It could get worse after Trump

I believe that Donald Trump is not an aberration, but that he is the continuation of the same tend that gave us Barack Obama, Bernie Sanders, the Tea Party movement, the Occupy movements, Brexit, and a whole bunch of other people or movements.

It is a well-established now that the communication and coordination tools associated with the Internet – social media, email, blogs and independent media etc. have made activism, self-organizing and building political movements easier. When it is cheaper to make something, there will be a greater supply of that thing, it should not be a surprise that we see so many of these movements.

When we see a lot of passion and fervour among followers of a movement, we tend to believe that there must be an underlying fundamental reason behind that passion and fervour. I think that this belief is a mistake. Any organized movement where followers spend most of their time with one another, feeding on each other’s grievances and sense of injustice can generate in its followers the same self-righteousness, an inability to see other points of view and an unwillingness to compromise.

The American political system is more vulnerable to these internet-enabled movements because it is unusually bottom-up. Party leaderships have very little control over politicians’ careers, which are instead made or unmade by popular voting, either in the general elections or at the primaries.

American politics over-promises, but under-delivers change. Obama is a much better and saner man than Trump, but the fact is that the rise of both to power was fueled by movements whose followers fervently believed, against all evidence, that the American system was broken so badly that a complete overhaul (in Obama’s case) or complete destruction (in Trump’s case) is worth risking in order to make it better1)I am not questioning the idea that some changes are necessary. I am flabbergasted that the richest nation in the world is risking annihilation to solve the problem of some people being richer than others.

Trump’s contribution to worsening the trend is norm breakdown. Norms are what cause people to stop saying ?? ???? ????? ??????   and start saying ???? ??? ???? ????? 2)For some reason the Hindi font isn’t showing up. The first phrase is “Hum Paanch Hamaare Pachchees” and the second is “Sabka Saath Sabka Vikas”. Trump has gotten away with saying and doing outrageous things, and this means that he has also reduced, for future presidential candidates, the cost of saying and doing outrageous things. Again, when cost reduces, supply increases, and the US’s supply of crazy leaders with outrageous policies will increase.

I’ve made the argument that US version of the two-party system with two big-tent political parties and open primaries gives them everything, good and bad, that a multi-party democracy would. But the system has an important structural constraint, which is that ultimately two candidates face off against each other. This used to mean that craziness got airtime during the primaries, but moderation won out in the general elections. With so many movements that can’t stand one another, the structural constraint that pushes candidates towards moderation will prove inadequate.

And what stops the US from turning into a de jure multi-party democracy? Just the fact that it’s a stable equilibrium. The Republican Party won’t split as long as the Democrats stay united, and vice versa. But this equilibrium won’t hold if there is a three-way split where the third party is formed by slicing off chunks from both parties. Or a four-way split where the two parties split simultaneously.

The multi-party system could be a phase. But even a phase lasts multiple election cycles. During this phase, the US will have presidents who are electoral accidents, disliked by most of the voters. India has gone through this phase – it lasted over 30 years for us. The defining feature of the age will be presidents that prefer radical policies, but lack the legitimacy and political capital to implement them.

Americans are worried about Fascism under Trump, and yes, Trump has the instincts of a Fascist. But the democratic institutions of the US are strong enough to prevent Fascism from taking hold; that is not what they need to worry about.

India’s experience should prove instructive in this regard. We complain that the Supreme Court has taken over so much of policy-making. This process started with judgments like the basic structure doctrine and Maneka Gandhi vs. Union of India3)I wrote much of this post before Trump had his first run-in with the judiciary with his Executive Order on immigration, and events are already proving me right. There is a parallel here with Maneka Gandhi vs. Union of India. In that case, Maneka Gandhi was denied a passport by the Janata Party government for clearly political reasons. The case reached the Supreme Court, and the Court ruled in Gandhi’s favour. In doing so, it expanded the definition of the right to life to such an extent that it could then be used for almost any intrusion by the courts into the realm of policy-making on the grounds that they were securing the right to life and livelihood. Earlier the job of the courts was to prevent bad things from happening (i.e. preventing the government from taking away your life without due process). Now, it is to ensure that the “right” things happen (making sure that the government does things that guarantee your life and livelihood). The dispute in the courts over Trump’s immigration order runs a similar risk of the courts getting into policy-making to prevent him from screwing up. that were responses to the authoritarianism of the India. It gathered pace and became a full-blown problem during a period of weak governments of dubious legitimacy. We recently had this controversy over the propriety of a decision to bypass seniority when appointing the Chief of Army Staff. Principles like these stem from the idea that the government cannot be trusted with any discretion at all, lest it be misused. They were solidified at a time of weak minority governments that lacked legitimacy.

The US is likely to be in for such a stint at a time when it can least afford it. Checks and balances are great at preventing bad things from happening. They aren’t very good at ensuring that the right things happen. The best way to understand this is to imagine that the government is your employee, and the institutions imposing checks and balances are his manager.

If the manager consistently finds that she and her subordinate don’t see eye to eye, or if she finds that the subordinate is too incompetent and won’t follow broad directions, the only solution is for them to part ways. But what if, for some reason, she is stuck with the subordinate? She may try to make the best of a bad situation by micromanaging, by giving increasingly detailed instructions and by having too-frequent reviews. As any manager who has tried them should know, these don’t work.

There is no easy or good way out of this situation. Yes, Trump needs to be impeached. But impeach him too soon and it will seem like a coup – a legitimately elected president, still reasonably popular with his base, taken out by the establishment. Leave it too late and his actions are normalized – if you didn’t impeach a president for clear evidence of ties with a foreign country, what will you impeach him for? The longer you wait, the more damage the institutions of the US will suffer, if you impeach too early, you are left with President Pence, a weak president with little legitimacy. Of course, impeaching Trump does nothing about the structural issues that made him possible.

The only way out of this is if the USA somehow finds a moderate, unifying, likeable and decisive person as president. It may yet happen, but if it happens, it will be a stroke of good luck rather than the system correcting itself.

Notes   [ + ]

1. I am not questioning the idea that some changes are necessary. I am flabbergasted that the richest nation in the world is risking annihilation to solve the problem of some people being richer than others
2. For some reason the Hindi font isn’t showing up. The first phrase is “Hum Paanch Hamaare Pachchees” and the second is “Sabka Saath Sabka Vikas”
3. I wrote much of this post before Trump had his first run-in with the judiciary with his Executive Order on immigration, and events are already proving me right. There is a parallel here with Maneka Gandhi vs. Union of India. In that case, Maneka Gandhi was denied a passport by the Janata Party government for clearly political reasons. The case reached the Supreme Court, and the Court ruled in Gandhi’s favour. In doing so, it expanded the definition of the right to life to such an extent that it could then be used for almost any intrusion by the courts into the realm of policy-making on the grounds that they were securing the right to life and livelihood. Earlier the job of the courts was to prevent bad things from happening (i.e. preventing the government from taking away your life without due process). Now, it is to ensure that the “right” things happen (making sure that the government does things that guarantee your life and livelihood). The dispute in the courts over Trump’s immigration order runs a similar risk of the courts getting into policy-making to prevent him from screwing up.

Third Parties in the United States

The two-party system is well-entrenched in the United States, and the blame usually falls on the First Past the Post (FPP) system.

It is true that FPP discourages third parties. Suppose that you have an election in one constituency, and three candidates A, B and C are competing to be first past the post. Now suppose that A and B are likely to finish at first and second place respectively. If you are a supporter of candidate C while B is your second choice, voting for C will in fact help A. Once you realize this, you, as a voter will shift your vote to B. When enough voters do the same, C will realize that he or she has no chance, and drop out of the race. Over a long enough period, the lesson will be learnt, and the constituency will be left with only two parties.

Does this explain why the US has only two parties? Not really. What is true for one constituency does not necessarily hold when scaled up. You could have only two viable parties in a constituency, but they don’t have to be the same two parties across the nation.

In a parliamentary democracy, for example, third parties have an incentive to exist, because they can punch above their weight in coalition governments. It is claimed that the presidential system in the US favours a two party system because it makes the whole country a single constituency. But that does not make sense. The US also had a fairly strong Congress that takes its law-making duties seriously. Why aren’t there multiple parties representing differing interests in the Congress?

Also, the US is geographically large, moderately diverse and a strongly federal country. Why aren’t there regional parties as we have in India? “Presidential Elections” is not a good answer. The parties could easily line up behind two major candidates at election time. The continued persistence of the two party system in the US requires an explanation.

I believe the explanation is that political parties in the US are unlike parties anywhere else in the world. They are big-tent parties. They are much more bottom-up than parties elsewhere. Their leaderships, such as they are, have very little leeway to steer their parties in their preferred direction.

Third parties form when a faction or an ideological grouping feels too constricted within the confines of an existing party. Because the two major parties are big tents, that is but a dim possibility in the USA. In other countries, if you disagree with the party leadership, you often have no option but to split and form another party. In the US, the party leadership has very little control over your career. Your career is decided by your performance at the primaries.

In India, regional parties are a way to handle the diversity of the country. They also provide popular local leaders the freedom of manoeuvre they wouldn’t have if they were part of a larger national party. But in the US, all politicians are free agents anyway. There is no need for a local politician to form a regional party to be independent of the national leadership.

Given this, how would a third party improve the politics of the USA? Aspiring third parties like the Libertarian Party and the Green Party complain that the two mainstream parties do not give space to minority viewpoints. Really? What stops someone from forming a libertarian wing of the Republican Party or a green wing of the Democratic Party? If those ideas have enough appeal to win elections, they should have enough supporters who would be willing to register as members of those parties and vote for libertarians or greens in primaries.

Actually I suspect that the third parties’ real complaint is that if they tried to work within the two major parties, they would have to compromise on their core principles. That is a valid complaint. The politicians and policies that emerge from within the two major parties are the result of compromises forged among the major wings of those parties.

But how would it be any different if, instead of a two party system, you had multiple parties, each with a core set of principles of its own? Those parties would still have to join together in a coalition to come to power, and in a coalition, they would have to compromise on some of their principles. We have seen the weird results that coalitions throw up in India.

I could be wrong here, but third parties in the US seem to show up exclusively for the presidential election. They put up candidates, they complain a lot about how there is no space for alternative voices and then they disappear for 4 years. This seems to me to be no way to build an alternative. If they really need to build a party, there’s a lot of organizational work that would be needed. I would expect them to focus on winning lower level elections first and then work their way upwards. They are either not doing this, which means that they are not serious; or they are trying to do this and failing, which supports my point that there is really no need for them.

And if for some reason, they think that a presidential candidate that doesn’t fit clearly into one of the two major groups coming out of the blue and getting elected just like that is the right way to change the political system, the recent election of Donald Trump has proven that that too is possible within the two party system. (I mean that the election is possible, not the change.)

Overall, I do not understand the case for a multi-party system in the US. There is nothing that such a system can bring to the table, either good or bad, that the two-party system with American characteristics does not already provide. It is precisely those specifically American characteristics that have stopped third parties from emerging, not the generic stuff like the FPP system or the presidential form of government.

What Just Happened?

I have tried in the past, with some success, to explain how economies work with the help of The Model Village, so let me try again.  This time I will try to explain how the American Economy got into the situation it is in. These, by the way, are the fundamental reasons that I will be explaining. There are many, equally valid and mutually consistent ways of looking at the situation. I will be explaining just one aspect of it, which I hope, cuts to the heart of the matter.
So, in The Model Village, there was a huge Zamindari. By huge, I mean really huge. It was a mini-economy by itself. Many crops grew on its lands, it had cattle, goats and chicken. It also had small factories that processed the produce of its land into finished goods that could be sold outside.

Of course, this Zamindari, while enormously productive, did not produce everything it needed. What it did not, it would buy from the traders of The Model Village. And while the Zamindari was extremely rich, it still needed credit to smooth out its consumption cycle – it needed to borrow early during the planting cycle and repay when the harvest came in. Also, the Zamindar was focused on making improvements in his lands and factories, and he needed credit for that.

The way the Zamindari got credit was to issue IOUs in return for whatever they needed, and those IOUs could later be redeemed for fixed quantities of wheat, rice, etc. (And oh – by the way – this was a primitive model village, so no one had bothered to issue currency yet. They were still using barter.) But the IOUs suited the traders just fine. They knew that they’d get something of value later in return for those IOUs, so they applied the time value of money to calculate how much they could offer in return now. The Zamindari was extremely well-run, so its IOU was seen as extremely stable. It would soon perform the function of money. People in The Model Village traded Zamindari IOUs among themselves, their savings consisted of these IOUs, and so on.
After a time, the Zamindar announced a change. He said that these IOUs would no longer be redeemable against fixed quantities of wheat or rice. Instead, the Zamindari would buy whatever it wanted against the IOUs, and when it came to redeeming the IOUs, he’d auction the produce of his estate, and the price, in IOUs, would be determined by the results of the auction. When asked why he was introducing this change, the Zamindar gave an honest answer – he needed the flexibility to print IOUs to finance his estate’s expansion, and he found the constant need to worry about making sure that the IOUs were good constraining. But surely, the traders did not need to worry about? In any case, the IOUs were backed by the good credit of the Zamindari, and as long as the Zamindari’s lands were fertile and its people hardworking,  there was no need to worry – after all, if the Zamindari was too reckless in issuing IOUs,  it would not be in a position to buy what it needed next time round.

The traders saw the logic of this – and in any case, they had no choice. The Zamindari was the biggest deal in The Model Village, and not trading with it was not an option.

Things went fine for a while. The Zamindari continued to be well-managed, and the Zamindar was prudent in issuing IOUs. The IOUs continued to strengthen their position as the de facto currency of The Model Village. Its value began to be determined less by what the Zamindari could pay for it and more by what other traders would. Traders in turn began to measure their success by the number of IOUs they could accumulate.  The rest of The Model Village got prosperous and began to produce a lot of stuff, much of which was sold to the Zamindari in return for IOUs.

The prosperity of The Model Village grew so much that very few took notice of the fact that the output of the Zamindari was in fact slowing down. The old Zamindar had died and his son had taken over. The new Zamindar was, compared to his father, a reckless man, and he had not failed to notice that the traders’ willingness to accept his IOUs was rather out of proportion to his ability to repay. His lands were turning infertile and his workers older, and he needed to keep issuing IOUs to keep up the expenses of his Zamindari, and so he did.

From the point of view of the traders, they were behaving prudently.   While they intellectually understood the views of those who pointed out that this was a classic bubble, the fact was that they were working hard, making sales, making money (they no longer thought of it as IOUs) and saving. Everything they were doing was exactly what their wise men had told them to do. How could that be wrong?

But of course, things were bound to go wrong. Very, very wrong. It was just a question of how.

By now, most of you would have understood the elements of the allegory. The Zamindari is the United States of America.  The IOUs are dollars. The Zamindar’s decision to cease setting the value of his IOUs is analogous to Nixon’s decision to take the dollar off the gold standard. The traders are those countries who, over the past few decades, have run an export surplus with the US – Japan, China, India, to name a few.

You will notice that it is rather difficult to fix the blame here. Was going off the Gold standard the mistake? Perhaps, but it also presents advantages – and which other country is on the Gold Standard? Was the Zamindar too reckless? Well yes, he was, but not too much. He issued the IOUs because there were always greater fools to buy them. Were the traders at fault? Yes, but it isn’t easy to notice at first glance, because, after all, they are doing what they should be doing – selling stuff, making “money” and saving it – the problem of course is that they shouldn’t have treated those IOUs as money.

You will also notice that this edition of The Model Village was not particularly difficult to understand. It is  not even very controversial. In many bubbles, you will find many sensible people disagreeing over whether  we are in fact in a bubble – if there weren’t such people, we wouldn’t have bubbles. But you won’t find that to be the case here. If you stop two mainstream economists who are vehemently arguing over the Debt ceiling debate and ask them if they, in essence, agree that the parable of the Zamindari is a valid model of the US economy, they will agree before moving on to argue over the specifics of how long  the bubble will last, whether the bubble will burst or slowly lose steam and how to deflate it. And yet, we ended up here.

I Wasn’t Talking to You

The dark lord says:

The typical arguments are made by the right too. If the economy is going good “see, the deregulation has brought about unprecedented wealth. How can you propose more regulation?”

When the economy goes bad, we get the answer “see, the crisis is brought about due to regulation in the housing mortgage market. How can you propose more regulation?”

Yes, the libertarian right makes this argument, but there is a consistency in it. We believe that most regulations do harm, and that a lightly regulated economy works best.

If the socialist left made the counter-argument, that too would be internally consistent. If you really wanted to regulate the economy all the way to the Soviet Union, you could justifiably claim that both the US and India are variants of the same system. But in my post, I wasn’t arguing with the socialist left – I don’t need to, as history has already answered them.

My argument is with those who say that “we need a free market with some regulations, but that doesn’t mean that we should be socialist”. If you hold that belief, I would expect you to believe that there is some point at which additional regulations do more harm than good, so you’d support some regulations and oppose others. But what I notice is that for supporters of regulation, the right amount of regulation is always “A little more than we have now”.

We Always Need More Regulations

As Ajay Shah points out, we don’t just regulate our financial system, we micro-manage it. When things are going well in the US, and we make the case for deregulation, we get the answer: “See, even in the US, we don’t have a completely free market system. Even they have regulations. How can you propose that we junk ours?”

When things go wrong in the US, we get the answer: “See what happened to the US because they followed a free market system? How can you propose that we junk our regulations? We need more.”

This bias ensures that we will always follow suit when the US moves left, never when it moves to the right.

Presidential and Parliamentary Systems

Rishi wants to know how I can claim that the Presidential System underdelivers change, and Ritwik angrily objects to my claim that in the Parliamentary System, the Prime Minister can handpick legislators. Both of them have missed an important qualifier: popular.

Change is rare in any mature democracy. This is as it should be. Obviously, I prefer change in the direction of less government and limited powers and others may prefer otherwise, but whatever the direction of your preferred change, I think that we should be wary of a system where a Chief Executive can, on the basis of just one election, bring about fundamental and drastic change in the structure of the polity.

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American Incentives

It is too early  for me to claim vindication for this post.  Given the high expectations that President Obama came to power with, and the enormity of the task before him, it was inevitable that his first 100 days would disappoint. But I want to make a point about he American political system that many people do not appreciate. The point is that:

The American political system tends to overpromise, but underdeliver change.

Why? Because of the preponderance of  direct elections. Presidential candidates have to win many direct elections before they come to power.  To win direct elections, you have to establish yourself as your own man even if you are in the same party as the incumbent.  In other democracies, handpicked successors tend to gain the organizational backing of the ruling party. In the US, because of the unique organization of parties, there is very little to gain. Even if the incumbent was hugely popular, 8 years of him would have wearied the voters, and his successor needs to be wary of promising 4 more years of the same.  George W Bush was, to put it mildly, not very popular in November 2008, which is why you had both candidates promising change, but similar dynamics would have applied even in 1988, when George Bush was running to succeed Reagan.

So why would it be difficult to deliver change? Because of direct elections again. Both the President and Congressmen are directly elected. Neither is beholden to  the other branch. In a Parliamentary system, a popular Prime Minister would be able to handpick his legislators – in fact, he would have to, because otherwise there would be a chance that he would get dislodged despite his popularity. In the US presidential system, there is

a) structurally no way for  a President to pick his legislators

b) no need for a President to do the same and

c) a risk if he attempted it, because the unpopularity of some legislators may drag him down.

For these reasons, a President, even if he is elected on a mandate for change, will find it difficult to push his legislative agenda through.

None of these explains Obama’s failure so far. That is another story.

Shameful Piece by the Economist

Five years ago, the Economist was cheering not only the invasion of Afghanistan, but also that of Iraq. Now, when it comes to India’s response to the Mumbai terror attacks, the Economist has declared  that we should not emulate the US “mistakes” like… the invasion of Afghanistan.  Worse still, now it turns out that the US incursions into Pakistan – the threat of which is the only thing that is keeping Pakistan in check, are also a bad idea.