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have not yet seen Lin-Manuel Miranda’s hit Broadway show Hamilton. I feel badly about this for three reasons. First, Miranda is a 2002 Wesleyan graduate, a loyal and generous alumnus who gave a great commencement speech in 2015 and remains solidly committed to the university. Second, the music and lyrics are, quite simply, amazing. Third, as an economic historian, it is heartening to see one of America’s economic heroes make it to Broadway.
have not yet seen Lin-Manuel Miranda’s hit Broadway show Hamilton. I feel badly about this for three reasons. First, Miranda is a 2002 Wesleyan graduate, a loyal and generous alumnus who gave a great commencement speech in 2015 and remains solidly committed to the university. Second, the music and lyrics are, quite simply, amazing. Third, as an economic historian, it is heartening to see one of America’s economic heroes make it to Broadway.
What value does the story of Henry George, a self-taught economist from the late nineteenth century, hold for Americans living in the early 21st century? Quite a lot, if we stop to consider the ways in which contemporary American society has come to resemble America in the late-nineteenth century, a period popularly known as the Gilded Age. As in our times, that era was marked by a dramatic increase in income inequality. It also witnessed a sharp and disturbing rise in the numbers of Americans living in poverty, even as Wall Street boomed and overall productivity soared.
The limited liability company was one of the most significant inventions of the nineteenth century. The state permitted the incorporation of corporate entities, with many of the legal rights of a person, whilst limiting the liability of their owners for the companies’ debts. Elegantly simple, the limited liability company proved amazingly successful. Unfortunately, the idea was so successful that today the notion has become confused and immensely complex. The entire concept needs reinventing.
Differences in regulatory norms are increasingly seen as the key barriers to the growth of regional and global markets, and regulatory disputes make up some of the most contentious issues in world politics. Negotiations among the most developed economies of the world about regulatory synchronization have made little progress in the last decade, and nearly all harmonization attempts failed when they had involved economies at lower levels of development.
The industrialized world is currently moving through a period of ultra-low interest rates. The main benchmark interest rates of central banks in the United States, the United Kingdom, Japan, and the euro-zone are all 0.50% or less. The US rate has been near zero since December 2008; the Japanese rate has been at or below 0.50% since 1995. Then there are the central banks that have gone negative: the benchmark rates in Denmark, Sweden, and Switzerland are all below zero. Other short-term interest rates are similarly at rock-bottom levels, or below.
A news release on 6 February 2015 from the Federal Reserve Board, together with a selection of dense numerical tables, showed once again that consumer credit in use has increased over the course of a year. This is the fourth year in a row and the 67th yearly increase in the 69 years since 1945. But does this mean that credit growth is a meaningful worry? Total consumer sector income and total assets have also increased in 67 of the 69 years since World War II.
Jose Nuñez lives in a homeless shelter in Queens with his wife and two children. He remembers arriving at the shelter: ‘It’s literally like you are walking into prison. The kids have to take their shoes off, you have to remove your belt, you have to go through a metal detector. Even the kids do. We are not going into a prison, I don’t need to be stripped and searched. I’m with my family. I’m just trying to find a home’.
Maryann Broxton, a lone mother of two, finds life exhausting and made worse by ‘the consensus that, as a poor person, it is perfectly acceptable to be finger printed, photographed and drug-tested to prove that I am worthy of food. Hunger is not a crime. The parental guilt is punishment enough.’
Palma McLaughlin, a victim of domestic violence, notes that ‘now she is poor, she is stigmatised’; no longer ‘judged by her skills and accomplishments but by what she doesn’t have’.
People in poverty feel ashamed because they cannot afford to live up to social expectations. Being a good parent means feeding your children; being a good relative means exchanging gifts at celebrations. Friendships need to be sustained by buying a round of drinks or returning money that has been borrowed. When you cannot afford to do these things, your sense of shame is magnified by others. Friends, even close relatives, avoid you. Your children despise you, asking, for example: ‘why was I born into this family?’. Society similarly accuses you of being lazy, abusing drugs or promiscuity, assumed guilty until proved innocent. You can even be blamed for the ills of your country, the high levels of crime or its relative economic decline. The middle class in Uganda ask: ‘how can Uganda be poor when the soils are rich and the climate is good if it’s not the fault of subsistence farmers’?’
In the US, as in Britain, it may be welfare expenditure that is blamed for stifling productive investment.
Beggar’s sign, by Gamma Man. CC-BY-2.0 via Flickr.
Shame is debilitating as well as painful. People avoid it by attempting to keep up appearances, pretending everything is fine. In so doing, they often live in fear of being found out and risk overextending finances and incurring bad debts. People in poverty typically avoid social situations where they risk being exposed to shame; in so doing lose the contacts that might help them out when times get particularly harsh. Sometimes shame drives people into clinical depression, to substance abuse and even to suicide. Shame saps self-esteem, erodes social capital and diminishes personal efficacy raising the possibility that it serves also to perpetuate poverty by reducing individuals’ ability to help themselves.
Shame also divides society. While the stigma attaching to policies can be unintentional, sometimes the result of underfunding and staff working under pressure, the public rhetoric of deserving and undeserving exacerbates misunderstanding between rich and poor, nurturing the presumption that the latter are invariably inadequate or dishonest. Often around the world, stigmatising welfare recipients is deliberate and frequently supported by popular opinion. Blaming and shaming are commonly thought to be effective ways of policing access to welfare benefits and regulating anti-social and self-destructive behaviour. However, such beliefs are based on two assumptions that are untenable. The first is that poverty is overwhelmingly of people’s own making, the result of individual inadequacy. This can hardly be the case in Uganda, Pakistan or India. Nor is so elsewhere. Poverty is for the most part structural, caused by factors beyond individual control relating to the workings of the economy, the mix of factors of production and the outcome of primary and secondary resource allocation. The second assumption is that shaming people changes their behaviour enabling them to lift themselves out of poverty. However, the scientific evidence overwhelmingly demonstrates that shaming does not facilitate behavioural change but merely imposes further pain.
Jose, Maryann and Palma were not participants in a research project. Rather they are members of ATD Fourth World, an organisation devoted to giving people in poverty voice, and their testimonials are available to read online. Echoing Martin Luther King, Palma dreams that one day her four children will be judged not by the money in their bank accounts but by the quality of their character.
Headline image credit: ‘Someone Special to Someone, Sometime’ by John W. Iwanski. CC BY-NC 2.0 via Flickr.
For those addicted to politics, newspapers and magazines have long provided abundant, sometimes even insightful coverage. During the last hundred years, print outlets have been supplemented by radio, then television, then 24/7 cable TV news. And with the growth of the internet, consumers of political news now have access to more analysis than ever.
One analytical tool that the politics-following public will not have access to this year is Intrade, an on-line political prediction market. Political prediction markets work very much like financial markets. Investors “buy” a futures contract on a particular candidate; if that candidate wins, the contract pays a set amount (typically $1); if the candidate loses, the contract becomes worthless. The price of candidates’ contracts vary between zero and $1, rising and falling with their political fortunes—and their probability of winning. You can see a graph of Obama and Romney contracts in the months preceding the 2012 election here.
Organized political betting markets have existed in the United States since the early days of the Republic. According to a 2003 paper by Rhode and Strumpf, during the late 19th and early 20th centuries wagering on political outcomes was common and market prices of contracts were often published in newspapers along with those of more conventional financial investments. Rhode and Strumpf note that at the Curb Exchange in New York, the total sum placed on political contracts sometimes exceeded trading in stocks and bonds.
Political betting markets became less popular around 1940. Betting on election outcomes no doubt continued to take place, but it was a much less high-profile affair.
Modern political prediction markets emerged with the establishment in 1988 of the Iowa Electronic Markets (IEM), a not-for-profit small-scale exchange run by the College of Business at the University of Iowa. The IEM was created as a teaching and research tool to both better understand how markets interpret real-world events and to study individual trading behavior in a laboratory setting. The IEM usually offers only a few contracts at any one time and investors are allowed to invest a relatively small amount of money. As of mid-October, the Iowa markets—like the polls more generally—were predicting that the Republicans will gain seats in the House and gain control of the Senate.
Wooden Ballot Box, by the Smithsonian Institution. Public domain via Wikimedia Commons.
An important feature of political prediction markets—like financial markets—is that they are efficient at processing information: the prices generated in those markets are a distillation of the collective wisdom of market participants. A desire to harness the market’s ability to process information led to an abortive attempt by the Defense Advanced Research Projects Agency in 2003 to create the Policy Analysis Market, which would allow individuals to bet on the likelihood of political and military events—including assassinations and terrorist attacks–taking place in the Middle East. The idea was that by processing information from a variety disparate sources, monitoring the prices of various contracts would help the defense establishment identify hot-spots before they became hot. The project was hastily cancelled after Congress and the public expressed outrage that the government was planning to provide the means (and motive) to speculate on—and possibly profit from–terrorism.
Another, longer-lived—and for a time, quite popular–prediction market was Intrade.com. This Dublin-based company was established in 1999. At first, it specialized in sports betting, but soon expanded to include an extensive menu of political markets. During recent elections, Intrade operated prediction markets on the presidential election outcome at the national level, the contest for each state’s electoral votes, individual Senate races, as well as a number of other political races in the US and overseas. Thus, Intrade offered a far variety of betting options than the IEM.
Intrade was forced to close last year when the US Commodities Futures Trading Commission (CFTC) filed suit against it for illegally allowing Americans to trade options (by contract, the IEM secured written opinions in 1992 and 1993 from the CFTC that it would not take action against IEM, because of that market’s non-profit, educational nature). The CFTS’s threat to Intrade’s largest customer base very quickly led to a dramatic drop-off in visitors to the site, which subsequently closed. Alternative off-shore betting markets have entered the political markets (e.g., Betfair), but their offerings pale by comparison with those formerly offered by Intrade and are probably too small at present to spur the CFTC to action.
I regret the loss of Intrade, but not because I used their services—I didn’t. Given the federal government’s generally hostile view toward internet gambling, I felt it was prudent to abstain. Plus, having placed a two-pound wager on a Parliamentary election with a bookmaker when I lived in England many years ago convinced me that an inclination to bet with the heart, rather than the head, makes for an unsuccessful gambler.
No, I miss Intrade because it provided a nice summary of many different political campaigns. Sure, there are plenty of on-line tools today that provide a wide array of expert opinion and sophisticated polling data. Still, as an economist, I enjoyed the application of the mechanisms usually associated with financial markets to politics and observing how political news generated fluctuations in those markets. No other single source today does that for as many political races as Intrade did.
Feature image credit: Stock market board, by Katrina.Tuiliao. CC-BY-2.0 via Wikimedia Commons.
