Group items tagged

Wordsmith intellectuals fare well in capitalist society; there they have great freedom to formulate, encounter, and propagate new ideas, to read and discuss them. Their occupational skills are in demand, their income much above average. Why then do they disproportionately oppose capitalism? Indeed, some data suggest that the more prosperous and successful the intellectual, the more likely he is to oppose capitalism. This opposition to capitalism is mainly "from the left" but not solely so. Yeats, Eliot, and Pound opposed market society from the right.

can distinguish two types of explanation for the relatively high proportion of intellectuals in opposition to capitalism. One type finds a factor unique to the anti-capitalist intellectuals. The second type of explanation identifies a factor applying to all intellectuals, a force propelling them toward anti-capitalist views. Whether it pushes any particular intellectual over into anti-capitalism will depend upon the other forces acting upon him. In the aggregate, though, since it makes anti-capitalism more likely for each intellectual, such a factor will produce a larger proportion of anti-capitalist intellectuals. Our explanation will be of this second type. We will identify a factor which tilts intellectuals toward anti-capitalist attitudes but does not guarantee it in any particular case.

Intellectuals now expect to be the most highly valued people in a society, those with the most prestige and power, those with the greatest rewards. Intellectuals feel entitled to this. But, by and large, a capitalist society does not honor its intellectuals. Ludwig von Mises explains the special resentment of intellectuals, in contrast to workers, by saying they mix socially with successful capitalists and so have them as a salient comparison group and are humiliated by their lesser status.

Why then do contemporary intellectuals feel entitled to the highest rewards their society has to offer and resentful when they do not receive this? Intellectuals feel they are the most valuable people, the ones with the highest merit, and that society should reward people in accordance with their value and merit. But a capitalist society does not satisfy the principle of distribution "to each according to his merit or value." Apart from the gifts, inheritances, and gambling winnings that occur in a free society, the market distributes to those who satisfy the perceived market-expressed demands of others, and how much it so distributes depends on how much is demanded and how great the alternative supply is. Unsuccessful businessmen and workers do not have the same animus against the capitalist system as do the wordsmith intellectuals. Only the sense of unrecognized superiority, of entitlement betrayed, produces that animus.

What factor produced feelings of superior value on the part of intellectuals? I want to focus on one institution in particular: schools. As book knowledge became increasingly important, schooling--the education together in classes of young people in reading and book knowledge--spread. Schools became the major institution outside of the family to shape the attitudes of young people, and almost all those who later became intellectuals went through schools. There they were successful. They were judged against others and deemed superior. They were praised and rewarded, the teacher's favorites. How could they fail to see themselves as superior? Daily, they experienced differences in facility with ideas, in quick-wittedness. The schools told them, and showed them, they were better.

We have refined the hypothesis somewhat. It is not simply formal schools but formal schooling in a specified social context that produces anti-capitalist animus in (wordsmith) intellectuals. No doubt, the hypothesis requires further refining. But enough. It is time to turn the hypothesis over to the social scientists, to take it from armchair speculations in the study and give it to those who will immerse themselves in more particular facts and data. We can point, however, to some areas where our hypothesis might yield testable consequences and predictions. First, one might predict that the more meritocratic a country's school system, the more likely its intellectuals are to be on the left. (Consider France.) Second, those intellectuals who were "late bloomers" in school would not have developed the same sense of entitlement to the very highest rewards; therefore, a lower percentage of the late-bloomer intellectuals will be anti-capitalist than of the early bloomers. Third, we limited our hypothesis to those societies (unlike Indian caste society) where the successful student plausibly could expect further comparable success in the wider society. In Western society, women have not heretofore plausibly held such expectations, so we would not expect the female students who constituted part of the academic upper class yet later underwent downward mobility to show the same anti-capitalist animus as male intellectuals. We might predict, then, that the more a society is known to move toward equality in occupational opportunity between women and men, the more its female intellectuals will exhibit the same disproportionate anti-capitalism its male intellectuals show.

it is not quite true, even among tenured professors in the humanities, that idea-mongers can entirely ignore "external" checks. Even academics want to be respectable, which means they can't entirely ignore the realities that others notice. There were lots of academics talking about the achievements of socialism in the 1970s (I can remember them) but very few talking that way after China and Russia repudiated these fantasies.

THE MOST DISTORTING ASPECT of Sowell's account is that, in focusing so much on the delusions of intellectuals, he leaves us more confused about what motivates the rest of society. In a characteristic passage, Sowell protests that "intellectuals...have sought to replace the groups into which people have sorted themselves with groupings created and imposed by the intelligentsia. Ties of family, religion, and patriotism, for example, have long been rated as suspect or detrimental by the intelligentsia, and new ties that intellectuals have created, such as class -- and more recently 'gender' -- have been projected as either more real or more important."

There's no disputing the claim that most "intellectuals" -- surely most professors in the humanities-are down on "patriotism" and "religion" and probably even "family." But how did people get to be patriotic and religious in the first place? In Sowell's account, they just "sorted themselves" -- as if by the invisible hand of the market.

Let's put aside all the violence and intimidation that went into building so many nations and so many faiths in the past. What is it, even today, that makes people revere this country (or some other); what makes people adhere to a particular faith or church? Don't inspiring words often move people? And those who arrange these words -- aren't they doing something similar to what Sowell says intellectuals do? Is it really true, when it comes to embracing national or religious loyalties, that "the proof of the pudding is in the eating"?

Even when it comes to commercial products, people don't always want to be guided by mundane considerations of reliable performance. People like glamour, prestige, associations between the product and things they otherwise admire. That's why companies spend so much on advertising. And that's part of the reason people are willing to pay more for brand names -- to enjoy the associations generated by advertising. Even advertising plays on assumptions about what is admirable and enticing-assumptions that may change from decade to decade, as background opinions change. How many products now flaunt themselves as "green" -- and how many did so 20 years ago?

If we closed down universities and stopped subsidizing intellectual publications, would people really judge every proposed policy by external results? Intellectuals tend to see what they expect to see, as Sowell's examples show -- but that's true of almost everyone. We have background notions about how the world works that help us make sense of what we experience. We might have distorted and confused notions, but we don't just perceive isolated facts. People can improve in their understanding, developing background understandings that are more defined or more reliable. That's part of what makes people interested in the ideas of intellectuals -- the hope of improving their own understanding.

On Sowell's account, we wouldn't need the contributions of a Friedrich Hayek -- or a Thomas Sowell -- if we didn't have so many intellectuals peddling so many wrong-headed ideas. But the wealthier the society, the more it liberates individuals to make different choices and the more it can afford to indulge even wasteful or foolish choices. I'd say that means not that we have less need of intellectuals, but more need of better ones. 

It is clear why this makes for rapid and powerful progress. For exploring the unknown, there is no faster method; this is the minimum sequence of steps. Any conclusion that is not an exclusion is insecure and must be rechecked. Any delay in recycling to the next set of hypotheses is only a delay. Strong inference, and the logical tree it generates, are to inductive reasoning what the syllogism is to deductive reasoning in that it offers a regular method for reaching firm inductive conclusions one after the other as rapidly as possible.

"But what is so novel about this?" someone will say. This is the method of science and always has been, why give it a special name? The reason is that many of us have almost forgotten it. Science is now an everyday business. Equipment, calculations, lectures become ends in themselves. How many of us write down our alternatives and crucial experiments every day, focusing on the exclusion of a hypothesis? We may write our scientific papers so that it looks as if we had steps 1, 2, and 3 in mind all along. But in between, we do busywork. We become "method- oriented" rather than "problem-oriented." We say we prefer to "feel our way" toward generalizations. We fail to teach our students how to sharpen up their inductive inferences. And we do not realize the added power that the regular and explicit use of alternative hypothesis and sharp exclusion could give us at every step of our research.

A distinguished cell biologist rose and said, "No two cells give the same properties. Biology is the science of heterogeneous systems." And he added privately. "You know there are scientists, and there are people in science who are just working with these over-simplified model systems - DNA chains and in vitro systems - who are not doing science at all. We need their auxiliary work: they build apparatus, they make minor studies, but they are not scientists." To which Cy Levinthal replied: "Well, there are two kinds of biologists, those who are looking to see if there is one thing that can be understood and those who keep saying it is very complicated and that nothing can be understood. . . . You must study the simplest system you think has the properties you are interested in."

At the 1958 Conference on Biophysics, at Boulder, there was a dramatic confrontation between the two points of view. Leo Szilard said: "The problems of how enzymes are induced, of how proteins are synthesized, of how antibodies are formed, are closer to solution than is generally believed. If you do stupid experiments, and finish one a year, it can take 50 years. But if you stop doing experiments for a little while and think how proteins can possibly be synthesized, there are only about 5 different ways, not 50! And it will take only a few experiments to distinguish these." One of the young men added: "It is essentially the old question: How small and elegant an experiment can you perform?" These comments upset a number of those present. An electron microscopist said. "Gentlemen, this is off the track. This is philosophy of science." Szilard retorted. "I was not quarreling with third-rate scientists: I was quarreling with first-rate scientists."

Any criticism or challenge to consider changing our methods strikes of course at all our ego-defenses. But in this case the analytical method offers the possibility of such great increases in effectiveness that it is unfortunate that it cannot be regarded more often as a challenge to learning rather than as challenge to combat. Many of the recent triumphs in molecular biology have in fact been achieved on just such "oversimplified model systems," very much along the analytical lines laid down in the 1958 discussion. They have not fallen to the kind of men who justify themselves by saying "No two cells are alike," regardless of how true that may ultimately be. The triumphs are in fact triumphs of a new way of thinking.

the emphasis on strong inference

is also partly due to the nature of the fields themselves. Biology, with its vast informational detail and complexity, is a "high-information" field, where years and decades can easily be wasted on the usual type of "low-information" observations or experiments if one does not think carefully in advance about what the most important and conclusive experiments would be. And in high-energy physics, both the "information flux" of particles from the new accelerators and the million-dollar costs of operation have forced a similar analytical approach. It pays to have a top-notch group debate every experiment ahead of time; and the habit spreads throughout the field.

Historically, I think, there have been two main contributions to the development of a satisfactory strong-inference method. The first is that of Francis Bacon (13). He wanted a "surer method" of "finding out nature" than either the logic-chopping or all-inclusive theories of the time or the laudable but crude attempts to make inductions "by simple enumeration." He did not merely urge experiments as some suppose, he showed the fruitfulness of interconnecting theory and experiment so that the one checked the other. Of the many inductive procedures he suggested, the most important, I think, was the conditional inductive tree, which proceeded from alternative hypothesis (possible "causes," as he calls them), through crucial experiments ("Instances of the Fingerpost"), to exclusion of some alternatives and adoption of what is left ("establishing axioms"). His Instances of the Fingerpost are explicitly at the forks in the logical tree, the term being borrowed "from the fingerposts which are set up where roads part, to indicate the several directions."

ere was a method that could separate off the empty theories! Bacon, said the inductive method could be learned by anybody, just like learning to "draw a straighter line or more perfect circle . . . with the help of a ruler or a pair of compasses." "My way of discovering sciences goes far to level men's wit and leaves but little to individual excellence, because it performs everything by the surest rules and demonstrations." Even occasional mistakes would not be fatal. "Truth will sooner come out from error than from confusion."

Nevertheless there is a difficulty with this method. As Bacon emphasizes, it is necessary to make "exclusions." He says, "The induction which is to be available for the discovery and demonstration of sciences and arts, must analyze nature by proper rejections and exclusions, and then, after a sufficient number of negatives come to a conclusion on the affirmative instances." "[To man] it is granted only to proceed at first by negatives, and at last to end in affirmatives after exclusion has been exhausted." Or, as the philosopher Karl Popper says today there is no such thing as proof in science - because some later alternative explanation may be as good or better - so that science advances only by disproofs. There is no point in making hypotheses that are not falsifiable because such hypotheses do not say anything, "it must be possible for all empirical scientific system to be refuted by experience" (14).

The difficulty is that disproof is a hard doctrine. If you have a hypothesis and I have another hypothesis, evidently one of them must be eliminated. The scientist seems to have no choice but to be either soft-headed or disputatious. Perhaps this is why so many tend to resist the strong analytical approach and why some great scientists are so disputatious.

Fortunately, it seems to me, this difficulty can be removed by the use of a second great intellectual invention, the "method of multiple hypotheses," which is what was needed to round out the Baconian scheme. This is a method that was put forward by T.C. Chamberlin (15), a geologist at Chicago at the turn of the century, who is best known for his contribution to the Chamberlain-Moulton hypothesis of the origin of the solar system.

Chamberlin says our trouble is that when we make a single hypothesis, we become attached to it. "The moment one has offered an original explanation for a phenomenon which seems satisfactory, that moment affection for his intellectual child springs into existence, and as the explanation grows into a definite theory his parental affections cluster about his offspring and it grows more and more dear to him. . . . There springs up also unwittingly a pressing of the theory to make it fit the facts and a pressing of the facts to make them fit the theory..." "To avoid this grave danger, the method of multiple working hypotheses is urged. It differs from the simple working hypothesis in that it distributes the effort and divides the affections. . . . Each hypothesis suggests its own criteria, its own method of proof, its own method of developing the truth, and if a group of hypotheses encompass the subject on all sides, the total outcome of means and of methods is full and rich."

The conflict and exclusion of alternatives that is necessary to sharp inductive inference has been all too often a conflict between men, each with his single Ruling Theory. But whenever each man begins to have multiple working hypotheses, it becomes purely a conflict between ideas. It becomes much easier then for each of us to aim every day at conclusive disproofs - at strong inference - without either reluctance or combativeness. In fact, when there are multiple hypotheses, which are not anyone's "personal property," and when there are crucial experiments to test them, the daily life in the laboratory takes on an interest and excitement it never had, and the students can hardly wait to get to work to see how the detective story will come out. It seems to me that this is the reason for the development of those distinctive habits of mind and the "complex thought" that Chamberlin described, the reason for the sharpness, the excitement, the zeal, the teamwork - yes, even international teamwork - in molecular biology and high- energy physics today. What else could be so effective?

Unfortunately, I think, there are other other areas of science today that are sick by comparison, because they have forgotten the necessity for alternative hypotheses and disproof. Each man has only one branch - or none - on the logical tree, and it twists at random without ever coming to the need for a crucial decision at any point. We can see from the external symptoms that there is something scientifically wrong. The Frozen Method, The Eternal Surveyor, The Never Finished, The Great Man With a Single Hypothcsis, The Little Club of Dependents, The Vendetta, The All-Encompassing Theory Which Can Never Be Falsified.

a "theory" of this sort is not a theory at all, because it does not exclude anything. It predicts everything, and therefore does not predict anything. It becomes simply a verbal formula which the graduate student repeats and believes because the professor has said it so often. This is not science, but faith; not theory, but theology. Whether it is hand-waving or number-waving, or equation-waving, a theory is not a theory unless it can be disproved. That is, unless it can be falsified by some possible experimental outcome.

the work methods of a number of scientists have been testimony to the power of strong inference. Is success not due in many cases to systematic use of Bacon's "surest rules and demonstrations" as much as to rare and unattainable intellectual power? Faraday's famous diary (16), or Fermi's notebooks (3, 17), show how these men believed in the effectiveness of daily steps in applying formal inductive methods to one problem after another.

Surveys, taxonomy, design of equipment, systematic measurements and tables, theoretical computations - all have their proper and honored place, provided they are parts of a chain of precise induction of how nature works. Unfortunately, all too often they become ends in themselves, mere time-serving from the point of view of real scientific advance, a hypertrophied methodology that justifies itself as a lore of respectability.

We speak piously of taking measurements and making small studies that will "add another brick to the temple of science." Most such bricks just lie around the brickyard (20). Tables of constraints have their place and value, but the study of one spectrum after another, if not frequently re-evaluated, may become a substitute for thinking, a sad waste of intelligence in a research laboratory, and a mistraining whose crippling effects may last a lifetime.

Beware of the man of one method or one instrument, either experimental or theoretical. He tends to become method-oriented rather than problem-oriented. The method-oriented man is shackled; the problem-oriented man is at least reaching freely toward that is most important. Strong inference redirects a man to problem-orientation, but it requires him to be willing repeatedly to put aside his last methods and teach himself new ones.

anyone who asks the question about scientific effectiveness will also conclude that much of the mathematizing in physics and chemistry today is irrelevant if not misleading. The great value of mathematical formulation is that when an experiment agrees with a calculation to five decimal places, a great many alternative hypotheses are pretty well excluded (though the Bohr theory and the Schrödinger theory both predict exactly the same Rydberg constant!). But when the fit is only to two decimal places, or one, it may be a trap for the unwary; it may be no better than any rule-of-thumb extrapolation, and some other kind of qualitative exclusion might be more rigorous for testing the assumptions and more important to scientific understanding than the quantitative fit.

Today we preach that science is not science unless it is quantitative. We substitute correlations for causal studies, and physical equations for organic reasoning. Measurements and equations are supposed to sharpen thinking, but, in my observation, they more often tend to make the thinking noncausal and fuzzy. They tend to become the object of scientific manipulation instead of auxiliary tests of crucial inferences.

Many - perhaps most - of the great issues of science are qualitative, not quantitative, even in physics and chemistry. Equations and measurements are useful when and only when they are related to proof; but proof or disproof comes first and is in fact strongest when it is absolutely convincing without any quantitative measurement.

you can catch phenomena in a logical box or in a mathematical box. The logical box is coarse but strong. The mathematical box is fine-grained but flimsy. The mathematical box is a beautiful way of wrapping up a problem, but it will not hold the phenomena unless they have been caught in a logical box to begin with.

Of course it is easy - and all too common - for one scientist to call the others unscientific. My point is not that my particular conclusions here are necessarily correct, but that we have long needed some absolute standard of possible scientific effectiveness by which to measure how well we are succeeding in various areas - a standard that many could agree on and one that would be undistorted by the scientific pressures and fashions of the times and the vested interests and busywork that they develop. It is not public evaluation I am interested in so much as a private measure by which to compare one's own scientific performance with what it might be. I believe that strong inference provides this kind of standard of what the maximum possible scientific effectiveness could be - as well as a recipe for reaching it.

The strong-inference point of view is so resolutely critical of methods of work and values in science that any attempt to compare specific cases is likely to sound but smug and destructive. Mainly one should try to teach it by example and by exhorting to self-analysis and self-improvement only in general terms

one severe but useful private test - a touchstone of strong inference - that removes the necessity for third-person criticism, because it is a test that anyone can learn to carry with him for use as needed. It is our old friend the Baconian "exclusion," but I call it "The Question." Obviously it should be applied as much to one's own thinking as to others'. It consists of asking in your own mind, on hearing any scientific explanation or theory put forward, "But sir, what experiment could disprove your hypothesis?"; or, on hearing a scientific experiment described, "But sir, what hypothesis does your experiment disprove?"

It is not true that all science is equal; or that we cannot justly compare the effectiveness of scientists by any method other than a mutual-recommendation system. The man to watch, the man to put your money on, is not the man who wants to make "a survey" or a "more detailed study" but the man with the notebook, the man with the alternative hypotheses and the crucial experiments, the man who knows how to answer your Question of disproof and is already working on it.

Lessig argues that, when it comes to drawing this line between private interests and public interests in intellectual property, the courts and Congress have, in recent years, swung much too far in the direction of private interests.

We could have sat in his living room playing at musical genealogy for hours. Did the examples upset him? Of course not, because he knew enough about music to know that these patterns of influence—cribbing, tweaking, transforming—were at the very heart of the creative process.

True, copying could go too far. There were times when one artist was simply replicating the work of another, and to let that pass inhibited true creativity. But it was equally dangerous to be overly vigilant in policing creative expression, because if Led Zeppelin hadn't been free to mine the blues for inspiration we wouldn't have got "Whole Lotta Love," and if Kurt Cobain couldn't listen to "More Than a Feeling" and pick out and transform the part he really liked we wouldn't have "Smells Like Teen Spirit"—and, in the evolution of rock, "Smells Like Teen Spirit" was a real step forward from "More Than a Feeling." A successful music executive has to understand the distinction between borrowing that is transformative and borrowing that is merely derivative, and that distinction, I realized, was what was missing from the discussion of Bryony Lavery's borrowings. Yes, she had copied my work. But no one was asking why she had copied it, or what she had copied, or whether her copying served some larger purpose.

It also matters how Lavery chose to use my words. Borrowing crosses the line when it is used for a derivative work. It's one thing if you're writing a history of the Kennedys, like Doris Kearns Goodwin, and borrow, without attribution, from another history of the Kennedys. But Lavery wasn't writing another profile of Dorothy Lewis. She was writing a play about something entirely new—about what would happen if a mother met the man who killed her daughter. And she used my descriptions of Lewis's work and the outline of Lewis's life as a building block in making that confrontation plausible.

this is the second problem with plagiarism. It is not merely extremist. It has also become disconnected from the broader question of what does and does not inhibit creativity. We accept the right of one writer to engage in a full-scale knockoff of another—think how many serial-killer novels have been cloned from "The Silence of the Lambs." Yet, when Kathy Acker incorporated parts of a Harold Robbins sex scene verbatim in a satiric novel, she was denounced as a plagiarist (and threatened with a lawsuit)

So when I hear scientists say, “The data speak for themselves,” I cringe. Data never speak. And data generally and most often are politically and socially inflected. They have import for people’s lives. To ignore that is to ignore the social and cultural dimensions within which this science is taking place.

I do think that there is a process by which, for example, the connection between cigarette smoking and cancer for decades had a scientific consensus that this was an issue, then a social process begins, and then it becomes accepted.

The interesting thing with climate change, I find, is that positioning on climate change is strikingly predictable based on someone’s political leanings. One-third of Republicans and three-quarters of Democrats think that climate change is real. That to me speaks to the political, ideological and cultural dimensions of this debate.

It’s interesting because it wasn’t always so. In 1997 with the Kyoto treaty, with the development of regulations that would impact economic and political interests, sides started to be drawn. We’ve reached the stage today that climate change has become part of the culture wars, the same as health care, abortion, gun control and evolution.

There are many who distrust the peer-review process and distrust scientists. So that can be step one. I think a lot of people will be uncomfortable accepting a scientific conclusion if it necessarily leads to outcomes they find objectionable. People will be hesitant to accept the notion of climate change if that leads directly towards ideas that are at variance with values that they hold dear.

do you trust the scientific process? Do you trust scientists? The faith-and-reason debate has been around for centuries. I just read a book that I thought was prescient, “Anti-Intellectualism in American Life,” about this suspicion people have about intellectuals who are working on issues that are inaccessible, opaque to them, yielding conclusions that alter the way we structure our society, the way we live our lives.

There’s a certain helpless frustration people have: Who are these cultural elites, these intellectual elites who can make these conclusions in the ivory tower of academia or other scientific institutions and tell me how to live my life?

And we can’t leave out power. There are certain powerful interests out there that will not accept the conclusions this will yield to, therefore they will not accept the definition of the problem if they are not going to accept the solutions that follow it. I’m speaking of certain industry sectors that stand to lose in a carbon-constrained world.

Also, if you can’t define solutions on climate change and you’re asking me to accept it, you’re asking me to accept basically a pretty dismal reality that I refuse to accept. And many climate proponents fall into this when they give these horrific, apocalyptic predictions of cities under water and ice ages and things like that. That tends to get people to dig their heels in even harder.

Some people look at this as just a move for more government, more government bureaucracy. And I think importantly fear or resist the idea of world government. Carbon dioxide is part of the economy of every country on earth. This is a global cooperation challenge the likes of which we have never seen before.

Do you trust the message and do you trust the messenger? If I am inclined to resist the notion of global cooperation — which is a nice way to put what others may see as a one-world government — and if the scientific body that came to that conclusion represents that entity, I will be less inclined to believe it. People will accept a message from someone that they think shares their values and beliefs. And for a lot of people, environmentalists are not that kind of person. There’s a segment of the population that sees environmentalists as socialists, trying to control people’s lives.

In our society today, I think people have more faith in economic institutions than they do in scientific institutions. Scientists can talk until they are blue in the face about climate change. But if businesses are paying money to address this issue, then people will say: It must be true, because they wouldn’t be throwing their money away.

what I’m laying out is that this is very much a value- and culture-based debate. And to ignore that – you will never resolve it and you will end up in what I have described a logic schism, where the two sides talk about completely different things, completely different issues, demonizing the other, only looking for things that confirm their opinion. And we get nowhere.

...I’m a bit bemused to find one blogger considers this “plagiarism”. Who’s being plagiarized? Plagiarism is passing off somebody else’s intellectual work as your own – whereas I’m always making it clear that (say) Gideon Levy’s thought is Gideon Levy’s thought. I’m also a bit bemused to find that some people consider this “churnalism”. Churnalism is a journalist taking a press release and mindlessly recycling it – not a journalist carefully reading over all a writer’s books and selecting parts of it to accurately quote at certain key moments to best reflect how they think.

I called round a few other interviewers for British newspapers and they said what I did was normal practice and they had done it themselves from time to time. My test for journalism is always – would the readers mind you did this, or prefer it? Would they rather I quoted an unclear sentence expressing a thought, or a clear sentence expressing the same thought by the same person very recently? Both give an accurate sense of what a person is like, but one makes their ideas as accessible as possible for the reader while also being an accurate portrait of the person.

The Independent's top columnist and interviewer has just admitted that he routinely adds things his interviewees have written at some point in the past to their quotes, and then deliberately passes these statements off as though they were said to him in the course of an interview. The main art of being an interviewer is to be skilled at eliciting the right quotes from your subject. If Johann Hari wants to write 'intellectual portraits', he should go and write fiction. Do his editors really know that the copy they're printing ('we stare at each other for a while. Then he says in a quieter voice...') is essentially made up? What would Jayson Blair make of it all? Astonishing.

In his final book, Power and Prosperity, the late Mancur Olson argued that the state was a “stationary bandit”. A stationary bandit is better than a “roving bandit”, because the latter has no interest in developing the economy, while the former does. But it may not be much better, because those who control the state will seek to extract the surplus over subsistence generated by those under their control.

In the contemporary west, there are three protections against undue exploitation by the stationary bandit: exit, voice (on the first two of these, see this on Albert Hirschman) and restraint. By “exit”, I mean the possibility of escaping from the control of a given jurisdiction, by emigration, capital flight or some form of market exchange. By “voice”, I mean a degree of control over, the state, most obviously by voting. By “restraint”, I mean independent courts, division of powers, federalism and entrenched rights.

defining what a democratic state, viewed precisely as such a constrained protective arrangement, is entitled to do.

There exists a strand in classical liberal or, in contemporary US parlance, libertarian thought which believes the answer is to define the role of the state so narrowly and the rights of individuals so broadly that many political choices (the income tax or universal health care, for example) would be ruled out a priori. In other words, it seeks to abolish much of politics through constitutional restraints. I view this as a hopeless strategy, both intellectually and politically. It is hopeless intellectually, because the values people hold are many and divergent and some of these values do not merely allow, but demand, government protection of weak, vulnerable or unfortunate people. Moreover, such values are not “wrong”. The reality is that people hold many, often incompatible, core values. Libertarians argue that the only relevant wrong is coercion by the state. Others disagree and are entitled to do so. It is hopeless politically, because democracy necessitates debate among widely divergent opinions. Trying to rule out a vast range of values from the political sphere by constitutional means will fail. Under enough pressure, the constitution itself will be changed, via amendment or reinterpretation.

So what ought the protective role of the state to include? Again, in such a discussion, classical liberals would argue for the “night-watchman” role. The government’s responsibilities are limited to protecting individuals from coercion, fraud and theft and to defending the country from foreign aggression. Yet once one has accepted the legitimacy of using coercion (taxation) to provide the goods listed above, there is no reason in principle why one should not accept it for the provision of other goods that cannot be provided as well, or at all, by non-political means.

Those other measures would include addressing a range of externalities (e.g. pollution), providing information and supplying insurance against otherwise uninsurable risks, such as unemployment, spousal abandonment and so forth. The subsidisation or public provision of childcare and education is a way to promote equality of opportunity. The subsidisation or public provision of health insurance is a way to preserve life, unquestionably one of the purposes of the state. Safety standards are a way to protect people against the carelessness or malevolence of others or (more controversially) themselves. All these, then, are legitimate protective measures. The more complex the society and economy, the greater the range of the protections that will be sought.

What, then, are the objections to such actions? The answers might be: the proposed measures are ineffective, compared with what would happen in the absence of state intervention; the measures are unaffordable and might lead to state bankruptcy; the measures encourage irresponsible behaviour; and, at the limit, the measures restrict individual autonomy to an unacceptable degree. These are all, we should note, questions of consequences.

The vote is more evenly distributed than wealth and income. Thus, one would expect the tenor of democratic policymaking to be redistributive and so, indeed, it is. Those with wealth and income to protect will then make political power expensive to acquire and encourage potential supporters to focus on common enemies (inside and outside the country) and on cultural values. The more unequal are incomes and wealth and the more determined are the “haves” to avoid being compelled to support the “have-nots”, the more politics will take on such characteristics.

In the 1970s, the view that democracy would collapse under the weight of its excessive promises seemed to me disturbingly true. I am no longer convinced of this: as Adam Smith said, “There is a great deal of ruin in a nation”. Moreover, the capacity for learning by democracies is greater than I had realised. The conservative movements of the 1980s were part of that learning. But they went too far in their confidence in market arrangements and their indifference to the social and political consequences of inequality. I would support state pensions, state-funded health insurance and state regulation of environmental and other externalities. I am happy to debate details. The ancient Athenians called someone who had a purely private life “idiotes”. This is, of course, the origin of our word “idiot”. Individual liberty does indeed matter. But it is not the only thing that matters. The market is a remarkable social institution. But it is far from perfect. Democratic politics can be destructive. But it is much better than the alternatives. Each of us has an obligation, as a citizen, to make politics work as well as he (or she) can and to embrace the debate over a wide range of difficult choices that this entails.

Religious belief is a very different kind of thing. It is not restricted only to those with a certain education or knowledge, it does not require years of training, it is not specialized and it is not technical. (I’m talking here about the content of what people who regularly attend church, mosque or synagogue take themselves to be thinking; I’m not talking about how theologians interpret this content.)

while religious belief is widespread, scientific knowledge is not. I would guess that very few people in the world are actually interested in the details of contemporary scientific theories. Why? One obvious reason is that many lack access to this knowledge. Another reason is that even when they have access, these theories require sophisticated knowledge and abilities, which not everyone is capable of getting.

most people aren’t deeply interested in science, even when they have the opportunity and the basic intellectual capacity to learn about it. Of course, educated people who know about science know roughly what Einstein, Newton and Darwin said. Many educated people accept the modern scientific view of the world and understand its main outlines. But this is not the same as being interested in the details of science, or being immersed in scientific thinking.

This lack of interest in science contrasts sharply with the worldwide interest in religion. It’s hard to say whether religion is in decline or growing, partly because it’s hard to identify only one thing as religion — not a question I can address here. But it’s pretty obvious that whatever it is, religion commands and absorbs the passions and intellects of hundreds of millions of people, many more people than science does. Why is this? Is it because — as the new atheists might argue — they want to explain the world in a scientific kind of way, but since they have not been properly educated they haven’t quite got there yet? Or is it because so many people are incurably irrational and are incapable of scientific thinking? Or is something else going on?

Some philosophers have said that religion is so unlike science that it has its own “grammar” or “logic” and should not be held accountable to the same standards as scientific or ordinary empirical belief. When Christians express their belief that “Christ has risen,” for example, they should not be taken as making a factual claim, but as expressing their commitment to what Wittgenstein called a certain “form of life,” a way of seeing significance in the world, a moral and practical outlook which is worlds away from scientific explanation.

This view has some merits, as we shall see, but it grossly misrepresents some central phenomena of religion. It is absolutely essential to religions that they make certain factual or historical claims. When Saint Paul says “if Christ is not risen, then our preaching is in vain and our faith is in vain” he is saying that the point of his faith depends on a certain historical occurrence.

Theologians will debate exactly what it means to claim that Christ has risen, what exactly the meaning and significance of this occurrence is, and will give more or less sophisticated accounts of it. But all I am saying is that whatever its specific nature, Christians must hold that there was such an occurrence. Christianity does make factual, historical claims. But this is not the same as being a kind of proto-science. This will become clear if we reflect a bit on what science involves.

The essence of science involves making hypotheses about the causes and natures of things, in order to explain the phenomena we observe around us, and to predict their future behavior. Some sciences — medical science, for example — make hypotheses about the causes of diseases and test them by intervening. Others — cosmology, for example — make hypotheses that are more remote from everyday causes, and involve a high level of mathematical abstraction and idealization. Scientific reasoning involves an obligation to hold a hypothesis only to the extent that the evidence requires it. Scientists should not accept hypotheses which are “ad hoc” — that is, just tailored for one specific situation but cannot be generalized to others. Most scientific theories involve some kind of generalization: they don’t just make claims about one thing, but about things of a general kind. And their hypotheses are designed, on the whole, to make predictions; and if these predictions don’t come out true, then this is something for the scientists to worry about.

Religions do not construct hypotheses in this sense. I said above that Christianity rests upon certain historical claims, like the claim of the resurrection. But this is not enough to make scientific hypotheses central to Christianity, any more than it makes such hypotheses central to history. It is true, as I have just said, that Christianity does place certain historical events at the heart of their conception of the world, and to that extent, one cannot be a Christian unless one believes that these events happened. Speaking for myself, it is because I reject the factual basis of the central Christian doctrines that I consider myself an atheist. But I do not reject these claims because I think they are bad hypotheses in the scientific sense. Not all factual claims are scientific hypotheses. So I disagree with Richard Dawkins when he says “religions make existence claims, and this means scientific claims.”

Taken as hypotheses, religious claims do very badly: they are ad hoc, they are arbitrary, they rarely make predictions and when they do they almost never come true. Yet the striking fact is that it does not worry Christians when this happens. In the gospels Jesus predicts the end of the world and the coming of the kingdom of God. It does not worry believers that Jesus was wrong (even if it causes theologians to reinterpret what is meant by ‘the kingdom of God’). If Jesus was framing something like a scientific hypothesis, then it should worry them. Critics of religion might say that this just shows the manifest irrationality of religion. But what it suggests to me is that that something else is going on, other than hypothesis formation.

Religious belief tolerates a high degree of mystery and ignorance in its understanding of the world. When the devout pray, and their prayers are not answered, they do not take this as evidence which has to be weighed alongside all the other evidence that prayer is effective. They feel no obligation whatsoever to weigh the evidence. If God does not answer their prayers, well, there must be some explanation of this, even though we may never know it. Why do people suffer if an omnipotent God loves them? Many complex answers have been offered, but in the end they come down to this: it’s a mystery.

Science too has its share of mysteries (or rather: things that must simply be accepted without further explanation). But one aim of science is to minimize such things, to reduce the number of primitive concepts or primitive explanations. The religious attitude is very different. It does not seek to minimize mystery. Mysteries are accepted as a consequence of what, for the religious, makes the world meaningful.

Religion is an attempt to make sense of the world, but it does not try and do this in the way science does. Science makes sense of the world by showing how things conform to its hypotheses. The characteristic mode of scientific explanation is showing how events fit into a general pattern.

Religion, on the other hand, attempts to make sense of the world by seeing a kind of meaning or significance in things. This kind of significance does not need laws or generalizations, but just the sense that the everyday world we experience is not all there is, and that behind it all is the mystery of God’s presence. The believer is already convinced that God is present in everything, even if they cannot explain this or support it with evidence. But it makes sense of their life by suffusing it with meaning. This is the attitude (seeing God in everything) expressed in George Herbert’s poem, “The Elixir.” Equipped with this attitude, even the most miserable tasks can come to have value: Who sweeps a room as for Thy laws/ Makes that and th’ action fine.

None of these remarks are intended as being for or against religion. Rather, they are part of an attempt (by an atheist, from the outside) to understand what it is. Those who criticize religion should have an accurate understanding of what it is they are criticizing. But to understand a world view, or a philosophy or system of thought, it is not enough just to understand the propositions it contains. You also have to understand what is central and what is peripheral to the view. Religions do make factual and historical claims, and if these claims are false, then the religions fail. But this dependence on fact does not make religious claims anything like hypotheses in the scientific sense. Hypotheses are not central. Rather, what is central is the commitment to the meaningfulness (and therefore the mystery) of the world.

while religious thinking is widespread in the world, scientific thinking is not. I don’t think that this can be accounted for merely in terms of the ignorance or irrationality of human beings. Rather, it is because of the kind of intellectual, emotional and practical appeal that religion has for people, which is a very different appeal from the kind of appeal that science has. Stephen Jay Gould once argued that religion and science are “non-overlapping magisteria.” If he meant by this that religion makes no factual claims which can be refuted by empirical investigations, then he was wrong. But if he meant that religion and science are very different kinds of attempt to understand the world, then he was certainly right.

even if on average, an investment in higher education yields a good, say 10 percent, rate of return, it does not follow that adding to existing investments will yield that return, partly for reasons outlined above. The authors (Pedro Carneiro, James Heckman, and Edward Vytlacil) make that point explicitly, stating “Some marginal expansions of schooling produce gains that are well below average returns, in general agreement with the analysis of Charles Murray.”  (p.29)

Once the economy improves, and history tells us it will improve within our lifetimes, those who already have a college degree under their belts will be better equipped to take advantage of new employment opportunities than those who don’t. Perhaps not because of the actual knowledge obtained through their degrees, but definitely as an offset to the social stigma that still exists for those who do not attend college. A college degree may not help a young person secure professional work immediately – so new graduates spend a few years waiting tables until the right opportunity comes along. So what? It’s probably good for them. But they have 40-50 years in the workforce ahead of them and need to be forward-thinking if they don’t want to wait tables for that entire time. If we stop encouraging all young people to view college as both a goal and a possibility, and start weeding out those whose “prior academic records suggest little likelihood of academic success” which, let’s face it, will happen in larger proportions in poorer schools, then in 20 years we’ll find that efforts to reduce socioeconomic gaps between minorities and non-minorities have been seriously undermined.

Bet you a lot of those janitors with PhDs are from the humanities, in particular ethic studies, film studies,…basket weaving courses… or non-economics social sciences, eg., sociology, anthropology of never heard of country….There should be a buyer beware warning on all those non-quantitative majors that make people into sophisticated malcontent complainers!

This article also presumes that the purpose of higher education is merely to train one for a career path and enhance future income. This devalues the university, turning it into a vocational training institution. There’s nothing in this data that suggests that they are “sophisticated complainers”; that’s an unwarranted inference.

it was mentioned that the Bill and Melinda Gates Foundation would like 80% of American youth to attend and graduate from college. It is a nice thought in many ways. As a teacher and professor, intellectually I am all for it (if the university experience is a serious one, which these days, I don’t know).

students’ expectations in attending college are not just intellectual; they are careerist (probably far more so)

This employment issue has more to do with levels of training and subsequent levels of expectation. When a Korean student emerges from 20 years of intense study with a university degree, he or she reasonably expects a “good” job — which is to say, a well-paying professional or managerial job with good forward prospects. But here’s the problem. There does not exist, nor will there ever exist, a society in which 80% of the available jobs are professional, managerial, comfortable, and well-paid. No way.

Korea has a number of other jobs, but some are low-paid service work, and many others — in factories, farming, fishing — are scorned as 3-D jobs (difficult, dirty, and dangerous). Educated Koreans don’t want them. So the country is importing labor in droves — from China, Vietnam, Cambodia, the Philippines, even Uzbekistan. In the countryside, rural Korean men are having such a difficult time finding prospective wives to share their agricultural lifestyle that fully 40% of rural marriages are to poor women from those other Asian countries, who are brought in by match-makers and marriage brokers.

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.