The Boom in Certainty

Sinclair Lewis called it “the sedate pomposity of the commercialist”. Now it has spread to many parts of society, not always in its sedate form.

Back in our final days as architecture students in Austin, our class had a farewell gathering with a professor who had been a valued mentor to several of us. As was habitual on such occasions, the professor was discussing with us the work of various architects when the subject of a newly-constructed building came up.

“I hate that building”, one classmate said flatly.

After an awkward silence, the professor mocked: “you mean, strongly dislike?” Off guard, the offending party protested that his use of the word was innocuous then and there. The professor conceded as much but explained that it was a visceral word, the kind of word that forestalls further discussion and that hardens the speaker’s and listener’s opinions. It is difficult to walk back or to change your mind from “hate”, and easier to do so from “dislike” or even from “strongly dislike”, he argued. His advice was to leave in one’s words an open path for retreat, in essence to never burn one’s rhetorical bridges.

This led to another discussion about certainty and about people who speak with certainty. The professor said that he had a reflexive dislike for certainty and that he felt a profound distrust towards people who speak with certainty. There is very little that is certain in life, he said, even among things of which we are convinced at a given point in time. Opinions change, science changes, research advances. New discoveries change our beliefs. Knowledge doesn’t just flow or evolve gradually like a river; it shifts laterally and sometimes suddenly like an earthquake.

In the same vein, he said that he disliked the phrase “common sense” because he believed that common sense is constantly shifting. What is viewed as common sense today will appear tomorrow as nonsense or, worse, as prejudice, he argued. He saw people who speak with certainty as demagogues seeking to maximize their profit in the present, as self-festooned markers of the common sense of today that will be washed away tomorrow. Years later, I encountered the same distrust of certainty in the pages of Main Street where Sinclair Lewis decried “the sedate pomposity of the commercialist”.

Sinclair Lewis in 1914.

100%, the Best!

Yet to us in early 2021, “sedate” sounds good. Most of us would take sedate in a heartbeat because the pomposity of the commercialist has ceased being sedate several decades ago. In earlier times, the wealthy tended to speak publicly in more measured tones, and the successful bore scars from their earlier humbling setbacks.

But not any more today. Today, we have widespread loudness and certainty. A large segment of our culture admires “straight talk” and “straight shooters” who “cut through the nonsense”. More and more, it views nuance and analysis as nothing but feckless and paralyzing casuistry. It glorifies action over thought. Worse, with social media, loudness and certainty are being deployed effectively to amplify wealth and success. Online provocateurs get more followers and more attention. As a result, we witness a public tantrum by a big or middling celebrity on a frequent basis.

Our economy too offers on average vastly greater rewards to those who are successful the easier way (and work in rent-seeking sectors) than to those who are successful the hard way (say doctors or engineers). Banking requires certainty and confidence but it does not require as complex a skillset as for example surgery. Yet the average banker is wealthier than the average surgeon. And a top banker is wealthier than a top neurosurgeon by a factor of 10x or more. It is not unusual in New York City for a middle-aged doctor to be outbid for a luxury apartment by a banker half his age.

30-year and Risk-free

We should have no objection to such people so long as corrective market mechanisms can function freely. In the old days, wealth distortions were periodically corrected by recessions during which fast money risk takers lost much more than slow money earners. Then, the overconfident youngster would sometimes wind up panic-selling his New York apartment to the same doctor at a much reduced price and renting a studio to wait out the crisis until the next wave raised his fortunes again. That was the fable of the tortoise and the hare.

But now the hare wins at first and then keeps on winning. The corrective mechanisms are now a thing of the past. Bailouts upon bailouts have all but eradicated failure for the fast money and ensured their rising prosperity ad infinitum. Any major setback would have been an existential threat in another time, but in 1994, 1998, 2001, 2008 and 2020, the market corrections were only temporary headaches alleviated and cured by Congress and/or the Federal Reserve again and again. The Greenspan put is a distant and quaint precursor of what has subsequently transpired.

Moral hazard has widespread consequences, not only in the markets but in the culture and in the conduct of men and women. The net effects are a decrease in self-restraint and an absence of moderation, in language and in actions. At the same time, there has been an increase in manufactured certainty and in burning bridges. The cost for being wrong on that certainty has been brought down to close to zero. All high-flying players have been reassured that every crisis is only a temporary setback before they are rescued and the good times return. If as a result, some people are certain of some things that are demonstrably false, it is not because they are blind or lack lucidity. It is because we have rewarded certainty over facts for a long time, and rewarded people who speak with certainty, irrespective of whether their facts are truthful.

Cool Entrepreneur to Mob Inciter

And then the pandemic came along. No matter how much certainty any of us may feel, a deadly virus will kill any of us who don’t take the right precautions to preserve ourselves. Covid-19 cannot be bullied or cajoled or impressed. It doesn’t care how poor or rich anyone is, or what they post on Twitter. The pandemic was in fact the ultimate certainty slayer. So the certainty pushers laid low for a while, if reluctantly. They tried to deny the virus, to evade its existence or minimize its importance. But in the end, they had no choice but to hunker down. The virus was looking for them as for anyone.

But now that we have vaccines and declining infection numbers, they are back again in full force as if to make up for the time they lost in confinement. However, “they” are no longer just the rich and powerful who benefited from bailouts. Social confinement has reduced contagion from the coronavirus but it has increased the contagious spread of certainty. This particular ailment now afflicts people from all walks of life, from the billionaire who cusses liberally online all the way to the little guy (as some call themselves) fighting to get his fair share.

Interestingly, some celebrities have knowingly or unwittingly assumed the role of mob inciters, egging the mass of little guys to rise up and topple the prevailing order, whatever that happens to be in their eyes. Here social media is inadvertently playing an important role in facilitating the broadcast of incendiary messages, brief and insubstantial as befits true propaganda, to tens of millions of people at once. Is this what social media has become, a place for some celebrities to incite followers?

The pomposity and certainty of the commercialist have pushed some rioters to invade the Capitol, and others to raid the stock market. They did so loudly and with certainty and they burned many bridges, allegedly in the name of a just and overdue rebellion. When their conduct is criticized, they posit this question: “if the elites cheat in order to win, why shouldn’t everyone else?” We covered this theme previously: cronyism opens the door to mass disillusionment and/or to socialism.

This madness may not end until the loud and certain at all social and income levels experience some setbacks that are not immediately backstopped by government or other action. And it may not stop for as long as some people with large followings on social media incite mass actions of any form.

President Trump was only half right in his prediction. We are not tired of winning. We are tired of some people breaking things in order to win. The rich break things through cronyism. The less rich break things through mass movements and riots. The second justify their actions by pointing to the first. In both instances, everyone loses in the long run. We need more uncertainty in order to restore risk and sanity. And to sedate the pomposity.

Photo of Sinclair Lewis by Arnold Genthe.

Wednesday Briefs – 4 November 2020

A weekly commentary on current events. Follow populyst to receive notification.

This week: A Better Process; Spend and Don’t Tax; Demographics Will Rule; Coronavirus Surge; Reading List.

Read more

Talking About Cities, with Aaron Renn

“You go to some of these places [Midwestern cities], the question they ask when they meet you is ‘where did you go to high school’?… The fact that where you went to high school is a social marker places you in a community. You go to Washington DC and nobody cares where you went to high school… In New York, they ask ‘where are you from?’ because it is assumed that you are not from here. Some of these places in the Midwest… need more outsiders to come in because outsiders are the natural constituency of the new.” _____Aaron Renn

AaronRennAaron Renn, a Senior Fellow at the Manhattan Institute, speaks to Sami J. Karam about US cities. What makes the large coastal cities so successful? What are the prospects for mid-sized and smaller cities in the Rust Belt? What is the current state of play for mass transit? What role does immigration play in the development of cities?

Among the cities discussed, New York, Los Angeles, Chicago, Boston, Washington DC, Seattle, Houston, Dallas, Austin, San Francisco, Charlotte, Minneapolis-St Paul, Nashville, Columbus, Cincinnati, Pittsburgh, St Louis, Cleveland, Detroit, Madison, Iowa City, Rochester (MN), Singapore, Paris.

Topics include:

  • 0:00 Introduction of Aaron Renn
  • 1:15 What makes the large coastal cities so successful at creating wealth?
  • 8:30 Can a large city become dominant in a new sector? (e.g., New York in tech)
  • 13:00 How would you categorize non-coastal cities in terms of their prospects?
  • 16:30 Why some cities are struggling while others are restructuring successfully
  • 20:55 Will some smaller cities turn into ghost towns within twenty years?
  • 26:35 What is going on with Detroit’s recovery?
  • 30:40 The role of new immigrants in the development of a city
  • 36:50 Immigration policy in Canada and Australia compared to the US and UK
  • 43:50 What is the future for mass transit?
  • 48:00 The lack of city to city benchmarking in infrastructure costing and execution
  • 53:40 Is there anything going on in high-speed rail, other than in California?
  • 59:40 The decline of trust in institutions and the problem of cronyism.

TO HEAR THE PODCAST, CLICK HERE OR ON THE TIMELINE BELOW:

Cronyism and its Scapegoats

Cronyism destroys trust and assigns the blame to scapegoats of its own creation.

Only a fiercely committed left or right-winger would fail to recognize that there is today a social and political divide that does not easily fit within the traditional mold of left vs. right. If, loosely speaking, the left leans socialist and the right leans capitalist, there is a third branch, cronyism, that is characterized by the rising power and wealth of rent-seeking industries and individuals. In the past, this branch was dominant mainly in poorer countries with weaker institutions. But today it has also gained significant strength in a number of developed countries, including the United States.

In fact, if the Republican Party has been hijacked by Trumpism, as some allege, then we could say that capitalism has been similarly hijacked by cronyism. In our view, this parallel is nearly seamless, given that the GOP is traditionally pro-capitalism – in words if not always in deeds – and that the incumbent administration is largely populated with captains of rent-seeking industries. Read more

Cronyism Damaged Venezuela before Chavez

Venezuela is bankrupt, having just defaulted on three interest payments. And much of the world is pointing fingers at the socialist policies of Hugo Chavez and those of his successor, the incumbent Nicolás Maduro. This laying of the blame is not wrong but it is incomplete.

The kindest thing you could say about Mr. Chavez is that he was a talented demagogue who brilliantly identified his opportunity and judiciously seized his moment. But, as previously argued by Fred McMahon of the Fraser Institute, Chavez did not start Venezuela’s downward spiral. He was instead one of the final acts in the country’s decades-long devolution from laissez-faire capitalism to cronyism and finally to socialism. Cronies undermined Venezuela’s economy for decades and opened the door to Chavez’s socialism. Read more

Notes from the Wharton Africa Business Forum

The Wharton Africa Business Forum took place in Philadelphia on November 3-5, 2017. Present were the Finance Minister of Nigeria, the CEO of Ethiopian Airlines and other business leaders (notably from lead sponsors McKinsey & Company and the Boston Consulting Group) and educators. The event was attended by hundreds of participants including Wharton faculty, students and alumni, African investors and entrepreneurs, members of the African diaspora and many others who have an interest in Africa.

These are our notes from the event. They are not intended to be comprehensive.

First, there was a tremendous amount of energy and optimism surrounding Africa developments. There were a palpable sense that Africa’s moment is coming and an urgency that it should not be squandered. These sentiments are validated by our analysis of African demographics that show a coming decline in the dependency ratio and an accompanying increase in the odds of realizing some demographic dividend. However, fertility rates remain too elevated and are not falling fast enough to deliver the massive dividend that was seen in China, the US and Europe in recent decades. Read more

Africa: 800 Million Jobs Needed

African economies are in a race to get ahead of the demographic boom.

“Let us share without fear the journey of migrants and refugees.” Pope Francis (@Pontifex) tweet on 27 September 2017.

While some people in the United States are sweating the presence, against the backdrop of a demographically stagnant white population, of the 11 million undocumented immigrants or of the 30+ million other foreign-born residents, there are far bigger numbers brewing in other parts of the world, numbers that are so large that they could affect, decades from now, the life of an American citizen far more than would the rare determined Mexican or Guatemalan who manages henceforth to scale President Trump’s purportedly impenetrable border wall.

In the next decades as was so often the case in history, the future shape of the world could once again be decided in Europe and by Europe’s and the West’s handling of Africa’s incipient demographic boom.

In fact, if you are a generous-minded European who shares the Pope’s noble sentiment and who views the ongoing wave of migrants coming into your country as a benign and positive development; or, if you believe that borders are outdated constructs and that all refugees and other immigrants should be welcomed into the rich world; indeed, if it is your view that anyone who stands in the way of this openness is misguided by racist and nefarious motives, then it behooves you to test the strength of your belief by examining the larger demographic data coming out of Africa and Asia. Read more

A Different Kind of Border Wall

To slow mass migration, stop the illicit capital flight from poor to rich countries.

An asset manager called ____ Capital recently sent out this email seeking referrals:

The US Investor visa program allows one to invest $500,000 U.S. in a government licensed fund for a period of about five years and in around 18 months, a conditional green card is attained for the investor and their immediate family. The investor and their family can live, work and study anywhere in the United States and there are no educational, age or English language requirements.

Most experts report that on September 30th the investment amount will increase from $500k to $1.3m, a significant jump that will price out many potential investors.

There is still time to file before September 30th if you start your process with ____ Capital now.

Others can comment on the practice of selling green cards (and ultimately US citizenships) to wealthy foreigners while millions of other applicants, some of whom would be greater contributors to the United States, continue to wait in line for years. Our concern is one step removed and has to do with the legality of this money. Read more

Capitalism Did Not Win the Cold War

This article first appeared at Foreign Affairs.

Why cronyism was the real victor.

When the Soviet Union collapsed 26 years ago, it was generally agreed that the West had won the Cold War. This was affirmed by the prosperity and possibilities awaiting citizens of Western countries, as opposed to the political and economic stagnation experienced by those in Communist states. A natural conclusion, much repeated at the time, was that capitalism had finally defeated communism.

This sweeping statement was only partially true. If one took capitalism and communism as the only two protagonists in the post–World War II struggle, it was easy to see that the latter had suffered a mortal blow. But there was a third, stealthier protagonist situated between them. This was a system best identified today as cronyism. For if capitalism did win over the other two contenders in 1991, its victory was short-lived. And in the years that have followed, it is cronyism that has captured an ever-increasing share of economic activity. A survey of the distribution of power and money around the world makes it clear: cronyism, not capitalism, has ultimately prevailed. Continue reading at Foreign Affairs >>>