A Partisan Nonpartisan Blog: Cutting Through Confusion Since 2012
“The central bank is not just navigating through a fog; it is steering with a delay. The Fed reckons it takes 18 months for changes in rates to have their full impact.”
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I wish I new a lot more about different approaches to public policy in other countries. In “Even Central Bankers Need Lessons on the Transmission Mechanism for Negative Interest Rates” I wrote about the importance of the correlation between wealth effects and the marginal propensity to consume of different groups as an important part of the monetary policy transmission mechanism. My colleague Frank Stafford told me an interesting example, writing:
I have been involved with a group in Melbourne that studies the Australian housing market.
On my recent trip I just pieced together an unusual aspect of monetary policy there.
Most Australians own their own home and almost all the mortgages are ARMs.
When the Reserve Bank lowers or raises the ‘cash rate’, there is a prompt reset to the ARM mortgages, with monthly payments falling or rising, accordingly. If the cash flow burden is too difficult they take money from the home’s equity.
No doubt about the 'channel of policy’ but a rather unusual type of 'tax cut’ or 'tax increase’ on a subset of the population.
The principles of liberty come to the fore most strongly when one groups detests behavior that is central to the identity of another group. In my column “The Case for Gay Marriage is Made in the Freedom of Religion” I argued for the extension of our experience in guaranteeing freedom of religion to guaranteeing people the freedom to live their lives in relation to other dimensions of their belief as well:
Freedom of religion is a hard-won principle. In Europe, the wars of religion raged for over a century before the Peace of Westphalia solidified freedom of religion for rulers in 1648. Freedom of religion for ordinary citizens was much slower in coming: the Bill of Rights to the US Constitution was a huge advance in that sphere….
The reason so much blood was shed before the principle of religious freedom was established is that it’s not a principle that comes naturally to the human mind. If a behavior or belief deeply offends God or the gods, then it doesn’t seem right to tolerate it. And if a behavior or belief will bring eternal damnation down on the heads of those involved (and those they might influence), then doesn’t the solicitous kindness of tough love demand doing whatever it takes to pull them away from that behavior or belief?
… gay marriage is itself an exercise of religious freedom. As many with good marriages know from experience, marriage is one of the most powerful paths toward spiritual growth. A good spouse helps one to see the aspects of oneself that one is too blind to see, and inspires efforts to be a better person. And when two human beings know each other so well, and interact so thickly, the family they create is something new and wonderful in the world, even when there are no children in the picture. And for those who do choose to have children, but cannot bear their own biologically, adoption is a tried and true path.To those who would dispute that the freedom to marry the one person you love above all others is a matter of religious freedom, let me argue that if I am wrong that this is a matter of religious freedom, it is a freedom that should be treated in the same way. In his influential book A Theory of Justice (p. 220), John Rawls made this argument:
“This idea that arose historically with religious toleration can be extended to other instances. Thus we can suppose that the persons in the original position know that they have moral convictions although, as the veil of ignorance requires, they do not know what these convictions are. … the principles of justice can adjudicate between opposing moralities just as they regulate the claims of rival religions.”
Rawls’s point is that when something touches on a fundamental liberty—as the choice of whom to marry certainly does—people gain so much from that freedom they would not sell that freedom for anything. Imagine a time before you knew whether you would be gay or not—for many a time within actual childhood memory. Would you trade away the right to marry whom you choose for the right to prevent others from marrying whom they choose? No! Almost none of us would.
Religious liberty itself involves tricky issues. In particular, I know from my own experience as a believing Mormon during my first 40 years that for believers, religious leaders can easily have a sway over one’s thoughts and feelings that can make it hard to think straight. Freedom of religion can often mean the freedom of parents and other adults to bend children’s minds to a particular religious belief, and the freedom of religious leaders to bend the minds of adult believers. This means that children’s interests can be sacrificed to religious interests. But the alternative of putting the state in charge of children’s religious upbringing–even in a way that seems relatively neutral to those proposing it–is also problematic.
Just as there is a value to genetic diversity, there is a value to religious diversity. But some of religions key aspects are collective. So is it OK to have groups of people who are very different from other groups, but that strictly suppress individual differences within the group, as long as this strict suppression is done in a nonviolent way?
Historically, the settlement we have made for religious freedom and for other core liberties is motivated by what it took to end the wars of religion. Since groups can make war much more effectively than individuals, our notions of religious freedom give substantial deference to religious freedom at the group level–including the freedom to bend the minds of children and others in a religious group’s orbit–not just individual religious freedom. This is not a perfect settlement, but religious war was worse.
In the US, we are lucky to have a relatively stable tradition of religious liberty and Supreme Court to parse many of the trickiest issues in a way that is respected enough that whatever the decision is, does not seem to lead to much outright violence–with the single major exception of violence against abortion clinics. (On abortion, see my post “Safe, Legal, Rare and Early.”)
In the world at large, many many countries are grappling with the most basic issues of religious liberty, including having to grapple with what it takes to douse the flames of outright religious war.
So for two reasons, it is well worth reading what John Stuart Mill has to say about religious freedom in the 7th paragraph of the “Introductory” to On Liberty: religious freedom in the narrowest sense is still a struggle to be won in many places in the world, and the idea of religious freedom helps clarify the principles of liberty in general.
The likings and dislikings of society, or of some powerful portion of it, are thus the main thing which has practically determined the rules laid down for general observance, under the penalties of law or opinion. And in general, those who have been in advance of society in thought and feeling, have left this condition of things unassailed in principle, however they may have come into conflict with it in some of its details. They have occupied themselves rather in inquiring what things society ought to like or dislike, than in questioning whether its likings or dislikings should be a law to individuals. They preferred endeavouring to alter the feelings of mankind on the particular points on which they were themselves heretical, rather than make common cause in defence of freedom, with heretics generally. The only case in which the higher ground has been taken on principle and maintained with consistency, by any but an individual here and there, is that of religious belief: a case instructive in many ways, and not least so as forming a most striking instance of the fallibility of what is called the moral sense: for the odium theologicum, in a sincere bigot, is one of the most unequivocal cases of moral feeling. Those who first broke the yoke of what called itself the Universal Church, were in general as little willing to permit difference of religious opinion as that church itself. But when the heat of the conflict was over, without giving a complete victory to any party, and each church or sect was reduced to limit its hopes to retaining possession of the ground it already occupied; minorities, seeing that they had no chance of becoming majorities, were under the necessity of pleading to those whom they could not convert, for permission to differ. It is accordingly on this battle field, almost solely, that the rights of the individual against society have been asserted on broad grounds of principle, and the claim of society to exercise authority over dissentients, openly controverted. The great writers to whom the world owes what religious liberty it possesses, have mostly asserted freedom of conscience as an indefeasible right, and denied absolutely that a human being is accountable to others for his religious belief. Yet so natural to mankind is intolerance in whatever they really care about, that religious freedom has hardly anywhere been practically realized, except where religious indifference, which dislikes to have its peace disturbed by theological quarrels, has added its weight to the scale. In the minds of almost all religious persons, even in the most tolerant countries, the duty of toleration is admitted with tacit reserves. One person will bear with dissent in matters of church government, but not of dogma; another can tolerate everybody, short of a Papist or an Unitarian; another, every one who believes in revealed religion; a few extend their charity a little further, but stop at the belief in a God and in a future state. Wherever the sentiment of the majority is still genuine and intense, it is found to have abated little of its claim to be obeyed.
Ever since the Bank of Japan went to negative rates, it has been hard to keep up with all of the negative interest rate news. I only learned yesterday that on March 22, 2016, the National Bank of Hungary has a -.05% rate for deposits with the central bank. That and other rumblings I have heard from Eastern Europe making me think that Eastern Europe is a priority for my travels to talk to central banks about negative interest rate policy. I hope to put together a European tour in Fall 2016, as well as an East Asian tour.
I also learned yesterday about former Federal Reserve Board Governor Randy Kroszner’s comments about negative interest rate policy. Kalyeena Markortoff reports in a March 21, 2016 article on cnbc.com:
Kroszner said that it would take a “significant negative shock that led to a threat of significant deflation” for the Fed to consider negative rates — a policy tool which has already been deployed by the likes of Japan, Switzerland, and the European Central Bank (ECB).
“I don’t see that as a likely outcome, but I never say never after what I experienced in 2006 to 2009,” Kroszner said.
“I don’t think any of us sitting around the table back at the end of 2008 thought that we’d be in 2015, 2016 (and) that we’d be debating the first (interest rate) increase and then whether we could move beyond that,” he added.
I had an interesting discussion with Sarah Sloat a week or two ago about Cognitive Economics, reflected in the article “What is Cognitive Economics? Understanding the World Through New Types of Data” on inverse.com. This is quite an interesting article, but several things became garbled. Let me try to clarify and emphasize a few things:
A. Explaining Nonstandard Behavior
In the passage beginning
Historically, the first thing that a behavioral economist did was try to document the things people do when their actions look strange from the standpoint of standard economic theory
what I said was that Behavioral Economics has taken as its first task to identify behavior that seems at variance with standard economic theory. Once such behavior is identified I think it makes sense to seek explanations in the following order:
In the history of thought, many of the early influential behavioral economists reversed the order of 2 and 3.
B. The Goal of Economics
In the passage beginning
Like any scientific discipline, one of the jobs of economics is to understand how the world works
what I said was that beyond the scientific goal of understanding how the world works, economists in their role as policy advisors, have taken on the task of trying to smooth the way for people to get more of what they want.
C. Imperfect Information vs. Imperfect Information Processing
Sarah reports me as saying
That’s certainly an element. If people don’t know something — what economists call imperfect information — we now have models that are very good with dealing with that imperfect information processing.
I actually said the opposite. We now have very good models for dealing imperfect information, but our tools for dealing with imperfect information processing are still quite rudimentary–primarily because of the infinite regress problem I discuss in my paper “Cognitive Economics.” 50 years ago, economists didn’t realize how much easier it would end up being to model imperfect information than it is to model imperfect information processing. And some of the ways we do have for modeling imperfect information processing model it in a way that, from a formal mathematical point of view treats a problem of imperfect information processing quite imperfectly as if it were a problem of imperfect information. I am thinking for example of the approach of Greg Mankiw and Ricardo Reis, in which what I would describe as a failure of information processing–not going to the effort of using readily available information–is described mathematically as if it were a failure of information availability–not having the information.
D. Research with Dan Benjamin and Ori Heffetz
Where the article mentions Dan Benjamin, my coauthor Ori Heffetz should be mentioned in the same breath. Much of our joint research is described in posts in my Happiness sub-blog. I have many other cognitive economics coauthors as well–enough that I won’t try to list them all here.
E. How Cognitive Economics Can Help Save the World
There are two different directions in which I think Cognitive Economics can help to make the world a better place. The first is in helping people deal with their cognitive limitations and in taking account of people’s cognitive limitations in designing public policy–such as in the work of the Consumer Financial Protection Bureau. The second is in using subjective well-being data–data on how people feel and how they think they are doing in various aspects of their lives–to help identify previously unsuspected ways to make people’s lives better. Because a big part of politics is energizing voters to give money and to vote, politics often sets out a very narrow agenda of controversial policies. I have the hope that using subjective well-being data to zero in on what people want will be able to shine a light on changes almost everyone can agree on.
I am grateful to Greg Mankiw and Doug Irwin for permission to share this email exchange with you on the impotence of tariffs to affect the balance of trade.
Miles to Greg Mankiw:
Dear Greg,
I have always really liked your model of international finance in your Principles and your Intermediate books. You may not know this, but I wrote a blog post to try to explain it,I have always really liked the the model of international finance in your Principles and Intermediate books. I wrote a blog post, “International Finance: A Primer,” to try to explain it. I use those principles all the time in blog posts as well as in class.
My undergraduate student, August Klatt (copied above) asked this excellent question: “Is there any empirical evidence to back up the prediction that a change in tariffs has no effect on net exports under flexible exchange rates (other things being equal)?”
Greg to Miles:
Thanks, Miles, for your note and kind words.
I do not know of a relevant study to cite off the top of my head. But when I return from spring break, I will look around and let you know if I find anything.
Greg
Greg to Doug Irwin:
Hi Doug,
I was wondering if you could help me find a relevant paper or two. You seem like you might be the right person to ask (in light of your great book, Free Trade Under Fire).
A lot of standard models predict that, under flexible exchange rates, trade restrictions do not affect the trade balance (because NX=S-I and the restrictions do not directly affect S or I). Instead, the exchange rate moves so that a trade restriction reduces both imports and exports.
Do you know of any empirical studies that confirm or refute this? Obviously, this topic is relevant for Mr Trump’s proposed policies regarding China.
Doug Irwin:
Hi Greg,
I don’t know of any particular studies or papers to point you to, but theory and experience confirm it. The theory is the Lerner Symmetry Theorem, that a tax on imports is a tax on exports, so that imposing a tax on imports (to reduce imports) means that necessarily that exports will be taxed as well (resulting in a reduction in exports). The question is the mechanism by which this happens, which is obviously different under fixed and floating exchange rates.
In terms of experience, the US trade balance did not change appreciably after the imposition of the Smoot-Hawley tariff. In more recent decades, countries that have rapidly dismantled import restrictions (Chile, New Zealand) did not start running large trade deficits (although they often had fixed exchange rates and devalued or floated when they introduced their trade reforms). I don’t think China ran a large trade deficit when it unilaterally opened up its economy in the 1980s and 1990s, although as your know their current account began to balloon when you were at CEA (no causality suggested!). Another experience: I think Japan had a rough current account balance until they deregulated private capital outflows in 1980 at which point their CA surplus began to grow.
Regarding China - we do know that they retaliate immediately. Whenever Commerce and the ITC rule affirmatively on an antidumping case involving China, it is almost miraculous how China immediately finds that the United States has been dumping in their market as well.
I hope this helps a little. Let me know if you would like some elaboration.
“Edgy in a different way was the idea of the asylum, and the welcome, that Romulus gave to all comers–foreigners, criminals, and runaways–in finding citizens for his new town. There were positive aspects to this. In particular, it reflected Roman political culture’s extraordinary openness and willingness to incorporate outsiders, which set it apart from every other ancient Western society that we know. No ancient Greek city was remotely as incorporating as this; Athens in particular rigidly restricted access to citizenship. This is not a tribute to any ‘liberal’ temperament of the Romans in the modern sense of the word. They conquered broad swathes of territory in Europe and beyond, sometimes with terrible brutality; and they were often xenophobic and dismissive of people they called ‘barbarians.’ Yet, in a process unique in any pre-industrial empire, the inhabitants of those conquered territories, ‘provinces’ as Romans called them, were gradually given full Roman citizenship, and the legal rights and protections that went with it. … As one King of Macedon observed in the third century BCE, it was in this way [through inclusiveness] that ‘the Romans have enlarged their country.’”
Note: Don’t miss my related post “Density is Destiny.”
Link to Ryan Silverman’s Linked In homepage
I am pleased to host another student guest post, this time by Ryan Silverman. This is the 10th student guest post this semester. You can see all the student guest posts from my “Monetary and Financial Theory” class at this link.
A significantly higher minimum wage in America will damage small businesses, reduce the incentive to invest in human capital, and make it harder to improve living standards.
The current federal minimum wage is $7.25 per hour. However, 29 states and the District of Columbia have set minimum wages above the federal minimum wage. Kicking off 2016, 14 states began the new year by raising their minimum wage. The nation is trending towards higher minimum wages under the rationale that all workers deserve livable wages. Many activists are fighting to raise minimum wage to $15 an hour, more than twice the current federal minimum wage.
Minimum wage jobs typically require little to no education, such as dishwashers and cashiers. The supply of minimum wage workers tends to be highly elastic, making each worker easily replaceable. It turns out that over half of minimum wage workers are between ages 16-24, many of whom are not yet financially independent.
It is clear that minimum wage jobs are not intended for those who are in dire need of funds. Minimum wage jobs are intended to provide supplemental income in return for simple labor. Higher wages should serve as an incentive for laborers to invest in various forms of human capital to make themselves more productive in the workforce. If every American could live a comfortable life providing menial labor, and skip the rigors and cost of higher education, our productivity growth as a country would slow down, if not reverse itself.
Many small businesses have already factored the current federal minimum wage into their expenses and would be unable to operate if their labor costs doubled. Any increase in the failure of small businesses would further widen the gap between upper and middle classes. Big businesses will take over the market share of struggling small businesses, creating less competition and more monopolistic behavior. Too many people act as if the set of jobs available is fixed. In the short run the set of jobs available may indeed be close to fixed, and the minimum wage may not seem to affect jobs much at all, but in the long run, the set of jobs available far from fixed. A higher wage will drive many jobs out of existence over the course of ten to twenty years.
Even for the poor that a minimum wage is intended to help, a substantial fraction of the benefits of a higher wage for those who manage to keep their jobs will be eaten up by the higher prices of goods produced in part by other minimum wage workers. For example, many people on limited incomes shop at Walmart. If Walmart has to pay higher wages, the customers at Walmart, who are themselves struggling, will have to pay higher prices.
In addition to destroying jobs over the course of ten to twenty years, a higher minimum wage might tempt many people to queue up for jobs with a high minimum wage instead of getting more training. Forgoing training is not only a limitation on the life of the individual, it also deprives society of skilled work that it needs. For example, Emergency Medical Transport professionals do important work. Their services are pivotal to saving lives and require much more education and training than a typical minimum wage worker. If the minimum wage increased while the wage of Emergency Medical Transport professionals stayed the same, there would be less incentive to gain those skills. On the other hand, if Emergency Medical Transport professional wages go up, then these crucial services become more expensive.
One must also consider the effect on the natural unemployment rate if the minimum wage increases to $15. Fewer workers will have a marginal product high enough to be employed, and more will waste time looking for jobs in scarce supply. The Congressional Budget Office predicts that if the federal minimum wage is raised to $10.10, as many as a million workers could lose their jobs.
In the long run, I predict a further wealth disparity caused by the ability of large companies and conglomerates to better weather the minimum wage hike than smaller businesses. Small businesses have substantially less operating capital to support their largest expenses of employee wages and benefits. Small businesses will encounter the most difficulties staying afloat with higher minimum wages, particularly in difficult economic times.
Raising the minimum wage might seem to many like, at worst, a relatively harmless political gesture. But for those whose marginal product is below the minimum wage, it can be a nightmare, making it hard for them to find a job. Wouldn’t it be better to let each person choose his or her own minimum wage? But of course that is exactly what happens when there is no minimum wage at all. Next best would be to choose a minimum wage carefully for each demographic group, to make sure it wasn’t too high relative to that group’s marginal product. But a uniform minimum wage is certain to shut some groups out of the labor force–those who struggle the most at finding jobs to begin with. It may be that some of those groups are made up of people who don’t desperately need a job. But if they don’t desperately need a job, they also don’t need an increase in the minimum wage either. And if they do desperately need a job, a higher minimum wage will make it harder to find one.
University of Michigan’s Miles Kimball discusses negative interest rates and how it’s just an extension of positive interest rates as well as real GDP versus GDP plus inflation. He speaks with Tom Keene and Francine Lacqua on Bloomberg Surveillance.
Link to Jacob Barnard’s Linked In homepage
I am pleased to host another student guest post, this time by Jacob Barnard. This is the 9th student guest post this semester. You can see all the student guest posts from my “Monetary and Financial Theory” class at this link.
Deciding to invert a corporation is a logical choice resulting from high corporate taxes, not from being a “bad corporate citizen.”
Recently, U.S.-based firm IHS Inc. and U.K.-based Markit Ltd. announced a merger to create a $13 billion data firm. The issue this brings up isn’t an anti-trust matter though, but rather, where its new headquarters is going to be. The current plan is for the new firm to be based out of London, which means it would only have to pay the 20% corporate tax rate used by the U.K. instead of the 35% corporate tax rate in the U.S. This process, known as inversion, has come under fire from many politicians. President Obama has even called corporations that undergo this process unpatriotic and likens it to not being a good corporate citizen. The process is completely reasonable, however, and is popular because of a high corporate tax rate, not a lack of patriotism.
The process of corporate inversion has been made more difficult by a law put in place in 2004, which was meant to eliminate the favorable tax treatment of “surrogate foreign corporations.” These occur if the stockholders of a former U.S. corporation own 60% of the stock in a merged foreign corporation as a result of their previous holdings in the U.S. corporation. The new parent country’s corporation must also account for less than 25% of the merged corporation’s employees, wages, assets, and income for it to be considered a surrogate. That amount is open to interpretation, however, and can be re-interpreted to make inversions harder, which is what the IRS did in 2015.
Clearly, the US government wants to fight inversion. Despite these efforts, however, corporations are still trying to leave. The reason is obvious: the corporate tax rate. The United States has the highest of all OECD countries and third-highest among all reporting countries. The federal corporate income tax rate combined with the average rate paid in each state is 39.1%. The world-wide average is 22.9% and has been dropping for over a decade. The U.S. rate, on the other hand, has stayed the same. As a result, corporations in the U.S. lose more and more money each year by not inverting and already pay an extra 16%. A corporation’s shareholders have the right to hire and fire directors, so they are, and should be, the directors’ main concern, not a country.
The argument some people like to make is that inverted corporations don’t pay their “fair share” because they are receiving the benefits of the U.S. government, military, markets, and infrastructure without paying taxes to the U.S. to pay for these things. The problem with that reasoning is quite simple: they are actually required, by law, to pay their fair share. Foreign corporations pay the U.S. tax on profits earned by their U.S. subsidiaries in the U.S. What is their fair share if not the amount that actually results from business generated in the U.S.? If anything, corporations that stay in the U.S. pay more than their fair shares because, unlike most other OECD countries, the U.S. requires corporations to pay the corporate tax on foreign-earned income in order to repatriate it, minus however much they already paid in foreign corporate taxes. This means the U.S. is taxing corporations on profits earned because of the benefits provided by foreign governments, military , markets, and infrastructures. If foreign corporations aren’t using accurate, “arms-length” transfer prices in order to artificially move income out of the U.S., then that’s a problem, but it’s a problem for almost all multinational corporations with subsidiaries in the U.S., not just inverted ones.
The problem comes right back to our significantly higher tax rate then. If our tax rate is high enough to cause firms to change their behavior this much, perhaps we should start considering whether it might be too high, possibly even decreasing our tax revenue. Even if it isn’t, lowering it would probably be a good idea at this point. Stricter inversion requirements might be enough to keep current corporations in the U.S., but how are we going to convince future corporations to incorporate in the U.S. if the only way to convince current ones to stay is by forcing them to?
Many of us have occasion to argue against particular types of prejudice. But John Stuart Mill unmasks all prejudices in the 6th paragraph of the “Introductory” to On Liberty:
But though this proposition is not likely to be contested in general terms, the practical question, where to place the limit—how to make the fitting adjustment between individual independence and social control—is a subject on which nearly everything remains to be done. All that makes existence valuable to any one, depends on the enforcement of restraints upon the actions of other people. Some rules of conduct, therefore, must be imposed, by law in the first place, and by opinion on many things which are not fit subjects for the operation of law. What these rules should be, is the principal question in human affairs; but if we except a few of the most obvious cases, it is one of those which least progress has been made in resolving. No two ages, and scarcely any two countries, have decided it alike; and the decision of one age or country is a wonder to another. Yet the people of any given age and country no more suspect any difficulty in it, than if it were a subject on which mankind had always been agreed. The rules which obtain among themselves appear to them self-evident and self-justifying. This all but universal illusion is one of the examples of the magical influence of custom, which is not only, as the proverb says, a second nature, but is continually mistaken for the first. The effect of custom, in preventing any misgiving respecting the rules of conduct which mankind impose on one another, is all the more complete because the subject is one on which it is not generally considered necessary that reasons should be given, either by one person to others, or by each to himself. People are accustomed to believe, and have been encouraged in the belief by some who aspire to the character of philosophers, that their feelings, on subjects of this nature, are better than reasons, and render reasons unnecessary. The practical principle which guides them to their opinions on the regulation of human conduct, is the feeling in each person’s mind that everybody should be required to act as he, and those with whom he sympathizes, would like them to act. No one, indeed, acknowledges to himself that his standard of judgment is his own liking; but an opinion on a point of conduct, not supported by reasons, can only count as one person’s preference; and if the reasons, when given, are a mere appeal to a similar preference felt by other people, it is still only many people’s liking instead of one. To an ordinary man, however, his own preference, thus supported, is not only a perfectly satisfactory reason, but the only one he generally has for any of his notions of morality, taste, or propriety, which are not expressly written in his religious creed; and his chief guide in the interpretation even of that. Men’s opinions, accordingly, on what is laudable or blameable, are affected by all the multifarious causes which influence their wishes in regard to the conduct of others, and which are as numerous as those which determine their wishes on any other subject. Sometimes their reason—at other times their prejudices or superstitions: often their social affections, not seldom their antisocial ones, their envy or jealousy, their arrogance or contemptuousness: but most commonly, their desires or fears for themselves—their legitimate or illegitimate self-interest. Wherever there is an ascendant class, a large portion of the morality of the country emanates from its class interests, and its feelings of class superiority. The morality between Spartans and Helots, between planters and negroes, between princes and subjects, between nobles and roturiers, between men and women, has been for the most part the creation of these class interests and feelings: and the sentiments thus generated, react in turn upon the moral feelings of the members of the ascendant class, in their relations among themselves. Where, on the other hand, a class, formerly ascendant, has lost its ascendancy, or where its ascendancy is unpopular, the prevailing moral sentiments frequently bear the impress of an impatient dislike of superiority. Another grand determining principle of the rules of conduct, both in act and forbearance, which have been enforced by law or opinion, has been the servility of mankind towards the supposed preferences or aversions of their temporal masters, or of their gods. This servility, though essentially selfish, is not hypocrisy; it gives rise to perfectly genuine sentiments of abhorrence; it made men burn magicians and heretics. Among so many baser influences, the general and obvious interests of society have of course had a share, and a large one, in the direction of the moral sentiments: less, however, as a matter of reason, and on their own account, than as a consequence of the sympathies and antipathies which grew out of them: and sympathies and antipathies which had little or nothing to do with the interests of society, have made themselves felt in the establishment of moralities with quite as great force.
People often have feelings about the conduct of others. If person A is able to insist that another person B should do X because not doing X makes A feel bad, this could imply a tyrannical domination by A of others like B unless the scope of A’s legitimate sphere for concern and insisting about B’s and others’ actions is limited somehow. It won’t work to give each person a sphere of decisive influence over all the things that shehe cares about because those spheres of decisive influence would be overlapping–meaning they wouldn’t be spheres of decisive influence at all. Somehow, the legitimate sphere of decisive influence for each person must be delimited in a way that doesn’t lead to too much overlapping.
Of course, it is possible to have decisions made jointly by several different people. But in cases of stubborn disagreement, there must be some mechanism for deciding–even if that mechanism is flipping a coin. Dividing up as much as possible into separate spheres of decisive influence in which one person is dominant has been a very useful strategy to minimize the need to use other social choice mechanisms like voting that tend to constantly raise the possibility of conflict. John Stuart Mill’s advocacy of both civil and social liberty can be seen as advocating an equitable division of spheres of decisive influence more or less in line with the physical body of each person and (for the most part) the fruits of each person’s labors.
Economists have done some work on subtle social choice mechanisms that are not in such common use as the division of spheres of decisive influence and voting. In the case of each such social choice mechanism, a key question is how it could be made a staple of everyday social choice as voting, flipping a coin or the division of spheres of decisive influence are. Or to put it another way, a social choice mechanism has only fully come into its own as a general purpose method if children on the playground often use it to resolve their disputes.
Link to the October 21, 2015 fortune.com article “Ben Bernanke sees the upside of negative rates.”
I was pleased to see, belatedly, the fortune.com article “Ben Bernanke sees the upside of negative rates” by Chris Matthews. Chris quotes from and links to my Quartz column “America’s huge mistake on monetary policy: How negative interest rates could have stopped the Great Recession in its tracks.”
Chris’s other link is also interesting: he links to Joshua Franklin’s October 16, 2015 reuters.com article “Swiss bank ABS plans negative interest rates for some depositors.” The key passages there are:
“On transactional accounts … there will be negative interest rates of -0.125 percent from the first franc,” the ABS spokeswoman said, adding that this would come into effect from the start of next year. …
Major banks like UBS and Credit Suisse have introduced deposit charges for some large clients but Swiss broadcaster SRF said ABS would be the first Swiss bank to introduce negative rates for smaller clients.
