Ye olde “economic anxiety” versus racism debate is back on, God help us. Here is Jeff Spross and, er, David Brooks making the case that Trumpism / right populism / resurgent fascism have something to do with reaction to legitimate grievances of an economy increasingly stratified into communities of winners and the “left behind”. Here is Zack Beauchamp reprising the great vox.com tradition of pointing out that if you look at fine-grained patterns of who goes rhino, you don’t see that it’s the poor and downtrodden, you find that it’s the fucking racists.

If I have to pick sides, I’m on the side of Spross and, er, Brooks. I’ve written about why the individual characteristics of Trump supporters shouldn’t eclipse the characteristics of the communities from which that support disproportionately derives. I endorse Spross’ position that we should consider the implications of the stories that we choose.

Social affairs are not like natural sciences where usually (not always) one way of modeling the world is plainly “best” and we should work from that story, discarding all the rest. Navigating social affairs requires developing a collection of different, often conflicting, accounts of how things work and making wise decisions about which accounts to use in different contexts and for different purposes. It is not only legitimate, but morally necessary, to consider the implications of different accounts before choosing which one you will let guide your actions. When policymakers accept “hard truths that can’t be denied” (in modern parlance, we might hear “the science can’t be denied”), we face a risk they might persuade themselves to do something awful.

It’s hubris to imagine there is any science so reliable in social affairs, and it is sin to allow any collection of (now) studies or (then) political theories, to justify exclusion, elimination, disenfranchisement, collective punishment or penury in the name of your certainty in some greater good. If you would neither scruple to let your “hard truths” frame some hard action, nor derive any kind of moral and constructive action from your theory, what good to anyone is your “science”? The rational choice is to draw from our portfolio of understandings multiple but actionable truths — the best we can come up with, but subject to a usefulness constraint — and then apply them constructively.

In this old debate, “economic anxiety” versus racism, the mistake is to choose sides at all. As is usually the case in social affairs, the two hypotheses are not mutually exclusive. It is an intellectual error, then, to design studies as “horse races” to decide which is the better explanation. Perhaps there is no evidence at all for one hypothesis, in which case, sure, it should be rejected. But there is plenty of evidence, especially at the community level, for the “economic anxiety” hypothesis, and plenty of evidence, especially at the individual-characteristics level, for the “racial resentment” (racist motherfuckers) hypothesis. It is an error to imagine that “drilling down” to a more fine-grained level inherently provides superior or more actionable information. Biology provides insights that chemistry cannot. No one could produce a working pharmaceutical from the very best human understanding of quarks.

When in social affairs we have evidence for multiple, nonexclusive hypotheses, the wise thing to do is not to snipe over which we should reject and which we should accept, but to explore how they might relate to one another, and when it is best to deploy one understanding or the other as a simplification.

For this particular debate, the model I would encourage you to think about is triage. For most of us today, triage is just the name they give to intake at the ER. But in wartime, it refers to the harsher practice of deciding whom to treat and whom to let die. When medical resources are scarce, you make decisions about who won’t make it anyway. You take care not to waste medicine that might save someone else’s life on people you’ve decided will die regardless.

When resources are abundant, we avoid making these kinds of choices. We treat everybody. Some small fraction of the people with long odds become miracles, and we let those be worth the cost. When resources are abundant, health care is a human right. But when resources are scarce, we cull the herd, kill the runts or at least leave them to die.

Fascism is a process of internal exclusion, quite analogous to triage, although more in anger than in sadness. At a material level, a fascist order divides the polity into the worthy volk and “life unworthy of life”. It promises to reward and protect the former while extracting whatever labor can be squozen from the latter in the process of its exclusion or extermination.

This is not how human communities behave when they are secure and prosperous, when generosity, magnanimity, “civilization”, are broadly understood to be affordable public virtues. Polities “triage” the worthy from the unworthy under circumstances of perceived scarcity, of perceived threat. When happily ever after for everybody is a luxury we cannot afford. If some of us are to thrive, others must be sacrificed.

With medical triage it may (or may not) be sufficient for a few professionals to coldly decide, on the basis of medical facts, that these patients are a bad use of resources, while those patients may be helped by treatment. But humans writ large don’t work this way. We require moral heuristics to guide our actions, to motivate and then justify what we do. If at a communal level we are going to starve or enslave or expel or exterminate some group, it will not be enough, for most people, to say what a shame, but it is necessary. Instead we will find reasons why they deserve it. We will discover why they are in fact a danger whose dispossession is not to be lamented, but celebrated.

The identification of insidious internal enemies, deliverance from whom demands that “patriotic”, “real” citizens submit to military-like coordination and obedience, is the core move of fascism. It begins with the perception we can no longer afford. To which political entrepreneurs then append to tolerate these people as the concretization of what we cannot afford. It begins with the communal analog of a "scarcity mindset”.

With this account, we can reconcile the conflicting evidence about economic anxiety and cultural resentment. At the communal level, economic factors predict which places are likely to become susceptible to a fascist dynamic, because the case for dividing and culling begins with a perception of scarcity. Communities don’t triage when resources are widely perceived to be abundant and secure.

But at an individual level, within distressed communities, the people most enthusiastic to participate in the fascist dynamic are not likely to be the weak and dispossessed (who after all, might be susceptible to culling, depending what internal enemy gets identified) but those who feel safe in their own position and have preexisting resentments against candidate enemies. The political dynamic can’t successfully take hold, has no fertile habitat, without the “economic anxiety”. The members of the community who most enthusiastically participate in the thrill of fascism are not primarily the downtrodden, however, but relatively safe people who perceive an opportunity long denied to give effect to resentments they stewed in privately when prosperity and security bred norms of magnanimity and tolerance in their communities.

The good news in this story is that both factions of the “economic anxiety” vs racism debate get to keep their preferred prescriptions for discouraging fascism. If a sense of secure prosperity can be delivered and sustained among the broad public, then fascism will find little soil to plant seeds. If “racial resentment” — or, more generally, the psychological and cultural antecedents to the inimicalization of minorities — can be reduced, then the polity would be more resistant to fascism even during periods of economic stress and anxiety. The debate over what kind of politics to adopt, over the praxis of prophylaxis, becomes a question of which is more plausible and desirable to achieve via political means: building a society in which the bulk of the public perceives itself as prosperous and safe in that prosperity, or reforming the culture so that prejudices and resentments towards subgroups are diminished to insignificance.

My view is that the shape of the material world is more susceptible than culture to political means, and that material reforms to engender a broader and more secure prosperity for most of the public are urgently desirable — to discourage the emergence of fascism, but also on their own terms. So in practice I seem to fall on the “economic anxiety” side of the debate. Antifascists more attached to the economic status quo or more skeptical of economic antecedents prefer a politics that intervenes on the cultural side, focusing on countering fascist organizations, fighting and shaming prominent white supremacists, and trying to develop antiracist culture and education.

I am skeptical of the suitability of politics to address cultural concerns directly. I think that over time, politics affects culture profoundly, but indirectly, by altering the shape of material constraints and incentives under which cultures form and transform. I think when politics too overtly tries to alter culture, it yields backlash, becomes resisted as indoctrination or “reeducation” in conflict with the basic tenets of a free and equal society.

A free and equal society, like all societies, requires that its public think and understand the world in ways conducive to the effective coordination at scale that prosperity and defense require. But a free and equal society does not have the luxury of overtly coercing its public to think as they are told. A free and equal society must persuade its public — with speech that individuals are genuinely free to reject, with carrots for prosocial behavior rather than punishments for dissenters — to develop ways of thinking under which people voluntarily, “naturally”, act in ways and within bounds consistent with the functioning of the polity.

A free and equal society is a harder thing to govern and to keep than a more authoritarian system which can impose ideology, culture, authority, hierarchy by force. But an effective free and equal society is a much better community for a human being to be a part of. I do hope we will find the patience and light-touch cleverness to improve or build or rebuild a free and equal society rather than revert, under fascism or in the name of antifascism, to more mechanistic forms of social control that, as information technology has developed, become more available and so more tempting to leaders under inevitable conditions of crisis.

If I were the plutocracy, I’d do everything I could do to discredit the one institution that I only mostly — but don’t quite fully — control that might be capable of harming me. I’d refer to the imperfectly democratic government as “the deep state”, and imply that the worst of the many, many things the state does precisely on my behalf are in fact the work of a secretive cadre embedded among the dedicated civil servants who are a constant annoyance and threat to me, despite my continual and mostly effective work to buy them off, or else neutralize them by owning their more ambitious and venal superiors. I’d call garish attention to the results of my own corruption of the state, but attribute it to the state itself, in order to misdirect attention from me and to discredit any possibility of muscular state action, the one thing that might actually diminish me.

If I were the plutocracy, I’d do everything I could to distract the public from issues like economic consolidation, strong enforcement of ever expanding property rights, weak enforcement of dwindling labor protections, universalist social democracy, progressive taxation. I'd make sure that the people I hire people at the media I own all understand that stuff like taxes and patents and insurance is and must always be boring to the general public, whose interests need more color than the mere dollars and cents they live and mostly die by. I would encourage a very lively public sphere — no, lively isn’t the word — I’d encourage a public sphere into which nearly everyone cannot help but be drawn, whether by salacious curiosity or profound sense of injustice or by very real, very personal, threat. I’d hire the best storytellers, the most skilled manipulators of the human lizard brain, to promote a truly engaged citizenry. I would ensure a citizenry perpetually, exhaustingly, actively, engaged — in all of the controversies that do not threaten me.

If I were the plutocracy, I’d scapegoat immigrants, racial minorities, and sexual minorities in order to give the public someone to blame for the metastatizing pathology that results from all the material security I am sucking and sucking from them. Then I’d lavishly fund advocates of immigrants, racial minorities, and sexual minorities — the more radical, the weirder, the more aggressive, the better — to ensure a constant parade of controversies and outrages that activate people’s deep sense of identity and threat and injustice, so that they argue with one other — they might even riot and kill one another — over anything and everything but me.

If I were the plutocracy, the public would always know me to be there for them. I would be on their side in all these fights, since I would be effusively financing all the sides. Some of my organs would fund racial justice, while others would be donors to “antiwoke”, while others would ensure nicely catered luncheons for “Moms for Liberty”, and others would build underground railroads for people seeking gender-affirming care. Almost all of my organs would be deeply sincere about what they do. Meet them, you will love how genuine they are! Yet while they seem to be battling against one another, in a deeper sense they all — we all — would be pulling together in perfect harmony towards a common purpose, maintaining and expanding our extraordinary wealth and control that — surely you agree! — must be the basis for any notion of progress and civilized society, even if it does impose some unfortunate but necessary burdens on the rest of you who must serve us.

There's a certain kind of dour leftist that always goes on about "degrowth".

Growth has been the lodestar and definition of virtue to generations of economists. Robert Lucas famously quipped, once you start thinking about it you can't think of anything else.

But to "degrowthers", economic growth is not merely undesirable, It is a profound evil. "Growth for the sake of growth's is the ideology of the cancer cell". In a monstrous capitalist system that produces absurd and wasteful bounties for some while delivering cruelty and scarcity to most, fetishization of growth becomes license to do ever more of the same, even while pushing planetary ecosystems beyond capacity, into a collapse that will destroy us all.

Economics is sometimes described as the dismal science, but in fact its dominant mainstream is characterized by a chirpy whiggishness. The supercilious voice that narrates The Economist magazine is not just telling you that unfettered "free markets" and a light-touch state are the way to go. It is also cheerfully instructing that if we do set markets free, we will all be delivered to an ever more brilliant, prosperous, happy future.

You see this chirpy whiggishness in the degrowthers' online nemeses, Max Roser and his happy data charts, Steven Pinker and his pink Steven-Pinkerish-ness. Let's keep going as we have been going, we are growing, getting richer, making everything better for everyone along the way. Radical changes that aim to improve things for the have-nots by imposing constraints on the have-too-muches, rather than just growing the pie, will destroy the goose that is slowly but consistently delivering ever more golden eggs to everybody. If it doesn't feel that way to you, well, your pain is misinformation. Follow the science, look at the data, find a psychiatrist.

Of course, climate change and the ever more pressing possibility of ecological collapse is a real fly in the whiggish ointment. The follow-the-science crowd does not dispute that if historical correlations between say, fossil-fuel use and GDP growth continue, the planet would boil more spectacularly than an egg in the microwave.

But, they point out, the fossil-fuel intensity of GDP is declining, and thanks to growth (with which they conflate, contestably, with technology), we'll soon be able to replace fossil fuels with clean electricity even while the economy continues an exponential trend.

Unfortunately, if by some miracle we succeed at conquering carbon, waste heat from even clean energy sources would start to boil us in a century or so, unless we radically reduce the total energy intensity of growth, or else deploy very risky forms of geoengineering. And it's not just energy and global warming. Economic growth is correlated with raw material extraction, deforestation, industrial pollution, microplastics and megalittering. We'd have to reduce the GDP intensity of all of these impacts at a pace that exceeds economic growth in order to maintain a survivable planet.

Of course! say the whigs. Let's do these things!

Degrowth is immoral, it is short-circuiting the engine of humanity's collective prosperity. But dematerialization, well, dematerialization is great! It is just the application of human ingenuity to produce more value with less physical stuff and energy.

The whigs point out, correctly, that value is not a physical commodity, subject to physical laws or limits. Value is an incorporeal construct, its measures invented by economic statisticians to capture putative behavioral correlates — primarily willingess to pay incorporeal units which themselves are available without physical limit, constrained only by judgments made by elaborate technocracies about the "real" value of those units to a hypothetical species of utilty maximizer.

The laws of physics need not apply!

Okay. But let's get real. But what would this actually look like?

A few weeks ago, I think I got my first glimpse. It looks like this.

Until recently, virtual reality (like artificial intelligence) has been a joke, a transformational technology perpetually a decade away from transforming anything. But Apple's preternatural knack is to take technologies that already exist but are marginal, mere toys for hobbyists, and turn them into products so ubiquitous they upend society. Its one-two punch of the Apple ][ then Macintosh gave us modern computing. A variety of tablets and mp3 players preceded Apple's blockbuster versions. Laptops and mobile phones were already far from marginal. But when Apple put all these pieces together in the form of the iPhone, the world changed so radically we now have no idea how to raise our children.

What if it turns out that "mobile" was a mere dress rehearsal for the effect of virtual reality for the rest of us? Smartphones have already delivered dematerialization. Kids aren't breathless for their drivers' licenses at age 16 anymore. They don't want rides back and forth to live out a decade as mallrats. They do a lot of socializing that might otherwise have involved fuel consumption, cosmetics, fast-fashion, condoms, day-after pills, and abortions over their phones now. That's dematerialization!

As they grow up, an increasing share of them may join a "laptop class" in one form or another, delivering whatever services it is they sell over wires, driving nowhere to do so.

So far this has all been a bit unsatisfying, a kind of Tofurkey-substitute for the real meat of face-to-face socialization and collaboration. The kids have dematerialized but they are fucking depressed about it. We've dematerialized meetings to Zoom and Microsoft Teams, but how do we do mentoring without relationships that form parsimoniously in the hallways and might be nourished over a drink after work?

But virtual life is also in some respects better than the real thing. In its heyday we hung out on Twitter not because we couldn't have a real social life, but because most of us couldn't possibly have conversations within our physically-accessible circles as lively and well-informed and potentially relevant as the exchanges that we could join online. Like the kids, we grew depressed, because there are things we get from face-to-face sociability that no amount of shared interest or extraordinary knowledge or accessible status hierarchy could make up for. But for what we were losing, we weren't just getting a shadow of the real thing. We were getting something new, something better than what had ever been available to us before. It's just there were some hard tradeoffs we had to make.

What if that ceased to be the case? What if virtual copresence, in the form of goggle-free avatars whose form and expressivity are reconstructed and enhanced from our goggled faces by uncanny artificial intelligences, proves to be better than the real thing? What if we augment ever cleverer, ever lighter, dematerializing goggles with body suits that allow (consistent with user-defined, algorithmically gatekept safety) even for warmth and touch?

This would be The Matrix, except emerging "voluntarily".

We need those scare quotes. Acquiescing to technological change is never voluntary, exactly, at an individual level. If this is the way the world goes, you don't really have a choice but to join it. It becomes voluntary like driving was voluntary once jobs and residences became so far dispersed you could only access both with a car. But, like that evolution of the mid-to-late 20th Century, this brave new world might emerge without much in the way of overt coercion by states. The notion of "collective choice" is always touchy philosophically. It sits in deep tension with conceptions of freedom that center individuals. But it is plausible — and I think the fact of ecological and environmental limits renders it quite likely — that we will collectively choose our own quasi-Matrification. To a large degree, we already have.

Obviously this could be dystopian. But it might not be. We would not, after all, be literally confined to pods subsisting on liquid nutrient injections. Like kids and dying shopping malls, we would just all become homebodies even more than we have already. Immersed in brilliant virtual outings with friends, in virtual workplaces and virtual romances, large, luxury, housing would just become less important to us. As the resources associated with, say, inefficient exurban living grow more costly — as they have, as they are, as they will likely continue to do — we will simply choose it less. Materially efficient forms of living — think dormatories, or smallish apartments for families — will become less unappealing when we spend much of our time in not-Mark-Zuckerberg's metaverse anyway.

In any case, as virtuality continues to sap, as it already has sapped, our physical sociability, the business case for dense urban life will grow ever stronger. One reason to live in New York City is because if you want access to cornucopic and obscure commercial niches, if you want both Eritrean and Estonian restaurants and you want exotic musical instrument shops offering theremin lessons, then you need a lot of people tightly knit so that the tiny fraction interested in these obsurities will be enough to support some businesses.

The same logic works tragically in reverse. The fewer people that share a single tightly knit geography, the more basic and generic the business ecosystem will be. The scale of a "tightly-knit geography" is not just geographical, but it depends upon our behavior, on how far we find it convenient to wander. Holding physical population density constant, as people become less peripatetic in their everyday lives, less dense cities will become less able to support niches that right now we don't consider very obscure.

Right now, most of us prepurchase mobility across a wide geography by paying high fixed costs for a capital good (a car), and then enjoy low variable costs for physical movement. But as the kids and their cellphones are already showing, in a more virtualized world we'll be content to move about less. So we'll less frequently choose to pay the large fixed cost of a vehicle, and we'll rely upon taxi services like Uber, and maybe occasional car rentals for longer-distance travel. But once we cease prepaying for our transportation with that big vehicle purchase, once the cost of each journey takes the form of a steep variable cost, the expense becomes very salient. We'll rearrange our lives to take those journeys even less.

The decision not to purchase a car is a lifestyle watershed. The convenience of either the corner store, or Amazon, over big boxes warehouse stores grows hugely. As we drive less, we physically interact across geographies less. The social distance between physical selves grows, unless we live more densely. We accept smaller homes in order to have nearer neighbors, and a greater variety of corner stores. We replace homes we maintain ourselves with apartment blocks maintained at scale. And we buy a lot less, at least a lot fewer physical goods.

There will, no doubt, be a huge new array of virtual services to keep "real GDP" growing at some arbitrary economist-prescribed clip. The whigs will always have been right. We'll have grown wealthier and wealthier every year! It's just that, um, relative prices, will have shifted in ways that make our present standard style of living impossible.

I suspect we will still want to eat out, to physically meet sometime. We will still want and need to exercise our physical bodies in the real world. We won't have our lawns and leafy streets, so we will want wonderful parks, close to our flats. The gardens some of us will still want to plant will become community gardens, or perhaps green balconies and roof terrances. The family and friends we will still want to physically see, we will want closer by.

To one of our political tribes, all of this is likely to sound dystopian. To the other, it may come off as more-or-less desirable. There are reasons why Tribe Red — tribe rural and exurban — is in greater denial than Tribe Blue about global warming, climate catastrophe, ecological limits to growth. Tribe Red has much more to pay, much more to lose, in terms of its current values and way of life. The efficiency and environmental case for consolidating humans into dense, efficient urbanity has long been clear. But the humans have values that diverge from and stand above abstract, distant concerns. The wise central planner might long ago have imposed a carbon tax that would compact us into 15-minute cities. But the humans, living lives whose basic contours we want to keep, have resisted.

Yet Tribe Red kids have been seduced into their phones, just like Tribe Blue kids, if only a bit more slowly. And the next round of kids can look forward to technological worlds far more compelling and seductive than six inch screens that we relegate to our pockets. Even if your job still involves making or moving things in the real world, these virtual worlds are where you'll meet with your boss. They won't be any more optional than the late 20th Century commute was.

Whether at the end of these seductions are fulfilling brave new lives, or mere shadows of lives left bereft by the loss of unmediated physicality, remains to be seen. In large part, that may be determined by choices we make now, as we build our virtual worlds. Will we build a free, liberal, pluralistic society, or will we all be serfs to Mark Zuckerberg — or Tim Cook — in the metaverse^TM? That's on us, on all of us.

But if you are looking for a vision of a future that lets the planet heal from all the damage we've done and are doing, one that citizens of the resource-profligate developed world might be seduced into accepting as market-based "dematerialization", rather than coerced into accepting as "degrowth", that vision is Apple Vision Pro. And then the changes that follow, once the status and relevance of the physical world decline so much, we finally acquiesce to some efficiencies.

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p.s. One might also find an answer to the Fermi paradox in Apple Vision Pro.

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If you don't read Matt Stoller's newsletter Big, you should. He writes about the consolidation of everything — recently candy, videogames, Hollywood, generic drug purchasing power airlines, everything — and is also a tribune for the very hopeful turn on antitrust under the Biden Administration and Lina Khan's FTC. We live in an era where clowns on televisions try to get us mad at the gub'mint and its taxes, while we are quietly taxed into penury and precarity by rents embedded in the price of everything we purchase. Don't look here, look there.

A very important good we try to purchase is future well-being. When we "save" or "invest", we pay a price today in order to buy cashflows far into the future. When we purchase a home, we purchase a stream of shelter and amenities extending indefinitely in time, hoping to endow for ourselves and perhaps our children a secure and comfortable life.

In general, we tend to think of the "FIRE" industry (finance, insurance, and real estate) in abstract terms. There are yields and premiums and earnings and buybacks and god knows what else. Just buy a frigging index fund, right? Don't look here. Look there. It's too confusing? Then trust me.

No. What the FIRE industry sells is not abstract at all. The product it vends is future well-being. And like candy or plane tickets or drugs, whatever future well-being we purchase has a price.

If you do not read John Hussman's market comment, you should. He writes about financial markets, their history, investor psychology. But most fundamentally, he writes about price.

Here is a graph from his latest market comment:

"Nonfinancial market capitalization / Nonfinancial corporate gross-value added including estimated foreign revenues" sounds like something very complicated. But at base, this is just a graph of the price of US shares.

Each year, US firms produce stuff that has some value when sold into the market. How much does it cost to buy shares representing a dollar of that recurring stream of gross production, going into (and hopefully growing into) the indefinite future?

The absolute number isn't very meaningful, and you can (Hussman often does) compare it to other valuation measures's like Shiller CAPE (cycle-adjusted profits-to-earning ratio) or simple price-to-sales ratios. For all of these measures, the shape is broadly similar. From a nadir in the early 1980s, the measures rise, by the 1990s, to new heights relative to mid-20th-Century experience. Thereafter, despite some pretty wild fluctuations (the dot-com crash, the 2008 financial crisis), the attractor these measures oscillate around remains secularly higher in the post-1990s period than during the midcentury period.

In other words, purchasing future well-being in the form of investment cash flows has grown a lot more expensive over this period.

This was great news, if you purchased claims on future cash flows early in the period. You got your cash flows cheap, and now you also have the option to resell them to others at an appreciated price if you find you need purchasing power urgently.

But this is terrible news for people in the market today, trying to endow future well-being for themselves or their family. Endowing a dollar's worth of future cashflow is, arguably, two to three times as expensive as it used to be.

Unless, of course, future cash flows are going to continue to get more expensive even into the indefinite future. Then current buyers also can be the ones who bought early, and benefit from appreciation and an option to sell.

If the good we were talking about were a cans of beans, it would be obvious that an increasing price might be good for people who already have cans of beans or who can produce them, but bad for people who need to eat but don't already have any beans. There is a divergence of interest between incumbent owners and potential buyers.

But with financial assets, incumbent owners go on CNBC and say, "no, it's great that the price of beans has gone up, if you don't have any yet buy however many you can because the price is going to go up more!" Incumbent owners persuade potential buyers that there is no divergence of interest, they're just a bit late to the game, no big deal, just get in on the action now.

When you are hungry and you can only buy three beans, you recognize claims like this are absurd. But give the beans a ticker symbol though and somehow it makes sense. In fact, though, what today's purchasers need is future flows of well-being, and those have grown exorbitantly expensive. Continued appreciation is a sales pitch, a hope, but not a thing you can reasonably know that you are buying.

An exuberant stock market is great for current stockholders, at the expense of people who have not yet endowed their futures but would like to. It does not represent a "good economy". It represents a circumstance where some people are well off, and other people are screwed.

Let's look at housing. From DQYDJ, here's a graph of median US home prices, including (the green line) inflation-adjusted prices.

Quite similarly to what we observed with stocks, we can see that beginning in the 1980s, the inflation-adjusted cost of a US home rises, ending up today at roughly double the midcentury norm.

As with stocks, financial news people and incumbent homeowners think this is a great thing. We are building wealth!

But to people who have not yet prepurchased comfort and shelter out into the indefinite future, this jump in price is just a jump in cost. Future well-being that in the past might have been affordable to them costs twice as much as it used to cost. Home price appreciation is not remotely an unalloyed good. It's good for incumbents, bad for new entrants into the future housing market. (Yes, median price masks quality improvements over time. No, that doesn't change the basic story.)

With housing, it is now pretty common to acknowledge that a coalition of incumbent of homeowners effectively forms a cartel that uses regulation and other tools to maintain housing scarcity, in order to protect and enhance both the market values and amenity values of their homes. "NIMBYs", people who have already purchased future well-being in the form of housing, are not mere passive beneficiaries of some housing market lottery, but act to protect their interests at the expense of people still short a stream of future home and comfort.

Why should we think it is any different with financial assets?

Hussman, who has tracked for decades prices and reverting means was shocked and wrong-footed in the mid-2010s when, despite normally reliable signals that prices were too high, too extended, would soon give way... they did not. He attributes this to the Federal Reserve, which used near-zero interest rates and quantitative easing in order, pretty explicitly, to goose asset prices and counter weak demand:

In every other market cycle across history, there was always a “limit” to speculation. Prior to 2008, the S&P 500 had regularly lagged Treasury bills in conditions that we identified as “overvalued, overbought, and overbullish,” even when our measures of market internals were favorable. You’ll see that observation in my July 30, 2007 quote above. Those overextended conditions were often accompanied or quickly followed by deterioration in market internals, and it was best to act preemptively. This sequence unfolded in cycles across history, including 1973-1974, 2000-2002, and 2007-2009, as well as 1929-1932 based on imputed sentiment data.

In 2008, the Federal Reserve embarked on its experiment of quantitative easing, driving the amount of zero-interest Fed liquidity (mainly bank reserves) to an unprecedented percentage of GDP. Nobody could actually put those speculative hot potatoes “into” stocks, or bonds, or anything else without the stuff coming right back “out” in the hands of a seller.

The difficulty for our own discipline, particularly between 2012 and 2017, was that 16% of GDP in zero-interest liquidity – eventually peaking above 36% of GDP – made investors lose their minds.

This all strikes me as plausible enough.

But now interest rates are more than 5%, very historically normal, and quantitative easing has given way to quantitative tightening, and still markets levitate.

There may well be a crash, later or sooner. But we've seen crashes in 2008 and 2020, and a downdraft in 2022, and still the attractor that prices oscillate around is the expensive new normal. Through all of the turbulence, unless you time things just right, a dollar of future corporate production in the post-1990s market costs roughly twice as much it did in the prior period, just like two bedrooms of comfort does.

Maybe we should think of these markets — shares and housing — in unified terms as simply the market in future well-being. And maybe, like candy and eyeglasses and airplane tickets and films, we should wonder how somehow the market for this rather important good has been cornered. Maybe we should get Stoller on the case. We understand that a kind of dispersed, tacit, cartel makes use of means private and public, fair and foul, to sustain housing values. Given that the class of incumbent shareholders is almost perfectly coincident with the most politically enfranchised mass cohort in the United States, why should we expect that there wouldn't be such a cartel sustaining share prices?

When we talk about housing and "NIMBYs" and all of that, we talk about supply constraints. If we could build lots more houses, then houses and so future well-being would be much cheaper than in a world where desirable housing is "artificially" scarce.

In theory, new supply should also cause claims on future corporate production to become cheaper. As stock prices grow expensive, we might imagine that firms would issue new shares, since the cost of equity finance declines with increasing share valuation.

But firms don't do that, because incumbent shareholders would not want them to diminish share scarcity, and flee from the putative signal of overvaluation. Instead firms take on debt to conduct buybacks, increasing scarcity (and "signaling undervaluation"), even at objectively nosebleed prices.

Alternatively, new supply could come from new firms, who sell their shares cheaply to gain the funding they need to expand the "value added" they produce. But, if NEPA and CEQA and all of that are the workhorses of housing NIMBYism, maybe Marc Andreeson had a point and Sarbanes-Oxley and Reg FD serve the same role with respect to investable public shares. Private equity now buys up all the young firms, cartelizing current markets rather than juicing valuation multiples, but with the same effect upon price. You and I get stuck with the overpriced S&P 500, and with the overpriced anesthesia. (And God knows we need the anesthesia!)

Whatever the particular means, it seems pretty clear that like every almost other market in our once proud, now deteriorated market economy, some form of consolidation or coordination has made a cartel that now dominates the market for future well-being. The price of endowing a future has been jacked up well beyond what experience informs us is possible. Incumbent holders of claims on corporate production — or just the comforts of home — have those without over a barrel.

How do we break a cartel over hope itself?

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FD: I'm short US equity markets, rather painfully. Brother can you spare a dime?

Kevin Drum takes note of a CNN piece, which points out that Japan can build warships at one-half to one-third of the cost of United-States-built ships. Drum is, reasonably, skeptical of the explanation advanced in the piece, that stricted contract terms largely explain the price difference. He asks, "[I]s our procurement really so screwed up that we pay twice as much for basically the same ship?"

It should be no surprise that we pay twice as much for the same ship. We pay at least twice as much for almost anything that must be domestically sourced and requires coordination and consent by many players. Alon Levy and their colleagues have been documenting this for years with respect to transit infrastructure costs. (See Understanding Transit Infrastructure costs in American Cities by Eric Goldwyn, Alon Levy, Elif Ensari and Marco Chitti) They suggest, for example, that "the difference between the best and the worst procurement practices contributes a factor of 2 difference in construction costs." So Drum's a-bit-incredulous explanation is actually perfectly plausible.

But procurement dysfunction is only one of many ills the Transit Costs Project documents, and overpaying merely by a factor of two is a pretty good outcome for American public works. Read the whole thing, as they say, even if it is 424 pages. (No, I haven't.)

A lot of things go wrong in a US context that just don't go wrong nearly as much in other places. Pretty much every factor of production costs more.

One could — the Transit Cost Project very much did! — dive into the details. But I want to make a more sweeping, data-free attribution.

On the other side of all the higher costs are workers, contractors, neighbors, politicians, and other stakeholders whose collaboration or acquiescence must be purchased in order to make a project work. In any country, for any project, each of these parties faces tradeoffs between mission-alignment ("Let's get this done!") and private interest ("We should be compensated.") If, in some altruistic paradise, all parties were purely mission-aligned and required no compensation, project costs would be very low. On the other hand, in a country where private interest absolutely dominates mission-alignment — where all players demand maximal compensation in exchange for any contribution, with little interest or regard for project success beyond getting what's theirs — then the costs of achieving a successful outcome will grow very large.

It is silly to attribute cross-national differences in costs to personal or psychological differences. People are public-spirited everywhere. They are public-spirited in the United States. People are greedy everywhere. They are greedy in the United States.

But what is not so silly to point out is that in the United States we are structurally greedy. At a macro-level, in the name of maximizing capitalist incentives to produce, our institutions are designed to encourage self-interested income-maximizing behavior more than the institutions of other countries are. Low taxes for top-earners, tax-advantaged payouts from firms to shareholders, strong "intellectual property" rights, tolerance and even lionzation of firms that consolidate industries to extract rents, all combine to create an environment where the quantity of private income forgone for an aliquot of public-spiritedness is higher in the United States than it is almost anywhere else. At the executive and shareholder level, forgoing a dollar of private revenue in favor of making a great project work is a lot easier to do when that dollar would have been taxed at 90% before it could become personal income anyway. Instead of maximizing incentives to produce, the American system has engineered a tax on virtue, including the virtue of just delivering stuff that is great and works.

At a micro-level, the dispersion and precarity of life outcomes in the United States make us all as individuals behave as if we are more greedy than we would if all that was at stake for us was a bit of luxury. I've described this before as "predatory precarity".

In the United States, very basic goods like having your kid in a reliably safe and decent school, or having a home in a neighborhood where your family will be safe, or getting decent health care, are far from universal. In fact, these basic goods are scarce and price-rationed. Most of us do not enjoy them, and those who do pay through the nose for them. It does not seem like so much to ask for — a safe home, good schools, health care, some ability to keep these things through retirement. But increasingly, the only way one can secure these goods in the United States is to price whatever services one sells into the market aggressively, gain some market power and extract some rents of your own like a true capitalist hero.

Competition is supposed to drive the price of goods and services towards "cost". But what does cost even mean? It must at least mean "subsistence", but what subsistence means is socially determined. Adam Smith, in a famous passage, wrote

A linen shirt, for example, is, strictly speaking, not a necessary of life. The Greeks and Romans lived, I suppose, very comfortably, though they had no linen. But in the present times, through the greater part of Europe, a creditable day-labourer would be ashamed to appear in public without a linen shirt, the want of which would be supposed to denote that disgraceful degree of poverty, which, it is presumed, no body can well fall into without extreme bad conduct. Custom, in the same manner, has rendered leather shoes a necessary of life in England.

The United States is an extraordinarily class-stratified society, and people of various classes require certain goods and services as surely as an Englishman in Smith's time required linen shirts. Safe, decent, housing (which in the United States usually means either an apartment in an expensive urban district or a single family home); schools good enough not to restrict an ambitious child's chances (so a private school, or a public school in a rich neighborhood); a car for each adult that's not a jalopy; health insurance premiums; some retirement savings — these are de minimis requirements of a decent life for a professional in the United States, and they cost. In the United States, they cost more than professionals in almost any other country could possibly afford from their own salaries. American professionals behave as if they are more greedy than their colleagues elsewhere, because they have to be more greedy in order to afford social goods that are more universal, much less scarce, elsewhere.

Everything we can't source externally is more expensive in the United States because we are all, desperately, striving to make the labor, goods, or services that we sell — or else the hold-up costs we can impose — expensive. Our institutions both encourage and demand that of us, by letting the most successful enjoy outsize rewards and social power, by threatening us with submersion in American social pathology should we become unable to pay all the tolls and rents we must continually pay in order to segregate ourselves from it.

So warships and subways — big projects where lots of people each get to demand a payout, as compensation for goods and services, as compensation for risk-bearing, as a form of political persuasion, in exchange for acquiescing rather than suing, as a result of costly lawsuits — are expensive in the United States. We make them that way, one eager, ambitious, desperate hand at a time.

And then we are shocked. Really, genuinely, shocked. Because we really, actually believed that, if nothing else, these institutions in which we ostentatiously and proudly entrapped ourselves would deliver "economic efficiency". That was why we did this to ourselves.