Chapter 13 Epilogue

Hope is definitely not the same as optimism. It is not the conviction that something will turn out well, but the certainty that something makes sense, regardless of how it turns out.

— Václav Havel (1985)

13.1 The Great Unravelling: Why we Must Now Embrace Complexity to Avoid a Return to Fascism

With Donald Trump elected to the most powerful office on the planet, Brexit passed, rightwing populists banging on the gates of parliaments and government in France, Germany and elsewhere, we find ourselves in the midst of the greatest assault on liberal democracy since World War II. Instead of the heralded “End of History” (Fukuyama 1992), we must now consider a broad civilisational regression, and even the return of large-scale violence as real and frightening possibilities.

Calmer minds may find this alarmist; I hope they are right. But when the downside risks are so enormous, the precautionary principle almost dictates alarmism. When the stakes are this high, we’d better be safe than sorry.

Marginal polling errors notwithstanding, the return of demogoguery and populism isn’t exactly a sudden shock, but it calls us all to urgent action.

But first, we need a precise diagnosis of what is going on.

There are already many thoroughly argued explanations out there, including of a global white identity backlash (Ivarsflaten 2008, @cederman-wimmer-etal-2010), widening income inequality and postindustrial decay, cultural alienation, education and age. Perhaps crucially, Trump and other right-wing populist voters may be driven by loss aversion concerning their material or (however illegitimate) cultural status, compared to some real or imagined past, as James Surowiecki has recently pointed out in the New Yorker (compare Levy 2003, @KahnemanTversky1979). As always, the preliminary empirical evidence (at least from US exit polls) seems more complicated, and many of these correlations are also multicollinear.

To these, I add a new (if not especially original) hypothesis: Voters turn to right-wing populists, because they seek to avoid the moral and ethnical cognitive load that the abstractions, complexity and interdependencies of the modern world place on them.

And no, this is not just another way of calling Trump-supporters “dumb”. We may all be the 99% ignorant.

Consider, for a first illustration, anthropogenic climate change. If you believe climate change is a fact, and if you value – as is increasingly demanded, and rightfully so – all human beings equally, but also fly across the atlantic to attend a conference of questionable value, as I recently did, then you face a pesky moral-cognitive dissonance (compare Festinger 1957). More than a mere dissonance, this behavior challenges my comfortable identity as a biking, vegetarian, and generally blameless treehugger: turns out, I did value the cosmopolitan ego-boost of an international conference more than the people of Bangladesh, my future childrens future and the rest of the planet. Straightforwardly, I can either own up to this inconsistency (which sucks), or I can change my behavior (which also sucks). There are, alas, two other ways to resolve the dissonance:

1. I can discredit the fact of global warming (“the Jury’s still out!”), question the authority of climate scientists (“the climate lobby is corrupted!”), or even reject the entire abstraction of a global climate system out of hand (“but this winter, there was a lot of snow!”).
2. I can discount the value of other human beings, by straightforward jingoism (“America first!”), subtle privilege (“Flying is part of our transatlantic culture!”) or othering racism (“these people only live in huts anyway!”)

By forming either, or any combination of these preferences over these beliefs (Caplan 2007), I’ve solved my problem. Notice that this is quite a taxing problem, it’s not just liberal handwringing: to really consider the lives of people I have never met, or lives in a distant future, and to relate that to an exciting trip is a mighty ask for a cognitive and moral miser like myself.

To be fair, as someone who has spent all of his adult life arguing things, I can come up with somewhat cleverer-sounding delusions. I could argue that I only buy marginal seats at cheap prices, and that therefore, the plane would have flown anyway, and only the marginal CO2e cost of adding my body and bags to the wide-body jet were incurred. Or I can point out that transatlantic flights have no carbon-free substitute (for now), and that if only all other parts of the economy were carbon neutral, then flying would not be a big problem. In a way, Elon Musk is my Donald Trump: A self-made entrepreneur whose every outlandish utopia I want to believe in, because it helps me resolve these pesky inconsistencies.

I have developed this hypothesis in my exploratory dissertation work on public understandings of taxation, as well as personal conversations with AfD-voters and Trump-supporters. Over the past 10 years, I have studied tax policy and made it my (hopefully) 1% non-ignorant domain. As it turns out, taxation is marred in abstractions and complex interdependencies, which force you to re-evaluate your conceptions of justice and your own (financial) biography at every juncture.

For example, if you want a progressive schedule (rich people paying more as a percentage), and you do not want to “punish” people for marrying, then you will have to accept that the tax burden of a couple depends on the distribution of income between the spouses (stay-home moms with high-earning husbands will do well). This is not an opinion, it is a logical fact: of the above three oft-desired outcomes, you can only have two (Moffitt 2003: 124, @Dalsgaard2005: 29). As a voter and as a politician, it is a whole lot easier to disregard this unavoidable abstraction, and to simply demand, or promise a tax system which would support all “working-class families equally”, even though that is a fairly meaningless statement in this context.

Most abstractions of tax do not even take the form of a trilemma, and are still cognitively and morally vexing. For example, most OECD tax regimes do not tax imputed rents from owner-occupied housing (and the US slaps on the infamous home mortgage interest deduction). To treat renters and owners equally, as horizontal tax equity would dictate, we would have to (partly) tax house owners on the rents they would have to pay for their own houses, because this is a capital income, and the otherwise equal renter will have to pay the same tax on her capital income, from, say, a mutual fund. I would wager that, in the abstract, most people would agree that renters and owners should be treated equally. But faced with the consequence of imputed-rent taxation, many of the (self-selected, small N) citizens I worked with balked at the idea. They came up with with (very benign) forms of the above-mentioned forms of dissonance resolution: they either rejected the abstraction (“but it’s my house!”), or they othered-away the equal rights of renters (“they could have bought a house, it’s a lot of work!”).

I chose these illustrations, because they are the easiest to explain, and the least controversial. There are other, far more complicated and more consequential abstractions of taxation, including the adequate base of taxation, the incidence of (corporate) taxes and welfare effects.

What does any of this have to do with President Trump and his supporters? It has everything to do with rampant inequality, low growth, high debt, post-industrial decay, poor jobs and a government structurally unresponsive to resulting voter demands: the whole post-democratic malaise (Crouch 2004). This is not some inconsequential, wonky distinction. This fine print makes or breaks the social contract.

Over the past decades, this foundation of the social contract has fractured. In fact, if you were to purposely design a tax system to protect rich people and heirs while squeezing future generations, poor and middle earners, you could hardly design a more effective regime then the current income tax and value-added tax system (compare McCaffery 2005). The tax system really is rigged, though not in the ways that Donald Trump or Bernie Sanders might think: it simply presents the legislatures with prohibitively and needlessly unattractive tradeoffs, such as between equity and efficiency. Predictably, faced with the choice of a rock or a hard place, democratic institutions become unresponsive, and voters feel increasingly disenfranchised.

This might look like a grand conspiracy, but I don’t think it is one. Instead, I fear, it is simply a slowly unfolding trainwreck of fiscal history. Some people may – in the medium term – benefit from a fractured social contract, though any potential sabotage may yet backfire (violence), and I am skeptical whether these beneficiaries ever successfully colluded. The bigger blame lies with us: the 99% ignorant.

The data from my exploratory (small-N) dissertation study show that ordinary citizens hold staggeringly inconsistent beliefs and values on taxation, which can, at least partly, be explained by their cognitive ease and comfort and as an outlet for resentment against the economic system. (I am aware that this is not a deductive proof; it is an abductive hunch, but also see McCaffery and Baron (2006), Sausgruber and Tyran (2011)). Absent a deeper understanding, or at least appreciation of complexity, some of the most promising suggestions for reform will never be discussed in such an impoverished political process: a Negative Income Tax (Friedman 1962), a Progressive Consumption Tax (Seidman 1997), a Land Value Tax (George and Busey 1879), or even a proper Inheritance and/or Property Tax are all unfamiliar, complex and demand a recognition of our mutual interdependence. In 2008, a leading party operative for the Social Democratic Party of Germany (SPD) told me that frankly, a Progressive Consumption Tax was a nice idea, but that it would be too vulnerable to populist attacks to promote.

This is the vicious cycle we find ourselves in: a dysfunctional policy makes democratic institutions unresponsive, which frustrates and impoverishes voters, who turn to increasingly populist candidates, who degrade the political discourse, and make it impossible to pass better policy. This is a democracy, eating itself alive.

Complex policy, of course, is not a recent phenomenon, and voters decades ago were probably not any better equipped to deal with the complexity of their day. However, background conditions have shifted dramatically over the last decades, exacerbating the mismatch. On the one hand, the factual complexity has grown, mutual interdependencies have deepened and the moral horizon has widened. This process of social integration is unequivocally good, perhaps such reaping of positive-sum cooperation is even the telos of human cultural evolution. On the one hand, voters have also learned to demand more of government, and traditional political elites (smoke-filled backrooms) and institutions (party affiliation) have eroded. This process of emancipation and individualisation is also, by and large, a good thing.

These two processes together do not in itself “overload government”, as conservative critics once feared. They do, however, demand a lot from voters. They also open up a tremendeous opportunity on the supply side of politics to engage in “discursive dumping”, to dumb down and discredit complexity and interdependence, to offer voters (false) relief from their cognitive and moral loads. After an initial successful fix, and the following hangover, as voter demands continued to be frustrated, politicians slowly increased the dosage – from “welfare queen” to “Joe the Plumber” to “death tax”, and, ultimately, “Make America Great Again”. This was neither a fast, nor continuous process, but rather, a slow and self-reinforcing chipping away at communicative rationality, one sound bite at a time, one delusional simplification after another.

This is not yet a rigorously conceptualised hypothesis, let alone a tested one. As sociological theory goes, it is also pretty banal.

13.2 Second Best

13.2.0.1 Second Best.

Today, maybe one of the clearest Panglossian pronouncements comes under the imposing heading of a Theory of Second Best, originally formulated by (Lancaster 1956). As so many great economic ideas, this one has strayed far from its original form, and interbred with ideology to father many illegitimate — and sometimes deformed — offspring.

In its initial, rigorous formulation, the Theory of Second Best showed formally that if — as seems likely — some conditions for the pareto optimality of markets cannot be meet, it might enhance efficiency to allow additional, possibly offsetting deviations from perfect competition elsewhere in the economy. Rather than to fight all market failures everywhere in isolation (“piecemeal welfare economics”, (1956, 11), Lancaster (1956) suggested that from a general equilibrium view, there may be less demanding necessary conditions that could pareto improve the economy, in addition to the often implausible, sufficient conditions of perfect competition (1956, 17). (The Economist 2007) explains it beautifully thus: if your optimal cookie recipe requires chocolate chips and coconut flakes, but you cannot find the chocolate chips, your (second) best bet may be to bake gingersnap, rather than chocolate chip cookies without chocolate chips. This is the kind of devilish complexity that I allow myself to ignore here, but that policy makers have to consider: if, for example, research and development are so prohibitively expensive that we absolutely cannot profitably have more than one manufacturer of wide-body aircraft, our (second) best policy may indeed be to stray further from neoclassical doctrine, and to keep subsidizing The Boeing Company and Airbus SES, so that we can have at least have ourselves a decent, somewhat competitive, duopoly. There is nothing Panglossian about such hard choices because, it is, in fact, materially impossible to develop dozens of competing wide-body designs. Because for the social sciences — as for moral philosophy — ought implies can, the second-best of the subsidized Boeing/Airbus duopoly also needs no social scientific explanation. This really is collateral damage to a worthy cause.

After (1956), however, the Theory of Second Best as slowly morphed into a general skepticism of state intervention, it is now name-dropping “proof” of its ipso-facto futility and serves as welcome absolution for the demise of the mixed economy. Wolf (1987, 1979), for example, argued that because governments fail, just as markets do, the second-best response to such market failures may be to just let them be. You can take this argument to merely logical extremes, and throw out government and democracy altogether. (Leeson and Williamson 2009), for instance, wonders whether in some (developing economies) settings, anarchy may not be preferably to predatory statehood, whether, in other words, no state would not be second-better than an inevitably failing government. (Caplan 2007), in an otherwise thoughtful book, seems to suggest that because voters are so invariably rationally irrational, markets may be second-better than democracy altogether.

This has very little to do with the rigorous argument presented by Lancaster (1956): he did, at least in (1956), never consider a constrained government, let alone an incapacitated democracy to be grounds for “second-besting”, but, instead even seemed to hope for a government and people powerful and wise enough to heed his call.

This is Pangloss at his finest: if you assume, as modern-day second-besters do, that the very means to deliberately get to a better world — government and democracy — are inevitably flawed, you can show, with almost hermetic logic, that whatever world we find ourselves in, must be the best of all possible worlds.

In that word — possible — lies the catch. Modern-day second-besters assume that, akin to markets and evolution, government and democracy are aimless processes that merely aggregate pre-social, more- or less rational self-interest. If government and democracy are aimless, it follows — as it does, in fact, follow for markets and evolution — that any positive results of government and democracy are beyond reproach, and beyond improvement. Government failures, as monopoly pricing or an appendicitis, are just facts.

Enlightenment, the mother of modern science, did not consider democracy, a merely positive affair, but a normative prescription. (Kant 1785) asked us not to “follow your incentives”, but to “act only on that maxim through which you can at the same time will that it should become a universal law” (1785 Chapter 11)(ibid.. The US Constitutional Convention in 1787, did not just decide to try out this new fptp way to aggregate preferences, but “We the People” were to do so “in Order to form a more perfect Union”. In a free society, social scientists need not believe in these, or any other ideas, but if they reject them all, they deserve not the air of scientific sophistication in which they cloak their utter cynicism. As mere accountants of the status quo, their work is anathema to Enlightenment, and they ought to be disowned of the emancipatory heritage that the social sciences were endowed with.

But ignoring, for now, the enlightened humanism that comes part and parcel with the social sciences, the logic of modern-day second-besters is also simply fallacious. Even if government and democracy turn out to inevitably disappoint, such flaws are not, to the social scientist, quasi-material constraints. Because government and democracy are the subject matter for the social scientist, she must not presume, but has to explain them. If we do, as the second-besters, exclude from the first-order alternatives to be explained by second-order theory, those alternatives that the political process may corrupt, we have thereby conflated first and second-order theory. Whatever second-order theory might have to tell us about a corrupted political process, we would never learn, if we did not test for the absence of first-best solutions. This Frankenstein variant of the Theory of Second Best confuses, as (Brubaker 2002) succinctly criticized the literature about ethnic conflict, the “empirical data” with our “analytical toolkit”: government failure is “what we want to explain, not what we want to explain things with” (2002, 165, emphasis in original).

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