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this truth, which economists hold self-evident: Relative to a status quo of no or limited international trade, permitting full free trade across borders will leave in its wake some immediate losers, but citizens who gain from such trade gain much more than the losers lose. On a net basis, therefore, each nation gains over all from such trade.

In their work, economists are typically are not nationalistic. National boundaries mean little to them, other than that much data happen to be collected on a national basis. Whether a fellow American gains from a trade or someone in Shanghai does not make any difference to most economists, nor does it matter to them where the losers from global competition live, in America or elsewhere.

I say most economists, because here and there one can find some who do seem to worry about how fellow Americans fare in the matter of free trade. In a widely noted column in The Washington Post, “Free Trade’s Great, but Offshoring Rattles Me,” for example, my Princeton colleague Alan Blinder wrote: I’m a free trader down to my toes. Always have been. Yet lately, I’m being treated as a heretic by many of my fellow economists. Why? Because I have stuck my neck out and predicted that the offshoring of service jobs from rich countries such as the United States to poor countries such as India may pose major problems for tens of millions of American workers over the coming decades. In fact, I think offshoring may be the biggest political issue in economics for a generation. When I say this, many of my fellow free traders react with a mixture of disbelief, pity and hostility. Blinder, have you lost your mind? Professor Blinder has estimated that 30 million to 40 million jobs in the United States are potentially offshorable — including those of scientists, mathematicians, radiologists and editors on the high end of the market, and those of telephone operators, clerks and typists on the low end. He says he is rattled by the question of how our country will cope with this phenomenon, especially in view of our tattered social safety net. “That is why I am going public with my concerns now,” he concludes. “If we economists stubbornly insist on chanting ‘free trade is good for you’ to people who know that it is not, we will quickly become irrelevant to the public debate. Compared with that, a little apostasy should be welcome.

This is why, for example, large numbers of Americans oppose the idea of an estate tax even though the current form of the tax, slated to return in 2011, is very unlikely to affect them or their estates. In narrowly self-interested terms, that view may be irrational, but most Americans are unwilling to frame national issues in terms of rich versus poor. There’s a great deal of hostility toward various government bailouts, but the idea of “undeserving” recipients is the key factor in those feelings. Resentment against Wall Street gamesters hasn’t spilled over much into resentment against the wealthy more generally. The bailout for General Motors’ labor unions wasn’t so popular either—again, obviously not because of any bias against the wealthy but because a basic sense of fairness was violated. As of November 2010, congressional Democrats are of a mixed mind as to whether the Bush tax cuts should expire for those whose annual income exceeds $250,000; that is in large part because their constituents bear no animus toward rich people, only toward undeservedly rich people.

envy is usually local. At least in the United States, most economic resentment is not directed toward billionaires or high-roller financiers—not even corrupt ones. It’s directed at the guy down the hall who got a bigger raise. It’s directed at the husband of your wife’s sister, because the brand of beer he stocks costs $3 a case more than yours, and so on. That’s another reason why a lot of people aren’t so bothered by income or wealth inequality at the macro level. Most of us don’t compare ourselves to billionaires. Gore Vidal put it honestly: “Whenever a friend succeeds, a little something in me dies.”

Occasionally the cynic in me wonders why so many relatively well-off intellectuals lead the egalitarian charge against the privileges of the wealthy. One group has the status currency of money and the other has the status currency of intellect, so might they be competing for overall social regard? The high status of the wealthy in America, or for that matter the high status of celebrities, seems to bother our intellectual class most. That class composes a very small group, however, so the upshot is that growing income inequality won’t necessarily have major political implications at the macro level.

All that said, income inequality does matter—for both politics and the economy.

The numbers are clear: Income inequality has been rising in the United States, especially at the very top. The data show a big difference between two quite separate issues, namely income growth at the very top of the distribution and greater inequality throughout the distribution. The first trend is much more pronounced than the second, although the two are often confused.

When it comes to the first trend, the share of pre-tax income earned by the richest 1 percent of earners has increased from about 8 percent in 1974 to more than 18 percent in 2007. Furthermore, the richest 0.01 percent (the 15,000 or so richest families) had a share of less than 1 percent in 1974 but more than 6 percent of national income in 2007. As noted, those figures are from pre-tax income, so don’t look to the George W. Bush tax cuts to explain the pattern. Furthermore, these gains have been sustained and have evolved over many years, rather than coming in one or two small bursts between 1974 and today.1

At the same time, wage growth for the median earner has slowed since 1973. But that slower wage growth has afflicted large numbers of Americans, and it is conceptually distinct from the higher relative share of top income earners. For instance, if you take the 1979–2005 period, the average incomes of the bottom fifth of households increased only 6 percent while the incomes of the middle quintile rose by 21 percent. That’s a widening of the spread of incomes, but it’s not so drastic compared to the explosive gains at the very top.

The broader change in income distribution, the one occurring beneath the very top earners, can be deconstructed in a manner that makes nearly all of it look harmless. For instance, there is usually greater inequality of income among both older people and the more highly educated, if only because there is more time and more room for fortunes to vary. Since America is becoming both older and more highly educated, our measured income inequality will increase pretty much by demographic fiat. Economist Thomas Lemieux at the University of British Columbia estimates that these demographic effects explain three-quarters of the observed rise in income inequality for men, and even more for women.2

Attacking the problem from a different angle, other economists are challenging whether there is much growth in inequality at all below the super-rich. For instance, real incomes are measured using a common price index, yet poorer people are more likely to shop at discount outlets like Wal-Mart, which have seen big price drops over the past twenty years.3 Once we take this behavior into account, it is unclear whether the real income gaps between the poor and middle class have been widening much at all. Robert J. Gordon, an economist from Northwestern University who is hardly known as a right-wing apologist, wrote in a recent paper that “there was no increase of inequality after 1993 in the bottom 99 percent of the population”, and that whatever overall change there was “can be entirely explained by the behavior of income in the top 1 percent.”4

And so we come again to the gains of the top earners, clearly the big story told by the data. It’s worth noting that over this same period of time, inequality of work hours increased too. The top earners worked a lot more and most other Americans worked somewhat less. That’s another reason why high earners don’t occasion more resentment: Many people understand how hard they have to work to get there. It also seems that most of the income gains of the top earners were related to performance pay—bonuses, in other words—and not wildly out-of-whack yearly salaries.5

It is also the case that any society with a lot of “threshold earners” is likely to experience growing income inequality. A threshold earner is someone who seeks to earn a certain amount of money and no more. If wages go up, that person will respond by seeking less work or by working less hard or less often. That person simply wants to “get by” in terms of absolute earning power in order to experience other gains in the form of leisure—whether spending time with friends and family, walking in the woods and so on. Luck aside, that person’s income will never rise much above the threshold.

The funny thing is this: For years, many cultural critics in and of the United States have been telling us that Americans should behave more like threshold earners. We should be less harried, more interested in nurturing friendships, and more interested in the non-commercial sphere of life. That may well be good advice. Many studies suggest that above a certain level more money brings only marginal increments of happiness. What isn’t so widely advertised is that those same critics have basically been telling us, without realizing it, that we should be acting in such a manner as to increase measured income inequality. Not only is high inequality an inevitable concomitant of human diversity, but growing income inequality may be, too, if lots of us take the kind of advice that will make us happier.

Why is the top 1 percent doing so well?

Steven N. Kaplan and Joshua Rauh have recently provided a detailed estimation of particular American incomes.6 Their data do not comprise the entire U.S. population, but from partial financial records they find a very strong role for the financial sector in driving the trend toward income concentration at the top. For instance, for 2004, nonfinancial executives of publicly traded companies accounted for less than 6 percent of the top 0.01 percent income bracket. In that same year, the top 25 hedge fund managers combined appear to have earned more than all of the CEOs from the entire S&P 500. The number of Wall Street investors earning more than $100 million a year was nine times higher than the public company executives earning that amount. The authors also relate that they shared their estimates with a former U.S. Secretary of the Treasury, one who also has a Wall Street background. He thought their estimates of earnings in the financial sector were, if anything, understated.

Many of the other high earners are also connected to finance. After Wall Street, Kaplan and Rauh identify the legal sector as a contributor to the growing spread in earnings at the top. Yet many high-earning lawyers are doing financial deals, so a lot of the income generated through legal activity is rooted in finance. Other lawyers are defending corporations against lawsuits, filing lawsuits or helping corporations deal with complex regulations. The returns to these activities are an artifact of the growing complexity of the law and government growth rather than a tale of markets per se. Finance aside, there isn’t much of a story of market failure here, even if we don’t find the results aesthetically appealing.

When it comes to professional athletes and celebrities, there isn’t much of a mystery as to what has happened. Tiger Woods earns much more, even adjusting for inflation, than Arnold Palmer ever did. J.K. Rowling, the first billionaire author, earns much more than did Charles Dickens. These high incomes come, on balance, from the greater reach of modern communications and marketing. Kids all over the world read about Harry Potter. There is more purchasing power to spend on children’s books and, indeed, on culture and celebrities more generally. For high-earning celebrities, hardly anyone finds these earnings so morally objectionable as to suggest that they be politically actionable. Cultural critics can complain that good schoolteachers earn too little, and they may be right, but that does not make celebrities into political targets. They’re too popular. It’s also pretty clear that most of them work hard to earn their money, by persuading fans to buy or otherwise support their product. Most of these individuals do not come from elite or extremely privileged backgrounds, either. They worked their way to the top, and even if Rowling is not an author for the ages, her books tapped into the spirit of their time in a special way. We may or may not wish to tax the wealthy, including wealthy celebrities, at higher rates, but there is no need to “cure” the structural causes of higher celebrity incomes.

to be sure, the high incomes in finance should give us all pause.

The first factor driving high returns is sometimes called by practitioners “going short on volatility.” Sometimes it is called “negative skewness.” In plain English, this means that some investors opt for a strategy of betting against big, unexpected moves in market prices. Most of the time investors will do well by this strategy, since big, unexpected moves are outliers by definition. Traders will earn above-average returns in good times. In bad times they won’t suffer fully when catastrophic returns come in, as sooner or later is bound to happen, because the downside of these bets is partly socialized onto the Treasury, the Federal Reserve and, of course, the taxpayers and the unemployed.

if you bet against unlikely events, most of the time you will look smart and have the money to validate the appearance. Periodically, however, you will look very bad. Does that kind of pattern sound familiar? It happens in finance, too. Betting against a big decline in home prices is analogous to betting against the Wizards. Every now and then such a bet will blow up in your face, though in most years that trading activity will generate above-average profits and big bonuses for the traders and CEOs.

To this mix we can add the fact that many money managers are investing other people’s money. If you plan to stay with an investment bank for ten years or less, most of the people playing this investing strategy will make out very well most of the time. Everyone’s time horizon is a bit limited and you will bring in some nice years of extra returns and reap nice bonuses. And let’s say the whole thing does blow up in your face? What’s the worst that can happen? Your bosses fire you, but you will still have millions in the bank and that MBA from Harvard or Wharton. For the people actually investing the money, there’s barely any downside risk other than having to quit the party early. Furthermore, if everyone else made more or less the same mistake (very surprising major events, such as a busted housing market, affect virtually everybody), you’re hardly disgraced. You might even get rehired at another investment bank, or maybe a hedge fund, within months or even weeks.

Moreover, smart shareholders will acquiesce to or even encourage these gambles. They gain on the upside, while the downside, past the point of bankruptcy, is borne by the firm’s creditors. And will the bondholders object? Well, they might have a difficult time monitoring the internal trading operations of financial institutions. Of course, the firm’s trading book cannot be open to competitors, and that means it cannot be open to bondholders (or even most shareholders) either. So what, exactly, will they have in hand to object to?

Perhaps more important, government bailouts minimize the damage to creditors on the downside. Neither the Treasury nor the Fed allowed creditors to take any losses from the collapse of the major banks during the financial crisis. The U.S. government guaranteed these loans, either explicitly or implicitly. Guaranteeing the debt also encourages equity holders to take more risk. While current bailouts have not in general maintained equity values, and while share prices have often fallen to near zero following the bust of a major bank, the bailouts still give the bank a lifeline. Instead of the bank being destroyed, sometimes those equity prices do climb back out of the hole. This is true of the major surviving banks in the United States, and even AIG is paying back its bailout. For better or worse, we’re handing out free options on recovery, and that encourages banks to take more risk in the first place.

there is an unholy dynamic of short-term trading and investing, backed up by bailouts and risk reduction from the government and the Federal Reserve. This is not good. “Going short on volatility” is a dangerous strategy from a social point of view. For one thing, in so-called normal times, the finance sector attracts a big chunk of the smartest, most hard-working and most talented individuals. That represents a huge human capital opportunity cost to society and the economy at large. But more immediate and more important, it means that banks take far too many risks and go way out on a limb, often in correlated fashion. When their bets turn sour, as they did in 2007–09, everyone else pays the price.

And it’s not just the taxpayer cost of the bailout that stings. The financial disruption ends up throwing a lot of people out of work down the economic food chain, often for long periods. Furthermore, the Federal Reserve System has recapitalized major U.S. banks by paying interest on bank reserves and by keeping an unusually high interest rate spread, which allows banks to borrow short from Treasury at near-zero rates and invest in other higher-yielding assets and earn back lots of money rather quickly. In essence, we’re allowing banks to earn their way back by arbitraging interest rate spreads against the U.S. government. This is rarely called a bailout and it doesn’t count as a normal budget item, but it is a bailout nonetheless. This type of implicit bailout brings high social costs by slowing down economic recovery (the interest rate spreads require tight monetary policy) and by redistributing income from the Treasury to the major banks.

the “going short on volatility” strategy increases income inequality. In normal years the financial sector is flush with cash and high earnings. In implosion years a lot of the losses are borne by other sectors of society. In other words, financial crisis begets income inequality. Despite being conceptually distinct phenomena, the political economy of income inequality is, in part, the political economy of finance. Simon Johnson tabulates the numbers nicely: From 1973 to 1985, the financial sector never earned more than 16 percent of domestic corporate profits. In 1986, that figure reached 19 percent. In the 1990s, it oscillated between 21 percent and 30 percent, higher than it had ever been in the postwar period. This decade, it reached 41 percent. Pay rose just as dramatically. From 1948 to 1982, average compensation in the financial sector ranged between 99 percent and 108 percent of the average for all domestic private industries. From 1983, it shot upward, reaching 181 percent in 2007.7

There’s a second reason why the financial sector abets income inequality: the “moving first” issue. Let’s say that some news hits the market and that traders interpret this news at different speeds. One trader figures out what the news means in a second, while the other traders require five seconds. Still other traders require an entire day or maybe even a month to figure things out. The early traders earn the extra money. They buy the proper assets early, at the lower prices, and reap most of the gains when the other, later traders pile on. Similarly, if you buy into a successful tech company in the early stages, you are “moving first” in a very effective manner, and you will capture most of the gains if that company hits it big.

The moving-first phenomenon sums to a “winner-take-all” market. Only some relatively small number of traders, sometimes just one trader, can be first. Those who are first will make far more than those who are fourth or fifth. This difference will persist, even if those who are fourth come pretty close to competing with those who are first. In this context, first is first and it doesn’t matter much whether those who come in fourth pile on a month, a minute or a fraction of a second later. Those who bought (or sold, as the case may be) first have captured and locked in most of the available gains. Since gains are concentrated among the early winners, and the closeness of the runner-ups doesn’t so much matter for income distribution, asset-market trading thus encourages the ongoing concentration of wealth. Many investors make lots of mistakes and lose their money, but each year brings a new bunch of projects that can turn the early investors and traders into very wealthy individuals.

These two features of the problem—“going short on volatility” and “getting there first”—are related. Let’s say that Goldman Sachs regularly secures a lot of the best and quickest trades, whether because of its quality analysis, inside connections or high-frequency trading apparatus (it has all three). It builds up a treasure chest of profits and continues to hire very sharp traders and to receive valuable information. Those profits allow it to make “short on volatility” bets faster than anyone else, because if it messes up, it still has a large enough buffer to pad losses. This increases the odds that Goldman will repeatedly pull in spectacular profits.

Still, every now and then Goldman will go bust, or would go bust if not for government bailouts. But the odds are in any given year that it won’t because of the advantages it and other big banks have. It’s as if the major banks have tapped a hole in the social till and they are drinking from it with a straw. In any given year, this practice may seem tolerable—didn’t the bank earn the money fair and square by a series of fairly normal looking trades? Yet over time this situation will corrode productivity, because what the banks do bears almost no resemblance to a process of getting capital into the hands of those who can make most efficient use of it. And it leads to periodic financial explosions. That, in short, is the real problem of income inequality we face today. It’s what causes the inequality at the very top of the earning pyramid that has dangerous implications for the economy as a whole.

What about controlling bank risk-taking directly with tight government oversight? That is not practical. There are more ways for banks to take risks than even knowledgeable regulators can possibly control; it just isn’t that easy to oversee a balance sheet with hundreds of billions of dollars on it, especially when short-term positions are wound down before quarterly inspections. It’s also not clear how well regulators can identify risky assets. Some of the worst excesses of the financial crisis were grounded in mortgage-backed assets—a very traditional function of banks—not exotic derivatives trading strategies. Virtually any asset position can be used to bet long odds, one way or another. It is naive to think that underpaid, undertrained regulators can keep up with financial traders, especially when the latter stand to earn billions by circumventing the intent of regulations while remaining within the letter of the law.

For the time being, we need to accept the possibility that the financial sector has learned how to game the American (and UK-based) system of state capitalism. It’s no longer obvious that the system is stable at a macro level, and extreme income inequality at the top has been one result of that imbalance. Income inequality is a symptom, however, rather than a cause of the real problem. The root cause of income inequality, viewed in the most general terms, is extreme human ingenuity, albeit of a perverse kind. That is why it is so hard to control.

Another root cause of growing inequality is that the modern world, by so limiting our downside risk, makes extreme risk-taking all too comfortable and easy. More risk-taking will mean more inequality, sooner or later, because winners always emerge from risk-taking. Yet bankers who take bad risks (provided those risks are legal) simply do not end up with bad outcomes in any absolute sense. They still have millions in the bank, lots of human capital and plenty of social status. We’re not going to bring back torture, trial by ordeal or debtors’ prisons, nor should we. Yet the threat of impoverishment and disgrace no longer looms the way it once did, so we no longer can constrain excess financial risk-taking. It’s too soft and cushy a world.

Why don’t we simply eliminate the safety net for clueless or unlucky risk-takers so that losses equal gains overall? That’s a good idea in principle, but it is hard to put into practice. Once a financial crisis arrives, politicians will seek to limit the damage, and that means they will bail out major financial institutions. Had we not passed TARP and related policies, the United States probably would have faced unemployment rates of 25 percent of higher, as in the Great Depression. The political consequences would not have been pretty. Bank bailouts may sound quite interventionist, and indeed they are, but in relative terms they probably were the most libertarian policy we had on tap. It meant big one-time expenses, but, for the most part, it kept government out of the real economy (the General Motors bailout aside).

We probably don’t have any solution to the hazards created by our financial sector, not because plutocrats are preventing our political system from adopting appropriate remedies, but because we don’t know what those remedies are. Yet neither is another crisis immediately upon us. The underlying dynamic favors excess risk-taking, but banks at the current moment fear the scrutiny of regulators and the public and so are playing it fairly safe. They are sitting on money rather than lending it out. The biggest risk today is how few parties will take risks, and, in part, the caution of banks is driving our current protracted economic slowdown. According to this view, the long run will bring another financial crisis once moods pick up and external scrutiny weakens, but that day of reckoning is still some ways off.

Is the overall picture a shame? Yes. Is it distorting resource distribution and productivity in the meantime? Yes. Will it again bring our economy to its knees? Probably. Maybe that’s simply the price of modern society. Income inequality will likely continue to rise and we will search in vain for the appropriate political remedies for our underlying problems.

In this New York Times’ article, “Teachers Wonder, Why the scorn?“, the writer notes the often scathing comments from counter-demonstrators – “Oh you pathetic teachers, read the online comments and placards of counterdemonstrators. You are glorified baby sitters who leave work at 3 p.m. You deserve minimum wage.” What had begun as an ostensibly ‘economic reform’ targeted at teachers’ unions has gradually transmogrified into a kind of “character attack” to this section of American society – teachers are people who wage violent protests (thanks to borrowed footage from the West Coast) and they are undeserving of their economic benefits, and indeed treat these privileges as ‘rights’. The ‘war’ is waged on multiple fronts, economic, political, social, psychological even — or at least one gets this sort of picture from reading these articles.

as Singaporeans with a uniquely Singaporean work ethic, we may perceive functioning ‘trade unions’ as those institutions in the so-called “West” where they amass lots of membership, then hold the government ‘hostage’ in order to negotiate higher wages and benefits. Think of trade unions in the Singaporean context, and I think of SIA pilots. And of LKY’s various firm and stern comments on those issues. Think of trade unions and I think of strikes in France, in South Korea, when I was younger, and of my mum saying, “How irresponsible!” before flipping the TV channel.

The reason why I think the teachers’ protests should not be seen solely as an issue about trade-unions, and evaluated myopically and naively in terms of whether trade unions are ‘good’ or ‘bad’ is because the protests feature in a larger political context with the billionaire Koch brothers at the helm, financing and directing much of what has transpired in recent weeks. Or at least according to certain articles which I present here.

In this NYT article entitled “Billionaire Brothers’ Money Plays Role in Wisconsin Dispute“, the writer noted that Koch Industries had been “one of the biggest contributors to the election campaign of Gov. Scott Walker of Wisconsin, a Republican who has championed the proposed cuts.” Further, the president of Americans for Prosperity, a nonprofit group financed by the Koch brothers, had reportedly addressed counter-demonstrators last Saturday saying that “the cuts were not only necessary, but they also represented the start of a much-needed nationwide move to slash public-sector union benefits.” and in his own words -“ ‘We are going to bring fiscal sanity back to this great nation’ ”. All this rhetoric would be more convincing to me if they weren’t funded by the same two billionaires who financially enabled Walker’s governorship.

I now refer you to a long piece by Jane Mayer for The New Yorker titled, “Covert Operations: The billionaire brothers who are waging a war against Obama“. According to her, “The Kochs are longtime libertarians who believe in drastically lower personal and corporate taxes, minimal social services for the needy, and much less oversight of industry—especially environmental regulation. These views dovetail with the brothers’ corporate interests.”

Their libertarian modus operandi involves great expenses in lobbying, in political contributions and in setting up think tanks. From 2006-2010, Koch Industries have led energy companies in political contributions; “[i]n the second quarter of 2010, David Koch was the biggest individual contributor to the Republican Governors Association, with a million-dollar donation.” More statistics, or at least those of the non-anonymous donation records, can be found on page 5 of Mayer’s piece.

Naturally, the Democrats also have their billionaire donors, most notably in the form of George Soros. Mayer writes that he has made ‘generous private contributions to various Democratic campaigns, including Obama’s.” Yet what distinguishes him from the Koch brothers here is, as Michael Vachon, his spokesman, argued, ‘that Soros’s giving is transparent, and that “none of his contributions are in the service of his own economic interests.” ‘ Of course, this must be taken with a healthy dose of salt, but I will note here that in Charles Ferguson’s documentary Inside Job, which was about the 2008 financial crisis, George Soros was one of those interviewed who was not portrayed negatively. (My review of it is here.)

Of the Koch brothers’ political investments, what interested me more was the US’ “first libertarian thinktank”, the Cato Institute. Mayer writes, ‘When President Obama, in a 2008 speech, described the science on global warming as “beyond dispute,” the Cato Institute took out a full-page ad in the Times to contradict him. Cato’s resident scholars have relentlessly criticized political attempts to stop global warming as expensive, ineffective, and unnecessary. Ed Crane, the Cato Institute’s founder and president, told [Mayer] that “global-warming theories give the government more control of the economy.” ‘

K Street refers to a major street in Washington, D.C. where major think tanks, lobbyists and advocacy groups are located.

with recent developments as the Citizens United case where corporations are now ‘persons’ and have no caps in political contributions, the Koch brothers are ever better-positioned to take down their perceived big, bad government and carry out their ideological agenda as sketched in Mayer’s piece

with much important news around the world jostling for our attention – earthquake in Japan, Middle East revolutions – the passing of an anti-union bill (which finally happened today, for better or for worse) in an American state is unlikely to make a headline able to compete with natural disasters and revolutions. Then, to quote Wisconsin Governor Scott Walker during that prank call conversation, “Sooner or later the media stops finding it [the teacher protests] interesting.”

What remains more puzzling for me is why the American public seems to buy into the Koch-funded libertarian rhetoric. Mayer writes, ‘ “Income inequality in America is greater than it has been since the nineteen-twenties, and since the seventies the tax rates of the wealthiest have fallen more than those of the middle class. Yet the brothers’ message has evidently resonated with voters: a recent poll found that fifty-five per cent of Americans agreed that Obama is a socialist.” I suppose that not knowing who is funding the political rhetoric makes it easier for the public to imbibe it.

Indeed, how useful is efficiency as a normative guide to public policy? Can economists legitimately base their advocacy of particular policies on that criterion? That advocacy, especially when supported by mathematical notation and complex graphs, may look like economic science. But when greater efficiency is accompanied by a redistribution of economic privilege in society, subjective ethical dimensions inevitably get baked into the economist’s recommendations.

More critical, in my opinion, is the implication that skeptical research and communication happens in an ethical vacuum. That just isn’t true. Indeed, it is dangerous for a field which promotes and attacks medical treatments, accuses people of crimes, opines about law enforcement practices, offers consumer advice, and undertakes educational projects to pretend that it is free from ethical implications — or obligations.

there is no monolithic “one true way to do skepticism.” No, the skeptical world does not break down to nice skeptics who get everything right, and mean skeptics who get everything wrong. (I’m reminded of a quote: “If only there were evil people somewhere insidiously committing evil deeds, and it were necessary only to separate them from the rest of us and destroy them. But the line dividing good and evil cuts through the heart of every human being.”) No one has all the answers. Certainly I don’t, and neither does Phil Plait. Nor has anyone actually proposed a uniform, lockstep approach to skepticism. (No one has any ability to enforce such a thing, in any event.)

However, none of that implies that all approaches to skepticism are equally valid, useful, or good. As in other fields, various skeptical practices do more or less good, cause greater or lesser harm, or generate various combinations of both at the same time. For that reason, skeptics should strive to find ways to talk seriously about the practices and the ethics of our field. Skepticism has blossomed into something that touches a lot of lives — and yet it is an emerging field, only starting to come into its potential. We need to be able to talk about that potential, and about the pitfalls too.

All of the fields from which skepticism borrows (such as medicine, education, psychology, journalism, history, and even arts like stage magic and graphic design) have their own standards of professional ethics. In some cases those ethics are well-explored professional fields in their own right (consider medical ethics, a field with its own academic journals and doctoral programs). In other cases those ethical guidelines are contested, informal, vague, or honored more in the breach. But in every case, there are serious conversations about the ethical implications of professional practice, because those practices impact people’s lives. Why would skepticism be any different?

, Skeptrack speaker Barbara Drescher (a cognitive pyschologist who teaches research methodology) described the complexity of research ethics in her own field. Imagine, she said, that a psychologist were to ask research subjects a question like, “Do your parents like the color red?” Asking this may seem trivial and harmless, but it is nonetheless an ethical trade-off with associated risks (however small) that psychological researchers are ethically obliged to confront. What harm might that question cause if a research subject suffers from erythrophobia, or has a sick parent — or saw their parents stabbed to death?

When skeptics undertake scientific, historical, or journalistic research, we should (I argue) consider ourselves bound by some sort of research ethics. For now, we’ll ignore the deeper, detailed question of what exactly that looks like in practical terms (when can skeptics go undercover or lie to get information? how much research does due diligence require? and so on). I’d ask only that we agree on the principle that skeptical research is not an ethical free-for-all.

when skeptics communicate with the public, we take on further ethical responsibilities — as do doctors, journalists, and teachers. We all accept that doctors are obliged to follow some sort of ethical code, not only of due diligence and standard of care, but also in their confidentiality, manner, and the factual information they disclose to patients. A sentence that communicates a diagnosis, prescription, or piece of medical advice (“you have cancer” or “undertake this treatment”) is not a contextless statement, but a weighty, risky, ethically serious undertaking that affects people’s lives. It matters what doctors say, and it matters how they say it.

Grassroots Ethics It happens that skepticism is my professional field. It’s natural that I should feel bound by the central concerns of that field. How can we gain reliable knowledge about weird things? How can we communicate that knowledge effectively? And, how can we pursue that practice ethically?

At the same time, most active skeptics are not professionals. To what extent should grassroots skeptics feel obligated to consider the ethics of skeptical activism? Consider my own status as a medical amateur. I almost need super-caps-lock to explain how much I am not a doctor. My medical training began and ended with a couple First Aid courses (and those way back in the day). But during those short courses, the instructors drummed into us the ethical considerations of our minimal training. When are we obligated to perform first aid? When are we ethically barred from giving aid? What if the injured party is unconscious or delirious? What if we accidentally kill or injure someone in our effort to give aid? Should we risk exposure to blood-borne illnesses? And so on. In a medical context, ethics are determined less by professional status, and more by the harm we can cause or prevent by our actions.

police officers are barred from perjury, and journalists from libel — and so are the lay public. We expect schoolteachers not to discuss age-inappropriate topics with our young children, or to persuade our children to adopt their religion; when we babysit for a neighbor, we consider ourselves bound by similar rules. I would argue that grassroots skeptics take on an ethical burden as soon as they speak out on medical matters, legal matters, or other matters of fact, whether from platforms as large as network television, or as small as a dinner party. The size of that burden must depend somewhat on the scale of the risks: the number of people reached, the certainty expressed, the topics tackled.

tu-quoque argument.

How much time are skeptics going to waste, arguing in a circular firing squad about each other’s free speech? Like it or not, there will always be confrontational people. You aren’t going to get a group of people as varied as skeptics are, and make them all agree to “be nice”. It’s a pipe dream, and a waste of time.

The trickiest cases are in a third category: private conversations whose disclosure is bound to cause offense, embarrassment, or tension, but has no obvious redeeming public-policy justification. The problem is not that negative things are said behind closed doors – as one leader famously responded to an apologizing Hillary Clinton, “You should hear what we say about you” – but that they become public knowledge. Particularly in Asia, loss of face means much more than most Westerners will ever understand.

these kinds of leaks should not be naively applauded as somehow contributing to better government. They don’t, and won’t, because they will strongly influence at least what is written down and circulated, thereby inhibiting the free exchange of information within government. Leaks of this kind will reinforce the bureaucratic barriers that must be removed if policymaking and implementation are to be effective in all areas that require input, coordination, and common information and analysis across departments and agencies.

Mr. Vaidhyanathan, a professor of media studies and law at the University of Virginia and frequent contributor to The Chronicle Review, reminds readers that they aren't consumers of Google's offerings. Rather, their use of Google's services is the product it sells to advertisers. Both books look at the continuing evolution of the Google Books settlement as a key test of how far the company's reach could extend and a sign of how the perception of Google has changed from that of scrappy upstart with a clever motto, "Don't be evil," to global behemoth accused by some of being just that.

Is the Internet on its way to getting monopolized? That question underlies Tim Wu's The Master Switch. The eccentric Columbia Law School professor—he's known to dress up as a blue bear at the annual Burning Man festival—recounts how ruthless companies consolidated their power over earlier information industries like the telephone, radio, and film. So which tech giant seems likely to grab control of the net?

it feels like we're perpetually on the verge of a tipping point, when e-books will overtake print books as a source of revenue for publishers. John B. Thompson, a sociologist at the University of Cambridge, analyzes the inner workings of the contemporary trade-publishing industry. (He did the same for scholarly publishing in an earlier work, Books in the Digital Age.) Mr. Thompson examines the roles played by agents, editors, and authors as well as differences among small, medium, and large publishing operations, and he probes under the surface of the great digital shift. We're too hung up on the form of the book, he argues: "A revolution has taken place in publishing, but it is a revolution in the process rather than a revolution in the product."

technology is actually doing far more to bolster authoritarian regimes than to overturn them, writes Evgeny Morozov in this sharp reality check on the media-fueled notion that information is making everybody free. Mr. Morozov, a visiting scholar at Stanford University, points out that the Iranian government posted "most wanted" pictures of protesters on the Web, leading to several arrests. The Muslim Brotherhood blogs actively in Egypt. And China pays people to make pro-authority statements on the Internet, paying a few cents for each endorsement. The Twitter revolution, in this book, is "overblown and completely unsubstantiated rhetoric."

Internet is rewiring our brains and short-circuiting our ability to think. And that has big consequences for teaching, he told The Chronicle last year: "The assumption that the more media, the more messaging, the more social networking you can bring in will lead to better educational outcomes is not only dubious but in many cases is probably just wrong."

there is one crucial difference between IQ and CQ scores. With intelligence, there is a phenomenon called the Flynn effect—each generation, scores go up about 10 points. Enriched environments are making kids smarter. With creativity, a reverse trend has just been identified and is being reported for the first time here: American creativity scores are falling.

creativity scores had been steadily rising, just like IQ scores, until 1990. Since then, creativity scores have consistently inched downward.

It is the scores of younger children in America—from kindergarten through sixth grade—for whom the decline is “most serious.”

It’s too early to determine conclusively why U.S. creativity scores are declining. One likely culprit is the number of hours kids now spend in front of the TV and playing videogames rather than engaging in creative activities. Another is the lack of creativity development in our schools. In effect, it’s left to the luck of the draw who becomes creative: there’s no concerted effort to nurture the creativity of all children.

Around the world, though, other countries are making creativity development a national priority.

In China there has been widespread education reform to extinguish the drill-and-kill teaching style. Instead, Chinese schools are also adopting a problem-based learning approach.

When faculty of a major Chinese university asked Plucker to identify trends in American education, he described our focus on standardized curriculum, rote memorization, and nationalized testing.

Overwhelmed by curriculum standards, American teachers warn there’s no room in the day for a creativity class.

The age-old belief that the arts have a special claim to creativity is unfounded. When scholars gave creativity tasks to both engineering majors and music majors, their scores laid down on an identical spectrum, with the same high averages and standard deviations.

The argument that we can’t teach creativity because kids already have too much to learn is a false trade-off. Creativity isn’t about freedom from concrete facts. Rather, fact-finding and deep research are vital stages in the creative process.

The lore of pop psychology is that creativity occurs on the right side of the brain. But we now know that if you tried to be creative using only the right side of your brain, it’d be like living with ideas perpetually at the tip of your tongue, just beyond reach.

Creativity requires constant shifting, blender pulses of both divergent thinking and convergent thinking, to combine new information with old and forgotten ideas. Highly creative people are very good at marshaling their brains into bilateral mode, and the more creative they are, the more they dual-activate.

“Creativity can be taught,” says James C. Kaufman, professor at California State University, San Bernardino. What’s common about successful programs is they alternate maximum divergent thinking with bouts of intense convergent thinking, through several stages. Real improvement doesn’t happen in a weekend workshop. But when applied to the everyday process of work or school, brain function improves.

highly creative adults tended to grow up in families embodying opposites. Parents encouraged uniqueness, yet provided stability. They were highly responsive to kids’ needs, yet challenged kids to develop skills. This resulted in a sort of adaptability: in times of anxiousness, clear rules could reduce chaos—yet when kids were bored, they could seek change, too. In the space between anxiety and boredom was where creativity flourished.

highly creative adults frequently grew up with hardship. Hardship by itself doesn’t lead to creativity, but it does force kids to become more flexible—and flexibility helps with creativity.

In early childhood, distinct types of free play are associated with high creativity. Preschoolers who spend more time in role-play (acting out characters) have higher measures of creativity: voicing someone else’s point of view helps develop their ability to analyze situations from different perspectives. When playing alone, highly creative first graders may act out strong negative emotions: they’ll be angry, hostile, anguished.

In middle childhood, kids sometimes create paracosms—fantasies of entire alternative worlds. Kids revisit their paracosms repeatedly, sometimes for months, and even create languages spoken there. This type of play peaks at age 9 or 10, and it’s a very strong sign of future creativity.

From fourth grade on, creativity no longer occurs in a vacuum; researching and studying become an integral part of coming up with useful solutions. But this transition isn’t easy. As school stuffs more complex information into their heads, kids get overloaded, and creativity suffers. When creative children have a supportive teacher—someone tolerant of unconventional answers, occasional disruptions, or detours of curiosity—they tend to excel. When they don’t, they tend to underperform and drop out of high school or don’t finish college at high rates.

They’re quitting because they’re discouraged and bored, not because they’re dark, depressed, anxious, or neurotic. It’s a myth that creative people have these traits. (Those traits actually shut down creativity; they make people less open to experience and less interested in novelty.) Rather, creative people, for the most part, exhibit active moods and positive affect. They’re not particularly happy—contentment is a kind of complacency creative people rarely have. But they’re engaged, motivated, and open to the world.

A similar study of 1,500 middle schoolers found that those high in creative self-efficacy had more confidence about their future and ability to succeed. They were sure that their ability to come up with alternatives would aid them, no matter what problems would arise.

As Tom Slee puts it, “Your answer to ‘what data should the government make public?’ depends not so much on what you think about data, but what you think about the government.”* My personal view is that there is too much secrecy in the current system, and that a corrective towards transparency is a good idea. I don’t, however, believe in total transparency, and even more importantly, I don’t think that independent actors who are subject to no checks or balances is a good idea in the long haul.

The practical history of politics, however, suggests that the periodic appearance of such unconstrained actors in the short haul is essential to increased democratization, not just of politics but of thought. We celebrate the printers of 16th century Amsterdam for making it impossible for the Catholic Church to constrain the output of the printing press to Church-approved books*, a challenge that helped usher in, among other things, the decentralization of scientific inquiry and the spread of politically seditious writings advocating democracy. This intellectual and political victory didn’t, however, mean that the printing press was then free of all constraints. Over time, a set of legal limitations around printing rose up, including restrictions on libel, the publication of trade secrets, and sedition. I don’t agree with all of these laws, but they were at least produced by some legal process.

I am conflicted about the right balance between the visibility required for counter-democracy and the need for private speech among international actors. Here’s what I’m not conflicted about: When authorities can’t get what they want by working within the law, the right answer is not to work outside the law. The right answer is that they can’t get what they want.

The Unites States is — or should be — subject to the rule of law, which makes the extra-judicial pursuit of Wikileaks especially nauseating. (Calls for Julian’s assassination are even more nauseating.) It may be that what Julian has done is a crime. (I know him casually, but not well enough to vouch for his motivations, nor am I a lawyer.) In that case, the right answer is to bring the case to a trial.

Over the long haul, we will need new checks and balances for newly increased transparency — Wikileaks shouldn’t be able to operate as a law unto itself anymore than the US should be able to. In the short haul, though, Wikileaks is our Amsterdam. Whatever restrictions we eventually end up enacting, we need to keep Wikileaks alive today, while we work through the process democracies always go through to react to change. If it’s OK for a democracy to just decide to run someone off the internet for doing something they wouldn’t prosecute a newspaper for doing, the idea of an internet that further democratizes the public sphere will have taken a mortal blow.

The WikiLeaks cables present quite a different picture. What emerges is one reality (the real one) colliding with another (the official one). We see smart, good-faith diplomats and foreign service personnel trying to make the truth on the ground match up to the one the administration has proclaimed to the public. The cables show the widening disconnect. It's like a foreign policy Ponzi scheme -- this one fueled not by the public's money, but the public's acquiescence.

The second aspect of the story -- the one that was the focus of the symposium -- is the changing relationship to government that technology has made possible.

Back in the year 2007, B.W. (Before WikiLeaks), Barack Obama waxed lyrical about government and the internet: "We have to use technology to open up our democracy. It's no coincidence that one of the most secretive administrations in our history has favored special interest and pursued policy that could not stand up to the sunlight."

Not long after the election, in announcing his "Transparency and Open Government" policy, the president proclaimed: "Transparency promotes accountability and provides information for citizens about what their Government is doing. Information maintained by the Federal Government is a national asset." Cut to a few years later. Now that he's defending a reality that doesn't match up to, well, reality, he's suddenly not so keen on the people having a chance to access this "national asset."

Even more wikironic are the statements by his Secretary of State who, less than a year ago, was lecturing other nations about the value of an unfettered and free internet. Given her description of the WikiLeaks as "an attack on America's foreign policy interests" that have put in danger "innocent people," her comments take on a whole different light. Some highlights: In authoritarian countries, information networks are helping people discover new facts and making governments more accountable... technologies with the potential to open up access to government and promote transparency can also be hijacked by governments to crush dissent and deny human rights... As in the dictatorships of the past, governments are targeting independent thinkers who use these tools. Now "making government accountable" is, as White House spokesman Robert Gibbs put it, a "reckless and dangerous action."

ay Rosen, one of the participants in the symposium, wrote a brilliant essay entitled "From Judith Miller to Julian Assange." He writes: For the portion of the American press that still looks to Watergate and the Pentagon Papers for inspiration, and that considers itself a check on state power, the hour of its greatest humiliation can, I think, be located with some precision: it happened on Sunday, September 8, 2002. That was when the New York Times published Judith Miller and Michael Gordon's breathless, spoon-fed -- and ultimately inaccurate -- account of Iraqi attempts to buy aluminum tubes to produce fuel for a nuclear bomb.

Miller's after-the-facts-proved-wrong response, as quoted in a Michael Massing piece in the New York Review of Books, was: "My job isn't to assess the government's information and be an independent intelligence analyst myself. My job is to tell readers of The New York Times what the government thought about Iraq's arsenal." In other words, her job is to tell citizens what their government is saying, not, as Obama called for in his transparency initiative, what their government is doing.

As Jay Rosen put it: Today it is recognized at the Times and in the journalism world that Judy Miller was a bad actor who did a lot of damage and had to go. But it has never been recognized that secrecy was itself a bad actor in the events that led to the collapse, that it did a lot of damage, and parts of it might have to go. Our press has never come to terms with the ways in which it got itself on the wrong side of secrecy as the national security state swelled in size after September 11th.

And in the WikiLeaks case, much of media has again found itself on the wrong side of secrecy -- and so much of the reporting about WikiLeaks has served to obscure, to conflate, to mislead. For instance, how many stories have you heard or read about all the cables being "dumped" in "indiscriminate" ways with no attempt to "vet" and "redact" the stories first. In truth, only just over 1,200 of the 250,000 cables have been released, and WikiLeaks is now publishing only those cables vetted and redacted by their media partners, which includes the New York Times here and the Guardian in England.

The establishment media may be part of the media, but they're also part of the establishment. And they're circling the wagons. One method they're using, as Andrew Rasiej put it after the symposium, is to conflate the secrecy that governments use to operate and the secrecy that is used to hide the truth and allow governments to mislead us.

Nobody, including WikiLeaks, is promoting the idea that government should exist in total transparency,

Assange himself would not disagree. "Secrecy is important for many things," he told Time's Richard Stengel. "We keep secret the identity of our sources, as an example, take great pains to do it." At the same time, however, secrecy "shouldn't be used to cover up abuses."

Decentralizing government power, limiting it, and challenging it was the Founders' intent and these have always been core conservative principles. Conservatives should prefer an explosion of whistleblower groups like WikiLeaks to a federal government powerful enough to take them down. Government officials who now attack WikiLeaks don't fear national endangerment, they fear personal embarrassment. And while scores of conservatives have long promised to undermine or challenge the current monstrosity in Washington, D.C., it is now an organization not recognizably conservative that best undermines the political establishment and challenges its very foundations.

It is not, as Simon Jenkins put it in the Guardian, the job of the media to protect the powerful from embarrassment. As I said at the symposium, its job is to play the role of the little boy in The Emperor's New Clothes -- brave enough to point out what nobody else is willing to say.

When the press trades truth for access, it is WikiLeaks that acts like the little boy. "Power," wrote Jenkins, "loathes truth revealed. When the public interest is undermined by the lies and paranoia of power, it is disclosure that takes sanity by the scruff of its neck and sets it back on its feet."

A final aspect of the story is Julian Assange himself. Is he a visionary? Is he an anarchist? Is he a jerk? This is fun speculation, but why does it have an impact on the value of the WikiLeaks revelations?

The “Asian Values” hypothesis is equally suspect. The UDHR recognises the universal applicability of human rights and any nation party to this treaty is not permitted to restrict rights purely on cultural, religious or political grounds.

“Asian governments are justified in restricting civil and political rights in some circumstances in favour of social stability and economic growth. Civil and political rights are immaterial when people are destitute and society is unstable.  Accordingly, as luxuries to be enjoyed once there is social order, civil and political liberties must be temporarily suspended so as to not inhibit the government’s delivery of economic and social necessities and so as to not threaten or destroy future development plans.” Whilst this argument may have been slightly more palatable if Singapore’s citizens were, in fact destitute, the reality is that Singapore is ranked as one of the world’s wealthiest countries and boasts a high life expectancy. Thus in Singapore’s case, arguments made in favour of a “liberty trade-off” are rendered completely untenable.

these cultural and religious justifications for violating rights are as unacceptable as Singapore’s purported assertion of an “Asian Values” conception of human rights. Even though the Singapore government’s language is more subtle, their arguments amount to same basic tenet: the purported justification of the denial of fundamental human rights, by reference to cultural, religious or political specific norms. Speaking recently in New York, the UN Secretary-General, Ban Ki Moon warned against such an interpretation of human rights:

“Yes, we recognize that social attitudes run deep.  Yes, social change often comes only with time.  Yet, let there be no confusion: where there is tension between cultural attitudes and universal human rights, universal human rights must carry the day. ” The universal and fundamental nature of human rights is the founding principle on which the United Nations was built: the right to freedom of expression must be guaranteed, “Asian Values” notwithstanding.

You could argue that modern economics really began with David Hume’s Of the Balance of Trade, whose core is a gloriously clear thought experiment