A while back I wrote that two parties make us stupid.

Effective public deliberation requires a neutral-ish population who can help adjudicate. For any matter of public concern, there should be a sizable group whose interest in the question flows only through a broad public interest, rather than from any parochial stake in the outcome.

In a courtroom, we choose juries randomly, rather than letting the prosecution and the defense stand their own jurors. We understand that if we let each team hire six jurors, nearly every jury would be hung. There'd be little point in holding a trial. Partisan jurors would not base their verdicts primarily on good-faith evaluation of the evidence presented. They'd deliver the verdicts they were hired to deliver. If we want a defendant to be judged without prejudice on the basis of evidence presented at trial, we need neutral-ish jurors with little skin in the game.

Similarly, if nearly the whole of the politically engaged public is segmented into two camps, each of whose members share an overriding interest in winning contests that enhance the power of their side, then there can be no arbiter on behalf of a broader public interest. In every matter of public controversy, one of the two camps will have adopted a position which the other will oppose. Partisans on each side will tend to support their own party's position, regardless of cases earnestly made by advocates and activists on the broader merits of the issue. Substantive public deliberation will be short-circuited.

If members of the public are segmented into five or six different camps, a matter of public controversy may have entrenched advocates on one side or the other in some of the parties. But the issue may be orthogonal to the remaining parties' core allegiances. A multiparty system leaves room for neutral-ish adjudicators who serve as a good faith audience to public deliberation, who will constitute the "swing" vote when the question is decided in a legislature or referendum. A two-party system can pull this off only when it sustains a population keenly interested in public affairs, but with only weak factional identities — people who are politically engaged but routinely cross party lines. That is, the parties cannot be sharply polarized.

Criminal justice is largely exempt from this dynamic. While the guilt or innocence of a shoplifter is, in a certain sense, a matter of public controversy, the direct interests at stake are so small as to render the matter effectively private. The accused has a direct interest. The victim may perceive a direct interest. But for most of the rest of us, our stake in the outcome is only that justice be done. Courts can call jurors, filter away those whom there is some reason to think prejudiced, and conduct something like a fair trial.

This becomes more difficult, however, when the defendant is herself a public figure, particularly when the defendant is aligned or associated with a major political faction. In a sharply polarized two-party system, whenever a prominent figure of either party faces criminal charges brought by members of the opposing party, people strongly identified with the defendant's party will call the prosecution illegitimate and politically motivated. People associated with the prosecuting party will claim merely to be applying the law, without fear or favor.

Who is right and who is wrong? Without a credibly neutral public to adjudicate, the question is not decidable. You may be absolutely sure that your view (and, coincidentally, your side's view) is correct on the merits. The other side will have alternative facts.

In a sharply polarized, two-party system, there is simply no fixed point, no neutral vantage from which anyone persuasively judge. Except in cases so egregious that even copartisans concede a necessity, the question of whether a prosecution is invidiously political can find no authoritative answer. It becomes the macro analogue of a he-said, she-said controversy. You may have a strong view, and have your own deep understanding of the merits of the case. But then you would have that view, wouldn't you.

Again, in a multiparty system, or in a system with only weak factional identification, a less interested public can serve as arbiter and decide these questions. They might be complicated and hard and fraught, but when the bulk of a public not strongly identified with either the prosecutor's nor the defendant's faction comes to a decision, that decision can stand. No decision will engender a consensus or become authoritative while the public remains sharply polarized into two camps. Convictions will not be durable, unless transfers of power are prevented and one faction rules in perpetuity.

A system that, to a reasonable approximation, administers rule-of-law in cases involving ordinary people, but which cannot credibly impose criminal consequences on people who are famous and political and wealthy, is not rule-of-law at all. The fissures between the factions become the basis of, and a veil over, a deeper divide, between those whom the law protects but does not bind, and those who, the law binds but does not protect.

We can argue all we want over whether Trump or Elon Musk deserve imprisonment. I think there are strong cases against them both. I would, wouldn't I? People on the other side are sure Joe is the pater familias of a "Biden Crime Family".

I know I am right and they are wrong. They know the same. We're collectively so polarized and sorted there is no one who can serve as jury, no way to credibly adjudicate the question.

If we want rule-of-law, we'll need electoral reform. Not so much because we'll elect different people, but because of the way elections, by structuring citizens into constituencies, organize society as a whole. We need an electoral system that segments us into multiple camps, not just two, so that on many public controversies, most of us will have no factional interest, and can adjudicate rather than advocate.

What makes a sovereign state?

First, there is a territory. The territory has inhabitants. The territory is governed by a state. The state is legitimate.

What makes a state "legitimate"? I think there are two distinct but related criteria, which I'll call internal and external legitimacy. About a year ago, I described what I now think of as internal legitimacy:

Legitimacy sounds very subjective, almost populist. Is a state “legitimate” because the masses agree with it, because people like it? No. It’s nice when they do, maybe even helpful, but nice isn’t what we’re after.

We measure the legitimacy of a state by whether those on its territory both conform to it and resort to it. When the state commands, in the civilized tone of some legal notice (the threat of violence echoing faintly from the pages), do citizens obey? Or do various factions succeed at resisting, ignoring, and defying its edicts? When residents enter into dispute, do they draw their own weapons, or make use of the state’s courts and legislatures and police? Legitimacy is revealed by how people behave, not by what they say they think.

External legitimacy, I think, is even simpler. A state is externally legitimate if it has effective control over violence that projects outward from its borders. If there are marauders or militias that ravage neighboring territories without the state's direction and consent, then the state lacks external legitimacy.

When a state lacks external legitimacy, neighboring states cannot rely upon negotiation to address threats to their interests or to their own legitimacy. Sovereignty is a status that derives from reciprocality among peers. A state that cannot direct or suppress violence from its borders — violations of the sovereignty of neighbors — is not a peer at all. If a state is incapable of respecting neighbors' sovereignty, the state commands no sovereignty for its neighbors to respect.

Finally there is formal recognition. States, and interstate bodies like the United Nations, proclaim by various procedures their recognition that a sovereign state exists, and include those states in ceremonies and institutions reserved for peer sovereigns. The United Nations offers a seat in the General Assembly. Diplomats are dispatched to, and accepted from, the formally recognized state. Among most states, a consensus emerges to describe a community of widely recognized states, which includes most states.

A fully sovereign state demands that all of these criteria are met. The state genuinely governs its territory, suppresses — or in war directs — any violence that might project from its borders, recognizes and is recognized by other, peer, sovereign states.

Of course these criteria are never perfectly met. Every state includes some parties who prosecute disputes via freelance violence ("crime"), even somewhat institutionalized freelance violence ("organized crime"). No state can entirely prevent odd cases of residents traveling from its borders and pulling a gun or attempting some adventure or coup. Any given state may not be formally recognized by some one or few other states. None of these blemishes undo state sovereignty, as long as they are small, idiosyncratic, marginal. It's a judgment call, but it's not usually in practice a hard judgment call. We are usually able to distinguish weirdoes who commit random crimes from organized militias that consistently prepare for and perform violence beyond the capacity of the putative state to control.

The excellent Samantha Hancox-Li writes:

Human history is a river of blood. There is no justice for the numberless dead. Justice is for the living and the yet to be born. It is our responsibility to give not vengeance but peace to those who will come after us. The lesson of history is that it does not matter where you draw the lines on the map. What matters is what kind of society lies on each side of that line. Liberal democracy is the only thing yet discovered that offers a chance for climbing out of the bloody river. Until Palestinians and Israelis both choose liberal democracy, there will be no peace. I do not know how to get there. I only know it is where we must go.

Although I too prefer liberal democracy, I think Hancox-Li sets her ambitions too high, her requirements too stringently. We have had more peace in the world, remarkably, than can be explained by liberal democracy. Saudi Arabia and Egypt are not invading their neighbors, at least not when their neighbors are sovereign states by the three criteria above. (Yemen, in civil war or partial occupation by an Iranian proxy, has not met those criteria for some time.) Iraq in 1990 and Russia in 2014 are exceptions that prove the rule. Invasion of fully sovereign states by fully sovereign states are rare, big-fucking-deals that other sovereign states can be organized to oppose and reverse. Failure to organize and reverse, or at least severely punish, these norm violations invites further catastrophe.

For any sovereign state, a war whose battlefield will include its own territory is terrible. For autocrats as much as for democrats, it is the ultimate negative-sum game. Sovereign states can negotiate and be negotiated with. They can join alliances. Understandings between states can be meaningful and effective. Sovereign states act and can be deterred "rationally", whatever their form of government. After the paroxysms of the mid-20th Century, war between sovereign states became infrequent. We did in fact learn something.

In the vast majority of cases, war comes when the criteria set out above are not met. Violence emerges when a government claims sovereignty over territories beyond its internal legitimacy, beyond its capacity to control external violence, or where the boundaries of the territory are not widely agreed.

Neither Israel/Palestine nor Lebanon are sovereign states. It matters not a whit that they have seats at the UN or internationally recognized borders. It matters even less that Israel refers to itself, absurdly, as a liberal democracy. Israel/Palestine, Lebanon, Syria, post-Saddam Iraq, none of these meet the basic preconditions of sovereign states. So these places are riven by violence, internally among groups that do not recognize the same sovereigns, externally as no sovereign can credibly negotiate terms to suppress the projection of violence into neighboring territories.

The United States, but also China, all the powers and places in the world that enjoy the fruits of peaceful modernity, share a core foreign policy interest in a Westphalian order, in a world be organized into sovereign states that are legitimate internally and externally and widely recognized with clearly demarcated borders. Sovereign states are frequently tempted to undermine the sovereignty of neighbors and rivals, but it's like burning carbon. In the long term, it can only make you better off if everybody else sustains globally the system that you are undermining locally.

Supporting and reinforcing a Westphalian order is a relatively modest ask, compared to universalizing liberal democracy. It's a project the world's great powers and most states might agree upon. It doesn't foreclose geopolitical competition. The world remains a chessboard. But a chessboard has squares.

I don't think a sovereign wealth fund is a thing one can intelligently be "for" or "against", generically. That's like being asked to take a position on chlorine. I'm against chlorine if the proposal is I should breathe it. I'm for chlorine as part of a water purification process. You really do need to be more specific. There are versions of social wealth funds that I'd oppose, others about which I'd be enthusiastic. I did a talk on the subject several years ago, if you have an hour to kill.

I think people focus too much on the asset and benefits side of social wealth fund proposals, and too little on the effects of how the funds might be financed. In an American context, much of the reason to want a social wealth fund is to divert financial flows from where they would otherwise go.

For example, here's Tyler Cowen:

It is true that the expected rate of return of the US stock market is higher than the US government’s borrowing rate. But what matters is the net social increase in investment value, not the nominal returns on the government’s portfolio. If the government buys some of my mutual funds, for instance, and it earns the 7% return that I would otherwise have earned, there is no net increase in social value. On paper, the sovereign wealth fund looks like a big success, but the government has simply issued more debt and redistributed some equity returns away from the citizenry and toward itself.

Cowen elides questions of distribution. Who is this "citizenry"? To whom do equity returns actually go?

While much of the public owns some shares, fully the majority of US stock market wealth, in dollar terms, is owned by the richest 1%. Only 7% is owned by the bottom 90%.

The government "[r]edistribut[ing] equity returns from the citizenry and toward itself" has another name. It's called a tax. It's a tax that falls almost entirely on the rich, but is experienced painlessly, in the form of returns foregone relative to a counterfactual. The rich find themselves with just a bit less opportunity to get richer.

I wrote about precisely the phenomenon Cowen describes in 2018:

A sovereign — er, social — wealth fund is a taxation machine. It is an automatic taxation monster. It takes the miracle of compound growth that capitalists are always on about and turns it into a miracle of compound taxation, effectively taxing wealthier cohorts (those who would otherwise own the SWF assets) an ever increasing share of income year after year without requiring any new legislation, and with minimal distortion of investment behavior.

To see how this works, let’s imagine that we want to simulate the flows of an SWF+UBD. We’ll imagine a very simple scenario. Let’s define a “notional” SWF. The SWF is going to be financed by a tax enacted just once, which will yield $1T in Year 0. The tax take will grow with nominal GDP, which we will model as growing at 5% annually. Beginning at the end of Year 1, the SWF will make payouts. For simplicity, we will base payouts and returns on the end-of-prior-year balance. That is, we are conservatively assuming that the taxes we collect within a year are unavailable until the year following. We will assume a constant rate of investment return of 8% per year. Echoing Bruenig’s proposal, we will have the SWF payout 4% of the prior year balance each year.

However, instead of actually forming the SWF, let’s say that the government were to decide that there’s no need to intervene in the miraculous private sector with actual state ownership, that the assets can remain, um, efficiently managed in private hands but the government will simply use the tax system to reproduce the flows an SWF would generate. As it would if it actually formed the SWF, in Year 0 it would enact a tax, which would raise $1T. At the end of Year 1, it would have raised an additional $1.05T from the same tax. The notional SWF would have enjoyed the same $1.05T as new contribution. However, the notional SWF, if it had actually been constituted, would have also earned $0.08T as investment returns. In order to simulate the SWF flows, the state would have had to adopt a new capital tax of $80B. In Year 2, we have the same effect again. The originally enacted tax now raises $1.1025T, and the new Year 1 tax brings in $84B (assuming that both grow in line with GDP), for a total intake of $1.1865T. However, investment returns on the prior year SWF balance of $2.09T would have yielded $167.2B, which when added to the same take of $1.1025T from the initial tax, yields an inflow of $1.2697T. So, to bring the total inflows in line with what an SWF would have done automatically, the government would have to impose a new tax of $83.2B.

And so on. Each year, to reproduce the same net flows from private capital holders as would “naturally” have occurred had there been a SWF, the state would have to enact a brand new tax, in addition to still collecting the taxes enacted in prior years. Under our assumptions, each year’s new tax is slightly smaller as a share of GDP than the prior year’s, but in reality, that would depend upon investment returns, gdp, and dividend payouts. Whenever investment returns net of dividend payouts exceed GDP growth, the effective new tax that would need to be imposed on capital holders becomes larger as a share of GDP than the prior year’s tax. (Here’s the little Mathematica simulation the numbers in this section are drawn from: [pdf][nb])

We can all, as Mike Konczal put it on Twitter, “spitball” about politics. But I think it fair to say that it would be difficult to sustain the political will to cumulatively impose new taxes on capital holders, every year, year after year after year over a period that might span decades. But the “gimmick” of actually using the proceeds from a single tax, enacted once and continued indefinitely, to purchase capital assets, generates the same effect as this compounding tax schedule in a way that seems natural and inevitable and legitimate under the norms of present-day capitalism. If we accept that other capital holders get to enjoy the miracle of compound returns, why shouldn’t a fund owned in equal shares by all citizens get to enjoy the same? Actually constituting a SWF delivers a regime of effective taxation that, I think it is fair to say, ordinary politics simply could not.

If you think it is a good thing to let the "miracle of compound growth" cumulate endlessly in wealthy private hands — creating permanent, ever-expanding gaps between the rich and the less rich, entrenching a system of wealth-stratified caste — then yes, you should oppose the state "[r]edistribut[ing] equity returns from the citizenry and toward itself".

If, however, you think letting compound growth continually expand the advantage of the already wealthy is not great, if you dislike living in a society whose economic, political, and cultural life is increasingly vandalized and held for ransom by mad billionaires, then perhaps it would desirable to divert equity returns away from "the citizenry" and towards purposes whose benefits will be much more widely shared.

The state, of course, is corrupt as fuck. But in its worst corruption, nothing that the state does at scale results in benefits as lopsidedly plutocratic as the dollar distribution of investment returns when they compound in private hands.