptics are Republicans, well I meeting skeptics on the democratic side. And there were a lot of people of course who did have questions, many who did vote against it, more Republicans voted against it than Democrats. But in any case, there were those who voted against it, but basically they scared all these people saying the economy will disappear. They were saying this and, just to be clear, I don’t mean to say there wouldn’t have been greater disruption had you not had the bailouts. There would have been, but the economy would just disappear? What do you mean? The physical banks aren’t going anywhere. So all the banks that, we have our deposits, there’s still going to be there the next day. Their records aren’t going to go anywhere, and we actually do have a mechanism, the Federal Deposit Insurance Corporation to keep operating, keep normal bank services going through a crisis, which isn’t to say everything would have been perfect. But there was just this idea. We have to rescue them. And of course here we are now ten years, a little more than ten years later, and those banks, Citi Group, Bank of America, they’re bigger than ever. But you can’t call that a free market.
NPS: No, not at all. And I think you’re right in Rigged that the IMF showed that these big banks are able to borrow at a much better rate than they would be under normal circumstances because of the government insurance policy.
DB: Yeah. So there was research that the IMF had done, this was a few years ago now, and it may not still hold up because risks have fallen. That was still kind of in the wake of the crisis. But what their research had found, I’ve done some too showing this, that their borrowing costs were less than smaller banks because the presumption was if Citi Group got itself in trouble, the government would come to its rescue. Just as of course it did do in 2008, 2009. So obviously if you think from the standpoint of someone, you’re looking to lend Citi Group $20 million or another bank $20 million, well you’re going to be thinking, “I really don’t have much risk with Citi Group. It’s obviously a big bank and not likely to go under, simply because big banks don’t typically go under, but even if it were to go under, I could still count on the government bailing it out and making the whole.” So that means you’d be willing to lend to a lower rate of interest and that’s certainly what the IMF found, though again this was a few years ago. It was a careful research. I don’t think people disputed that at the time.
Economic Prognostication : Dean and the Housing Bubble
DB: Yeah. This is a source of incredible frustration because it started like you see a disaster coming, and you’re trying to warn about it and no one’s really listening. To my view, it was not hard to see for anyone looking at the data, because it was just very, very clear with this unprecedented run up in house prices. And I had data going back to the early 1950s, government Robert Shiller, economist at Yale, subsequently won the Nobel Prize. He constructed data using public data sets, but he had to construct himself, going back to the 1890s, and we had never seen a run up in house prices, anything like this. House prices generally nationwide, at least pretty much track the overall rate of inflation. But suddenly in the late 1990s, they began to diverge from the overall rate of inflation and in the next decade quite sharply. So 2002, ’03, ’04, ’05, they’re rising at double digit levels. There’s no corresponding increase in rents. Rents are pretty much tracking the rate of inflation. Vacancy rates are actually high and rising. That doesn’t make sense. It’s not consistent with the type of labor market. So I’m looking at this and go, “How could that not be a bubble?” And the reason bubbles were on my mind, and not some of those bubble bubble bubble, we just had a stock market bubble, which collapsed in 2000 or 2001 and gave us the recession that year. And that was a big deal. So the idea that we might get bubbles in asset markets shouldn’t have been crazy to people in 2002, ’03, ’04. We had just seen a really big one collapse and gave us a recession, so I saw this in the housing market, and the reason why I thought the impact was likely to be really big was housing had grown to be a very large share of the economy. Housing ordinarily is around 4% GDP. It hit a peak of, I think it was 6.8% in GDP in 2005, so it was way above its historic average. And on top of that, people were consuming based on their housing wealth. So people bought a home for $200,000, and suddenly worth $400,000. A lot of people were borrowing against their homes, none of this was secret, by the way. I mean, I didn’t need special insight about this, I had to have some special insight or debt. Alan Greenspan actually wrote papers on this.
DB: They actually go back, and he had equity … I’m forgetting the term he used, something like equity withdrawal or spending from equity withdrawal. He had some term for it. I mean, I don’t know if he invented it, but he’d used this several papers, so it wasn’t any sort of secret that (a) housing construction was soaring to record levels, and (b) that people were spending based on their housing wealth. It was widely reported, and the point being that when the wealth disappeared, so did the spending. That’s exactly what happened. Of course, the bubble peaks in ’06, begins to drop at the fall of ’06, drops more rapidly in ’07, because basically the story you had in the housing market was people buying homes where they look at the house and go, “Is this worth $400,000?” They might’ve said no, but because the price is rising 10 or 15 to 20% every year, it doesn’t matter. So, you might say to yourself, “Well, I wouldn’t pay $400,000 for this house, but on the other hand, since it’s going to be worth $500,000, two years, yeah, why not?” But suddenly when that reverses, when the price is falling rather than rising, well then you look at it and go, “Oh yeah, it’s probably not worth $400,000, maybe I shouldn’t pay $400,000 for it.” And of course the banks wouldn’t make the loans anymore. So you’ve got house prices falling in ’07 and then very rapidly by the latter part of the year because it feeds on itself. And that was the story of the crash. House prices plummeted. And then of course residential construction plummeted. So as I said, it ordinarily had been around 4% of GDP, it fell back to less than 2% of GDP. So we went from being close to seven, 6.8% to less than 2%. That’s four and a half percentage points of GDP, that’d be 900 billion a year in today’s economy. So how are you going to replace that? Then you had the big fall in consumption, because again, you had all these people, their house went from $200,000 to $400,000, they take out a home equity loan, buy a car, take a vacation, maybe they’re sending their kids to school. So it’s not that was a stupid thing to do. They thought the house would still be worth $400,000, but then it ends up being worth $200,000. Well, suddenly they can’t do that anymore.
NPS: Oh yeah. So, in my husband’s family’s neighborhood in Scottsdale, we saw housing prices rise to just astronomical numbers. It was remarkable. Houses that were previously like $400,000 up to one point $1.2 million. And then all of that just completely vanished. And we used to live in the Dallas Fort Worth Metroplex, and I can remember construction happening out the Wazoo, all over the place in the areas around the metropolitan area where there were, basically just open fields and some farmland. And I couldn’t believe that, that many people would be moving into those houses, especially with so many houses on the market. But yeah, we ended up buying high and selling low.
DB: So sorry to hear that.
NPS: Fortunately we didn’t lose a lot of money, and it was nothing to complain about compared to what other people had to endure through all of that, the humiliation and the bankruptcies, foreclosures, just dreadful stuff. And the fact that this is done, and it’s understood, it has to be understood at top levels of power. Would you say that, that’s the case or do they genuinely not understand how this stuff works?
DB: I think they genuinely did not understand. I mean, I knew some of these people. What happens is you get this groupthink story that people talk to each other. They only take the opinions into account of other people that they think are really important honchos. I mean obviously it helps I’m an economist as opposed to someone just off the street but still, I don’t have Nobel prize, they don’t have to listen to me. So they didn’t have to count what I’m saying. And I remember being on a panel once, and I was talking about the risk of a house price decline. And it was a fairly prominent economist, he was just totally dismissive. He just said, “Well, I’ve never seen anything like what you’re describing.” And my point was, “No, we’ve never seen a nationwide fall in house prices like this because we’ve never seen a nation run up in house prices like this.” That seemed fairly straightforward to me. He was just totally dismissive. Like I’m talking about something that’s just other worldly.
DB: For me that was very concrete.
Economic Schism : Pragmatic Piketty and Elitist Theorists
NPS: I liked the way that you described it earlier, that economics is much simpler than people think because I was going to say something similar at the beginning of this discussion about how on the one hand it seems like economics is much simpler than what people think. But on the other hand, theoretical economists start delving into NP hard optimization problems and Nash equilibria, and all of these interesting things that don’t pay that much attention to the pragmatic. And I guess that brings me to Piketty. I know that you’ve written about him and talked about his works quite a bit now, particularly Capital in the 21st Century, which I’ve started, but I can’t say that I’ve finished yet. There’s a lot in there. But I guess, what is your take on this that there’s a schism in the field of economics?
DB: Yeah. Well, I think that a lot of economics, I was joking about this, but this is actually very serious. I think it’s about making simple things complicated.
DB: I mean, of course my analysis of the housing bubble was pretty simple, and people asked me, as this was going on did I consider getting it published anywhere and I kind of shrugged because I go, “You know, it’s too simple. I don’t where it can get published.” I mean, it was basically a very simple story. And I actually had exactly that because there was a similar issue, back in ’05, President Bush wanted to privatized social security.
NPS: Oh yeah.
DB: His big argument was that, “Oh, we’re going to give people individual accounts and will make way more money in private accounts. And that was based on their assumption stock returns and what I was arguing was that you can’t have the high stock returns that they’re talking about given that they’re projecting slow economic growth and their price to earnings ratios in the stock market were already quite high. If you had low price to earnings ratios, you could do it, but we didn’t have low, we had high. So I was saying that you cannot get the returns that they’re predicting. So a friend of mine, Brad Delong called me up and said, “Do you want to do this as a Brookings paper?” And he goes, “I can get it published.” And I said, “Well, this is really a Brookings paper. I mean, because it’s simple. It’s basically algebra. What are dividends, what are capital gains, it’s adding two numbers.” And he said, “Oh yeah, no, it could be a Brookings paper, so I won’t have to do my work on this.” So I wrote it up, gave the basic algebra. So Brad goes out, “Thank you very much.” He did the bulk of the work, Krugman did some too, I don’t mean to downgrade his role, but Brad was the main actor here. But anyhow, he totally rewrites it and basically makes two points. One was an intertemporal consumption optimization model and then the other was the point I was making, which was again, basically simple algebra. Brad rewrote it, but basically presented the argument. What made it, the Brookings paper of course was the optimization model, though not too complex, but it was certainly more complex than simple algebra. When we actually presented the paper, no one said a word about the optimization model. No one could care less, all they cared about was the simple algebra, but without having something with some calculus in there that you could wave your hand and would go, “Oh, yeah, this is complicated. We wouldn’t have gotten there as a Brookings paper.” So it was just as clear as day that, “Okay, you have to make this complicated, get through the door, even though, that has nothing to do with the issue at hand.”
NPS: I wish I could say I was surprised by that, but I’ve spent enough time, been in and out of academia enough times that yes, that’s definitely true, that oftentimes you can present something that is even novel and advances the science. I had a classmate at Georgia Tech who submitted a paper to one of the theoretical computer science symposia and they thought the result was momentous, but the proof was too simple. So therefore they didn’t want to accept it.
DB: Oh God-
NPS: And they actually outright said that. They weren’t hiding it. They weren’t saying, “Uh, this really wasn’t good work.” They were just saying, “We like the result, but the proof is elementary, so therefore we can’t publish it.”
DB: It’s amazing. They wouldn’t be embarrassed that … Are we trying to advance the science or are we just trying to spin our wheels and …
NPS: Or make ourselves look so complicated that we can … I don’t know, to achieve some dominance in the field, maybe. The more David Attenborough programs that I see, the more I realize that we’re just animals. That’s a little bit cynical.
NPS: One thing that is in the news right now, and then I want to get back to your background because I want to make sure that we cover that as much as we can. I noticed that the Alexandria Ocasio-Cortez mentioned in the news, the 70% tax rate on $10 million and above, and that Paul Krugman–actually I learned about her quote by reading one of Paul Krugman’s columns on this. And it looks like Piketty and I’ll never be able to say these names, [Stefanie] Stantcheva and [Emmanuel] Saez, I believe is the-
DB: Yeah, Saez, yeah.
NPS: Okay. That they say that it’s 83%, but through the last twenty years, since the Bush W. tax cuts were pushed through, I have told people repeatedly about the top marginal tax rates that we had at the end of World War II, when we had some of the greatest growth, if not the greatest amount of growth that we ever saw in American history, economic history. And so I wanted you to weigh in on that also, so how this 70% versus 83%, the numbers are sort of … they’re not immaterial, but the concept is important. How do we tax the wealthy in an optimal way?
DB: Yeah. Well, two issues. The more important one is this idea that if they effect the high tax rate that, “Oh we’d lose out, all these very highly talented people,”
NPS: Which is bullshit. They don’t, contribute that kind of work to the economy-
DB: Yeah, I guess I would divide those into groups. So when you get the people defending it, like Greg Mankiw was Bush’s, the head of his council of economic advisors, “Oh Taylor swift, don’t you like Taylor Swift’s music or whatever, and she wouldn’t perform if she’s going to be taxed at a really high rate.” (A) that’s not true. I mean the vast majority of people are not Taylor Swift, I mean, whether you like it or not, I am not a great Taylor Swift fan, but whatever. The vast majority of people who are in those income brackets are people on Wall Street who are shuffling money. Your corporate CEOs, the people who got a lot because they inherited their wealth-
NPS: The rentier culture.
DB: Yeah. So that’s who we’re generally talking about. But even the Taylor swifts, I mean, the example I like to use there’s Michael Jordan who maybe was the best basketball player ever. During the prime of his playing years, he took two years off to play baseball. Now suppose he had faced the 90% marginal tax rate. Would he have decided that he had so much money that he could spend two years playing baseball? Maybe he would have, I don’t know, but he may well not have, and certainly Jordan was a fantastic player and if you enjoy see Michael Jordan play, we actually might have gotten more of Michael Jordan with a higher tax rate than lower tax rate. But again, that’s not who we’re talking about for the most part. We’re talking about the corporate CEOs, the people shuffling paper, so I’m not worried about not giving them enough incentive to do what they do for the economy. In most cases they would probably do the same. And in the cases where he had the CEO said, “Well, if I have to pay a 70% or 80% tax rate, it’s not worth if it to me,” my view would be, “Well, fine, we’ll take the next person in line. It’s not as though,” I mean fair, there are some CEO who were extraordinary Steve Jobs, and though you can make complaints about what Apple’s done and everything, he was a visionary, so if Steve Jobs had said that, okay, we would have lost something, but the vast, vast majority of CEOs are not Steve Jobs. So if they said, “Hey, it’s not worth it for me,” it would not be a big loss to the economy. The part I do worry about, and you have to decide where this kicks in, is what they will do by way of evasion / avoidance because that is a loss to the economy. They both don’t get the revenue, but it also means it creates tax sheltering industry, and that’s what I worry about. So I would probably put a number, certainly below the 83%, probably some below the 70. Important point to remember here, we also have state and local taxes and in the case of say California, somebody who’s earning $10 million year is facing a 13% state income tax. So I’d probably be more comfortable with something close to the 50% because as you get to high tax rates, you’re giving people a lot of incentive to evade your tax, to avoid your tax and that’s just a loss to the economy. Again, I’m not worried that they’re going to say, “Oh, I don’t feel like working for that.” But it’s a loss lost the economy that they’re paying people to come up with various gimmicks so that, they don’t have to pay their taxes because that itself is a drain on the economy. I mean, if we have attached shelter industry where all these people are making their living by thinking of ways to gain the tax cut, well those people aren’t doing anything productive, so that’s what I worry about.
NPS: Well, it’s certainly be valuable to the economy to get rid of the tax lawyers.
DB: Exactly, exactly.
NPS: Most of them anyway.
DB: Well, no. I mean seriously, we want a system that involves as little as possible in terms of compliance and enforcement cost, so we have to ask not just about, “Oh, is that going to mean that this CEO or this Wall Street guy is going to work a little less if we have 70% tax rate?” That doesn’t concern me. It’s more, how many tax additional tax lawyers to the accounts are we going to have who instead of doing something productive in the world, they’re going to be coming up with games that. That’s what I worry about.
NPS: Right, right. I guess that I would be somewhat optimistic and hope that at least the good guy CEOs would be willing to reroute the money that they would be getting in salary back into the company for the profitability of the company. Good Lord, that’s something we haven’t even touched on, is simply the history of corporations and indefinite charters and all that.
Origins of Dean : Chicago, Protests, Economics, and A Run for Office
NPS: But I want to rewind a little bit before we get onto that. Well, so I want to go back to the beginning for you, where you are from and what is it that interested you in economics and what is it that interested you in progressivism/activism? I know that you participated in sit in protest against the contras in Nicaragua and you had a very interesting advisor who was, I guess by all accounts, a Marxist economist.
DB: Yeah. Well, I grew up in Chicago, under the Daley machine. I always had a sense, politics was corrupt and it needed to be cleaned up and this was back in the days of the Vietnam War. I had the sense the Vietnam war was at least a very serious mistake. It’s easy to see that a lot of things that our government was saying weren’t true. I remember I read a book [The Arrogance of Power] by [J. William] Fulbright, who was the head of the Foreign Service Committee and a big critic of the Vietnam War. And it gave the history, which I hadn’t heard. I was a casual reader, at this point I’m like twelve or eleven year old reader of the newspaper. But it was certainly an account I hadn’t heard and then realized, “Oh my God, this makes no sense our involvement in the war.” Anyhow, so I had a sense things were really not going as they should. And I actually came into economics just my last year in college because I felt economics was important, but I didn’t like the mainstream of the field. I had a professor in my last year there, David Weiman, and I got to talking with him, I was very interested in the economics he was doing and decided my senior year that I take economics with him. I decided to go to grad school in econ. You probably couldn’t do that today because I didn’t have big background, but I was lucky to do well on tests, so I was able to do well on my GREs and everything. I always had been good at math, so I was able to get in. In economics, I was always interested in like, “Okay, how can I learn this stuff to be a voice to criticize the mainstream of the profession.” That was what I was thinking about in grad school. You mentioned the sit ins at our congressman’s office. This was the 1980s, the US was actively involved, it was the Reagan years, so trying to undermine the Nicaraguan revolution, which I thought was just incredibly pernicious. I mean, people don’t know, the background I realize it’s ancient history now, it was forty years ago. There was a very corrupt dictatorship that had been installed by the United States. That’s not a euphemism. It had literally been installed by the United States back in the 1930s. We put in Anastasio Somoza’s father who passed it onto his kid. Anyhow he was very corrupt and needless to say they didn’t care at all about the needs of the people. There was no money going for healthcare and education; they were pocketing money left and right within a poor country in any case, but they weren’t sharing what they did have. And they were overthrown in a revolution in 1979 by the Sandinista’s armed revolution, they managed to overthrow them. And Carter was still president at that time. He didn’t want the Sandinistas to come to power. He was trying to keep them from coming to power. He wasn’t able to work out a deal. He was doing his best to try to work out something and basically kept them out of power while getting rid of Somoza. He wasn’t able to do that. They came to power, and they were very much committed towards providing healthcare, education, meeting basic needs of the people. Under Reagan, he very quickly got remnants of the National Guard, which is the army that does supports Somoza, and he began arming them, and they basically did a terror war–they would do attacks on villages. They’d come over the border from Honduras, there was also a group in Costa Rica. They’d come over the border, and they’d attack whatever they could, which often was hospitals or schools. As I said, terrorism is the right word. And that continued through the 1980s and our Congress person who had been a moderate Republican, they redistricted in 1980, for the 1982 election, made it a much more conservative district. He suddenly became a very conservative Republican following the district, and he supported Reagan on that. That was the basis I was in any number of protests. Actually I challenged him for the seat in 1986, it wasn’t my intention, but we couldn’t get anyone else to do it. We got the Democratic nomination and got 41%; it was not close, but it was way more than anyone expected. But anyhow, I felt that was the important thing to do. I mean, I don’t regret at all having tried to oppose the US actions there. I think we see it again today. The US, it’s involvement in Venezuela again; again I’m no fan [Nicolás] Maduro government. They are corrupt. They’ve done really horrible things in terms of what’s happened with their economy and its impact on the people. I mean these aren’t just numbers, people aren’t getting food, they’re not getting medicines, it’s a really bad story. But our concerned there, the concern of the US government is not that Venezuelan people are suffering, because that’s never been a concern of our government. It’s an anti-US government, and they want to see it overthrown.
NPS: Our presence in Latin America has been brutal and horrendous since the founding of the colonies.
DB: Yeah. And it doesn’t seem to change. I mean, you keep hoping, you know.
NPS: Every single president promises not to be an interventionist like the previous one.
NPS: Not that I want to talk about Trump necessarily because we hear enough about him, but we’ve been controlling their economies using trade agreements, which are anti-market forces. And I can’t believe that self-described free marketeers in the Republican Party believe promoting democracy or free market ideology.
DB: My guess is that’s ascribing a level of thought of planning that I think really is not true.
NPS: Institutional independence or free mindedness. Yeah, I agree with you.
DB: Yeah. So I think they’re going, “Okay, NAFTA, the transpacific partnership is coming up, how do I vote?” They’re getting the lobbyists calling them, they’re hearing the party leadership saying, and I think that’s 99% of the time, what determines how they vote. Well, what does this actually do? I think most of them have very little idea what it actually does.
DB: Yeah. Again, I think of my job as an economist is about making these things clear to people. My blog Beat the Press and what that’s about is criticizing reporting because, I think the biggest problem, of course, most people aren’t going to be reading government documents; a more informed person reads through the Washington Post, New York Times and major papers. Most people don’t, I’m saying, the more informed person and I focus on those papers, and they are not giving people information in a way that’s understandable. That’s a real big problem. I’ll just give you my pet one, [as] it just drives me nuts because there literally is no other side to it. When you see a budget number that’s expressed and in millions or billions or tens of billions, it’s giving no information.
NPS: Yes. I read that on one of your blog posts about the lack of context.
DB: Yeah. And no one, literally, no one disagrees on that. I mean, I’ve never found a reporter who tries to tell me that when they write down the transportation budget is $180 billion over the next six years, that any substantial segment of their readers, and I’m talking about New York Times readers, I don’t mean the New York Post and most of the people aren’t that educated. I mean, New York Times readers, all of them have college degrees, many have advanced degrees, law degrees, whatever. They don’t know what the budget is. So if you tell them $180 billion over six years, you could have added a zero, taken away a zero, it’s a lot of money and that’s all they know. Of course, what’s relevant is how large is that relative to the total budget? Is this big thing in terms of the total budget? A small thing? And most people have no idea. So haranguing them, it’s really not that hard to just put it in some context. The most obvious one to me is put it in percentage terms, but there are different ways you could do it. So if you said $180 million over six years, that’s $30 billion a year. It’s about seven tenths of 1% of the budget. So if you told people seven tenths of 1%, most people that gives them a reasonably good idea. It’s not a huge share of the budget. It’s not altogether trivial, but if you cut it by 20% it’s not like you have a lot of money in your pocket. If you raised it by 20%, that’s going to be a huge increase in the deficit or a big tax increase. Anyhow, if you put it as a percentage of the budget, it would hugely help in terms of informing people. Where I think this issue comes up most clearly is when you talk about a lot of social spending on the poor, that is almost very, very, very small in terms of the whole budget.
NPS: Yeah. It’s dirty pennies in the couch cushions. I mean, it’s nothing compared to the overall budget.
DB: It’s less than one half of 1% of the budget. The big argument, is this money well spent, is poorly spent? But it’s important, you go, “Okay, it’s a horrible program. I want it zeroed out.” Okay, we get your wish: you’re not going to have much more money in your pocket because we lowered your taxes. It’s half of 1%, less than one half of 1% of the federal budget. So it’s not all your money is going to these people you don’t like. You might not like the people. Maybe I don’t think they should get the money, but it’s really not going to affect your tax burden in any big way and people don’t understand that.
NPS: Yeah. I feel like institutionally, not just the government, the various agencies and branches of the government, but also the media don’t have much of an incentive to make things clear. An example is I’ve been staying down here in Tucson the last couple months, because of the short term that I’m on; I’ve been staying with my aunt and uncle and my uncle watches CNN almost incessantly, which means that all I ever hear about is Trump and screaming. And that literally is about it. There’s almost no content that is provided. I’ll switch on Democracy Now, and my aunt and uncle are amazed at how much stuff is out there that people aren’t hearing about. And having experts on that can spend fifteen minutes explaining something to you instead of 30 seconds screaming at other painted up people.
DB: It’s one of the things I will say I really don’t understand because I think, New York Times, which is clearly the country’s preeminent newspaper. I had this argument with reporters there for decades now. And I remember about five years ago, maybe a little longer, Margaret Sullivan who at that time was the public editor. She wrote a piece on this, my haranguing, I and others had, really pushed on this, the issue about putting budget numbers in context. She agreed completely. She said, “Yes, no one knows.” And she brought in David Leonhardt who at that time was their Washington editor, so important person there who controlled or had a lot of say I should say, I don’t know exactly who controls, but he has a lot of say about how things appear in print. And he goes, “Yeah, we might as well just write a really big number.” That was exactly the line I said, he’s welcome to take it, but whatever, we might as well just write a really big number because no one knows what these are. So here you have the public editor, the Washington editor both agreeing with me completely saying, “Look, it’s irresponsible to put these big numbers and there was no content because no one has any idea what they mean.” So I actually went out, I remember I celebrated, I go, “Holy Shit, if the New York Times does this. Well then probably Washington Post will follow, National Public Radio will follow, and if picked up, it’s a good standard.” I was going, “This is fantastic.” Nothing changed. You just go, “What is this?” I mean, I’m not asking them to do any big thing. It’s not like I’m asking them to go research some boring topic. The numbers are right there. I don’t believe their reporters are stupid. If you wrote down $20 billion, come on, you can put it on an Excel spreadsheet, a hand calculator. Probably most of them could do it in their head. This is really simple stuff.
NPS: Yeah, apparently the Brookings did a survey a few years ago. They probably done more surveys along this type since of the tea partiers and the surveys demonstrated a thorough ignorance on how much spending goes towards TANF and foreign aid. It’s interesting that they believe that more money should go to it than actually is going to it, and they also believe that more money is going to it than they think the numbers should be.
DB: Yeah, I’ve seen those stats. I don’t know if I saw that specific Brookings one. But you know, I often say if I thought as much money was going to these programs as those people thought, I’d be opposed to them too. I mean if I thought 30% of budget, people think that TANF is getting 30% of the budget they would be looking and going, “We’re spending 30% of the budget, $1.5 trillion a year, and we still have all these poor people? That doesn’t look like a really good program.” Again, and I understand some of it goes the other way. Some of them are racist, and they want to believe really bad things about these people. But you have people that aren’t racist, they actually think we want to help poor people. They just say, “Oh, we’re spending too much,” because they think we’re spending, ten or twenty times as much as we’re actually spending.
NPS: Right. And that was the case with a lot of them. They wanted there to be aid for single mothers with children, with minor children but they were opposed to welfare or food stamps. When they heard the terms that have been racially charged, then suddenly they’re opposed to it. So yeah, it makes for a very interesting lot of people in the United States. I guess there were a couple more questions I wanted to ask you-
DB: You go ahead.
NPS: Oh, thank you so much. This is awesome. I mean to actually be able to ask you questions. It’s fantastic.
So limited liability, recently I had a back and forth with somebody on LinkedIn and much to my surprise what I said actually won him over–I wasn’t expecting that to be the case, but he was signing on, piling onto this notion that corporations are these magical unicorns that have been given from on high that are able to come to these optimal strategies, which of course if you know anything about high dimensional, even convex optimization, but non-convex optimization is ridiculously hard, but they somehow get in their mind that these corporations are given from on high and are able to do this all on their own and that it’s just government regulation that’s impeding them.
NPS: So I raised the concept of limited liability and how that’s actually an anti-market, which I pulled this straight from your book, so this information came from you. So I’d like for you to discuss limited liability a little bit and how it does not follow any kind of free market ideology.
DB: Yeah. I’ve often had fun with libertarians, who want to say they won’t get the government of the economy. So I go, “You want to get rid of corporations.” And they look at me like, what are you talking about?
DB: You and I can form a partnership, but a corporation has legal status because of the government, and specifically legal liability, limited liability. And there’s other benefits as well, but first and foremost. And what that means of course is, you could have a corporation that they do bad things to people, and we sued them and guess what, they don’t have enough money, and we’re out of luck. And if you and I had ownership and we did that, well we’d lose everything we had. In the case of cooperation, I had $50,000 in stock or whatever or I could lose that, but I could still have millions of dollars, they can’t touch that. Okay, that’s arguably, that was a good thing for us to create corporations grant them limited liability. I think it was. Well, we have to understand that is a government action. That was a policy. We’re not, free marketeers if we believe that the government should be able to grant corporations limited liability. The point I make on this, and I think this is tremendously under appreciated. Go ahead.
NPS: Oh, I was just going to say that in reading your book and then reading some on the History of the Corporation, I can’t think of the author’s name. It’ll come back to me, but I think you site in your book, that these corporate charters issued were predicated on some temporary service. So they needed to raise capital to build a bridge or pave a road with the exception of shipping and railroads and interstate commerce kinds of things because that made sense to have more of a lasting requirement for raising capital. So how is it that we have these charters issued that last indefinitely now and what was the justification for it?
DB: Yeah, so if you go back to English common law, the corporation, as you said, it was designed for specific public service, building a canal or South China, South Sea Trading Company or the East India Trading Company. So there were very specific purposes that it was started to serve a public purpose to allow, the special status of a limited liability. In England that continued to be the case well into the 19th century. They didn’t have a general incorporation law until 1867 if I remember correctly. In the US, we had it earlier, it was actually in, I think it was 1817 when we adopted general incorporation. And the basic idea there was, we have a general interest in promoting the creation of wealth. So this was a way to create wealth so companies can incorporate and have limited liability. That was the rationale. And again, you could argue whether that was a good or bad thing, but it clearly was explicit policy at the time, everyone understood that this was a government policy to promote wealth. It wasn’t just something that was out there in the world. We were going to do this as a way to promote wealth. The other point I was going to make is that, we also set rules of corporate governance, and those are actually very extensive. Most of the rules are designed to protect basically protect minority rights. So, “I own shares in Microsoft, I own,” I’m going to say 1000 shares of Microsoft or something. Well we want to make it, or I should say we either want to or not, the rules make it so that you can’t have a situation where some group gets control of 50.1% of Microsoft and then tells me and everyone else that are in the minority, “I’m just taking all your shares.” That’s what most of the rules of corporate governance are around. But the point is that there’s nothing intrinsic to the corporation that sets those rules. We could set those rules in different ways. And one of the points that I’ve been trying to make in some of my work recently is that the rules are very much skewed now to give management an enormous say. So I’m actually, people think is weird. I actually argue for more shareholder rights because what I would say is where you have these CEOs that are getting $20, $30, $40 million salaries, they’re ripping off the shareholders. And it’s not necessarily that I have so much sympathy for the shareholders. I mean most of the shares are held by very rich people, but some of them aren’t rich middle class people 401ks, pensioners also have shares. So not all of them are rich. All the CEOs are rich that we know. In that sense, I’d rather see the money go to the shareholders. But what’s a more important point to me is that this affects pay structures throughout the economy. If the CEO’s getting $30 million, the CFO, the other top people, they’re probably getting $10 or $15 million and even the third echelon you get to people who are senior, but below these people in standing they’re probably getting one or $2 million, and just stands to reason that more money is going in those people less for everyone else. So I would actually like to see shareholders have more say because I want to see them be in a position to reign in CEO pay, because the CEOs are not doing them a favor when they basically charge the shareholders $30 million for their service. You can sure get plenty of people who’ll do the job just fine for two or $3 million and this gets to a point about progressive taxation. It’s very rare that you have a CEO like Steve Jobs, the real visionary. Those people are very few and far between. The vast majority, I’m sure they’re smart. I’m sure they’re hard working, but the next in line is just as hard working. So you aren’t going to lose anything if they go, “Oh, it’s not worth it to me for two or $3 million.”
NPS: Yeah. And even then is anyone worth having billions and billions of dollars, no matter how talented they are.
DB: Well, that I think is at least a debatable point, because, I mean, I never met Steve Jobs, and I don’t know, he might well have been very creative even for a tenth the money he got, maybe than a hundredth of the money, there’s certainly, were you have … Getting back to Greg Mankiw who was talking, I don’t know, Taylor Swift. I mean, many of the people we think of as great artists, great musicians, they’re committed to their work, they probably would do it for our tenth of pay. You go back in time, I won’t advocate this, but how much did Vincent van Gogh ever get for his paintings? I don’t think he sold one in his lifetime. I think he was poor.
NPS: He died poor, yeah.
DB: But he was maybe the best artist in all history. And you think of Charlie Parker, the fantastic jazz musician. He died in poverty. Again, I’m not advocating that these people should be poor, but the idea that they have to get enormous sums to be creative.
NPS: To be motivated and that greed, that money is the only thing that motivates them. That sounds more like something a rentier would say is that money is the only thing that motivates him. People will do creative work, especially if their basic needs are being met. So my husband is a psychiatrist and so he’s read a lot of these reports and is and is fascinated by these reports on what amount of money it would require to make people happy. And it turns out that it’s not a lot. It’s basic necessities, healthcare, shelter, being able to provide for your kids’ college, and those sorts of things that make people tremendously happy. And if you have those things you’re going to work on what’s interesting to you. I know it’s speculation, and I’m a humanist optimist in that sense. I believe that, that’s what people will do.
DB: Yeah. Well, I’m inclined to agree with that. Of course, the key thing is not just the money that they have, but they’re secure so they want to know that they have care insurance today but aren’t going lose it tomorrow, that’s a really important thing because obviously it’s a big fear that people have today. They might think, “Oh, I have a decent job, and I could afford my mortgage, my rent, pay for my healthcare insurance, but I can lose the job tomorrow.” That realistic fear.
NPS: Yeah. What I’ve been through in the last year and a half, pretty bad health crisis, and I have nothing but gratitude for the good healthcare that I have through Microsoft that most people this country don’t have healthcare that’s that good because we have sort of Cadillac insurance policy with Premera, but most people don’t have anything like that kind of security. And it’s astonishing to me that there hasn’t been more of an organized uprising in this regard. Hopefully there will be.
DB: Yeah. No, I’m hopeful that in the next election we’ll see some real movement towards establishing a genuine universal system. I mean, I thought the affordable care act was a big step forward, but obviously that’s not go nearly far enough, but I think it was a step in the right direction.
NPS: Yeah, definitely. So the formulation of the CEPR, what motivated you to co-found this organization and what do they do and what are you continuing to do with them these days?
DB: Well, you know, I had been at the Economic Policy Institute, and I appreciate the time I worked there and everything. But I felt that it was overly bureaucratic because they were very cautious in everything and a lot of layers of bureaucracy. I used to joke with someone, they’d say, how long does something take? I’d say, “Well, imagine it taking it as you could possibly envision, double that and add six months.” That was obviously being somewhat facetious, but what I felt was there’re a lot of issues that, we could have an impact on, but we often had to act quickly, and I didn’t think that the Economic Policy Institute gave me that room. So I formed Center for Economic and Policy Research with an old friend of mine from grad School, Mark Weisbrot and we felt that was basically what want to. There was a lot of policy issues that we could have an impact but we just have to move quickly. And one of the big ones at that time, we had a book come out literally as we were starting it, Social Security: The Phony Crisis and everything were taking issue with the view that was held really across the political spectrum in Washington, I should say. Social security faced a crisis because I had any number of Democrats, democratic pollsters, I remember once one of them just telling me, basically, “You have to acknowledge there’s a crisis or people just won’t take you seriously.” It was based on his polling, his focus groups. And we didn’t accept that, we felt (A) the data, it wasn’t true and (B) if you talk, people would listen.
NPS: It was absurd rallying point. I had college teachers that actually would say in class that social security was going to be bankrupt in a couple of decades and that none of us could rely on it. And it just seemed ridiculous to me that something like that could ever come to pass when we have more money in this country than we know what to do with.
DB: Yeah, I remember I spoke of course around the country many times on this, and I remember, at that time I knew the social security trustees projections pretty much inside out, and I’d just go, “Okay, let’s say they’re all exactly right. Here’s what it looks like. And it doesn’t go away, you face a short fall. But literally the idea there’d be no money, that’s literally … I mean, again, assuming you never did anything, and they’re exactly right in all their projection, but when I couldn’t convince, I’d say speaking to a college class, the line it’d always go, “Okay, so we have some point in the future, is it ten years as twenty,” I’d have them give me a year, at some point. “Okay. So we’re not paying social security benefits.” So then I’d go, “Okay, so in this year …” This was back in the 1990s. “So in this year, 2015, are we still going to have an army?” Looking at me like, “Of course. ‘Okay. Are we still going to have our court system?’ Yeah. ‘Are people in Congress still going to be …'”
NPS: Get paid, right.
DB: I go, “Okay. So we’re going to be paying for the army, paying for our courts, congress people. So we’re going to have 30 million people who are over 65, and we’re going to tell them that there’s no money for their benefits?” You just go, “Okay, that makes zero sense. That is not going to happen.” So anyhow, obviously we didn’t do it. You can’t do anything alone as a small think tank. But we helped I think change the tide on that, and by 2005. Yeah. When Bush tried to privatize, the Democrats are no longer saying there’s a crisis. And of course more recently many, if not most Democrats had been calling for increasing benefits, which I think would be a good thing.
NPS: It definitely would be. My aunt and uncle rely on it critically. Obviously it’s a necessary thing to have and I don’t like part of the narrative about social security, that it is money you paid into it so therefore you’re entitled to it later, because it was set up originally paying benefits to people who had not paid into it. And that has always been the way it’s worked, that the current working force is subsidizing the retirees, which makes sense. I mean, ideologically it’s progressive, and it’s comforting, but that’s not the way that it’s spun usually.
DB: Yeah. Well, I sure like the idea that people think they have a right to it, so in that sense, I think that part of it is good because it makes it much, much harder to-
NPS: Oh yeah, definitely a human, right.
NPS: Yeah. But healthcare also should be a human right, and it should be something that is available to everyone.
A Money Scare : How Can We Pay for Saving the Planet?
NPS: Just as a funny aside, I try not to get on LinkedIn or any other social media and get into debates very often because my husband yells at me about doing because, it’s such a time drain. I’m not even on Facebook anymore, and I wouldn’t be anyway after the revelations of how they’re using data. But there was this man on LinkedIn that was arguing that so many of us are complaining about how we’re running out of water, we’re running out of coral reefs, we’re running out of fish, temperature is changing and there’s scarcity of oil and all these things. And he said, “But what about the real problem that there’s scarcity of money?” And I just wrote back and said, “In a certain respect, money is a number in a spreadsheet.” I mean, it’s more complicated than that, but I thought that was astonishing that people have this mindset of a gold standard, that money intrinsically is of value when it really is just supposed to be a proxy for value. I don’t know if it was a funny interaction.
DB: A lot of people have strange views. I was once debating some libertarian guy, forget the exact topic, but it was something related to the Federal Reserve Board. And I remember this woman came up to me afterwards because we’re at a reception, and she said, “Do you …” I forget exactly how she put it, but basically, “Do you think gold has intrinsic value? ‘Well, if you wanted the jewelry or something, but no.'”
NPS: Yeah, that’s what I said to a coworker … actually, my tech lead at Microsoft, he made a comment about that, that if money were underwritten by gold, then I said, “Well, the problem is gold and precious jewels and precious stones, all this stuff, it doesn’t really have value if you think about it.”
DB: But, it’s amazing. It’s actually one of the most basic social conventions, but it is just a social convention.
NPS: Yeah, it’s other otherwise nonsense that we just take for granted. And I had never really thought about that seriously until this past year, because if somebody asks you about gold, you say, “Oh yeah, it’s valuable.” Should I buy some bricks of gold and bury them under my house? Yeah. Let’s see. Well, here’s an interesting question about an actual market system. At what scale do you think market economies can exist? Obviously it doesn’t seem to work, as an overarching theme, but are there macrocosms where it does work and work well?
DB: I mean, I think we’ve gotten a huge amount out of a market economy, so I won’t deride it. I mean it just that you have to set the rules, and it’s interesting, and I won’t claim expertise on the platform economy, but it’s totally noncontroversial among economists, where you have a natural monopoly say electric companies, just to be clear when I’m saying, electric companies, I mean people who actually laid the lines to your house. So I understand we could have competing generators but no one was going to lay duplicate electric lines to my house, that they have to be regulated because, here it is, it’s a central service, and there is no competitor, so it’s totally noncontroversial among economists. I mean, maybe you could find one libertarian somewhere who has some story why you don’t have to regulate it. It’s basically noncontroversial, and it seems that we have something similar with things like Facebook, things like Google that they have for practical purposes, monopolies people, and that’s a story just like, “Well, you then have to regulate them because then they could obviously exploit them endlessly and they seem to be doing that.” That seems to cry out for regulation, both in terms of what they could do with your information because I’m sure, Facebook in particular is probably doing all sorts of things with information about us that we wouldn’t want them doing, but–
NPS: Absolutely, yeah.
DB: –but also what they could charge because again, you can’t have it … No one’s going to lay the second electric wire, no one’s going to have the serious competitor to Google. So, those are clear cases where, we need to reign them in. I mean, other aspects … To me, it’s problematic, people talk about putting up … With greenhouse gas emissions that somehow we have to restrict the market, in my view again, it’s defining the market. I mean, we know greenhouse gas emissions are causing global warming. So, the analogy I make, it’s not an interference in the market if I tell my neighbor that he can’t dump his sewage on my lawn, that’s what we’re saying with greenhouse gas emissions, that we have to restrict them because it’s not just something you’re doing pride, you’re throwing this into the atmosphere. If you have a way to … You’re going to burn oil, and you have a way to suck in all the carbon emissions so that … That’s fine, it wouldn’t bother me and there’s still issues with the extraction, but in terms of the greenhouse gas emissions. All right, fine. If you can deal with that, you can’t, I mean just to be clear. But I mean if someone came up with some brilliant way to do that. All right, well then I guess we don’t have to worry about burning oil. I don’t know, I mean it’s just, you have to think clearly about what you want the market for, what it’s doing in specific circumstances.
NPS: You said as the tool rather than overarching philosophy, but more just one of the many tools that you have. It’s interesting you mentioned the greenhouse gas regulation because it brings to mind the notion of the externality, which I heard when I was at Georgia Tech, Ken Arrow came to give a talk, and he mentioned externalities extensively and how much complexity that adds into any kind of market economy and that a lot of these things are things that we have to consider and regulate, just like what you said.
DB: Yeah, he was a very good economist. Very thoughtful.
NPS: Yeah. I happen to work in data science. I’m a statistician working at Bing Ads, although I’m not working on the actual ad space, so unfortunately you can say that I’m in that bemoaned financial sector, and I can’t believe that I found my way into it and decrying it the whole time. But I continued to derogate it. I think also there is this problem of data and regulation of data. Facebook can keep tabs on what you’re doing and then exploit that using machine learning to figure out exactly how to target you with ads. And I wonder to what extent … I was thinking aloud about this, and ended up writing a pretty long blog post about it on my other blog [Algo-Stats], some of the complexities that come up in this and that I feel like a tighter regulation is coming. But what is your take on, data and the way that it’s appropriated for profits? I get a sense, even though I know this would be hard to regulate, I feel like people whose data is used to generate money should either be told very clearly that’s going to happen or be in on a cut of the profits.
DB: Yeah, I think we have to do one or both. Again, these get into issues that I’ve just looked at very, very cursorily. But the idea that, Facebook and Google can get all this data on people, compile it. First and foremost, I think very few people appreciate how much data they could actually get on you and then be sharing it with what they’re doing with it. I mean it’s … I don’t know, what I should say. I definitely would know that I don’t want every search I’ve ever done on Google to the public.
NPS: Oh yeah. No, absolutely not.
DB: Presumably they won’t do that. They’d have no reason to do it, at least that I know. But, in principle, they have access to it, they could, I don’t think there’s any … So, I think there have to be clear restrictions on how this data can be used, say if they’re profiting from it, it seems reasonable in different directions. One, you restrict how much they can profit. You could say that, “Okay. You have to share that with the people you got it from.” I’ve not stayed closely, so I really can’t speak with expertise, but I will say, I don’t think the current system is working, meaning I don’t think the people who are basically giving them the money or happy with it.
NPS: Right. I’ll send you the article that I wrote.
DB: Okay. Yeah, I’ll be interested in reading it.
NPS: Noam Chomsky was kind enough to read an earlier draft of it and thought that it raised some interesting points. So, I think you might find it interesting because it touches on some arenas where data is being used in shocking ways. Ways that I didn’t know going into writing the article, I would not have believed that data was used in this particular capacity, for instance, it’s used to sentence criminals, and it’s used to do dispatch, police patrols in various cities so that the data can reinforce racist stereotypes because they, originally would be patrolling, say black neighborhoods and harassing black people. And if the data confirms that, that’s where they’ve been and that’s where they found, either vagrancy or under age drinking or whatever. I mean, the things that you have everywhere, across obviously all races, all features. But they don’t send the police into white communities as much, so the data tells you to go to the black communities and then they can say the data is the justification for it, and not own up to the actual racism, the systemic racism that promotes that.
NPS: You said that you said that you’re semi retired now to work on a sanctuary for a puppy dogs. So tell me about that a little bit and what’s next for you?
DB: Well, you know, basically I have to say it was kind of wearing on me being in DC; I got up at 4:30 AM every morning and after a while, it does take a toll on you. My wife and I both decided we wanted a change, so we’d been coming out here, Best Friends Animal Sanctuary. We’ve been volunteering here since probably about ten years ago, I’m not sure when exactly our first year out here was. And we love doing that, and it’s a beautiful area here. We’re halfway between Zion and Grand Canyon national parks, so it’s a beautiful area. I just felt that I wanted change of pace, work somewhat less, play with the dogs, love dogs. We have our own but also the dogs there, help them out and basically be able to work on a more measured schedule. What’s nice here is I work on things that I think are important. I don’t have to worry about funders, what they think is important. So I could work on the things I want to do, so my goal is to put in twenty, I’d probably put in thirty, forty hours a week but in any case, much less than I had been doing and yeah, so I think I could still make a contribution, still get involved in the debates I’ve been doing and just avoid a lot of what I considered often a waste the time getting pulled into things in DC. We’ve been here a little over six months now, and we’re both very happy with it.
NPS: I would imagine. So I feel like DC would be a hard city to live in irrespective of the fact that you have all these corrupt people.
DB: Yeah, well there’re nice aspects to DC, they have a very nice park right in the middle of the city Rock Creek Park that we actually lived close to, like the whole time [inaudible 01:33:30] in two different neighborhoods, but both were very close to Rock Creek Park. So there are aspects of it that are very nice, but we could walk literally to anywhere in the city here. It’s the tiny town, it’s 4,500 people so-
NPS: Wow. Yeah, just a final word on this. Your book, The Conservative Nanny State to me is … I mean, there may be better books that you’ve written as far as the points that you make, or the data you presented. I’m not sure, but I found it to be a revelation. I think that it … like Piketty’s work. I think that it’s … it could be as important to the lay person in understanding contemporary economics as Chomsky is in the history of technology or Zinn is in the history of the United States. So thank you so much.
DB: Thanks, that’s really quite a compliment.
NPS: So thank you very much, and you enjoy the rest of your Friday.