Month: February 2020

Where You Live (& Are Born) Matters

Posted on by jabittan
Raj Chetty, a Harvard researcher, has done some pretty interesting work that shows that the zip code you are born into can have a huge impact on how much money you earn over the course of your life. Down to the neighborhood level, where you live, the people around you, and the connections you happen to make in life can be major determining factors in what job you take, what college your children attend, and how well off you end up financially speaking. We don’t like to address this very often, but we recognize that it is true, and we have seen increased segregation as we try to separate ourselves from living next to undesirable people and places.

 

In his book The Complacent Class: The Self-Defeating Quest for the American Dream, Tyler Cowen writes, “in 1970, only about 15 percent of families lived in neighborhoods that were unambiguously affluent or poor. By 2007, 31 percent of American families were living in such neighborhoods.” We are moving in directions where we separate ourselves from people who are not like us in terms of socioeconomic status (SES). Today, relative to 30 to 50 years ago, we are less likely to interact with someone who is very poor if we are rich. We are less likely to know anyone who does not share a generally similar SES, and we are far less likely to have any meaningful interactions with someone from a different SES. Cowen continues, “for where you live, income matters more than ever before, as can be shown by a simple perusal of the apartment ads for most of America’s leading cities.” 

 

This segregation by home value and SES has some obvious consequences, such as schools becoming more segregated by income and race and skyrocketing home prices in some regions of town coupled with deterioration and disinvestment of other regions. However, as the research from Chetty shows, there are other, less obvious consequences from our SES segregation. Where you live influences the opportunities available to you and your children.

 

We like to think that it is our own effort, talent, and hard work which determines how much money we make and where we end up financially and in terms of the home we are able to buy. Since talent, intelligence, and work ethic are evenly distributed on a genetic level, we would expect that everyone could achieve the same ends regardless of where they happened to be born. Instead, we see huge disparities by zip codes and neighborhoods in terms of ultimate SES. Our segregation is leading to situations where those who are born in wealthy areas are able to make valuable connections, learn the unwritten rules of networking to getting ahead, and receive visible reminders of what can be achieved through hard work and perseverance. Certainly people from the lowest SES background can still network and can still see the benefits of hard work, but research also suggest that when people from the lowest SES don’t have any interactions with people who are economically well off and successful in their careers, they do worse.

 

Cowen argues that our segregation by SES is making us a less robust society. Partially because we are leaving other people out, but also because it narrows the world for all of us (not just those in low SES neighborhoods) and stymies innovation, development, and progress. We are comfortable in neighborhoods with people who have a similar background and SES to our own, but this does not help us better understand the world, does not help us advocate for and support policy which might help us and others, and does not help us identify and encourage the top talent born in our country. Our complacency as we all search for our own individual American dream is crippling the American dream that we share as a nation by segregating us into complacent bubbles.

On Redistribution

Posted on by jabittan
In the United States people hate the idea of redistribution. I was remarking the other day while reading a political science journal article that American culture operates with a background sense that using public policy to improve ones economic fortunes is illegitimate. The only legitimate way, in American culture, to improve ones economic standing is through hard work in the traditional labor market.

 

This is one contributing factor to why redistribution is viewed so negatively in our country. To be seen as deserving, one has to be seen as hardworking, and hardworking and economically successful are tied in the way we think about people in our country. We use a heuristic to tell ourselves that rich people are hard working and that poor people are lazy because it is easier than considering the alternative, and it also confirms to how we want the world to work, at least if we are relatively well off or see ourselves as becoming more financially successful in the future. We want to believe that our good economic standing and future earnings potential reflect our own industriousness and not just a set of favorable circumstances beyond our control.

 

In their book The New Localism, Bruce Katz and Jeremy Nowak look at our behavior around redistribution and consider how it fits with the framework for local action that they develop. Redistribution is an area where they find an interesting split between the role of federal and local governments.

 

“Major redistributive policies, such as the earned income tax credit, are best pursued at the federal level. Federal redistribution is more effective than more local efforts because the federal government has a larger pool of income from which to draw and there is less capacity to opt out. Federal redistribution is largely people based. State redistribution is generally linked to providing support for public goods in jurisdictions with taxing capacity disadvantages.”

 

I find it really interesting to think that the federal government’s redistribution programs are more people-based than local programs, but I think I understand why that might be. At the local level, we become upset when we see a person in our community who is accepting some form of assistance from the government while simultaneously driving a new car or leaving a nail salon. In some way, when we see an actual person who is benefiting from a redistributive program and using their resources in a way we find inappropriate given what we judge their priorities to be, we feel cheated. We feel that the economic assistance provided to them should have been spent on other local pressing problems rather than on supporting someone who using the financial aid unwisely. This makes local adoption of redistributive programs for individuals more challenging. At a national level, the quote from Katz and Nowak seems to suggest, we likely won’t recall as many of these hyper-local context examples, or just won’t be as aware of the aid, and won’t be as keen to notice the effects of a redistributive policy.

 

Another local level wrinkle that influences the policy appraoches from Katz and Nowak’s quote is that we don’t want to live in a city or region that is known for its slums. Those of us who are affluent enough will likely make efforts to avoid local trailer home regions and find ways around the lower socioeconomic parts of town. We won’t want to acknowledge these regions because they make our entire community look worse, especially from the outside or when commented on by national media. These pressures may make us more willing to have government take action to “clean-up” these economically depressed regions. We see a personal benefit to ourselves in having our city invest more in economically weak regions. We don’t see the same personal benefit from redistributive programs that help other individuals.

A Public Purpose Mandate

Posted on by jabittan
In The New Localism Bruce Katz and Jeremy Nowak advocate for new governance structures to help encourage innovation and lead to dynamic growth for cities and metropolitan regions. Katz and Nowak believe that current structures and institutions are inadequate to respond to global challenges that demand multisectoral action, technological innovation, and network approaches to problem-solving.

 

One of the recommendations from the authors is to produce new systems and structures for the effective management, use, and development of public assets. The authors are critical of public management strategies that often lead to politicized decision-making and cronyism. At the same time, the authors don’t suggest that public assets should simply be sold to the highest bidder from the private sector for their own profit maximization. Public assets can play a huge role in city revitalization and growth if managed properly, and the authors recommend that cities and metros look to Copenhagen for examples of better public asset management.

 

The City of Copenhagen has created publicly owned private corporations for the management of public assets and economic development spaces. An insulated private company is responsible for maximizing public benefit through the use of the city’s assets. In regard to transferring this system to cities in the United States, the authors write, “The United States also has to come to terms with the fact that public assets can be effectively managed by the same private systems and principles that build private wealth and productivity, but with a public purpose mandate.”

 

We like to think that there are either public systems, like say the DMV, or private businesses. Our debates and discussions generally center around the pros and cons of each, with people trying to reach an impossible conclusion that one system is inherently better than the other. Katz and Nowak show that Copenhagen took a different path, looking at how a private corporation could be established with public ownership and an ultimate purpose of maximizing public returns rather than private financial returns. The result has been an entity that can think long term, coordinate with both public and private organizations for responsible and equitable growth, and make decisions that focus on improving the city of Copenhagen in a realistic way that responds to actual economic trends, pressures, and forecasts. This blend of public and private is more robust than either pure private development or public management. The result of finding a third path is a new structure that can actually address problems in rational manners and sidestep the pitfalls that are so common in American city governance.

How Our Poorly Evolved Brains Contribute to Political Dysfunction

Posted on by jabittan
One of my beliefs about human beings is that we are currently operating in a world that has far outpaced the realities that our brains were evolved to live within. We are social creatures that operate in political tribes, and the social and political situations of our ancestors lives have pushed our brains to be bigger and pushed us to be smarter, but have not necessarily pushed us to be more adapt at understanding reality or seeing the world in a clear and honest way. This has happened in our brain, however, while we have maintained the basic hardware and default mechanisms which were originally developed for the purpose of survival on a savanna or in a jungle. Our brains are still built for making quick decisions between safe and threatening, but we have layered on great intelligence through social and political games that require smarter and more deceptively cunning intelligence. The result is that our brains are powerful, but deeply flawed and inadequately evolved for current circumstances.

 

This is important because we live in a world that is incredibly complex and requires that we make decisions among noise and competing values with varying levels of social and political consequences. Our world is filled with decisions that must balance multiple variables, but at their base, our brains really just want to make a quick decision between two variables: safety or threat.

 

I see so many situations in my own thinking where I reduce the world to one or the other. Someone is either a great person because they gave me plenty of space in their car while I was riding my bike, or they are an evil human being who couldn’t move over for me. Someone is either lazy and dumb, or hard working and brilliant. Considerations of the middle ground are complex, and as a result I default to an either-or mindset when looking at the world. For most of my daily interactions and situations this doesn’t matter much, but when we layer these tendencies up throughout society, it becomes dangerous and is a contributing factor to the political dysfunction and social unrest we see around us today.

 

In their book The New Localism, authors Bruce Katz and Jeremy Nowak hit on this point. About our political disagreements between Democrats and Republicans (the authors use Left versus Right which I disagree with for other more complicated reasons) they write,

 

“The battle between these two choices in public asset management [public ownership and provision as favored by Democrats versus the undeterred use of market forces as favored by Republicans] has contributed to political partisanship by posing a false choice between management mediocrity and the loss of ownership rights. These choices, driven by fallacies that are supported by old ideologies, contribute to political dysfunction.”

 

Katz and Nowak argue that we make huge political decisions in our country based on outdated models that feel comfortable for our brains (as our brains scan for safety versus threat) but that don’t really reflect reality. Good public management, the authors argue, in today’s age requires a merger of public and private asset management strategies. Public ownership cannot be absolute because it can lead to politically biased decisions with elected officials acting as arbitrary gatekeepers. Open markets, however, can leave people out and be leave us with greater inequality rather than provide us solutions to pressing problems.

 

One solution the challenge above might look like public ownership a of a private corporation, adding a layer to reduce political influence and bias, and using experts to maximize public benefit as opposed to using business insiders to maximize shareholder value. This is just one example of a third approach to a problem that our brains would rather see as a choice between two variables. We want to see the world as good versus evil, because that is how our brains have evolved. It didn’t matter if there was some nuance to our early ancestors about eating mushrooms, running from animals, or traversing down a steep cliff. What mattered was survival and having an innate sense of safety versus threat was advantageous. Today however, that same innate sense is at play (even though we don’t recognize it) and is holding us back and creating chaos rather than helping us successfully reproduce.

New Considerations for the Public vs Private Discussion

Posted on by jabittan
In the past I wrote about the importance of privacy in our politics from the point of view of Jonathan Rauch and his book Political Realism. We have almost no trust in government, and we frequently say things like, “sunshine is the best disinfectant,” but the reality is that politics is made much more complex when it is in the open. Difficult negotiations, compromises, and sacrifices are hard to do in open and public meetings, but can be a little easier when the cameras are turned off and political figures who disagree can have open and honest discussions without the fear of their own words and negotiations being used against them in the future.

 

In The New Localism, Bruce Katz and Jeremy Nowak acknowledge the difficulties faced by governments when open meeting laws force any discussion to be public. The laws come from a good place, but for local governments that need to move fast, make smart decisions, and negotiate with private and civic sectors to spur innovation and development, public meetings can lead to stagnation and gridlock. A solution proposed by Katz and Nowak is for local governments to authorize private corporations overseen by public bodies and boards to operate economic development areas and to take ownership of public asset management.

 

They describe how the city of Copenhagen has used this approach, “Copenhagen has found that by managing transactions through a publicly owned, privately driven corporation, operations run faster and more efficiently in comparison to how local government traditionally tackled public development projects.”

 

The private corporation running local development is publicly owned. It is still accountable to the local elected officials who are ultimately still accountable to the voters. But, the decisions are private, the finances are managed privately, and negotiations are not subject to public meeting laws. While the corporation has to demonstrate that it is acting in the public interest, free of corruption, it can engage with other public, private, and civic organizations in a more free and flexible manner to accomplish its goals. Leveraging the strengths of the private sector, publicly owned private corporations that put local assets to work can help drive change and innovation.

 

Directly calling back Jonathan Rauch’s ideas, these corporations create space for negotiations that would be publicly damning for an elected official. They also prevent elected officials from having undue influence in development and public asset management, preventing them from stonewalling a project that might be overwhelmingly popular in general, but unpopular with a narrow and vocal segment of their electorate. This prevents public officials from pursuing a good sounding but ineffective use of public resources to signal loyalty or virtue to constituents. Removing transparency and making the system appear less democratic, as Rauch suggests, might just make the whole system operate more smoothly and work better in terms of the outcomes our cities actually need.