Peter L. Berger's Blog, page 164

Immigration Reform Should Fix This

Even as the U.S. moves to tighten border controls and regulate immigration in a way that provides greater benefits and fewer costs to current American citizens, lawmakers should look to address ways that the current system is too arbitrary and draconian. This is one: Children who came here legally and were formally adopted by American citizens should automatically become American citizens. The New York Times reports on the tragic saga of a Korean adoptee who committed suicide after being deported from the U.S.:

Phillip Clay was adopted at 8 into an American family in Philadelphia.

Twenty-nine years later, in 2012, after numerous arrests and a struggle with drug addiction, he was deported back to his birth country, South Korea. He could not speak the local language, did not know a single person and did not receive appropriate care for mental health problems, which included bipolar disorder and alcohol and substance abuse.

On May 21, Mr. Clay ended his life, jumping from the 14th floor of an apartment building north of Seoul. He was 42.

As the Times notes, a 2000 law grants automatic citizenship to youngsters adopted into American families after its passage. That law should be amended to apply retroactively.

Liberals and conservatives hold a range of positions on the way the U.S. immigration system should handle so-called Dreamers—people whose parents brought them to the U.S. illegally as children. But while opponents of citizenship for Dreamers can point to the perverse incentives involved in legalizing children of illegal immigrants, there is no such case here. Parents who adopt children into their homes have done nothing wrong; their selflessness should be encouraged.

There are many thorny questions in immigration policy. This is not one of them. Congress should address it soon.

The post Immigration Reform Should Fix This appeared first on The American Interest.

Flattened: Disintermediation Goes Global

The sense of tragedy is that the world is not a pleasant little nest made for our protection, but a vast and largely hostile environment, in which we can achieve great things only by defying the gods; and this defiance inevitably brings its own punishment.

—Norbert Wiener

Whatever else one can say about Donald Trump, he is the first disintermediating U.S. President. His campaign, which got him elected at relatively modest expense (much of which, in effect, he paid back to himself by hiring his own companies), sidestepped the entire political-industrial complex of pollsters, fundraisers, and political advisers, all of whom now fear for their future careers. He talks to the public through his tweets, thus cutting not only the mainstream media (at least when it comes to communicating with his supporters) but also the traditional panoply of presidential advisers and filters. As Pippa Malmgren recently said:

[H]e is the Uber of politics. He is disintermediating, disrupting, displacing the traditional power structures at every level. And all of these people are deeply upset and uncomfortable, just like taxi drivers.1

Trump’s disintermediation comes with costs, of course, especially in the foreign and national security domains. The tweets, the shoot-from-the-hip statements in press conferences, the erratic behavior with heads of state, add up to what has been called “shock-jock diplomacy.”2 That’s another term for Trump’s dismissal of the interagency process, which is designed to deploy institutional memory to deliberate about, design, and package sound policy. He has delegated vast stretches of those domains to the Pentagon and uses a skeletal White House staff to ignore nearly all of the rest. Trump is the Disintermediator-in-Chief.

What Is Disintermediation?  

But what do we mean by disintermediation? Is it just a highbrow term du jour for the kind of innovation that has gone on since time immemorial, or does it really reflect something genuinely new? The answer is both.

The most general definition is that disintermediation is innovation that undermines established or incumbent structures. It cuts out the middleman or middle layers in a process. In that dispensation, it has been around a long time. The invention of the ard, or scratch plow, in the ancient Near East around 6,000 BCE—and the concomitant domestication of cattle—may have put as many as 25 percent of farm workers out of a job and sent them packing to new lands to use the ard themselves. The invention of movable type in the 15th century, leading to the availability of many more books and to rapidly rising literacy, diminished the clergy’s monopoly on scriptural interpretation. Sometimes the layers done away with are subtler: the invention of the Colt 45 revolver narrowed the advantage of the strong man over the wimp to nearly nothing. It’s not that layers of people disappeared, but layers of power distinctions.

Ideas as well as inventions (and technique, as distinct from technology) can disintermediate, too. Modern democracy’s impact on incumbent hereditary governance—connected, usually, to religiously based authority structures—substituted a different and thinner (in terms of class barriers) form of mediation for a much thicker form. The rise of an anti-slavery norm in the West in the 19th century put an entire industry connected to the slave trade out of business.

Yet another way to define disintermediation is in terms of its economic effects: innovation that undercuts the established pricing structures of goods, services, or activities. The accelerating decline of brick-and-mortar retail shops and banks is one example. And the large retailers that preceded them, going all the way back to Montgomery Ward and Sears, not to mention Walmart and Costco, have been disintermediators, too, because they flattened supply chains with a vengeance—first nationally, then worldwide, and now in cyberspace: Online retailer Jet, owned by Walmart, represents the “next generation” in this story of disintermediation.

But disintermediation is not just about price. The trend in high-end neighborhoods to establish clubs to exchange or buy “previously owned” designer clothes is partly about price but also about building ad hoc functions within communities in order to “thicken” those communities. People who would not be caught dead in a resale shop now regularly buy used clothes, but no vendors as such are involved and, so far, no taxes are collected. This is hyper-local disintermediation, and a form of it that changes social behavior, a key point to which we return below.

Disintermediation has some unfortunate effects, as do all forms of economic disruption. It kills certain jobs, even as it creates others. Consumers like AirBnB and Uber, but hoteliers and taxi drivers don’t. Disintermediation also has benign effects, like undermining oligopolistic pricing structures, which amount to market manipulation and price gouging. Until recently, hearing aids were comparable in quality and consistently expensive across a range of sellers. Then, in 2012, Costco started selling hearing aids, offering devices similar in quality and often made by the same manufacturers; it also offered the same kind of in-store hearing tests as the incumbent providers—all at about half the price. To say that this has created a sense of concern within the audiology guild would be an understatement. But why should mostly elderly people, many on small fixed incomes, have to pay double for the same product and service?

Obviously, most contemporary examples of disintermediation differ qualitatively from all that have gone before, because they rely on the combined technologies of network connectivity with databases and modern search-engine technology and, in some cases, with radically new algorithms. Bitcoin relies on blockchain technology, which enables any size or volume of transactions without need for accountants, lawyers, brokers, bankers, or any other aspect of established financial transaction systems. As Marco Iansiti and Karim R. Lakhani put it in a recent Harvard Business Review article:

[B]lockchain is an open, distributed ledger that can record transactions between two parties efficiently and in a verifiable and permanent way. The ledger itself can also be programmed to trigger transactions automatically…. With blockchain, we can imagine a world in which contracts are embedded in digital code and stored in transparent, shared databases, where they are protected from deletion, tampering, and revision. In this world every agreement, every process, every task, and every payment would have a digital record and signature that could be identified, validated, stored, and shared. Intermediaries like lawyers, brokers, and bankers might no longer be necessary. Individuals, organizations, machines, and algorithms would freely transact and interact with one another with little friction. This is the immense potential of blockchain.3

The authors then explain why this revolution will be slow in coming and may not come in the way its prophets predict. But if it does come, its impact will be in terms of quantity instead of quality, for the history of finance is replete with examples of disintermediation: Bill brokerage in 19th-century England and the much older history of letters of credit, to consider just two examples, show how innovations in technique can replace certain kinds of players with new and fewer ones.

If disintermediation were just a fancy-sounding word to describe something that has been going on in one form or another for many centuries, then it wouldn’t be nearly as interesting as a social or political phenomenon—and, indeed, many supposedly revolutionary examples of contemporary disintermediation are not particularly interesting. Being able to book trips without a travel agent, for example, certainly changes the way we do things, but processes of innovation that put people working in incumbent systems out of their jobs are not new. These are the stuff of business-school clichés: the replacement of the horse and buggy by the car and what that did to horse whip and saddle manufacturers, and so on and so forth, ad nauseam.

But disintermediation is more than that today. If we define disintermediation as innovation that undermines established or incumbent structures and thereby changes social behavior, than it is becoming, perhaps, too interesting in the colloquial Chinese sense. And that definition focuses our attention on two issues in a class by themselves: the disintermediation of not just certain employment niches but of work itself; and the disintermediation not just of certain social classes defined by their siting in certain work niches, but of society itself.

The Disintermediation of Work

Whatever less well-educated and recently politically mobilized folk in the West may think, job offshoring and unbridled immigration are no longer the main sources of job loss. According to most reliable sources, about 88 percent of job loss from 1990 through 2010 is due to increasing productivity: automation, robotics, and more efficient processes.4 A robot does the work of seven lathe operators and needs only one person to oversee it (who, by the way, needs a different skill set than a lathe operator). Ticket machines at the entrance to an airport eliminate dozens of customer service jobs, and so forth.

More daunting, each new estimate raises the number of jobs that robotics will eliminate. A recent study based on World Bank data gives the highest number yet: 57 percent of jobs cashiered by automation within the next twenty years, and not just working-class jobs.5 White-collar jobs are already being eliminated. A French company called Yseop, for example, describes itself as “an artificial intelligence enterprise software company whose natural language generation products automate reasoning, dialog, and writing in multiple languages.” Its software can already write creditable reports on real estate offerings and other written documents that once would have required educated humans to compose. At present, it is limited effectively to reports generated from structured data, but software engineers are working to overcome such limitations.

Like the 20th-century communists who failed to realize that their revolutions were themselves subject to revolution, work disintermediation itself is subject to disintermediation. So, in what will doubtless be seen as a huge gift to the annals of postmodern irony, software programmers are now under threat of being replaced by the software they themselves have engendered. Software that writes software is already present, and, of course, because it is much cheaper and creates no HR problems, it is a growing presence. Those whom many see as the progenitors of modern disintermediation are now in the process of disintermediating themselves.

On balance, however, there’s nothing humorous about what this portends. What will human society be like if anything close to three out of every five jobs are eliminated over a relatively short period of time? Who, in societies like the United States, is responsible for considering the long-term social and political implications of the short-term and highly dispersed market decisions that might produce such an outcome? The American political class, of course, should bear that burden. Many within that class—along with the assorted wonky associates of it—are increasingly enthused by the concept of Universal General Income, or UGI. In essence, you just pay everybody a living wage to do nothing, and in that way sustain aggregate demand. It is an old idea, of course, that used to go by the terms “negative income tax” or “guaranteed national income.” Leaving aside whether the economics could possibly work amidst a cost disease epidemic, the question it begs is what kind of society it would produce.

The question isn’t new either. In the early 20th century, the artist Fernand Léger dreamed of a new machine age. Machines had a dual appeal: Their functional, crisp forms struck many as beautiful, but they also generated utopian hopes for a world in which workers could be freed from the repetitive work that plagued their lives. But even then, some worried that a life without work meant a life without purpose. And since that time we have produced research to back up the concern. High unemployment is irrefutably related to many social ills, up to and including crime and susceptibility to extremists’ warped sense of meaning. Struggle creates meaning for human beings, and different kinds of struggle create different kinds of meaning. It’s not about the money so much as the work itself. The disintermediation of work on a massive scale seems more likely to create hell on earth than a utopia.

The Disintermediation of Society

Another, even more expansive kind of disintermediation concerns society itself, and here the additive agent with which we need reckon is hyperconnectivity—a term coined by two Canadian social scientists in the late 1990s.6 I mean by the word the technological interconnection of everything at ever-faster speeds, with ever more content, ever more exposure, and ever greater levels of incomprehensibility—in short, almost an information singularity.

The hyperconnectivity revolution has knitted the world together in a way that was inconceivable to past generations. In so doing, it has arguably disintermediated a series of critical elements on which complex human societies have always been based. This, in turn, is changing the nature of human relations, discourse, and organizational structure so fundamentally that we are well beyond any experience of human history.

This claim may seem hyperbolic. But although this is the very air we breathe every day, we are so close that it is hard to come to grips with the real scope and speed of the hyperconnectivity revolution. But let’s try.

Saying there are trillions of potential connections is not hyperbole; there are more, in fact. More than 5 billion mobile phones are now owned by the world’s roughly 7.5 billion people (to say nothing of personal computers, laptops, or any other device belonging to the growing “internet of things”). At least in theory, each of these five billion mobile phones can connect with any other: a universe of more than 1019 potential connections. And none of that takes account of the transformation of physical or material connectivity. Travel and shipping links have exploded exponentially during the past fifty years. Commercial airlines alone move about 4 billion passengers around the world every year, who carry everything from goods and skills to ideas and diseases.

While disintermediation is mainly about flattening structures, hyperconnectivity has flattened distance, isolation, and privacy, replacing them with a constant in-your-face conjunction-at-a-distance, transparency, and exposure. The problem is that these changes, although they have accelerated for the past three decades, have been just incremental enough that the causal relationships have been hard to see until now.

We are only just beginning to understand the key changes and their implications, but for now we can safely say that hyperconnectivity subverts leadership and all social authority ultimately derived from it. Throughout history, leaders have often been seen as holy, or set apart. The concept of the “god-king” as the representative on earth of a heavenly or transcendent order was a formative structure in the development of almost all known complex societies and civilizations. Up to the present, with the divine right of kings now centuries past, most people have respected leaders as possessing natural qualities of a different order, whether they became leaders via democratic processes or not. The hyperconnectivity revolution has broadly exposed the fact that, as a group, leaders are just like the rest of us—albeit with better salesmanship and more skill in motivating and manipulating others. There is just as much venality, pettiness, corruption, avarice, and dishonesty among leaders as there is in the general population—maybe more.

Now, for example, ordinary citizens can spot their Minister of Education visiting the Hotel George V in Paris (on tax dollars), snap a photo, and transmit the image to millions of countrymen in the time that it takes said Minister to walk though the hotel lobby. In the past, most people would not have even known what their government ministers looked like, let alone document their lavish lifestyle and, at the press of a button, inform the world of their actions. Hyperconnectivity and transparency have changed all that.

Obviously, leadership still bestows privileges, but in the age of hyperconnected transparency, the exposure of any given leader’s privileges can serve to undermine all leaders. In July 2016, for example, a French magazine published the fact that the hairdresser of François Hollande—the socialist President of France—earned almost $11,000 per month. The news instantly went viral, and Hollande’s popularity plunged to new lows.

In short, a substantial and growing portion of the human population sees that its gods on earth have feet of clay, giving rise to a crisis of faith in all leaders. That crisis, arguably, is what enabled someone like Donald Trump to become President of the United States: He was running against a leadership class whose cache has been radically devalued by disintermediated shrapnel.

Alas, the world that Orwell imagined, in which everyone is under constant scrutiny, does not after all need an authoritarian government to impose it from above. Indeed, some of its earliest victims are leaders themselves. How can any leader withstand the harsh glare of transparency? What kind of leader can govern when the transparency saints are hell-bent on revealing every broken promise or leaking every private exchange? What kind of political leader can obey the dictates of the fairness god when the unfairness of reality is being shoved down everyone’s throat? But we already know the answer to these questions: the kind of leader who cares little for consistency, keeping promises, or fairness.

Nor is scrutiny the whole of it. “Fake news” has become a cause celebre almost overnight, and that is because, along with the decline of awe over leadership, the social authority of truth has itself been undermined. In his 2014 book World Order, Henry Kissinger was (not for the first time) prescient:

Western history and psychology have heretofore treated truth as independent of personality and prior experience of the observer. Yet our age is on the verge of a changed conception of the nature of truth…. Two different people appealing to a search engine with the same question do not necessarily receive the same answers. Nearly every website contains some kind of customization function based on Internet tracing codes designed to ascertain a user’s background and preferences…. The concept of truth is being relativized and individualized—losing its universal character. Whatever the utility of this approach in the realm of consumption, its effect on policymaking may prove transformative…. Can democracy avoid an evolution toward a demagogic outcome based on emotional mass appeal rather than the reasoned process the Founding Fathers imagined? If the gap between the qualities required for election and those essential for the conduct of office becomes too wide, the conceptual grasp and sense of history that should be part of foreign policy may be lost.

One can quibble with bits of this. The point about search engines is sound, but the same goes for almost any book, to wit: “Two different people appealing to a book with the same question do not necessarily receive the same answers.” And indeed, what passes for “truth” by members of different political parties, religions, social classes, and other human factions has always been variable. Yet nearly all such groups regarded their truths as universally valid; not everything had been relativized as now seems increasingly to be the case. In any event, Kissinger’s premonition about the nature of the Trump campaign still shows remarkable insight.

Neo-Tribalism and Centrifugal Society

One might think that the present global hunger for strong or authoritarian leaders contradicts the point that leadership has been undermined—but it does not. While more complex forms of leadership have been in place for thousands of years, a much older form of political order continues to this day: tribalism. The trend toward authoritarianism reflects the weakening of complex modern societies, thanks to the combination of disintermediation and hyperconnectivity; it is a siren of premodern identity politics that amounts to a form of postmodern neo-tribalism.

Tribalism describes a characteristic social structure well known in cultural anthropology. Though actual tribes encompass a complex and hugely varied set of social phenomena, a few generally consistent elements exist: communal agency trumps individual agency; the arts are integrated into the main religious culture; and responsibility and guilt are collective, rendering most tribal societies shame societies rather than honor societies. In-group/out-group distinctions are generally vivid, and endogamous marriage is both preferred and common.

The result is that, for many traditional societies, outsiders are enemies by default until proven otherwise. A first encounter often leads to a discussion aimed at finding relatives in common in order to avoid immediate, often violent conflict. Inter-group conflict is in fact common and frequent enough to say that small-scale warfare is often endemic and in many cases almost ubiquitous. Perhaps most important, micro-ethnic identity can be extremely strong; members of what would appear to outsiders as two almost identical villages a few miles distant often see themselves as entirely distinct, and often see the “other” as an enemy.

These interactive characteristics of tribalism predate the half dozen on so millennia of more complex, hierarchical human social organization by as much as 300,000 years, according to the latest archaeological evidence. This kind of group or “ethnic” identity, and the behaviors that flow out of it, existed in hominids far earlier than the arrival of homo sapiens and something analogous exists in primates today. Our current-day authoritarian leaders are often playing into this deeply entrenched tribal need for group identity that appears to be biologically (or socio-biologically) innate to humans. Constructivists may argue that there are many culturally-determined “human natures”, and this may well be valid, but there is also much evidence for fundamental, species-wide shared characteristics.The yearning for simple, unitive solutions, the desire to be led, and the will to believe that a strong leader can solve all problems did not, after all, come from nowhere.

So while budding postmodernity makes leaders’ lives near to impossible, premodern urges exalt them. Western publics have a hard time understanding how thuggish leaders like Putin and Orban and Erdogan can be so popular at home, but there is really no mystery about it at all. Western policies urge the territorial unity of weak states with heterogeneous societies rent by civil war, like Iraq and Syria, owing to outbreaks of vicious zero-sum identity politics, and Western leaders wonder why such policies turn out to be futile. The only wonder here is how Western leaders could remain so clueless about tribalism, the default social structure of humanity (but not of an American society born  the very womb of modernity).

Hyperconnectivity makes the reversion to identity/tribal politics much easier, but that is not all it does. It also encourages the creation of new tribes, albeit based not on kinship but on constructed affinities: the organization of people into communities with shared attributes and beliefs. But these are not physical communities. A French friend recently told me that he had much more in common with people who shared his particular interests in Los Angeles, Buenos Aires, and Kuala Lumpur than he did with many of his compatriots in France. “So,” he asked, “what does it actually mean now to be French?” When you couple a remark like that with the fact that some people in France now identify fiercely with “being French”—meaning being culturally French as opposed to the culture they ascribe to descendants of immigrants from North Africa who are nevertheless French citizens for having been born there—the complexity, contradiction, and polyvalent cognitive dissonance of what is transpiring starts to become apparent.

Hyperconnectivity allows people in the same place to differentiate their identities from one another, and people in very different places to conjoin their identities. From time immemorial, human social organization has been based primarily on place, on the physical location where people lived. There were exceptions to the rule: Jews after the second century of the Common Era became a very successful transterritorial civilization, for example. But communication and transportation challenges kept exceptions to a minimum; it could take years to complete a message cycle or a physical exchange of goods. Now we have an astonishing “time compression” thanks to the disintermediation of hyperconnectivity, and the dialogue it enables is orders of magnitude more intense, the scope is much broader (almost everyone is participating, from drug dealers to stamp collectors), splintering is pronounced (many more affinity groups with variations that seem slight from the outside), and the possibility of group anonymity (secret societies, in other words), aided when necessary by Tor browsers and the like, has grown. Hyperconnectivity scrambles the significance of place in other ways, too; for example, the demonstration effect of showing desperately poor or oppressed people what others have, and how to get to where they have it, is certainly accelerating migration trends, and providing for a never ending, always intensifying, and corrosive version of social comparison, now internationalized direct from the screen of everyone’s device at home.

All of this is eating away at the shared core of ideas and values that have undergirded the organizational structures of modern nation-states. That in turn seems to be hollowing out the shared center of societies built on accretions of accommodation and compromise, pushing political expression to the extremes. It seems to be creating, in other words, a centrifugal world of smaller and tighter groups pushing each other apart.

The Ouroboros

That is what disintermediation-hyperconnectivity phenomena are doing at the level of discrete societies. It is also doing something similar on the larger global level.

Globalization is a condition; globalism is an ideology based on a set of beliefs holding that a globalized world produces better outcomes for more people overall than a more protectionist, isolationist world. The ideology is essentially old-fashioned functionalism raised to dizzying heights, which, of course, does not make it anymore correct than the original. The ideology gains strength and adherents as a product of the disintermediation phenomena of hyperconnectivity; the proliferation of advocacy creates it own echo, its own buzz, and hence its own self-confidence.

But there is a problem, as there has been with hubristic spirals since the days of the Tower of Babel. There is a direct relationship between complexity and unpredictability; hidden connections between tightly coupled things only emerge when the unexpected happens. The twin forces of globalization and hyperconnectivity, having created a complex world without historical precedent, have become so unpredictable that failures to forecast events have become ubiquitous. Globalization does not just apply to markets and trade. Risk becomes globalized as well and, at certain parameters, stochastic risk becomes structural uncertainty. In a world of interlinked markets, every asset is potentially correlated in some way with every other asset, at least in terms of immediate effect—even assets that are very different in kind. How do we deal with the possibility that what in the past would be a contained decline in some asset class or region can now pull everything else down with it? Under such conditions, interdependence can produce insecurity and defections, not confidence and cooperation.

Nature displays a range of failsafe breaks or buffers between and among living systems. Should, for example, some species of fish become vulnerable to a pathogen and die out, the entire food chain does not collapse. It reorganizes and adjusts. That is roughly analogous to a global economy in which various niches and regions of the world could rise or fall without implicating the entire world. Now that we have integrated heretofore-discrete business cycles into one great system, we have destroyed the buffers that also used to exist, meaning, in a sense, that human beings are dumber than fish. We are now vulnerable to “risk cascades” because complex financial instruments now tie all markets and economies together, often in ways that are undetectable until an event exposes them. Thanks to the extent of hyperconnectivity today—many times what it was a mere nine years ago—the evaporation of trillions of dollars of real estate value would cascade around the globe, very probably imploding global markets in seconds.

The problem applies not just to economics but also to geopolitics—and to the connections between the two. Even a small accidental military encounter in the South China Sea between China and Japan, or South Korea, or the United States, could disrupt just-in-time inventory supply chains in ways no one understands. A certain kind of terrorist attack, like a dirty bomb set off in a city, and even a certain kind of natural disaster, could produce similar effects.

Why are global elites seemingly oblivious to such dangers? For one thing, the cosmopolitan mindset expressed in the rules-based international order, and in economic globalization that has arisen over the past half century or so, expresses a basic human yearning for universality. And, very likely, the confirmation bias and “echo-chamber” effects easily afforded by hyperconnectivity in general, and by social media in particular, magnify this tendency within that echelon as never before.

Besides, we have evidence that this is simply “the way things are” now. People of noble intentions can organize their meliorist impulses on a global scale as never before—and what’s wrong with that? Indeed, it is hard to overemphasize how much of the world we live in depends on the interconnected web and rule-set of globalization. For example, without the interlocking system of international protocols developed after World War II, modern air travel and shipping across borders would be impossible without the risk of planes regularly being shot down as they entered unfriendly airspace, or would only be possible with inordinately long delays. And in a world that is awash in rising biological threats (bio-error and bio-terror as well as emergent diseases), some kind of supranational authority at least on that matter would seem, logically, to be required. Who wants to give up all that?

But we do not have such a supranational authority and, given the strength of neo-tribalism in a riven and skittish world, we are not likely to anytime soon. What this and many other examples show is that the disintermediation phenomenon of hyperconnectivity has brought us to an age of discontinuity, dichotomies, and massive cognitive dissonance. Its very nature produces these. For example, not only does hyperconnectivity undermine authority, it also makes it easier for authorities to track and crack down on those undermining the social order authorities want to uphold. It brings greater innovation, wealth, cultural awareness, and sharing, but it also brings us a world of joblessness, greater divisiveness, bias, intransigence, and even ungovernability. The technologies of disintermediation are mostly not bringing us together; they are pushing us apart. Or more precisely, they are bringing us together in ever more atomized affinity groups that are pushing themselves apart. The middle is not holding so well because the disintermediation phenomenon is inherently paradoxical: It magnifies tendencies in many things that move in opposing directions. In doing so, it creates a much more volatile situation within all communities from the personal to the business, and from the local to the global. It is the most intense expression yet in human civilization of a literally artificial proximity for which we are unprepared in evolutionary terms.

The result of the division of the world—within countries and among them—between advocates of globalism and neo-tribalism (with many a reasonable liberal centrist stranded in the middle, asking why everyone seems to have gone mad) adds a huge dollop of unpredictability to what is already a highly complex and fragile state of affairs. We may end up in a situation in which very new technologies are deployed to pursue very old enmities—if we are not already arrived there. Not only are markets and politics becoming unpredictable, so are the broad directions we believe things like technology and “progress” are taking (techno-optimists notwithstanding).

The ancient Chinese claimed that all things produced their opposites as they reached their most intense expression. It will be a paramount irony of an ironic age if the maximal expression of a globalized world ultimately proves to be its undoing.

The unpredictability of the current global system goes all the way up, and all the way down; nothing can reliably be taken for granted. Globalization, having consumed the quaint arrangement of mere modernity as an appetizer, may soon end up eating its own tail like the ouroboros, the mythical snake of ancient Egypt. The prospect poses perhaps the ultimate question: Are we as human beings what we hope we are, or what we fear we are? No doubt the future will tell us.

1“Building a New Future Framework,” video interview with Pippa Malmgren by Dee Smith, Real Vision Television, March 7, 2017.

2Lori Esposito Murray, “Trump’s ‘Deterrence Bounce’ and the Dangers of Shock-Jock Diplomacy,” Foreign Policy, March 15, 2017.

3Marco Iansiti and Karim R. Lakhani, “The Truth About Blockchain,” Harvard Business Review (January–February 2017).

4“Globalization and the American Workforce: A Conversation with Gregory J. Hayes,” Council on Foreign Relations, November 1, 2016.

5“Technology at Work v2.0: The Future Is Not What it Used to Be,” Oxford Martin School/CITI Gps (January 2016).

6Anabel Quan-Haase and Barry Wellman, “How Computer-Mediated Hyperconnectivity and Local Virtuality Foster Social Networks of Information and Coordination in a Community of Practice,” International Sunbelt Social Network Conference, Redondo Beach, California, February 2005; Jesse Russell and Ronald Cohn, “Hyperconnectivity,” Miami: Book on Demand, 2012.

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Shocker: Costly Social Engineering Program Fails to Work

Amazingly, liberal good intentions translated into legislation and policy don’t always produce the intended results. In yet another example of one of the most widespread phenomena in American politics, a multi-billion dollar program aimed at reducing residential segregation may actually be consolidating it. The New York Times reports:

A review of federal data … found that in the United States’ biggest metropolitan areas, low-income housing projects that use federal tax credits—the nation’s biggest source of funding for affordable housing—are disproportionately built in majority nonwhite communities.

What this means, fair-housing advocates say, is that the government is essentially helping to maintain entrenched racial divides, even though federal law requires government agencies to promote integration.

This will likely not dent the self-esteem of our brilliant social engineers, who will remain sure that they are wiser and more virtuous than all the unenlightened who second-guess their efforts. Obviously, larger and more expensive programs with more restrictions and regulations are needed, they will conclude.

Minority communities and low-income Americans have many problems today. Some are the result of historical injustices whose consequences continue to ripple throughout our own time. Some are the result of medical problems and disabilities. Some result from family tragedies. Some are the result of personal choices.

But a surprisingly large number are either caused by or substantially exacerbated by the consequences of well-intentioned government action: urban renewal projects that have destroyed livable communities, public housing projects that have created dysfunctional crime factories, living wage laws that drive low-skill jobs to the suburbs, sanctuary city policies that attract unskilled illegal immigrants to compete for jobs at the low end of the labor market, rent-control policies that reduce new housing construction, zoning and environmental regulations that make it impossible to build businesses that could hire low skill people where they live, the war on retailers like Walmart that provide cheap goods to people who need them most, pro-public sector union policies that drive up the cost of vital city and community services while entrenching “jobs for life” bureaucrats regardless of poor performance. Increasingly, the cost of retiree pensions is diminishing the amount of money available for badly needed public services in American cities and states.

None of this dents the serene confidence of true blue believers in the power of the old-fashioned bureaucratic state. Until it does, we will continue to waste billions of dollars on poorly conceived programs that exacerbate the problems they are intended to address, or whose side effects make poverty harder to escape.

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Investors Losing Faith in Trump?

Even as U.S. markets soar, investor confidence in the dollar is faltering, partly as a result of President Trump’s difficulty delivering on his promised economic agenda. The Wall Street Journal reports:

The dollar suffered through its worst stretch in six years during the first half of 2017, as investors turned more confident that economic recoveries around the world are gaining on or surpassing growth in the U.S. […]

Few had expected such a turnabout even six months ago. Investors had driven the dollar to a 14-year-high after the November U.S. presidential election on hopes that Donald Trump’s plans for a tax overhaul, deregulation and fiscal stimulus would accelerate growth while the Federal Reserve also raised interest rates.

Instead, the Trump administration’s plans have repeatedly hit political roadblocks while U.S. growth, employment and inflation data have begun to soften.

Investors continue to think that many of Trump’s economic ideas would be good for the U.S. economy (not protection, but tax cuts, deregulation, infrastructure, development of energy resources). However, they are losing faith in his ability to make much of that happen.

The less chance Trump has of cementing his appeal through broadly-shared, robust economic growth, the more he will have to try to whip up his base and to further polarize the country.

GOP leadership in Congress needs to understand that delivering on the elements of the Trump agenda that command broad support is the key to maintaining an increasingly fragile party unity.

But this is not just about Trump. Voters have given the GOP an extraordinary mandate: both houses of Congress, the White House, and a slew of gubernatorial mansions and legislative chambers across the country—by some measures, the greatest GOP mandate in 100 years. If the party fails to produce results with all these advantages, the cost to the GOP brand and to the party’s cohesion could be severe.

The clock is ticking.

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Growing a Better Biodiesel

It’s been a good week for biofuels—one of the first ones in recent memory—as fresh off the heels of ExxonMobil’s announcement of an algae-based biofuel breakthrough, researchers in Chile have reported their own progress in extracting biodiesel from microalgae. Reuters reports:

Experts from the department of Chemical Engineering and Bioprocesses at Chile’s Catholic University said they had grown enough algae to fragment it and extract the oil which, after removing moisture and debris, can be converted into biofuel.

“What is new about our process is the intent to produce this fuel from microalgae, which are microorganisms,” researcher Carlos Saez told Reuters. […]

Saez said a main challenge going forward would be to produce a sufficient volume of microalgae. A wide variety of fresh and salt water algaes are found in Chile, a South American nation with a long Pacific coast. The scientists are trying to improve algae growing technology to ramp up production at a low cost using limited energy, Saez said.

This isn’t only exciting because it has the potential to provide a new source of valuable transportation fuel—it also represents an alternative to corn-based ethanol, the predominant source of biofuels in the American market, and an energy option that causes many more problems than it solves. To recap, corn-based ethanol: raises global food prices, starving the world’s poor; raises prices at the pump; hurts American refiners; has been shown to hurt honeybee populations; and has been shown to actually raise greenhouse gas emissions, not lower them.

Yet here in the U.S., a 2007 law—the Renewable Fuel Standard (RFS)—mandates that increasing quantities of this problematic ethanol be blended in to our country’s fuel. Biofuels’ appeal is obvious: being able to grow transportation fuel could, under the right circumstances, be both beneficial to energy security and the environment. That’s not happening under the RFS, but it could happen if we focused more on advanced biofuels like, say, those sourced from algae than we did on ethanol distilled from corn.

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North America Is Making OPEC Irrelevant

A coalition of OPEC members and other petrostates agreed to reduce its collective production by 1.8 million barrels per day through next March, but surging North American crude production is threatening to effectively cancel out those cuts. As the FT reports, oil output in Canada’s oil sands is set to jump as projects funded well before the decline in crude prices come online over the next year and half:

A forecast released this month by the Canadian Association of Petroleum Producers sees the country’s output increasing by 270,000 barrels a day in 2017 and another 320,000 b/d next year. That combined two-year Canadian increase is equal to almost a third of Opec’s production cuts that it made with allies like Russia at the beginning of this year in an effort to raise prices.

Canada isn’t even the sharpest North American thorn in OPEC’s side, though. The United States has seen its own oil output jump 550,000 barrels per day since last November, when these petrostate cuts were first announced. American production has dipped slightly in recent weeks as producers have scaled production back slightly due to flagging oil prices, but the outlook for shale over the rest of the year is still quite strong.

Combined, Canadian and U.S. oil production is set to grow more than a million barrels per day next year, as compared to where these North American countries were when the petrostate cuts first went into place. That nullifies more than half of that petrostate production draw down.

And it’s important to note that, going forward, OPEC will be the victim of any success it manages with these cuts. If prices do start to rise—a very big if, given current market conditions—then shale producers will quickly be able to take advantage of the rebound by ramping up their own production.

This all adds up to a truth that the oil historian Daniel Yergin hit on last year: ““[t]he era of Opec as a decisive force in the world economy is over.” And while these petrostates are coming to terms with their decline in relevance, it’s North American producers that are emerging as the new dynamic force in the global oil market.

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Losing the Nation-State

It is not difficult to recognize that the West is in flux. Eight months after the presidential election in the United States, partisan rancor has reached a fever pitch and continues unabated. Europe seems trapped in a collective leadership paralysis in the face of the greatest mass migration crisis since 1945. Public anger against elites keeps rising. The people seem less and less willing to listen to the explanations and admonishments of their leaders and the media, nor to accept that their nations are merely a transitional phase before the emergence of a multicultural, globalized world.

Beneath the popular resentment and frustration bubbles a longing for a vanishing sense of community, mixed with an often deeply felt democratic impulse to reclaim ownership of the state. Signs of a popular rebellion across the West abound. The Brexit vote in the United Kingdom, the Trump movement in the United States, and the emergence of national and populist parties across Europe (though their support fluctuates) are all symptoms of a deeper yet seldom articulated structural problem that has been straining democratic politics in the West: the progressive fragmentation of the nation-state.

There is an ever-expanding terminology generated to describe the current vortex engulfing the West—be it “illiberal democracy,” “populism,” or (from the extreme Left) “neo-fascism.” But all the terms are attempting to grapple with the same truth: The weakening of the consensus that the nation-state should remain paramount in world politics lies at the base of the deepening political crisis in Western democracies. Since patriotic civic education all but disappeared from American public schools as well as from Europe’s government school curricula, two generations of Western elites have been progressively unmoored from their cultural roots, often all but bereft of even a rudimentary sense of service to and responsibility for the nation as a whole. As fractured group identities and narratives of grievance began to replace a sense of patriotism and national pride, college educated elites across the West became ever-more self-referential in their pursuits, locked in an exercise of inward-looking collective expiation for the centuries of Western racism, discrimination, and “privilege”—all allegedly the hallmarks of the culture they have inherited, which they must redefine, or repudiate altogether.

This decomposition of elite national identities across the West has already had noticeable national security consequences. After decades of debates over identity politics, collective group rights and cross-national institutions, the erstwhile assumption that, when it comes to national security, state sovereignty trumps other considerations has become ever more tenuous. The immediate result has been the declining systemic cohesion of democratic states, and the diminishment across the West of the principle that democratic rights carry with them the obligations of citizenship.

Historically, a nation-state stipulated the primacy of a nation brought together by a common culture, which in turn went on to generate an overarching national identity strong enough to attenuate regional, ethnic or religious differences. In both their American and European systemic varieties, democratic institutions have preserved and protected the rights of the people, while the culturally grounded dominant national identity has given the nation-state its requisite resilience, while also imbuing it with the power to make demands of its citizens. So long as this shared national identity remained strong—call it patriotism, love of country, or belonging beyond one’s immediate family and local community—the nation-state retained its cohesion, resting on a sense of reciprocity between the government and the citizen.

Today after decades of espousing multiculturalism and group rights buttressed by the politics of grievance, the foundations of a larger shared national identity have eroded such that governance—or better yet, governability—has become an increasingly scarce commodity across the West. We are at an inflection point, where a growing systemic disorder is stoked not just by shifts in the global power distribution, but by the progressive decline in governability. The dismantling of the core principle that the national homeland should be under the sovereign control of its people lies at the root of this problem.

The hypothesis that institutions ultimately trump culture has over the past quarter century morphed into an article of faith, alongside the fervently held belief that nationalism and democratic politics are at their core fundamentally incompatible. The decades-long assault on the very idea of national identity steeped in a shared culture and defined by a commitment to the preservation of the nation has left Western leadership frequently unable to articulate the fundamentals that bind us and that we thus must be prepared to defend. The deepening fight over the right of the central government to control the national border—which is at the core of the Western idea of the nation-state—is emblematic of this situation.

The deconstruction of the nation-state across the West has had consequences beyond the national security of individual states. It has directly diminished the durability of the liberal world order, which not so long ago was heralded as the zenith of our globalized future. Though its fundaments are still in place, the era of the post-Cold War triumph of liberal internationalism is more than a decade behind us. The liberal international order cannot function without strong national communities acting as the baselines for democratic government. Regrettably, in the last half-century we have witnessed the gradual unraveling of the cultural foundations of this compact—the idea of the nation as an overarching identifier linking peoples across space and time.

Today, in addition to the shifting global power equation and surging transnational threats, a key factor in the deteriorating security of the collective West is our inability to appreciate the vital importance of the nation-state to the security of a self-governing people. National identity, national culture and history, and the sense of belonging to a distinct community are not antithetical to the notion of an interdependent international system. On the contrary, when bereft of the core building blocks of consolidated nation-states, the system will grow less stable with each passing year.

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Good Redistribution in the GOP Health Bill

Many Democrats have pointed out, accurately, that the Republican Obamacare repeal effort is not so much about healthcare as it is about (re)distribution. Obamacare raised taxes on the wealthy to fund a Medicaid expansion and insurance subsidies; the GOP would repeal those taxes and roll back assistance for the poor and lower-middle class.

But the Senate healthcare bill doesn’t just redistribute (relative to current policy) from the poor to the rich. It also redistributes from the old to the young. Obamacare regulates insurance markets so that insurers can only charge old people three times as much as they charge young people; the GOP would allow them to charge five times as much. Citing a RAND report, Vox says “this particular policy would lower premiums for a 24-year-old from $2,800 to $2,100. But premiums for a 64-year-old would rise from $8,500 to $10,600.” (In a purely free-market system, where insurers charged consumers based on their actual risk, the differential would be much greater still).

In other words, the GOP’s health bill doubles as an economic relief measure for millennials, paid for by Boomers. This is, ironically, a kind of reverse political patronage—young people vote overwhelmingly for Democrats, but it is Republicans (in this case at least) who are trying to give them a break. Democrats are offering millennials shiny objects like free college tuition, but simultaneously hosing them on healthcare.

The age-based regulatory changes in the Republican healthcare vision are sometimes presented by Obamacare partisans as callous and cruel: “How can our society ask for more from the near-elderly while giving the young and healthy a pass?” In fact, in addition to whatever stabilizing effect this might have on the exchanges (by encouraging more young people to enter) the old-to-young redistribution in the GOP’s Obamacare replacement is desirable as a matter of fairness.

Millennials entered the job market in the midst of a terrible recession that they had no part in creating. They are burdened by an unprecedented amount of student loan debt. They are not (contrary to popular perception) starting many businesses. They are having trouble forming families. They are late to enter into the housing market. They are socially isolated. And they are footing the bill for creaking pension systems set up before they were born.

Baby Boomers, by contrast, have accumulated orders of magnitude more wealth than 20-somethings. And they are set to benefit from a massive New Deal and Great Society wealth transfer programs, paid for by the young, that may not be nearly as generous when millennials reach retirement age.

That’s not to say that many Boomers aren’t struggling and many 27 year-olds aren’t prospering. But as a matter of policy, it doesn’t make sense to impose a large artificial insurance tax on a generation that is by many measures failing to launch on behalf of a generation that is at the peak of its power and wealth.

One of the most important policy challenges in our time of political instability and economic change is to provide today’s young people with a smooth transition into ordinary American middle-class life. If we fail to do this, Trump’s election will look like a minor blip compared to the radicalism and upheaval that lies ahead. In that sense (if not in many others) the GOP healthcare plan is genuinely conservative: It distributes resources in a way that is conducive to social stability and forward-looking economic growth.

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Macron Gets a Dose of Reality

As President Macron gears up for ambitious economic reforms, the French fiscal watchdog has issued an unpleasant warning to France’s new golden boy. Financial Times explains:

President Emmanuel Macron’s new government will have to slash spending if it is to meet its EU budget deficit limits this year, France’s public spending watchdog has warned. […]

It said France was on course for a deficit of 3.2 per cent in 2017 — breaching the EU’s 3 per cent limit — unless the government found about €4bn in new savings this year. […]

Mr Macron was the only candidate who promised to comply with the 3 per cent deficit rule. But the starting point, which is worse than expected, could force the president to delay or curtail his spending plans and proposed tax breaks.

It could potentially undermine his flagship attempt to reform the labour market, since the quid pro quo was to be a big training programme for the unemployed and an expansion of social protection for new categories such as the self-employed.

It is going to be hard to push unpopular structural reforms AND budget cuts at the same time, but that is exactly what Macron will have to do. In both cases, his credibility with the EU is at stake. If he fails to comply with the 3% deficit rule, his campaign mantra of “respect for European commitments” will prove hollow; if he fails to overhaul the labor market, Germany will be less inclined to play ball on the other Eurozone reforms Macron is seeking. Either defeat would be a significant early blow to Macron’s reformist credentials.

Perhaps Macron’s high approval ratings and parliamentary majority will let him push both agendas through. But as the union strikes and street protests kick into high gear this summer, he will face immense pressure to change course—and there are already early signs that Macron may succumb to protectionist pressures. As WRM wrote earlier this month, Macron’s electoral victories have already demonstrated his mastery of French institutional politics. But can he withstand the pressure from the streets and force France to swallow its bitter fiscal medicine?

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What OPEC Is Up Against

American oil production has surged in recent months. U.S. drillers once again got their feet under them after a petrostate production cut helped induce a minor bump in global crude prices, and as a result prices have once again fallen well below $50. This is the pendulum swing of supply and demand, and sure enough, now that we’re back to bargain prices again, analysts are expecting American drilling activity—or more accurately, the number of U.S. rigs in operation—to take a hit through the end of the year. The FT reports:

For 23 consecutive weeks, the number of rigs seeking US crude has climbed. The latest tally from services company Baker Hughes, due on Friday, is likely to bring the streak to two dozen. With the West Texas Intermediate oil price at $45 a barrel, the rig count will probably plateau, if not decrease, in the second half of 2017, analysts say. However, investors bullish on oil should pause before betting US output will soon retreat.

We’ve been through this before, back when the U.S. rig count crashed in the wake of the crude price collapse three years ago. Back then, some observers were surprised to see American oil output stay relatively high, relative to the amount of rigs operating in the country’s shale fields. But much of this discrepancy can be put down to a structural problem with using rig count as a metric for predicting output: during tough times, the worst performing and highest cost rigs are shut off first, effectively culling the herd and leaving the big gushers still in operation. If America’s rig count is due another drop, we can expect a similar pattern to occur, with the strongest and most productive projects continuing to churn out the crude.

Then, too, there’s the issue of our so-called “fracklog” of drilled but uncompleted wells, also called DUCs. Though bargain prices have forced a number of shale firms to shut down projects, they haven’t sat idly by, and instead have prepped future fracking operations by drilling the necessary wells ahead of time, awaiting an upturn in prices before they actually get down to business. The upshot of that is that, if and when global supply and demand start to rebalance and prices rise again, U.S. shale producers will be primed and ready to take advantage of that rebound, and will quickly be able to boost their production. As the FT notes, that “fracklog” has grown in recent months:

One measure of the latent supply is the number of DUCs, or “drilled but uncompleted” wells. These holes await the attention of a hydraulic fracturing crew to release oil from shale rocks. The DUC population in the four main US shale oil regions increased by 22 per cent to 5,005 between December and May, according to the Energy Information Administration.

This is the new oil reality. It’s characterized by cheaper prices, true, but today’s market also now relies on U.S. shale companies to be the new global swing producers, supplanting what has long been OPEC’s role at helping balance supply and demand. The key difference today is that it’s market forces—not strategic thinking from the cartel—that are moving the arm of this pendulum. That, and the fact that oil prices have now stabilized at a price less than half of what they were just a few years ago. It’s a brave new world.

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