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crowd sourced public policy

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.

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.

computer-grading of essays is a surging science, with some studies showing that computer evaluations are fairer, more consistent, and more informative than those of an average teacher, if not necessarily of an outstanding one.

the relative prices of grains, metals, and many other basic goods tended to revert to a central mean tendency over sufficiently long periods. We conjectured that even though random discoveries, weather events, and technologies might dramatically shift relative values for certain periods, the resulting price differentials would create incentives for innovators to concentrate more attention on goods whose prices had risen dramatically.

people are not goods, but the same principles apply. As skilled labor becomes increasingly expensive relative to unskilled labor, firms and businesses have a greater incentive to find ways to “cheat” by using substitutes for high-price inputs. The shift might take many decades, but it also might come much faster as artificial intelligence fuels the next wave of innovation.

Many commentators seem to believe that the growing gap between rich and poor is an inevitable byproduct of increasing globalization and technology. In their view, governments will need to intervene radically in markets to restore social balance. I disagree. Yes, we need genuinely progressive tax systems, respect for workers’ rights, and generous aid policies on the part of rich countries. But the past is not necessarily prologue: given the remarkable flexibility of market forces, it would be foolish, if not dangerous, to infer rising inequality in relative incomes in the coming decades by extrapolating from recent trends.

Physical means of amelioration, such as changing the planetary albedo, are the subject of other papers of this theme issue and I thought it would be useful here to describe physiological methods for geoengineering. These include tree planting, the fertilization of ocean algal ecosystems with iron, the direct synthesis of food from inorganic raw materials and the production of biofuels.

Tree planting would seem to be a sensible way to remove CO2 naturally from the air, at least for the time it takes for the tree to reach maturity. But in practice the clearance of forests for farm land and biofuels is now proceeding so rapidly that there is little chance that tree planting could keep pace.

Oceans cover over 70 per cent of the Earth's surface and are uninhabited by humans. In addition, most of the ocean surface waters carry only a sparse population of photosynthetic organisms, mainly because the mineral and other nutrients in the water below the thermocline do not readily mix with the warmer surface layer. Some essential nutrients such as iron are present in suboptimal abundance even where other nutrients are present and this led to the suggestion by John Martin in a lecture in 1991 that fertilization with the trace nutrient iron would allow algal blooms to develop that would cool the Earth by removing CO2

The Earth system is dynamically stable but with strong feedbacks. Its behaviour resembles more the physiology of a living organism than that of the equilibrium box models of the last century

For almost all other ailments, there was nothing available but nostrums and comforting words. At that time, despite a well-founded science of physiology, we were still ignorant about the human body or the host–parasite relationship it had with other organisms. Wise physicians knew that letting nature take its course without intervention would often allow natural self-regulation to make the cure. They were not averse to claiming credit for their skill when this happened.

The alternative is the acceptance of a massive natural cull of humanity and a return to an Earth that freely regulates itself but in the hot state.

Global heating would not have happened but for the rapid expansion in numbers and wealth of humanity. Had we heeded Malthus's warning and kept the human population to less than one billion, we would not now be facing a torrid future. Whether or not we go for Bali or use geoengineering, the planet is likely, massively and cruelly, to cull us, in the same merciless way that we have eliminated so many species by changing their environment into one where survival is difficult.

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. 

If, as Sacks argues, science is about the how and religion the why, then scientists are not authorities on religion at all. Hawking's opinions about God would carry no more weight than his taxi driver's. Believers and atheists should remove physicists from the front line and send in the philosophers and theologians as cannon fodder once again.

But is Sacks right? Science certainly trails a destructive path through a lot of what has traditionally passed for religion. People accuse Richard Dawkins of attacking a baby version of religion, but the fact is that there are still millions of people who do believe in the literal truth of Genesis, Noah's Ark and all. Clearly science does destroy this kind of religious faith, totally and mercilessly. Scientists are authorities on religion when they declare the earth is considerably more than 6,000 years old.

But they insist that religion is no longer, if it ever was, in the business of trying to come up with proto-scientific explanations of how the universe works. If that is accepted, science and religion can make their peace and both rule over their different magisteria, as the biologist Stephen Jay Gould put it.

People have been making a lot in the past few days of Hawking's famous sentence in A Brief History of Time: "If we discover a complete theory, it would be a triumph of human reason – for then we should know the mind of God."

Hawking's "mind of God" was never anything more than a metaphor for an understanding of the universe which is complete and objective. Indeed, it has been evident for some time that Hawking does not believe in anything like the traditional God of religion. "You can call the laws of science 'God' if you like," he told Channel 4 earlier this year, "but it wouldn't be a personal God that you could meet, and ask questions."

there is no room in the universe of Hawking or most other scientists for the activist God of the Bible. That's why so few leading scientists are religious in any traditional sense.

This point is often overlooked by apologists who grasp at any straw science will hold out for them. Such desperate clinging happened, disgracefully, in the last years of the philosopher Antony Flew's life. A famous atheist, Flew was said to have changed his mind, persuaded that the best explanation for the "fine-tuning"of the universe – very precise way that its conditions make life possible – was some kind of intentional design. But what was glossed over was that he was very clear that this designer was nothing like the traditional God of the Abrahamic faiths. It was, he clearly said, rather the Deist Deist God, or the God of Aristotle, one who might set the ball rolling but then did no more than watch it trundle off over the horizon. This is no mere quibble. The deist God does not occupy some halfway house between atheism and theism. Replace Yaweh with the deist God and the Bible would make less sense than if you'd substituted Brian for Jesus.

it is not true that science challenges only the most primitive, literal forms of religion. It is probably going too far to say that sciencemakes the God of Christianity, Judaism and Islam impossible, but it certainly makes him very unlikely indeed.

to think that their findings, and those of other scientists, have nothing to say about the credibility of religious faith is just wishful thinking. In the scientific universe, God is squeezed until his pips squeak. If he survives, then he can't do so without changing his form. Only faith makes it possible to look at such a distorted, scientifically respectable deity and claim to recognise the same chap depicted on the ceiling of the Sistine Chapel. For those without faith, that God is clearly dead, and, yes, science helped to kill him.

What does it mean when we can no longer distinguish between the actions of the left and the right? If that dynamic no longer accurately distinguishes what occurs, why are so many of our policy debates framed in Left/Right terms? In many ways, American society is increasingly less married to this dynamic: Party Affiliation continues to fall, approval of Congress is at record lows, and voter participation hovers at very low rates.

There is some pushback already taking place against the concentration of corporate power: Mainstream corporate media has been increasingly replaced with user created content – YouTube and Blogs are increasingly important to news consumers (especially younger users). Independent voters are an increasingly larger share of the US electorate. And I suspect that much of the pushback against the Elizabeth Warren’s concept of a Financial Consumer Protection Agency plays directly into this Corporate vs. Individual fight. But the battle lines between the two groups have barely been drawn. I expect this fight will define American politics over the next decade.

Mahathir did not leave it at that. He foreshadowed the Wikileak-chastised countries of today saying what William, the Singapore Ministry of Foreign Affairs, the US and Iran today, amongst others, must agree with, “It’s very difficult now for us to write letters at all because we might as well negotiate through the media.”

I proceeded to the Ministry of Foreign Affairs homepage to search for the full press release. As I anticipated, there was a caveat. This is the press release in full: In response to media queries on the WikiLeaks release of confidential and secret-graded US diplomatic correspondence, the MFA Spokesman expressed deep concerns about the damaging action of WikiLeaks. It is critical to protect the confidentiality of diplomatic and official correspondence, which is why Singapore has the Officials Secrets Act. In particular, the selective release of documents, especially when taken out of context, will only serve to sow confusion and fail to provide a complete picture of the important issues that were being discussed amongst leaders in the strictest of confidentiality.

The sentence in red seems to posit that the selective release of documents can be legitimised if released documents are not taken out of context. If this interpretation is true, then one can account for the political decision to release confidential correspondence covering the Singapore and Malaysia water talks referred to above. In parallel, one can imagine Assange or his supporters arguing that lies of weapons of mass destruction in Iraq and the advent of abject two-faced politics today to be sufficient grounds to justify the actions of Wikileaks. As for the arguments about confidentiality and official correspondence, the events in parliament in 2003 tell us no one should underestimate the ability of nation-states to do an Assange if it befits their purpose – be it directly, as Jayakumar did, or indirectly, through the media or some other medium of influence.

Timothy Garton Ash put out the dilemma perfectly when he said, “There is a public interest in understanding how the world works and what is done in our name. There is a public interest in the confidential conduct of foreign policy. The two public interests conflict.”

the advent of technology will only further blur the lines between these two public interests, if it has not already. Quite apart from technology, the absence of transparent and accountable institutions may also serve to guarantee the prospect of more of such embarrassing leaks in future.

In August 2009, there was considerable interest in Singapore about the circumstances behind the departure of Chip Goodyear, former CEO of the Australian mining giant BHP Billiton, from the national sovereign wealth fund, Temasek Holdings. Before that, all the public knew was – in the name of leadership renewal – Chip Goodyear had been carefully chosen and apparently hand-picked to replace Ho Ching as CEO of Temasek Holdings. In response to Chip’s untimely departure, Finance Minister Tharman Shanmugaratnam was quoted, “People do want to know, there is curiosity, it is a matter of public interest. That is not sufficient reason to disclose information. It is not sufficient that there be curiosity and interest that you want to disclose information.”

Overly secretive and furtive politicians operating in a parliamentary democracy are unlikely to inspire confidence among an educated citizenry either, only serving to paradoxically fuel public cynicism and conspiracy theories.

I believe that government officials and politicians who perform their jobs honourably have nothing to fear from Wikileaks. I would admit that there is an inherent naivety and idealism in this position. But if the lesson from the Wikileaks episode portends a higher standard of ethical conduct, encourages transparency and accountability – all of which promote good governance, realpolitik notwithstanding – then it is perhaps a lesson all politicians and government officials should pay keen attention to.

Post-script: “These disclosures are largely of analysis and high-grade gossip. Insofar as they are sensational, it is in showing the corruption and mendacity of those in power, and the mismatch between what they claim and what they do….If American spies are breaking United Nations rules by seeking the DNA biometrics of the UN director general, he is entitled to hear of it. British voters should know what Afghan leaders thought of British troops. American (and British) taxpayers might question, too, how most of the billions of dollars going in aid to Afghanistan simply exits the country at Kabul airport.” –Simon Jenkins, Guardian

As might be expected, the wealthier used the Internet more.

Almost 90% of the wealthiest respondents reported broadband access at home. Of those in the under-$30,000 households, that figure was only 40%. "I would expect some type of correlation," says Jansen. "But we controlled for community type--urban, rural, suburban--educational attainment, race, ethnicity, gender, and age." None was nearly so strongly correlated as income.

Age did have some effect, and rural regions were a good deal less wired

Once a modestly middle-class family buys a computer and Internet access, why is it that they spend less time researching products online than their wealthier counterparts, given that they have a tighter budget than the ultra-wealthy?

Jansen notes that for many questions Pew asked about Internet use, there appeared to be a tipping point somewhere in the $30,000-$50,000 range. Consider, for instance, the data on those who researched products online. Only 67% of lowest-income Internet users research products online. Make it over the hump into the $30,000-$50,000 bracket, though, and all of a sudden 81% of internet users do so--a jump of 14 points. But then as you climb the income ladder, the change in behavior begins to level out, just climbing a few percentage points with each bracket

"It would be interesting to look at what is going on at that particular income level," says Jansen, suggesting a potential tack for further research, "that seems to indicate a fairly robust use of technology and interest."

Jansen, like any careful researcher, cautions against confusing correlation with causation. It may be that people are using the web to make their fortunes, and not using their fortunes to surf the web.

"Pay levels often don't reflect the true value that is being created. As a society, we need a pay structure which rewards those jobs that create most societal benefit rather than those that generate profits at the expense of society and the environment".

"The point we are making is more fundamental - that there should be a relationship between what we are paid and the value our work generates for society. We've found a way to calculate that,"

The research also makes a variety of policy recommendations to align pay more closely with the value of work. These include establishing a high pay commission, building social and environmental value into prices, and introducing more progressive taxation.

For 20 years, evidence about global warming has been directly and explicitly linked to a set of policy responses demanding international governance regimes, large-scale social engineering, and the redistribution of wealth. These are the sort of things that most Democrats welcome, and most Republicans hate. No wonder the Republicans are suspicious of the science.

Think about it: The results of climate science, delivered by scientists who are overwhelmingly Democratic, are used over a period of decades to advance a political agenda that happens to align precisely with the ideological preferences of Democrats. Coincidence—or causation?

How would a more politically diverse scientific community improve this situation? First, it could foster greater confidence among Republican politicians about the legitimacy of mainstream science. Second, it would cultivate more informed, creative, and challenging debates about the policy implications of scientific knowledge. This could help keep difficult problems like climate change from getting prematurely straitjacketed by ideology. A more politically diverse scientific community would, overall, support a healthier relationship between science and politics.

American society has long tended toward pragmatism, with a great deal of respect for the value and legitimacy not just of scientific facts, but of scientists themselves.

Yet this exceptional status could well be forfeit in the escalating fervor of national politics, given that most scientists are on one side of the partisan divide. If that public confidence is lost, it would be a huge and perhaps unrecoverable loss for a democratic society.

A democratic society needs Republican scientists.

I have to imagine 50 years ago there were a lot more Republican scientists, when the Democrats were still the party of Southern Baptists. As a rational person I find it impossible to support any candidate who panders to the religious right, and in current politics, that's every National Republican.

Carlo Rovelli, a physicist at the University of Aix-Marseille, emphasised the uselessness of certainty. He said that the idea of something being "scientifically proven" was practically an oxymoron and that the very foundation of science is to keep the door open to doubt.

"A good scientist is never 'certain'. Lack of certainty is precisely what makes conclusions more reliable than the conclusions of those who are certain: because the good scientist will be ready to shift to a different point of view if better elements of evidence, or novel arguments emerge. Therefore certainty is not only something of no use, but is in fact damaging, if we value reliability."

physicist Lawrence Krauss of Arizona State University agreed. "In the public parlance, uncertainty is a bad thing, implying a lack of rigour and predictability. The fact that global warming estimates are uncertain, for example, has been used by many to argue against any action at the present time," he said.

however, uncertainty is a central component of what makes science successful. Being able to quantify uncertainty, and incorporate it into models, is what makes science quantitative, rather than qualitative. Indeed, no number, no measurement, no observable in science is exact. Quoting numbers without attaching an uncertainty to them implies they have, in essence, no meaning."

Neil Gershenfeld, director of the Massachusetts Institute of Technology's Centre for Bits and Atoms wants everyone to know that "truth" is just a model. "The most common misunderstanding about science is that scientists seek and find truth. They don't – they make and test models," he said.

Building models is very different from proclaiming truths. It's a never-ending process of discovery and refinement, not a war to win or destination to reach. Uncertainty is intrinsic to the process of finding out what you don't know, not a weakness to avoid. Bugs are features – violations of expectations are opportunities to refine them. And decisions are made by evaluating what works better, not by invoking received wisdom."

writer and web commentator Clay Shirky suggested that people should think more carefully about how they see the world. His suggestion was the Pareto principle, a pattern whereby the top 1% of the population control 35% of the wealth or, on Twitter, the top 2% of users send 60% of the messages. Sometimes known as the "80/20 rule", the Pareto principle means that the average is far from the middle.It is applicable to many complex systems, "And yet, despite a century of scientific familiarity, samples drawn from Pareto distributions are routinely presented to the public as anomalies, which prevents us from thinking clearly about the world," said Shirky. "We should stop thinking that average family income and the income of the median family have anything to do with one another, or that enthusiastic and normal users of communications tools are doing similar things, or that extroverts should be only moderately more connected than normal people. We should stop thinking that the largest future earthquake or market panic will be as large as the largest historical one; the longer a system persists, the likelier it is that an event twice as large as all previous ones is coming."

Kevin Kelly, editor-at-large of Wired, pointed to the value of negative results. "We can learn nearly as much from an experiment that does not work as from one that does. Failure is not something to be avoided but rather something to be cultivated. That's a lesson from science that benefits not only laboratory research, but design, sport, engineering, art, entrepreneurship, and even daily life itself. All creative avenues yield the maximum when failures are embraced."

Michael Shermer, publisher of the Skeptic Magazine, wrote about the importance of thinking "bottom up not top down", since almost everything in nature and society happens this way.

But most people don't see things that way, said Shermer. "Bottom up reasoning is counterintuitive. This is why so many people believe that life was designed from the top down, and why so many think that economies must be designed and that countries should be ruled from the top down."

Roger Schank, a psychologist and computer scientist, proposed that we should all know the true meaning of "experimentation", which he said had been ruined by bad schooling, where pupils learn that scientists conduct experiments and if we copy exactly what they did in our high school labs we will get the results they got. "In effect we learn that experimentation is boring, is something done by scientists and has nothing to do with our daily lives."Instead, he said, proper experiments are all about assessing and gathering evidence. "In other words, the scientific activity that surrounds experimentation is about thinking clearly in the face of evidence obtained as the result of an experiment. But people who don't see their actions as experiments, and those who don't know how to reason carefully from data, will continue to learn less well from their own experiences than those who do

Lisa Randall, a physicist at Harvard University, argued that perhaps "science" itself would be a useful concept for wider appreciation. "The idea that we can systematically understand certain aspects of the world and make predictions based on what we've learned – while appreciating and categorising the extent and limitations of what we know – plays a big role in how we think.

"Many words that summarise the nature of science such as 'cause and effect', 'predictions', and 'experiments', as well as words that describe probabilistic results such as 'mean', 'median', 'standard deviation', and the notion of 'probability' itself help us understand more specifically what this means and how to interpret the world and behaviour within it."

Figure 1 summarises the data and shows how printing diffused from Mainz 1450-1500. Figure 1. The diffusion of the printing press

City-level data on the adoption of the printing press can be exploited to examine two key questions: Was the new technology associated with city growth? And, if so, how large was the association? I find that cities in which printing presses were established 1450-1500 had no prior growth advantage, but subsequently grew far faster than similar cities without printing presses. My work uses a difference-in-differences estimation strategy to document the association between printing and city growth. The estimates suggest early adoption of the printing press was associated with a population growth advantage of 21 percentage points 1500-1600, when mean city growth was 30 percentage points. The difference-in-differences model shows that cities that adopted the printing press in the late 1400s had no prior growth advantage, but grew at least 35 percentage points more than similar non-adopting cities from 1500 to 1600.

The restrictions on diffusion meant that cities relatively close to Mainz were more likely to receive the technology other things equal. Printing presses were established in 205 cities 1450-1500, but not in 40 of Europe’s 100 largest cities. Remarkably, regulatory barriers did not limit diffusion. Printing fell outside existing guild regulations and was not resisted by scribes, princes, or the Church (Neddermeyer 1997, Barbier 2006, Brady 2009).

Historians observe that printing diffused from Mainz in “concentric circles” (Barbier 2006). Distance from Mainz was significantly associated with early adoption of the printing press, but neither with city growth before the diffusion of printing nor with other observable determinants of subsequent growth. The geographic pattern of diffusion thus arguably allows us to identify exogenous variation in adoption. Exploiting distance from Mainz as an instrument for adoption, I find large and significant estimates of the relationship between the adoption of the printing press and city growth. I find a 60 percentage point growth advantage between 1500-1600.

The importance of distance from Mainz is supported by an exercise using “placebo” distances. When I employ distance from Venice, Amsterdam, London, or Wittenberg instead of distance from Mainz as the instrument, the estimated print effect is statistically insignificant.

Cities that adopted print media benefitted from positive spillovers in human capital accumulation and technological change broadly defined. These spillovers exerted an upward pressure on the returns to labour, made cities culturally dynamic, and attracted migrants. In the pre-industrial era, commerce was a more important source of urban wealth and income than tradable industrial production. Print media played a key role in the development of skills that were valuable to merchants. Following the invention printing, European presses produced a stream of math textbooks used by students preparing for careers in business.

These and hundreds of similar texts worked students through problem sets concerned with calculating exchange rates, profit shares, and interest rates. Broadly, print media was also associated with the diffusion of cutting-edge business practice (such as book-keeping), literacy, and the social ascent of new professionals – merchants, lawyers, officials, doctors, and teachers.

The printing press was one of the greatest revolutions in information technology. The impact of the printing press is hard to identify in aggregate data. However, the diffusion of the technology was associated with extraordinary subsequent economic dynamism at the city level. European cities were seedbeds of ideas and business practices that drove the transition to modern growth. These facts suggest that the printing press had very far-reaching consequences through its impact on the development of cities.

when researchers took up these questions experimentally, they did not end up confirming the traditional view. They did not find that people overwhelmingly favoured objectivism. Instead, the results consistently point to a more complex picture. There seems to be a striking degree of conflict even in the intuitions of ordinary folks, with some people under some circumstances offering objectivist answers, while other people under other circumstances offer more relativist views. And that is not all. The experimental results seem to be giving us an ever deeper understanding of why it is that people are drawn in these different directions, what it is that makes some people move toward objectivism and others toward more relativist views.

consider a study by Adam Feltz and Edward Cokely. They were interested in the relationship between belief in moral relativism and the personality trait openness to experience. Accordingly, they conducted a study in which they measured both openness to experience and belief in moral relativism. To get at people’s degree of openness to experience, they used a standard measure designed by researchers in personality psychology. To get at people’s agreement with moral relativism, they told participants about two characters – John and Fred – who held opposite opinions about whether some given act was morally bad. Participants were then asked whether one of these two characters had to be wrong (the objectivist answer) or whether it could be that neither of them was wrong (the relativist answer). What they found was a quite surprising result. It just wasn’t the case that participants overwhelmingly favoured the objectivist answer. Instead, people’s answers were correlated with their personality traits. The higher a participant was in openness to experience, the more likely that participant was to give a relativist answer.

Geoffrey Goodwin and John Darley pursued a similar approach, this time looking at the relationship between people’s belief in moral relativism and their tendency to approach questions by considering a whole variety of possibilities. They proceeded by giving participants mathematical puzzles that could only be solved by looking at multiple different possibilities. Thus, participants who considered all these possibilities would tend to get these problems right, whereas those who failed to consider all the possibilities would tend to get the problems wrong. Now comes the surprising result: those participants who got these problems right were significantly more inclined to offer relativist answers than were those participants who got the problems wrong.

Shaun Nichols and Tricia Folds-Bennett looked at how people’s moral conceptions develop as they grow older. Research in developmental psychology has shown that as children grow up, they develop different understandings of the physical world, of numbers, of other people’s minds. So what about morality? Do people have a different understanding of morality when they are twenty years old than they do when they are only four years old? What the results revealed was a systematic developmental difference. Young children show a strong preference for objectivism, but as they grow older, they become more inclined to adopt relativist views. In other words, there appears to be a developmental shift toward increasing relativism as children mature. (In an exciting new twist on this approach, James Beebe and David Sackris have shown that this pattern eventually reverses, with middle-aged people showing less inclination toward relativism than college students do.)

People are more inclined to be relativists when they score highly in openness to experience, when they have an especially good ability to consider multiple possibilities, when they have matured past childhood (but not when they get to be middle-aged). Looking at these various effects, my collaborators and I thought that it might be possible to offer a single unifying account that explained them all. Specifically, our thought was that people might be drawn to relativism to the extent that they open their minds to alternative perspectives. There could be all sorts of different factors that lead people to open their minds in this way (personality traits, cognitive dispositions, age), but regardless of the instigating factor, researchers seemed always to be finding the same basic effect. The more people have a capacity to truly engage with other perspectives, the more they seem to turn toward moral relativism.

To really put this hypothesis to the test, Hagop Sarkissian, Jennifer Wright, John Park, David Tien and I teamed up to run a series of new studies. Our aim was to actually manipulate the degree to which people considered alternative perspectives. That is, we wanted to randomly assign people to different conditions in which they would end up thinking in different ways, so that we could then examine the impact of these different conditions on their intuitions about moral relativism.

The results of the study showed a systematic difference between conditions. In particular, as we moved toward more distant cultures, we found a steady shift toward more relativist answers – with people in the first condition tending to agree with the statement that at least one of them had to be wrong, people in the second being pretty evenly split between the two answers, and people in the third tending to reject the statement quite decisively.

If we learn that people’s ordinary practice is not an objectivist one – that it actually varies depending on the degree to which people take other perspectives into account – how can we then use this information to address the deeper philosophical issues about the true nature of morality? The answer here is in one way very complex and in another very simple. It is complex in that one can answer such questions only by making use of very sophisticated and subtle philosophical methods. Yet, at the same time, it is simple in that such methods have already been developed and are being continually refined and elaborated within the literature in analytic philosophy. The trick now is just to take these methods and apply them to working out the implications of an ordinary practice that actually exists.

Universities are also being used as flag carriers for national economic ambitions - driving forward modernisation plans. For some it's been a spectacularly fast rise. According to the OECD, in the 1960s South Korea had a similar national wealth to Afghanistan. Now it tops international education league tables and has some of the highest-rated universities in the world. The Pohang University of Science and Technology in South Korea was only founded in 1986 - and is now in the top 30 of the Times Higher's global league table, elbowing past many ancient and venerable institutions. It also wants to compete on an international stage so the university has decided that all its graduate programmes should be taught in English rather than Korean.

governments want to use universities to upgrade their workforce and develop hi-tech industries.

"Universities are being seen as a key to the new economies, they're trying to grow the knowledge economy by building a base in universities," says Professor Altbach. Families, from rural China to eastern Europe, are also seeing university as a way of helping their children to get higher-paid jobs. A growing middle-class in India is pushing an expansion in places. Universities also stand to gain from recruiting overseas. "Universities in the rich countries are making big bucks," he says. This international trade is worth at least $50 billion a year, he estimates, the lion's share currently being claimed by the US.

Technology, much of it hatched on university campuses, is also changing higher education and blurring national boundaries.

It raises many questions too. What are the expectations of this Facebook generation? They might have degrees and be able to see what is happening on the other side of the world, but will there be enough jobs to match their ambitions? Who is going to pay for such an expanded university system? And what about those who will struggle to afford a place?

The success of the US system is not just about funding, says Professor Altbach. It's also because it's well run and research is effectively organised. "Of course there are lots of lousy institutions in the US, but overall the system works well." Continue reading the main story “Start Quote Developed economies are already highly dependent on universities and if anything that reliance will increase” End Quote David Willetts UK universities minister The status of the US system has been bolstered by the link between its university research and developing hi-tech industries. Icons of the internet-age such Google and Facebook grew out of US campuses.