What He Said, pt XIV

My theory of the ruling class is that it comes from the lower right quadrant. That is, people who are highly educated but lacking in useful skills. If you will, the suits are in the lower-right quadrant and the geeks are in the upper-right quadrant.

My theory is that the ruling class gets its strongest support from people in the lower-right quadrant. They identify strongly with the ruling class. Placing an artificially high value on educational credentials is in the interest of the ruling class and everyone else in the lower-right quadrant. If it were not for the protection provided by credentialism and government employment, my guess is that many of those in the lower-right quadrant would have incomes no higher than those of people who are not college educated.

The challenge for the ruling class is to keep the other three quadrants from uniting in opposition to the ruling class. To try to retain support among the highly-educated who are skilled, the ruling class tries to blur the distinction between the upper-right quadrant and the lower-right quadrant. The ruling class would prefer to lump them all together into "the educated elite," or "technocrats." I fell for that one for a long time, but just recently the light bulb came on--hence the matrix. - Arnold Kling

Read the whole thing.

Waterloo

Since the health care vote, David Frum has written a much-circulated piece on his site where he criticizes the conservative/Republican strategy on health care over the last year or so. Basically, he argues that we should have found a place to cut a deal and cut our losses.

Some of us on the mainstream Right have criticized Frum for insufficient loyalty to the cause over the last couple of years. It's mostly a bad rap. Unlike most dissident conservatives, he is not in the game to express disapproval of the Hannity-Palin axis. His story is a little more subtle. The Hannity-Palin axis is mildly distasteful, but more than that their politics and the people they represent are quite limited, so in the final analysis they are losers.

All of this is background to the main point, which is that Frum's problem is not disloyalty, but he is sometimes wrong on the merits and this is one such example. There are very few silver linings in the health care debacle, but the biggest one is that we have comprehensively disproved the proposition that the Democrats' health care reform was inevitable and continuous growth of the welfare state is something that we have to acquiesce to for the sake of making marginal improvements here or there.

As it is, the American people know they can resist, if they choose. It's also useful for our relations with the other team, strained as they are. They may be stonger than us, but their actions are never wise or just, and we shouldn't pretend that they are.

What She Said, pt XIII

Oh, wait--suddenly it doesn't seem quite fair that Republicans could just ignore the will of their constituents that way, does it? Yet I guarantee you that there are a lot of GOP members out there tonight who think that they should get at least one free "Screw You" vote to balance out what the Democrats just did. - Megan McArdle

Perceptions

For example, I asked about a topic that is on many peoples' minds right now: sovereign debt problems. The near-term deficit is basically not a problem; amortized over 15 or 20 years, the U.S. economy can afford this level of debt. But the long term deficit is a big problem, and I asked one of our "senior treasury officials" whether he was worried that we would cross some threshold where either the debt becomes a major drag on growth, or markets start demanding significantly higher yields to lend us money.

His answer was smart, if not totally reassuring. Ultimately, this is not about some numeric figure, like Ken Rogoff's 80% of GDP; it's about what the market believes. If the market believes that we are going to get our budget in order (at least sort of), then the deficits we're running over the next five or ten years can be sustained. If the market questions this, then we're in big trouble. The reason U.S. debt is the "risk free" rate is that in the past, we've always gotten it together in the end. - Megan McArdle

Not only have we gotten it together in the end, the market has perceived that we've gotten it together before we actually did. And even then the principal of our debt hasn't actually been repaid for a long long time. It's just gotten relatively smaller as the economy has gotten larger. In the end, creditworthiness is essentially a matter of perception. At one level this is kind of obvious but it has important consequences.

Among other things, it is being put in jeopardy by the current health care bill. If in spite of all the turmoil in public finance, we intend to add to the problem instead of attempting to address it, we are less trustworthy, financially speaking than we were before.

At the individual level, this is also related to my signalling argument for voting Republican. It's not circulated very much, but it's quite persuasive for me at least. I wish the party pushed it more than it has.

Not Exactly Nothing

The sad fact is that there's not much to be done for the long term unemployed, other than the obvious step of making sure that they don't miss any meals. Government retraining programs have a dismal record. So do tax credits for hiring workers, which are notoriously easy to game. Stimulus is a blunt tool. And the government can't hire the workers itself. What's left? Threatening employers at gunpoint?

The answer is, nothing. - Megan McArdle

Megan is appropriately pessimistic about the government's ability to create jobs. But that doesn't mean the government can't discourage or destroy the ability of the private sector to create jobs which it plainly can. For the government to avoid this is not nothing. Consider:

No. What I think is: These are the people who go to the wall when the cost of employing someone gets too high. We’ve spent the last seventy years increasing the hidden overhead and downside risks associated with hiring a worker — which meant the minimum revenue-per-employee threshold below which hiring doesn’t make sense has crept up and up and up, gradually. This effect was partly masked by credit and asset bubbles, but those have now popped. Increasingly it’s not just the classic hard-core unemployables (alcoholics, criminal deviants, crazies) that can’t pull enough weight to justify a paycheck; it’s the marginal ones, the mediocre, and the mildly dysfunctional.

If that doesn’t scare the crap out of you, you’re not paying attention. It’s a recipe for long-term structural unemployment at European levels of 10%, 15%, and up. What’s even crazier is that the Obama administration wants to respond to this problem by…raising taxes and piling more regulatory burden on employers. - Eric Raymond (HT: Arnold Kling)