Category Archives: Government

Minor feedback and reflections on Ray Dalio’s capitalism manifesto

Ray Dalio just published a two part manifesto on how capitalism needs to be reformed.

Dalio’s Diagnosis

Dalio’s main point is that “capitalists don’t know how to divide the pie well and socialists don’t know how to growth the pie well.”

This is a problem for capitalist countries because rising inequality has both negative affects on individuals and countries: high inequality reduces economic mobility and weakens political governance.

I am not an expert in inequality, economic mobility, or governance, so it’s hard for me evaluate his specific claims.

But my instinct is too put a little less emphasis on capitalism.

Rising inequality seems to be the trend of almost all political systems.

Walter Schiedel’s book The Great Leveler does a good job of showing how inequality tends to rise in most societies (any system can be gamed) and that it’s often only war, revolutions, state collapse, and plagues that bring inequality back down.

Dalio thinks there’s something specifically inherent about capitalism that leads to inequality. I think there’s something generally inherent about governments and power.

Once humans left hunter gatherer societies, rising inequality has been the norm in most societies.

Capitalism is just the latest manifestation of the trend.

Stability vs. Growth

Another argument which is somewhat implicit in Dalio’s argument but I wish would have been more explicit: given the incredible compounding of even small GDP increases, we should care much more about societal stability than maximizing growth.

Over the long-run, humans will be very rich by today’s standards so long as we can survive a couple more centuries.

In most cases, growth and stability go hand-in-hand, but when they don’t (perhaps in the case of inequality), we should err on the side of stability.

Can We Do Anything About It?

Schiedel’s book presents a bleak picture about a society’s ability to reduce inequality.

But humans haven’t been around for that long. We’ve never been this wealthy. And never before have so many humans lived in democratic societies.

It took us from the Industrial Revolution to the end of World War II to find a governmental system that fit our last major round technological and economic advancement.

Most advanced countries are now some form of capitalist democracies with large welfare states (at least by historical standards).

I hope our next governance search requires less bloodshed.

If it’s simply a matter of adjusting our current system, this might be possible.

If it’s a matter of finding whole new systems of governance, then that likely means wars and revolutions, which we should all fear given the weapons at our disposal.

Draft Text for a State Constitutional Amendment to End the Education Wars

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If the United States could adopt the educational regime of any country in the world, I would not choose Finland or Singapore or South Korea.

I would choose the Netherlands.

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In 1917, the Dutch had a national education battle about what types of schools deserve public funding.

This battle, as well as other policy battles, was settled with a constitutional amendment which was passed during what is known as the “Pacification of 1917.”

The constitutional amendment established a fundamental right to open a school and receive pubic funding.

What a remarkable way to end the education wars!

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Since the Pacification of 1917, the Dutch government has built a set of regulations to manage the implementation of the constitutional amendment.

Depending on where you are on the freedom axis, you might find these regulations reasonable or tyrannic.

I find some of them to be reasonable (national academic objectives) and some not (negotiating teacher salaries at the national level).

The Dutch have blazed one trail on how to regulate the freedom to open publicly funded schools; surely, other experiments would teach us much.

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So here is proposed text for a state constitutional amendment in the United States of America:

“The right to found a school or enroll in a school shall not be abridged by government or any entity receiving government funding. All schools that meet basic education standards shall receive public funding based on a per-pupil allotment that is weighted based on student need and uniform across schools.”

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I don’t think every state in the United States of America should pass this amendment.

But I think it would be great if a few states did.

I imagine each state would blaze its own path in determining how to manage a system where citizens had a constitutional right to open schools and where families had a constitutional right to choose amongst these schools.

I also think this approach – passing a constitutional amendment – has much more moral and legal force than pushing for ad hoc funding programs, such as education savings accounts or limited vouchers.

A right is a fundamental, a program is not.

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Oh, and for whatever it’s worth, the Dutch rank number 10 in the world in student achievement based on the 2012 PISA results (they’re actually #7 if you throw out Shanghai, Hong Kong, and Macau, which last time I checked aren’t countries).

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An Idea for a Pay for Success / Social Impact Bond

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I’ve been in New Orleans all week, which is always great.

On Friday, I got some time with Stephen Rosenthal, my former board chair at NSNO.

He made the following argument:

We spend ~150K to educate a child K-12.
Then we send many of these children to college, where many of them drop out.
Groups like KIPP to College and POSSE are demonstrating that spending another ~5K per kid can significantly increase the odds that a student will graduate from college.
Right now, there isn’t much public funding for these programs.

He makes a good point: would you rather spend ~150K and have a ~10% chance of getting a student in poverty through college or ~155K and have a ~30% chance of getting a student in poverty through college?

While the numbers may not be exact, you get the idea.

So why not create a pay for success / social impact bond program?

Many cities and states have “promise” scholarships that guarantee free or near free in-state tuition for qualifying students.

Why not allocate a portion of these funds to providers who are only paid for each marginal student in their program who graduates college above baseline completion rates?

A provider could then raise debt based on an investor’s belief that the provider will help students through college.

If the provider works, it receives money from the government, the debt is paid off, and college completion rates go up.

If the provider fails, tax payers lose nothing.

Is Our Democracy Good Enough?

Should You Be Able to Choose Your National Government?

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A group of citizens in Sardinia is petitioning Rome. Their request: sell their island to Switzerland.

The group’s founder states: “The madness does not lie in putting forward this kind of suggestion. The madness lies in how things are now.”

I’m sympathetic to his argument. From all I can gather (mostly by reading – but also in a recent visit to Italy), Italy’s national government is pretty bad at governance.

This is not the first time something (sort of) like this has been put forth: Hong Kong is perhaps the most prominent example of a city being ruled by a foreign country; and the charter city movement, led by Paul Romer, seeks to construct similar (but voluntary) arrangements elsewhere.

Of course, selling actual land goes beyond time bound legal jurisdiction, but the general idea of “competitive governance” intrigues me.

In the world of education reform, charter schools being able to select their authorizers is probably the most analogous situation – though this relationship is between corporation and regulator, not citizen and government.

With the lens in mind, some thoughts (by someone who is not an expert and only spent 30 minutes mulling this over):

Pros of Being Able to Choose Your Own National Government

1. This could provide a good incentive for more effective government behavior: tax revenue is lost when your citizens leave, so you better govern them well.

2. Innovation could increase: when you have to compete for your customers, you tend to generate more / better ideas.

3. This could lead to more start-ups: governments could form with the explicit purpose of trying to gain citizens through exceptional governance.

4. Liberty might increase: citizens could have the power of exit as well as the power of the ballot box.

5. Tolerance might increase: the world might be a little more cosmopolitan if government wasn’t tied to geography; also minority populations would have an escape hatch from terrible majorities, which could temper the worst instincts of majorities.

Cons of Being Able to Choose Your Own National Government

1. Launching a race to the bottom: for example, governments with lax pollution regulations might be attractive to a region that pollutes a lot, especially if the costs of this pollution are born by other regions.

2. This could lead to an increase in authoritarian governments: if governments constantly felt threatened by their populations leaving, they might seek to exert tighter control on the activities of their citizens, so as to suppress succession movements.

3. Increased global instability: historically, annexing and succeeding territory has led to much bloodshed; the fact that this is on its face a peaceful process doesn’t mean it would lead to peaceful outcomes.

In Sum

As with much in public policy, one of the basic tensions here is between innovation and stability.

In general, I think the main function of government is to prevent absolute disasters from happening. Human history is littered with violence, and stable, democratic governments seem to be decent at mitigating our most violent tendencies (relatively speaking).

So my instinct is to tread lightly.

The main counterargument to this line of thinking is that most democratic governments, while in many ways better than those of the past, are still pretty terrible when it comes to existential threats. We should be spending way more public resources on the global catastrophic risks covered in this book.

So perhaps the real threat is that if we don’t get better governments we’re all going to die anyways.

All in all, I guess I’m in favor of small scale pilots. Let’s experiment with charter cities and the like. If it works, let’s try to scale them.

One last thought: I once worked with the Tibetan Government In-exile on their democratic structures. The most fascinating part of their democracy: exiles could vote for the home government offices regardless of where they lived. And, for their Congress, it was proportional representation based on how many exiles lived in each region; i.e., Europe got X seats, North America Y seats, and so forth. And the government existed in the shadow (the light?) of their living God, the Dalai Lama, who held incredible sway of the prime minister.

All of which is to say: there’s probably a million ways to run a democracy other than the ways with which we are most familiar.