Virtue and Public Policy

January 10, 2018
Posted by Jay Livingston

In the conservative view, poverty and its associated ills happen not because poor people lack money and living-wage jobs but because poor people lack virtue. Since the 19th century, conservatives have struggled with the question of how to instill virtue in the lower classes. Their answer is usually some scheme for punishing bad behavior. Those policies are consistent with the idea that behavior arises from individual morality.

The trouble is that public policies derived from truths about individuals often have little general impact, especially when those policies emphasize punishment as the path to virtue. At The Upshot section of the New York Times website today (here), Dr.  Dhruv Khullar looks at how virtue and its lack affect health. The headline says,

“You’re Sick. Whose Fault Is That?”

Not mine. People like me, we go to the gym, we spin, we do yoga, we try not to gain weight, we don’t smoke, we wear FitBits and eat kale for godssake – all in the belief that this will keep us healthy and extend our years. There’s some evidence that we’re correct. But does our virtue point the way to effective policies? The sub-head in Dr. Khullar’s article has the answer.

It seems sensible to encourage “personal responsibility,” and yet policies that invoke the phrase can make health problems worse. 

Dr. Khullar offers the example of Indiana. When Indiana expanded Medicaid under the ACA, it added some provisions to punish unvirtuous health practices among the poor.*

To get full benefits in Indiana, patients must contribute monthly to a “personal wellness and responsibility account.” If they fail to pay, they may have benefits cut or lose coverage entirely for six months. They must also make co-payments for certain services, and pay a fee if they use the emergency department  unnecessarily.

Dr. Khullar says that the program has had “mixed results.” It is certainly not as effective as the state government claims. (Jake Harper at  NPR  goes deep into the weeds to fact-check those claims.)

At the same time the Indiana government rejected a more obvious way to reduce bad health practices, namely smoking. Some legislators thought that Hoosiers would cut down on their smoking if the tax on cigarettes was increased by $1 a pack. Less smoking and its attendant ills, more money for the state to use for healthcare or highways. Sounds like a good deal. But Gov. Pence and the Republicans in the state senate opposed the bill, and it never passed.

These legislative choices seem consistent with two principles cherished among conservatives: first, conservatives really hate restricting individual behavior even if those restrictions promote the general welfare (this same principle justifies their aversion to taxes, even “sin” taxes); and second conservatives really like punishing unvirtuous behavior among the poor

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* The woman who ran this program for Indiana when Mike Pence was governer is now the Trump administration’s head of Centers for Medicare and Medicaid Services.

Norm-Breaking in Elite Cultures

January 8, 2018 
Posted by Jay Livingston

A couple of recent items had me wishing that we had more ethnographies of the wealthy and powerful.*

First it was the Republican leaders’ obsequiousness to Trump after they’d passed the tax bill – what journalist Martin Schram called “a gushing word-bath of praise.”

• Paul Ryan: “Something this big, something this generational, something this profound could not have been done without exquisite presidential leadership.”
• Mitch McConnell: “Mr. President … this has been a year of extraordinary accomplishment for the Trump administration.”

This despite Trump having insulted them on Twitter (“Our very weak and ineffective leader, Paul Ryan.” “Can you believe that Mitch McConnell, who has screamed Repeal & Replace for 7 years, couldn't get it done.”)

Trump has forced cabinet members and other White House staff to similarly grovel. I wondered how these leaders, public and important men, could fawn like this. Don’t they know what they look like? Don’t they know how others see them?

My sociological spider sense tells me to think about them the way we think about any small-group culture. American sociology, since its early days, has shown how groups develop a set of ideas about what they do, especially when what they do is seen by others as strange or wrong. Howie Becker’s essays on marijuana-using musicians in the 1940s may be the best known example.

Maybe these politicians create a culture that frames this fawning as “political efficacy” or something like that rather than as what it seems to outsiders – brown-nosing. Maybe someone has already written an ethnography of Washington insiders. If so, I’m not aware of it.

A week later, Vanity Fair splashed an article about Silicon Valley sex parties.

The quote in the title is misleading. It’s a moral statement  – about what’s right and wrong (though not precisely in those terms). The full sentence takes the sociological perspective. It’s not that something is right or wrong but that how it looks depends on whether you are inside or outside.

“Anyone else who is on the outside would be looking at this and saying, Oh my God, this is so fucked up,” one female entrepreneur told me. “But the people in it have a very different perception about what’s going on.”

It raises the same question implicit in Becker’s Outsiders and all those other studies of deviance in groups: How do you insulate yourself from the perceptions of others?

The author of the article, Emily Chang, gives a couple of examples of the ways that these men neutralize mainstream norms. For example, they see their sexual morality and behavior as “disruptive” and as “changing paradigms.” Both of these buzzwords carry a very positive charge these days, especially in the tech and business world. “Disruptive” companies “change paradigms” and along the way make a ton of money.** Also carried over from the start-up world to the world of sex parties is an anti-regulation ideology. These men see themselves as libertarians, not libertines.

Unfortunately, Chang is doing journalism, not ethnography. She does not show us the conversations that reinforce the ideas that neutralize conventional perceptions and judgments. One man she talks to has reached the interesting view that although it’s the men who organize the parties and supply the women with Ecstasy and other drugs, “it’s women who are taking advantage of him and his tribe, preying on them for their money.” My hunch is that the “tribe” of men help reinforce this idea. But the picture we get from Chang is that they have come by this ideology separately.

Many of the men offer another idea as both explanation and justification – that they are making up for all the sex they didn’t have when they were younger. Even one of the women Chang talks to agrees.. “Ava” is an entrepreneur, and while apparently she is not a regular at sex parties, she has dated several of these newly wealthy men. Her evaluation of the catching-up hypothesis is less charitable than that of the men, and it is based on more conventional views of adult relationships.

They say, “I’m still catching up. I lost my virginity when I was 25,”  And I’ll say, “Well, you’re 33 now, are we all caught up yet?” In any other context, [these fancy dates] would be romantic, but instead it’s charged because no one would fuck them in high school. . . . I honestly think what they want is a do-over because women wouldn’t bone them until now.

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* There is surely a market for these books, and they have the potential to cross over from academia to the trade lists. Rachel Sherman carved a 2300-word essay from her book Uneasy Street: the Anxieties of Affluence that ran on the front page of the Sunday Times Review section (here ). It got over 3000 comments.

** A famous quote from Steve Jobs succinctly combined the ideas disruption and paradigm shift long before those terms became fashionable. Jobs was trying to convince John Sculley, CEO of Pepsico, to come to Apple as a marketing executive. Said Jobs, “Do you want to sell sugar water for the rest of your life, or do you want to come with me and change the world?” Sculley went to Apple. According to Wikipedia, he “continues to speak and write about disruptive marketing strategies.” 

Your Money or Your Life Ideas

January 4, 2018
Posted by Jay Livingston

“A bet is a tax on bullshit,” says Alex Tabarrok. Most of the time though, even when the losers are paying up, they still reject the notion that their position was bullshit.

Heather MacDonald (see the previous post) didn’t put actual money on her prediction that the court-ordered curtailing of the NYPD stop-and-frisk policy would increase crime, but if she had, even while she was handing over the cash-filled envelope, she would be insisting that her views about policing are correct. It’s easier to give up your money than to give up your ideas.*

That’s true even when the money in question is a million dollars.

In 2007, Ted Seides, a hedge fund manager at Protégé Partners, and Warren Buffet made a million-dollar bet.** Buffet was a hedge-fund skeptic despite all the tales of hedge funds elevating their investors from merely wealthy to filthy rich. Basically the  bet was whether the hedge funders would outperform the market over the next decade. Seides selected a pool of five hedge funds; Buffet took the market – the S&P 500.

It’s 2018, and time’s almost up. Let’s turn up the cards over and see who won. The hedge funds showed an average yearly gain of 2.1%; the S&P, 7.1%.

In Bloomberg piece yesterday (here), Seides conceded: “With eight months remaining, for all intents and purposes, the bet is over. I lost.”

The title of the article is “Why I Lost My Bet With Warren Buffet.” The more accurate title would have been “I Lost But That Doesn’t Mean I Was Wrong.” Seides argument is basically that this was an unusual event. “S&P 500 defied the odds” with its “anomalously strong relative performance.” He makes the analogy to a single showdown hand of hold ’em. You expect that the pocket aces to stand up against the 7♣ 4♦. But every so often, the next five cards will include a couple of sevens.

But when you use five hedge funds, not one, and 500 stocks; when you use a ten-year period rather than a day or month or even year; then you greatly reduce the chances that the outcome is a freakish event.

The trouble, Seides says, is that over the past decade the market has gone up, not down. Alas. Hedge funds do much better when the market tanks. Thus he persuades himself that his ideas are still right. In fact, he’s ready to go double or nothing. 

My guess is that doubling down on a bet with Warren Buffett for the next 10 years would hold greater-than-even odds of victory. The S&P 500 looks overpriced and has a reasonable chance of disappointing passive investors. Hedge funds mitigate risk in bear markets, while seeking to participate in some of a bull market. Investing in hedge funds is a bet against continuing bull markets; investing in the S&P 500 is a bet on a continuing bull market. [emphasis added]

Buffet’s principle reason for avoiding hedge funds is the high fees they charge their investors. Those high fees pay the salaries and bonuses of people like Ted Seides. No wonder he defends hedge funds despite his having just lost a million-dollar bet. As Mark Twain said, “It is very difficult to get a man to understand something, especially if his income depends on not understanding it”


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* The subject line of this post is a reference to an old Jack Benny joke.  (Benny, for you youngsters out there in the under-70 crowd, was a comedian whose persona included being a tightwad.) A robber points a gun at him and utters the cliche robber line, “Your money or your life.” Benny hesitates. The robber repeats, “Come on buddy, your money or your life?” “I know,” says Benny, “I’m just trying to decide.”

** The actual amount they put on the tables was $320,000, a sum that after ten years would probably be worth $1M. It turned out to be a bit more. See this Business Insider article for details.

Stop-and-Frisk and the Crime Wave That Wasn’t

January 2, 2018
Posted by Jay Livingston

It’s hard to admit you were wrong even when you make a flat-out prediction of something that doesn’t happen. In 2010, twenty-three economists signed a letter predicting disastrous inflation because of Fed monetary policy. Four years and no inflation later, all but one stuck to their guns and refused to acknowledge that they were wrong. (For more details, see my post “Failed Prophecy and Sunk Costs.”)

And now Heather MacDonald of the Manhattan Institute, a conservative think tank. In 2013, when the NYPD’s stop-and-frisk policy was being challenged in court and in the City Council, she clearly saw the future. In City Journal, the house organ of the Manhattan Institute, she wrote an article called “Stop the Killing, Keep ‘Stop-and-Frisk.’” Stop-and frisk was stopping murder, she said, and ending the policy would reverse that positive trend.

Unless the politicians and editorialists pressing so hard for a radical reduction of stops can offer a crime-fighting strategy to rival the NYPD’s record, they are implicitly calling for a rise in violence.

Her interview on the National Review podcast “Need to Know” was summed up as follows by Jack Dunphy at Ricochet, a right-leaning website.

I’ve just now finished listening to the latest “Need to Know” podcast, in which Jay and Mona interviewed my friend Heather Mac Donald. . . . End stop-and-frisk, she says, and prepare to see the murder rate in New York climb once again.

MacDonald didn’t put it quite that simply, but the implication was clear. On that podcast, she also predicted that the end of “proactive policing” (mostly stop-and-frisk) would “destroy the city’s economic vitality.”

It didn’t happen – none of it. The court challenge to stop-and-frisk was upheld in 2013. Stops decreased dramatically. Crime did not increase. At all. Not that year and not in the years that followed. As this graph from Mother Jones shows, the rapid increase and then decrease in stops had virtually no effect on crime rates, which began to decrease in the early 1990s and continued their downward trend.

The graph goes up through 2015. In the next two years, the lines continued their slight downward trend. In the year just ended, New York had its lowest number of murders since the 1950s. Rates of other crimes have also remained low.

Three years of low crime following the decrease in stop-and-frisk was finally enough for some conservatives to admit that they were wrong. At National Review, Kyle Smith wrote a column with the headline “We Were Wrong About Stop-and-Frisk.”

Not Heather MacDonald. The title of her piece, also in National Review, warns us. “Don’t Take the Wrong Lessons from NYC’s Murder Drop.” Those wrong lessons are caricatures of those who disagree with her (“proactive policing like pedestrian stops is unnecessary, these cop critics say”). As for the continued low level of violence and murder, she attributes these crime trends to gentrification. She has a point. Demographic changes play a part, and the gentrification MacDonald describes is linked no doubt to that economic vitality that she said would die along with the reduction in stop-and-frisk. But demographic change happens gradually. The changes in stop-and-frisk were sudden. Their effects should have had immediate and noticeable effects. They didn’t.

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UPDATE, Jan. 3: On Twitter, Mark Kleiman says that just although the big increase in stop-and-frisk had no effect during a period of relatively low crime rates, the policy might be effective when crime rates are high. I do not know of any relevant research on this, and Kleiman doesn't refer to any. But the targets of the policy, even during low-crime years, were high-crime neighborhoods and people who the police suspected of being high-crime people.