The ideas in this post are from my book, The Genesis of Values, which uses concepts in psychology to analyze political change.

I have been watching the constant struggle between liberals and conservatives for my entire adult life, with each side always working to remake America in its own image, trying and hoping to consign the other side to the dustbin of history.  Who will win?  Can we know?

Yes, we can know who will win.  The answer, I am certain, is that if America does not suffer a severe economic depression then it will become a European-style liberal society within thirty years.  This is, in fact, inevitable.  Surprisingly, the reasons flow not from any analysis of politics, but from evolutionary psychology. 

When people watch the attitudes and behavior of those whose values differ from theirs, they often think, 'How can they feel this way?'  The answer to this comes also from evolutionary psychology. 

I believe that evolution has given us emotions for a reason, and that reason is to impel (create an impulse toward) adaptive behavior.  Our emotions have been shaped by evolution to make us want to do things that aid in our survival and reproduction.  They are sensations that impel socially adaptive behavior, just as physical sensations like hunger or thirst impel physically adaptive behavior like eating and drinking. 

This includes the moral emotions, meaning those emotional reactions we feel when we perceive something as being morally 'right' or 'wrong'.  This strong sensation of rightness or wrongness feels like a direct perception of reality, but it isn't.  Seeing something as right or wrong is different from seeing the sky as blue on a clear day.  One is emotion, the other perception, and emotions concern what we want, not what is factually true. 

Obviously, people regard very different things as right or wrong, and are shocked when others don't share their perceptions.  It's as if the others can't see that the sky is blue.  This happens because evolution has programmed us to 'want' different things under different conditions. 

A standard argument in evolutionary psychology holds that humans engage in cooperative behavior because this increases resources available for survival.  Humans are therefore also endowed with 'cheating detectors' so that they can make sure others respond to cooperative behavior by reciprocating.   Without a cheating detector you could be generous to someone else and they could be selfish towards you, and your generosity would be bad for your survival.  With a cheating detector you punish people who do that, and they learn to reciprocate, or you stop dealing with them.  Voluntary exchange, and therefore all economic transactions, are made possible by cheating detectors. 

When your cheating detector goes off, you feel a sense of 'wrongness', and this sensation produces anger and an impulse to punish the person who is 'wrong'.  This helps you survive.  I believe that the same logic applies to things other than cheating.  I believe that evolution has endowed us with several 'wrongness' detectors adapted to different types of relationships. 

Humans increase their resources for survival whenever they coordinate their actions with others, and coordination can be cooperative or coercive.  This means that there are three modes of relating: cooperative, dominant, and submissive.  In each one people act in ways that are intended to elicit desired behavior in others, and they have a wrongness detector that goes off when they don't receive the response they want. 

Cooperation is intended to elicit cooperation from others.  When it is received the detector for cooperation detects rightness, when it isn't the detector detects wrongness.  This is the evolutionary basis for the egalitarian values of fairness and justice. 

The other modes of relating operate similarly.  Dominance is intended to elicit obedience.  When it is received the detector for dominance detects rightness, when it isn't the detector detects wrongness.  This is the evolutionary basis for the hierarchical values of obedience and respect for authority.  Submission is intended to elicit approval and protection from those who are dominant.  When this is received the detector for submission detects rightness, when it isn't the detector detects wrongness.  This reinforces the values of obedience and respect for authority, and is also the evolutionary basis for the human desire to worship a just and loving God.  (More on this in another post, but for now I will just note that the word 'Islam' is Arabic for 'submission'.)

These different modes of relating, and their detectors, are activated by the circumstances in which they are adaptive for survival.  Scarcity makes dominance more adaptive for survival, while abundance makes cooperation more adaptive for survival.  When individuals need to coordinate activity in order to obtain resources, the question is whether to cooperate or to try to dominate.  There are risks and benefits to both.  One risk is the risk of death or injury from conflict.  The other risk is insufficient resources for survival.  With an attempt to dominanate, the risk of harm in conflict is increased, because the other individual might fight back and injure or kill the aggressor.   With cooperation the primary risk is insufficient resources, because conflict is avoided. 

In times of scarcity the risk of dying from insufficient resources is very much increased.  Since this is the primary risk with cooperation, this means that scarcity makes cooperation more risky.  Thus dominance is relatively less risky in times of scarcity than in times of abundance.  The risk of being harmed in conflict stays the same during times of scarcity and times of abundance, while the risk of dying from insufficient resources declines as abundance increases.  This means that as abundance increases, cooperation becomes less and less risky, and so becomes the preferred evolutionary strategy more and more often.

What this means in practice is that when individuals of roughly equal capacities need to coordinate activity, the potential payoff of dominance in survival terms is much greater under conditions of scarcity.  Therefore conditions of scarcity should increase the number of situations in which dominance is perceived as advantageous, and so dominant, coercive, non-cooperative behavior should be higher under these conditions.  And when we look at societies around the world and throughout history, this is exactly the pattern that we see.  The correlation between scarcity and authoritarianism, while not perfect, is very high. 

What this tells us about politics, our own and in general, is that scarcity will cause increased activation of dominance and submission and the detectors that accompany those behaviors.  Therefore, the hierarchical values of obedience and automatic respect for authority will be stronger and more prevalent under conditions of scarcity.  Conversely, abundance will cause increased activation of cooperation and the detector that accompanies it.  Therefore, the egalitarian values of fairness and justice will be stronger and more prevalent under conditions of abundance. 

These ideas are original, and I call them coordination theory.  Coordination theory provides the mechanisms that explain the historical progression in the West from authoritarian systems such as monarchy, fascism, and communism, to modern liberal democracy.  It also explains why democracy seems to eventually become inevitable as economic affluence increases.   Additionally, coordination theory also explains political change over time within democracies, from conservative to liberal as affluence increases. 

Of course the correlation between economic advancement and political change is not perfect.  The reason for this is that much of the change is time-lagged.  Personality and consequently values are largely formed during childhood and adolescence, so much of the political effect of economic changes is not revealed until the generation that grew up during those changes reaches maturity.  This process is detailed in my previous post. 

The important thing about coordination theory is that it not only explains the past, it also predicts the future.  One prediction I made privately a few years ago was that Russia was due to enter a period of increased authoritarianism, due to conditions of increased scarcity that have prevailed there since 1990.  The generation raised under these conditions is now maturing, and the increase in authoritarianism there can already be seen.  My prediction now is that it will continue to increase significantly over the next few years, and this will constitute a major foreign policy challenge. 

I also predicted that America would see an increase in liberal tendencies after about 2002, when the generation born after the difficult times of the 1970s and early 1980s matured.  That prediction was too early by a few years, but still occurred.  My prediction for America now, as stated above, is that if decent economic conditions continue, we will become a European-style democracy within thirty years.  If coordination theory is correct, then that's pretty much inevitable.  Unfortunately, however, decent economic conditions can no longer be assumed.  

The next post will explain the evolutionary roots of empathy, entitlement, and hatred, and how these affect into political values, according to coordination theory.  

Those of you who follow me may know from my bio that I am writing a book on how and why value systems change in societies.  The book is called "The Genesis of Values", and I would like to set out some of its ideas in my blog, to get comments and reactions from readers.  I know that blog posts are usually very topical and meant to more or less stand alone, but I thought that readers might enjoy a chance to do something a bit different, which is grapple with some new theoretical ideas and help an aspiring author write his book.  So this is the first in what I hope will become a series of posts that lay out my theories on value systems, including political ones.

Posts on my book will have (GV) in the title, for Genesis of Values, so readers will be able to identify them, and will be numbered in the order they appear.  I will try to be diligent in responding quickly to comments, so that I can answer any reader questions, and discuss any issues that readers wish to raise.  I will also monitor the comments sections on GV posts after they drop off the listings, and respond to those as well, so that readers who wish to continue any discussions can do so.  Thank you all in advance for being my new editors!

Today I'd like to start by introducing a few basic ideas.  As a psychologist it's very natural for me to look to childhood influences as causes of psychological phenomena.  As a psychologist it's also very natural for me to think in terms of personality types that possess certain clusters of features, including personal values. 

Putting these two together, it would then be natural to think that values would be systematically influenced by personality, and personality systematically influenced by conditions during childhood, so the value systems of individuals would be influenced by conditions during their childhoods.  Psychologists routinely think in these terms concerning individuals, and I was very surprised when I found that other social scientists generally do not think in such terms concerning larger groups. 

The moment I started looking for correlations between changes in social and economic conditions and political changes a generation later, I found that they were everywhere.  The most obvious example is my own generation, which is the boomer generation born in the first two post-WWII decades.  This generation probably experienced one of the greatest improvements in conditions relative to its forebears that has ever been seen.  My generation grew up during a time of peace, prosperity, security, and optimism.  The prior generation, on the other hand, grew up during a terrible depression and a world war, a time of poverty, war, constant insecurity and fear of what the future might bring. 

The result of this, if childhood conditions influence personality and therefore values, should be a marked shift in value systems between these generations, and that is exactly what occurred.  As soon as members of my generation reached adulthood they began to challenge the norms that obtained in society, advocating for sexual freedom, resistance to authority, non-violence, rights for oppressed groups, and many other changes.  Also, this generational phenomenon was most definitely not confined to America, but occurred in the other advanced democracies at the same time as well. 

Of course this is not to say that everyone in the baby boom generation possessed this new value system, just as everyone in the prior generation did not possess the older one.  These phenomena are clearly statistical, which means that what changes is the likelihood and frequency of a particular value system under certain childhood conditions.  The baby boom generation had a distribution of value systems among its members that was noticeably different from its predecessor.

What this historical pattern clearly suggests is that hard times produce a more 'conservative' value system, while better times produce a more 'liberal' value system.  This is a reasonable first approximation.  Certainly, if we take a global-historical perspective, looking at societies around the world and throughout history, it is very obvious that affluence and prosperity are very highly correlated with more progressive value systems.  Before the Industrial Revolution most societies were hierarchical and authoritarian, organized around structures such as monarchy, aristocracy, serfdom, slavery, and the like.  Similarly, poorer societies around the world today are much less likely to be democratic, and more likely to violently oppress minorities, women, gays, and any other culturally disadvantaged group.

It is tempting to think of the pattern of history as being 'progressive', in the sense of things steadily getting better, or more 'progressive' over time, but this pattern also works in reverse.  Nazi Germany is an excellent example.  In 1933, when Hitler came to power to great popular acclaim, Germany went into a period of violence and hatred unrivalled among industrialized nations, with a regime far worse than similarly advanced countries.  What made Germany so different?  Many theories have been advanced, of course, but I would note that Germany had seen extremely hard times for almost a generation.  Since 1914, Germany had experienced the devastation of WWI, followed by the hyperinflation of the 1920s brought on by war reparations, and then the Great Depression.  In 1933, a 'hardened generation' began to come to maturity, that had only known very harsh times, pushing the polity toward violence and repression, and by 1939 this cohort that had only known hardship was large enough to push the country into war.  Of course other factors were at work as well, but I believe that the 'hardened generation' hypothesis at least partly accounts for Nazism and the Holocaust.  (I will discuss this particular example in much more detail in a later post.)

So, it definitely seems to be the case that there are some kinds of correlations between circumstances during early life and the resulting value systems of different age cohorts.  But how can these be investigated systematically?  There is a big problem with just saying 'more liberal' or 'more conservative' as a way of describing value systems, because these words cover very many types of issues and also mean very different things in different times and places.  When people say 'more liberal' for example, in the modern American political context, they would generally mean a value system that is more tolerant of sexual freedom, less tolerant of violence, less sympathetic to authority and more sympathetic to those who are subject to authority, more inclined to want government to help the poor, and so on.  When people say 'more conservative' in the same context, they would usually mean the opposite. 

My approach has been to take a few of these major components of different value systems and to track them both independently and as parts of value systems.  For instance, I take attitudes toward pleasure, including sexual, as one major component.  I take violence and authoritarianism together as a second component.  (I originally tracked these separately because I felt that they were distinct from each other, but I found that they are very tightly bound together, enough so to consider them jointly).

I consider attitudes toward economic issues to be another distinct component.  How the economic component fits in, however, will have to be deferred until later, because attitudes on economic issues are so strongly affected by self-interest, not just by personal feelings of rightness and wrongness.  Economic issues are a hugely important part of political value systems, but they are very complex to analyze and I'll have to deal with them in a later post.  

With that in mind, I'll provisionally define Liberal (with a capital L) as meaning a value system that has relatively tolerant attitudes toward pleasure while being relatively intolerant of violence and authoritarianism.  Conservative, in this essay, means the opposite.  When I use these words, capitalized, that's all I mean by them at this point.  Thus Liberals would favor gay rights and gun control, Conservatives the opposite.  Liberals would be less likely to spank and more likely to allow children to call them by their first names (less authoritarian), Conservatives would be the reverse.  Liberals would be more likely to be pro-peace, Conservatives more likely to be pro-war.  Many other political issues could also be easily classified as Liberal or Conservative by referring to the dimensions of attitudes toward pleasure and toward violence/authoritarianism. 

So Liberals and Conservatives are polar opposites on the dimensions of pleasure/sex and violence/authoritarianism, with each being relatively permissive on one dimension while being relatively restrictive on the other.  Are there other value systems besides these?  Of course there are, because many people do not neatly fit the definitions of Liberal or Conservative used here.  More importantly, if we again take a global-historical perspective, it can be seen pretty quickly there are and have been societies that have value systems that cannot be classified as Liberal or Conservative.  What about these?

Using the analysis of different dimensions of value systems shows that there is actually a third major value system of global and historical significance, one that has never been precisely defined and named.  I call this value system Preconservative.  Preconservatives are relatively permissive and tolerant toward both pleasure/sex and violence/authoritarianism.  This is a value system that crops up in many different places, including many undeveloped authoritarian societies, including feudal aristocracies in earlier centuries.  It also occurs among privileged elites in wealthy societies today. 

In my book I try to explain the idea of Preconservatism by discussing a range of cultural practices from such societies, but in this post I'd like to do something different that I hope readers won't find frivolous.  A really perfect example of the Preconservative value system is actually the title character from the movie Borat, by Sascha Baron Cohen.  In this movie, Cohen pretends to be Borat, a man from a very poor village in Kazakhstan, who has come to America to meet people and interview them.  Borat introduces himself to unsuspecting Americans and films his interactions with them, which are hilarious. 

The humor in the movie comes from Borat's behavior, which is absolutely outrageous.  He attends a genteel Southern dinner party and blithely invites a prostitute, takes drivers ed and starts drinking hard liquor behind the wheel, offering some to the instructor, makes unbelievably sexist remarks to feminists, talks about the importance of killing Uzbeks to liberals, and so on.  Borat is an equal-opportunity offender, possessed of a value system guaranteed to astonish and insult both liberals and conservatives alike.  (Of course, the biggest insult was to poor, Preconservative Kazakhstan, which did not find the movie funny at all.)

In structural terms, what makes the movie work is that a Preconservative can offend Conservatives by his acceptance of sexuality and Liberals by his acceptance of violence, because Preconservatives are fine with both.  What makes the movie even funnier is that Cohen plays Borat as an earnest, sincere, guy who is completely unaware of his offensiveness and just wants to be friends with Americans. 

Before returning to Preconservatism, I have to make a general point about value systems, which is that they have things that they value, such as specific virtues.  The primary virtues valued by Liberals, I would argue, are things like compassion, empathy, nurturance and other qualities related to loving and caring for others.  The primary virtues valued by Conservatives, on the other hand, would be things like self-discipline, self-denial, self-sacrifice, and other virtues related to control of one's desires and impulses.  (Of course, both groups would also value each other's primary virtues as well, but the emphasis and degree would differ.) 

Preconservatism also has primary virtues, and these are in the area of power, strength, and dominance for those in the elite, and obedience and submission for those who are not.  This is shown in Borat as well, when he enters a room and goes into an elaborate kissing ritual with the men in the room, while completely ignoring the women.  Here he is demonstrating deference to people of higher status and disregard for those of lower status, which is also typical of Preconservatism (remember that violence and authoritarianism go together).

Moving away from Borat, this Preconservative trinity of pleasure, violence, and authoritarianism can be seen quite often.  The Roman Empire was of course famous for it, with its orgies, and its circuses in which people were torn to shreds.  Aristocracies throughout history have often been this way.  Feudal lords had sexual rights with their serfs, were the ones who were expected to do battle in war, and of course had complete authority in their domains. 

Preconservatism is ultimately a product of the psychology of dominance and submission.  The psychology of dominance is that dominant individuals do as they please and should be admired for their dominance and obeyed.  The psychology of submission is that voluntary submissiveness is honorable and should be rewarded.  (By the way, the word 'islam' is Arabic for 'submission'.) 

Preconservatism will be most prevalent under conditions of scarcity and poverty, for reasons determined by evolutionary psychology, which will be explained in a later post.  Its most fundamental characteristic, however, is its association with attitudes of dominance and submission.  It exists, therefore, wherever people lead lives of dominance, which includes both primitive societies and also includes the elites of modern-day societies.  Many economic conservatives in America today are Elite Preconservatives in my classification of value systems, because they are tolerant of both sex/pleasure and violence/authoritarianism and operate according to attitudes of dominance, with its resulting reduction of empathy.

In the philosophy of science theories are classified in a hierarchy according to whether they are descriptive, explanatory, or predictive.  My theory of value systems is all three, but we are still in the descriptive part, because objects of study need to be precisely described and classified before they can be explained and then predicted.  Having described and classified value systems according to certain of their components, the next step is to describe when and where they occur. 

In Western societies the historical pattern has been to move from a Preconservative stage, to a Conservative stage, and ultimately to a Liberal stage (I call this the Western Trajectory).  These transitions, however, are not automatic, but depend on continued economic progress.  It is very important to note that this means quite different patterns of progress regarding violence/authoritarianism versus pleasure/sex.  Violence/authoritarianism goes (roughly) from high to medium to low as societies move from Preconservative to Conservative to Liberal, while restrictions on pleasure/sex go (again, roughly) from medium to high to low.  Restrictions on pleasure/sex actually increase during the early stages of social/economic progress. 

The most obvious example of this pattern is Great Britain.  In its Preconservative stage it was a monarchy, its transformation to Conservatism began with the Protestant Reformation and culminated in the Victorian era, and it eventually became a Liberal society during the 20^th century. I'll save the details for a later post. 

Readers at tpmcafe are most interested in American politics, and America has shown this historical pattern also, with some differences.  Colonial America began, of course, as a transplant society from Great Britain, and the northern and southern colonies were quite different.  The northern colonies were quite clearly Conservative in their value system, in fact extremely so, with the Puritans actually classified as Early Conservative in my system.  (Early Conservative societies are impoverished, very repressive and, well, puritanical.  Iran and the Taliban would also be in this category.)  The south, however, was just as clearly Preconservative.  It was hierarchical, authoritarian, and violent, but not Puritanical.  (In fact, a gracious, genteel, aristocratic-type lifestyle was the ideal.)  Slavery, of course, like serfdom, is a mark of Preconservatism. 

As America progressed economically, the north progressed socially from Early Conservative to Late Conservative. Late Conservatives tend to be political activists, as first demonstrated in Great Britain, where Late Conservatives abolished the slave trade and worked to help the poor while at the same time crusading against vice.  The Late Conservative period in the American north is what we now call the Progressive Era.  We tend to think of this as an early form of present-day liberal values, but the Progressives actually had more in common with present-day religious Conservatives.  They wanted to abolish Preconservative injustices such as slavery, but also favored Prohibition and strict laws against pornography, prostitution, and vice in general.  As the north continued to make economic progress during the 20^th century, it eventually moved from Late Conservative to Liberal in that century's latter decades. 

The south has followed this classic trajectory also, but with an enormous delay.  It began with a Preconservative system and regressed instead of making progress during the 19^th century because of the Civil War and Reconstruction.  In fact, it didn't start to move out of its Preconservative value system until after WWII.  People of my generation and older remember the tremendous resistance to equal civil rights for blacks, which is indication of thinking conditioned by attitudes of dominance, the hallmark of Preconservatism.  The south has progressed greatly since then on those issues, and is now in a Late Conservative stage.  (Societies can and often do skip an Early Conservative stage if economic growth is very rapid, going directly from Preconservative to Late Conservative.  This is happening throughout Asia.)  The south now is religious, patriotic, fairly repressive sexually, and very activist in its politics, just as the Progressives were a century before.  The difference is that the southern Late Conservatives of today find themselves resisting social change instead of initiating it, as the Progressives did, because they are at the trailing edge rather than the leading edge of the changes. 

The western regions of the country are more complicated.  Today's Republican party really has three geographic regions in which it is still very strong.  They are the south, the great plains states, and the Mormon belt.  The plains states have probably remained Conservative due to constant out-migration of more Liberal members to urban areas, and now have small populations.  The Mormon region shows the same pattern as the south, going from Preconservative to Late Conservative.  Mormonism began as an authoritarian polygamous sect with a significant history of violence.  Polygamy is, pure and simple, sexual privilege for elite males, and is another clear marker of Preconservatism, like slavery.   Mormonism today, however, is no longer polygamous, less violent and authoritarian, sexually repressive, and politically activist. 

Other areas of the west show that an activist Late Conservative stage usually occurs just before the onset of Liberalism.  California is a good example: previously Republican, elected Ronald Reagan governor twice, now reliably Democratic.  Colorado and Nevada are just now undergoing the same transition.  Both used to be reliably Republican, and Colorado in particular was known as a center for evangelical Christianity, now both are trending Democratic. 

Other areas demonstrate this also.  Virginia was, like Colorado, known as a hotbed of religious activism, and has recently trended Democratic also.  North Carolina and Florida are showing similar trends.  In my own New York metro region the Long Island suburbs used to be very solidly Republican and now vote Democratic and are clearly Liberal. 

This pattern makes it possible to see the political trends in America over the past fifty years and, more important, to make predictions.  America has mostly moved in a Liberal direction over the past half century, with the exception of the south and the Mormon belt, which have moved toward Conservatism, but from a Preconservative base.  The turn toward political conservatism in the 1980s was a result of the south moving firmly into Conservatism, combined with a reaction to the poor economy of the 1970s.  Since there are very few remaining areas in America that are Preconservative, the movement toward Conservatism cannot continue, while the movement from Conservatism to Liberalism will continue.  This means that if reasonably good economic conditions persist, then an American transition to European-style Liberalism is inevitable. 

This is not guaranteed, however, because we now face a potential Depression.  The Great Depression of the 1930s caused a temporary reversal of the political transformations that accompany economic progress, and this could happen again.  (Remember that the effects of economic conditions on social values are time-lagged, because conditions during childhood affect values during adulthood.  The Great Depression caused America to adopt more liberal economic policies while it was going on, but also resulted in social Conservatism in subsequent decades.)

Of course, this prediction about American politics is not yet based on an explanatory mechanism for these values system changes, but only on the observation of patterns and the assumption that they will continue to hold true.  In subsequent posts I will detail the underlying psychological processes that cause values to shift as they do in response to changing conditions.  I will also bring economic issues into the discussion.  After that, I will show how this theory also explains values shifts in non-Western societies (there are actually several trajectories that societies can follow). 

I hope all you readers find this interesting enough to read and comment on.  Any time it becomes boring, please tell me.  I have been working on this, on and off, for many years, and recently I find myself in an odd situation.  For the past few years I have been making predictions based on my theory and watching them come true.  This has made me try to push myself to articulate my ideas, but I need some feedback about how to do it.  Thanks for reading. 

As I watch president Obama struggle with the tax problems of several of his appointees, I can't help but contrast their tax treatment with the way that the IRS handles the tax delinquencies of average Americans.  Senator Daschle failed to pay about $128,000 in taxes, and Secretary Geithner about $34,000, both pretty substantial sums.  When this was discovered, both paid the money back, with a bit of interest. 

I'm a psychologist, and I've treated two people thus far for major depression caused by being harassed to the ends of the earth by the IRS.  Both of these men (separate cases, they don't know each other) had very small businesses with a handful of employees, and were hard-working guys who took good care of their people, but were not as business-savvy as they should have been.  In both cases their businesses started doing poorly and they put all their money toward payroll, and therefore neglected to reserve the money that they were supposed to for business taxes.  When it came time to pay the quarterly taxes, they couldn't do it, and kept this up for a couple of years, instead of laying people off.  In both cases the amounts involved were not huge, less than $30,000. 

When the IRS discovered this, it assessed both of them penalties that were enormous, eventually growing, if you can believe this, to several hundred thousands of dollars, for each of these guys.  Both of them eventually paid off more than the original debt, but were still considered delinquent and constantly hounded.

Both, not surprisingly, developed major depression, at some point stopped responding to the IRS because of this, and therefore the IRS regarded them as recalcitrant and went after them even more energetically. One had most of his wages garnished, and has been unable to marry and start a family, and now is in his fifties, and is still paying.  The other had all his bank accounts seized, and was forced to live 'off the grid', working at menial, off-the-books jobs that paid very little, living with friends, and paying everything in cash.  He also developed drug problems, which he had never had previously.  Since he had no insurance, I also had to see him pro bono. 

Contrast this with Daschle and Geithner.  Senator Daschle failed to report tens of thousands of dollars in consulting income, for which 1099s are routinely provided and which absolutely everyone knows is income that must be reported.  Secretary Geithner failed to pay four years of certain taxes, and when the IRS caught the last two of those years, he paid those but not the first two.  In both cases, these prominent individuals simply asserted, very implausibly, that these omissions were totally unintentional, and the IRS accepted this and imposed no penalties.  

I have two reactions to this, one moral and the other intellectual.  My moral reaction is outrage.  This is just one more egregious example, among far too many, of the way that American society favors the well-off at the expense of all others.  The rules with the IRS about failure to pay taxes are that if you have no money then you have to pay a fortune in penalties, but if you already have a fortune then you pay no penalties.  I try not to let too much anger to creep into my posts, but sometimes that's very difficult.

My intellectual reaction is that this is obviously not an individual problem but a systemic one.  First, the IRS policy toward prominent tax delinquents clearly encourages such people to evade taxes.  Their response is that if you don't pay taxes and we catch you, then you have to pay what you would have anyway (the interest charged is about what the money could earn).  Therefore, evading taxes is a good idea.  You might get away with it, and if you don't, you really don't lose anything.  No wonder tax evasion is common with the elite, the IRS incentivizes it. 

 I'm glad that Obama has taken a stand against this kind of thing, I feel he was right to do that, but he's trying to impose rules of accountability on political and economic elites that are totally unaccustomed to that. The lack of accountability for these elites has gotten so bad that most have probably been corrupted to at least some degree by this environment.  In fact, Daschle and Geithner are good examples of this process because they're actually among the good guys.  If even the good guys routinely do this stuff, then Obama is going to have a tough time finding talent that's not tainted.

As the details of Obama's stimulus plan have dribbled out, I've been getting more and more concerned, and not for the reasons that bother other progressives.  I think it's not going to work.  I think Obama has tried to thread the needle, crafting a plan that is sufficiently big and stimulative enough to work, but also sufficiently small and centrist enough to be passed by large Congressional majorities.  Unfortunately, I am afraid that he has threaded the needle the opposite way, proposing a plan that is big enough to seem ruinously expensive to the federal balance sheet, but sufficiently small and poorly targeted enough to still fail. 

Progressives should be scared.  If this plan fails to work it could tip over a set of dominoes that end with the Republicans recapturing the White House in four years and putting a quick end to our new progressive era.  The dominoes are: the economy continues to worsen until the 2010 elections, the voters give Republicans a majority in at least one house of Congress that year, they block Obama's agenda for the rest of his term, and coast to victory in 2012 on the back of an economy that continues to be terrible.

Paul Krugman has an excellent post that explains in clear and simple terms the math that leads to this conclusion.  Everyone should read it.  In it he shows how even with quite optimistic assumptions the unemployment rate would still rise to 7.3% under Obama's plan, and concludes with his fear of a scenario that he feels is more likely, in which unemployment rises to about 9% in 2010.  He follows this with another post on a WSJ survey of economic forecasters whose predictions average out to a rise in unemployment to 8.4% in 2010, assuming passage of a stimulus plan.  The current rate (for November 2008) is 6,7%.

These numbers, if they prove to be true, would probably be electorally lethal to the Democrats in 2010.   Both Ronald Reagan and Bill Clinton went into their midterm elections with poor economies, and both suffered big losses in the House of Representatives.  They both went on to victory because the economy recovered by the time they ran for re-election, but neither faced an economy caught in a liquidity trap.  This trap is liable to prevent a spontaneous recovery of the kind that we all have become accustomed to, and if Obama can't get the results that everyone is used to seeing, then his election prospects are dim indeed.  

So there you have it.  There's an emerging economic consensus that this plan will not prevent the economy from getting a lot worse, and if that occurs then Obama is in big trouble.  How did this happen?

I'm a psychologist, and I look for psychological explanations.  Reports are that Obama's economic team got proposals from a wide range of economists for stimulus plans ranging from $800 billion to $1.2 trillion dollars, but are proposing something in the range of $675-$775 billion, smaller than the low end of what was proposed to them.  Why?  Well, the problem that I saw at the outset with Obama's team was that he appointed a group of people who are tremendously knowledgeable about the current economic crisis because they helped to create it.   This gives them an ego investment in believing that their actions have not done enormous harm, and that the intellectual reasoning that they have always relied on will continue to work, even though everyone else can see that this is wrong.  It is an extremely unfortunate fact of human nature that when ego needs go up against unpleasant realities, ego needs usually win.  Sadly, a high I.Q. is no defense at all against this process, because a high I.Q. just gives people better tools to help them rationalize away disturbing facts. 

Obama's economic team is apparently assuming that the Fed's monetary policy of low interest rates and increasing the money supply will work as it has in the past, and all we have to do is hold on until this happens, which a modest stimulus plan would allow us to do.  They appear to have not processed the emotional reality presented by a liquidity trap, because that emotional reality would be terrifying to them.  They are all monetarists to some degree, who believe that the Fed can always get us out of trouble if it tries hard enough.  But the reality of a liquidity trap is that it is self-sustaining and the Fed is helpless, truly helpless.  They don't seem to be able to accept that as possible, because it would create feelings in them of both helplessness and humiliation. 

This emotional incapacity on the part of his team has, I feel, has led to a major strategic error in combining economics and politics.  Obama's people were reportedly concerned about Congressional opposition from Republicans and conservative Democrats if the stimulus plan was too large, and were worried that a larger plan could not be passed.  Fine.  In that case, the correct strategy would be to propose a very large plan anyway, wait for the opposition, compromise on the smaller plan (meaning the current proposal) if necessary, and then be able to blame the larger plan's opponents if and when the economy still gets worse. 

That would be a political winner in all scenarios.  They would either pass the larger plan that is needed or be able to blame the conservative opponents if a smaller one doesn't work.  Also, that would shift the debate over what is necessary in the direction of the larger numbers that are needed.  With current strategy, the likelihood is that Obama will get what he wants, it won't be enough, and he'll be blamed. 

The most likely course of events seems to be that a year from now the economy will still be worsening.  Obama and his team need to either pass a plan now that will prevent that, or leave a political reality that will allow them to pass something additional later on if necessary.  I'm extremely worried that the current economic plan and political strategy will do neither. 

In 1992 Bill Clinton said, "It's the economy, stupid", meaning that a bad economy trumps everything else politically.  Well, the economy is bad now, in a way that we haven't seen since the Great Depression.  FDR took office in 1933, three-and-a-half years into the Depression, so no one blamed him for it.  The politics for Obama will be different, because things will be getting worse on his watch.  This could get really bad, both economically and then politically.  As Krugman said, I hope I'm wrong.  

Well, it's been a hell of a year.  All worked out pretty much the way I hoped.  I knew when I decided to run I had a pretty good shot, considering the competition.  When I got to the Senate in '04 and saw how little game all the Big Leaguers had, I figured I had to go for it.  The country's a big mess, somebody's got to fix it, and I didn't like the idea of leaving it to any of the others.  I try to stay humble, but it was hard to do that looking around at my Senate colleagues. 

And it went even better than I thought it would.  Hillary spent all her money on fancy hotels and didn't even bother to campaign in half the country, and McCain picked a VP that made Dan Quayle look like a Nobel Laureate and then couldn't stay on message for five minutes.  And all the others couldn't even beat those two.  Then Bush finally crashed the economy after years of trying, just in time for the election, and the close win I'd planned for turned into a rout.  Now I've got a mandate, but I'm really gonna need it to clean up all Bush's messes. 

The transition's going pretty well, too, except for this crazy Blagojevich business.  Boy, is that guy off his meds.  I came up clean through the cesspool of Chicago politics and made sure everybody knew it, and he tries to auction my seat to the highest bidder.  Then, pretty much everyone on Planet Earth tells him they won't accept anyone he appoints, so he goes and appoints someone.  Unbelievable.  Hope he enjoys his room in the Illinois Governors Wing of the federal pen. 

He won't be alone, though.  The big thing I have going for me right now is that the Republicans, instead of worrying about stopping my legislation, are too busy worrying about not going to jail.  The only Cabinet nominee they want to fight about is Holder in Justice, and that's just because they figure they won't look too good in ankle bracelets.  They want Barney Fife for AG, and any Democrat I name with a brain wave and a pulse is going to make half the Republican establishment lose bladder control.  Well, it's their own damn fault. 

I'm glad the public's finally getting fed up with corruption, really, it's about time.  When black voters start tossing out black guys for corruption, you know something is up.  Like that idiot Jefferson, boy, am I glad he's gone.  Ninety grand in his kitchen freezer.  Yeah, like if people come looking they'll definitely never find it there.  Even Charley Rangel, who's probably smart enough to have a storage locker somewhere, is starting to feel the heat now. 

What amazes me is, I'm the first black President, and still, Republicans haven't noticed how much blacks have changed.  Nowadays, most blacks go to work Monday through Friday, see a Tyler Perry movie on Saturday, and then go to bed early to get up for church on Sunday.  It's like "Leave it to Beaver" with melanin.  If the Republican ever stopped being racist, half the black vote would run right over to them.   But that'll never happen. 

But now it's up to me to fix everything.  Really, Bush just ran the whole damn country into a big giant ditch, and I'm not sure we've got enough horsepower to pull ourselves out.  The crisis really helps in a way, though, because I can toss half my agenda into a big stimulus plan and make the Republican look horrible if they say no. 

The big problem is that stupid filibuster rule in the Senate.  This would all be so much easier if it wasn't for that.  So now I have to play to the middle, because I need two-thirds of the country behind me to get to sixty in the Senate.  Looks like I've got it so far, in fact, even a lot of Republicans want me to succeed now, because they're so afraid of losing their money.  I can probably drive the stimulus plan through pretty quick, though I'll bet Mitch McConnell tries to stall and play for time, without doing a phone-book-reading type filibuster.  He knows if he tries that, the stock market will tank, and he'll have to cave. 

The problem is it might not be enough.  Even 800 billion might not do it, but if I start talking trillions people will freak.  I know what the Republican are hoping for.  That I get my package, the economy still sucks, they make a comeback in 2010 and block me until 2012.  If things are still horrible then, maybe they can take me out.  My best move is to accumulate every bit of political capital I can and spend it only on fixing the economy, until it bounces back.  If the economy rebounds, then I'm a hero, and I'll have enough political capital to push through everything else.  Until then a lot of other stuff may just have to wait.  

And foreign policy, that's gonna be trouble, too.  Bush said he was going to bring freedom and democracy to the Middle East.  So, what did he leave me?  War in Iraq, war in Afghanistan, the Taliban is back, so is Al Queda, Israel at war with Gaza, Iran building nukes, Pakistan terrorizing India, and to top it all off, we've even got fucking pirates there now.  Thanks a bunch, George.  Way to straighten everything out. 

But thank you, Jesus, that my middle name is Hussein.  That's going to come in handy.  I figure if I make a big, respectful speech to the Muslim world early on, I can move public opinion in some of those countries and put pressure on the extremists.  Those folks are all about honor and respect, if you give them some of that they love it.  Ahmedinejad in particular is just dying for me to pay some attention to him, and with no oil money coming in he needs a new friend.  If I can get him to play ball the whole region looks different. 

I think I can handle this.  I've played a lot of chess, and I've played a lot of poker.  If you can see a few moves ahead, and know when to bluff and when to call, then nothing's quite as hard as it looks. 

In 1776 the American colonies rebelled and Adam Smith published The Wealth of Nations, and both events caused revolutions that transformed the world.  America and the free-market capitalism espoused by Smith rose to power together, in a successful partnership of society and ideology, and now that partnership has stumbled and is again being challenged. 

During the Great Depression of the 1930s, capitalism's greatest crisis ever, its major ideological opponent was Marxism, which was its exact antithesis.  Free-market ideology said that government should always leave markets alone, despite clear evidence that free markets often do not work.  Marxism said government should always control markets, despite equally clear evidence that free markets often do work.  The trial-and-error process inherent in democracy eventually produced a mixed result that functioned well, in which free markets that worked well were mostly left alone (e.g., manufacturing), and free markets that worked badly were tightly regulated (e.g., finance). 

Despite the clear set of facts on the ground, however, the struggle between all-or-nothing economic ideologies has continued to this day.  The left maintained its Marxist sympathies up until the fall of the Soviet Union, while the right developed a free-market critique of the welfare state that resonated widely with the public.  After the fall of communism, the right had the ideological field to itself, and so it put in place the misguided policies that have led to the present economic collapse. 

Just as the right went back to an extreme position when the regulatory state faltered, so now the left is acting similarly.  The right failed in the 1930s and today because it was unable to say, "This is when markets do not work".  Similarly, the left has failed to persuade the country because it has never been able to say, "This is when markets DO work".  This is what the left must have, in order to be able to govern. 

This leaves the question posed in the title, "When do markets work?"  Here is a modest proposal, which I believe progressives should embrace: "Markets work when they are beneficially competitive.  This means that markets work when the only way for firms to make profits is by outcompeting other firms in benefiting people, without harming others".  

People on the left need a more clear understanding of how markets are beneficial, because when markets work well they serve progressive goals.  Well-functioning markets are not only productive, they are also redistributive.  The reason is that competition reduces profits.  If an industry is unusually profitable, then firms will produce more of what is profitable, or other firms will enter the market, and the increased supply will cause prices to drop.  The lower prices represent a transfer of income from producers to consumers, which redistributes income and wealth.  It promotes equality. 

When this happens it is very powerful.  Computers are a good example.  This is an extremely high-tech business, that produces a very sophisticated product of quite high value.  And computers have been improved by producers very rapidly.  But, due to competition, profit margins in the computer industry are pretty low.  Most of the increased value that has been created by this very productive industry has gone to consumers, with shareholders getting a much smaller fraction.  Many other industries have followed this pattern in the history of capitalist economies. 

The key aspect of this process is open competition.  When firms have to compete beneficially against all comers in order to make money, their activities then are tightly controlled by consumers.  This is itself a very strong type of regulation, and one that can ultimately be extremely effective.  When this type of regulation of business activity by consumers is operating naturally, then government regulation is superfluous. 

Now, I imagine that many leftist readers will be immediately objecting that this pattern is often not followed in a lot of other industries.  Well, of course not, that's the point.  People on the right tend to focus their attention mainly on those cases in which markets work, and to overgeneralize from those cases.  This limiting of attention and overgeneralizing from it is how the free-market ideology was created.  Of course, people on the left do exactly the same thing.  They focus attention mainly on those cases in which free markets do not work, and overgeneralize from those.  This is how the left-wing anti-business ideology is formed. 

Progressives should realize, however, that an anti-business ideology is politically very limited.  It works politically only in bad economic times, and when times get better it will be discarded.  But that is not the worst thing about it.  The worst thing about it is that it is simply wrong, just as a blindly-pro-business ideology is wrong.  Free markets do work sometimes, and the progressives desperately need an economic ideology that acknowledges that and does not needlessly alienate large sectors of the economy that are functioning well. 

We are now at a point where free-market ideology has been discredited and the voting public would consider an alternative.  I would love to see progressives offer something in that area that is economically sound, morally progressive, and politically appealing.  I like the phrase 'beneficially competitive' because it combine a nice-person word with a tough-guy word, so it can't be emotionally pigeonholed by people as either too hard or too soft, and the dissonance between the two makes it interesting.  But my major point is that progressives need to show the entire voting public that they understand markets and businesses as tools that society should use wisely to benefit people rather than as enemies to be subdued and subjugated.  I feel that a moment of possible liberalization is at hand in America, and I would hate to see that opportunity for progressives go to waste.  

Obama's transition has been impressive, and not just for the reasons usually cited.  He's also the first President-Elect to start running the country a month early. 

Obama has selcted his entire Cabinet and upper-level White House staff in record time, and now can go on a two-week vacation in Hawaii, leaving his new administration in charge  (Go on in, Barack, the water's fine!).  Almost all of his selections have been widely praised and none needed to be withdrawn because something came out about them.  None have caused controversy except Eric Holder, and he's only controversial because Republicans are afraid he might prosecute them (You think they care about Marc Rich? Yeah, they just hate that kind of corruption).  And there have been no leaks except the ones that were obviously on purpose. 

What all this means is not just that Obama is a good judge of people.  It means that he already has an administrative bureaucracy up and running.  He started setting up this bureaucracy way before he won the election, in fact as soon as he clinched the Democratic nomination.  Like his other far-sighted moves, this one is now paying off.  His vetting process for everyone was notably rigorous and thorough, and that seems to have prevented mistakes.  Something could still come out about someone, but it won't ne Obama's fault. 

Now economic policy is starting to flow from his economic team.  They are already working out the details of the stimulus package, so it can be presented when Congress convenes on January 6, two weeks before Obama takes office.  They are also clearly engaging in a series of planned leaks as part of this planning process.  These leaks seem designed to both assess political oppostition and build political support.   They are assessing opposition by putting out ranges of numbers and general components of the package to see how Republicans and pundits react.  So far, their plans have not provoked any threats of opposition, so they'll probably be presented roughly as they've been leaked, although further bad economic news could make the numbers bigger.  I love the way they're building support.  Several people high up in the transition are telling the media that they've been consulting with outside economists across the political spectrum, but the only names any of these people give out are those of conservatives like Martin Feldstein and Mark Zandi.  Putting out the names of conservative economists as advisors makes Republican opposition look irresponsible.  What this tells you is that the leaking is planned and coordinated.  

Meanwhile, the health care team is also working, but under less scrutiny.  Obama and Daschle know that this one will be difficult, both intellectually and politically, so they are already mobilizing supporters to give ideas and vote on them.  This way, they can see what kinds of policies have what kinds of support.  Other policy task forces are also working, while administrative task forces are combing through the Executive Branch, making detailed assessments of departments and programs so that they can get to work immediately on January 20.   

The general strategy for Obam's first term is pretty clear, and pretty smart.   Obama knows that Presidents get elected on promises and re-elected on performance, and where people most want performance is the economy.  He has a huge mandate to take action to rescue it, and he is going to use this mandate as a way to enact his other main priorities as well.   Obama is apparently going to try to fold energy, health, infrastructure, and antipoverty initiatives into his stimulus program to whatever extent is possible, and try to kill several birds with one stone. The trial balloons being floated by his people about the stimulus plan make this clear, and it's an excellent strategy. 

It's amazing.  He hasn't even taken office, and  he's running the country already.  And he's made enough progress in doing it to go on vacation.  This guy is as good as Bush is bad, and that's really saying something.  Can't wait for the Inauguration. 

I grew up in Lowell, Massachusetts in the 1960s, a blue-collar, working-class Catholic city with no minorities except for the Protestants.  My dad was an engineer, a nice, quiet guy who kept his own counsel, and my mom was the town liberal.  Both my parents grew up in the Depression, and both lost their fathers, their family businesses, and their homes.  My mom had to move to a small town that she hated, my dad was sent away from his family when his mom had a breakdown, to a small town that he loved.  My dad spent a year there as an outcast from his family, and says it was the best year of his childhood.  His ashes are buried there, along with those of my mom and my brother, in a single grave. 

My mom was also the liberal in her family.  Her brothers, my uncles, were rough-and-tumble, smart-ass young Catholic guys who became successful enough in business to do well by their families, and were pretty pleased with themselves because of it.  My mom was the Little Miss Perfect of her family.   My uncles were pretty conservative, but when my mom was around they acted like wingnut reactionaries because it guaranteed a fit of outraged indignation from her.  One of them was my dad's best friend, and introduced my mom and dad to each other.  My uncles were a lot more fun than my mom. 

I was pretty much of a nerd, a poindexter among tough guys, but I was savvy enough to have tough friends.  One was Speedy, a great guy who loved guns and was a hunting nut.  After the movie Dirty Harry came out, he went right out and bought a .44 Magnum.  It seemed to weigh about fifty pounds and almost broke my wrist when I shot it.  One year Speedy went hunting and hit a deer with his car on the way.  He just strapped it to his car as if he had shot it, and brought it back.  After that every time Speedy went hunting we asked him if was taking his guns or was just going to use the car.  Then he'd tell us that he was taking the guns, but was going to practice first by shooting us all. 

My other friends were Skippy, Gomez, and Mike.  Gomez was Portuguese, we just liked to call him that.  Mike was the Pigpen of our group, and was always getting teased for it.  People used to call his house 'Garbegia'.  We thought that was hilarious, and I still do today.  I always liked that 'e' in 'Garbegia'.  Mike became a State Policeman and died in a car fire.  Gomez runs an environmental group.  Skippy I lost track of. 

In junior high they put me in the smart classes, which wasn't much of an improvement because this was Lowell.  One of my friends was Frankie.  Frankie had a brother who was in college and left a bunch of skin mags at Frankie's house when he went back to school.  Frankie was popular in junior high. 

He also was an entrepreneur in sexual entertainment, junior-high-school style.  He got an older guy to buy a deck of nudie playing cards for him, then sold them at a profit to all the kids in school.  I think I had the two of hearts and the nine of spades.

I wasn't so popular.  I was really good at math, which in Lowell practically made you a homosexual.  The girls made fun of me, so I learned to play basketball, and got good enough to make the J-V team as a sophomore.  That was my introduction to high school basketball coaches.  Wow.  Those guys made my uncles look like Gandhi.  I hated it and quit after a year. 

Then I volunteered at a summer camp for emotionally disturbed children and found myself.  I started volunteer programs and worked in them throughout high school.  This got me in to Brown, where I lost myself again.  My mother went into a mental hospital, I started using drugs, thought I was cool by doing it, and dropped out. 

I did the 1970s manhood ritual of working my way around the country doing odd jobs, then finally took an office job in D.C.  That made me finally understand why people got college degrees, and I went back to Brown and finished, and then became a math teacher. 

I also went into therapy, and it really helped me.  Plus, I looked at my therapist and said, "Maybe I could do that job".  And that's what I did.  I met my lovely wife in grad school, had my beautiful daughter shortly after, and have been lucky enough to find happiness after quite a long search.   Thanks for listening.

"Geez, these lefties are clueless!  Can't even tell when someone's trying to help them.  They think the way politics works is that they explain to everyone else what right and wrong is, and everyone else agrees.  It would make them really annoying if it didn't also make them so easy to manipulate. 

This thing with Rick is working out beautifully.  Now that I'm President, gays are the new blacks, the new angry outsiders, and this is my Sister Souljah move.  The Left flips its lid over a harmless symbolic gesture, I look really reasonable to everyone else, and my plan to govern with 70% of the electorate behind me so I can override filibusters is perfectly on track.  

That'll help with the stim plan, and with climate change and energy independence and health care.  Hey, I'm gonna need all the political support I can get to push that stuff through the Senate.  Then once the stim plan starts to work and we get some results from the other stuff too, I'll have enough political capital to fight the culture wars. 

Boy, the Lefties are gonna feel silly when I start with that.  I won't push gay marriage, but there's no point, because it's a state issue, not a Federal one.  But I'll reform DOMA so the Federal gov't recognizes gay marriages and civil unions in states that have them. Then, once married gays can file joint income tax returns and get those thousand other Federal marriage breaks it'll push the Overton Window on this issue so much farther to the left that gay marriage will start popping in all the blue states. 

I'll have to do something about the gay-military thing, too.  That's a tough one, because those military guys are such giant homophobes.  Some of them think that if there's a gay guy within a thousand yards of them they'll catch it.  Thank God those guys are trained to obey orders. 

Probably I'll start by allowing gays to serve openly in the Reserves and National Guard, and really enforcing the Don't Ask part of Don't Ask, Don't Tell. If I have a couple of commanders demoted for conducting witch hunts, the others will get the message.  Oh, and anyone who does get kicked out or did before gets an honorable discharge.  That way everyone will see the writing on the wall and the guys who can't handle it will have time to leave.  Then I'll have a commission study the reserves and say that it's great and we'll do it for the rest of the military. 

Before I do that, though, I probably should do something about that U.N. Declaration on gay rights.  My God, people are still going to jail for being gay in half the world!  So primitive.  It's mostly the Muslim and African countries, so they'd have a total shit fit if a black President with a Muslim name started lecturing them.  Their people probably like me better than their own leaders, so I bet the leaders will ease up big time on this if it looks like I'm going to make a big deal about it.  That helps me on this issue politically because everyone in the U.S. will agree with that except the wingnuts, and they'll make the whole antigay agenda look really awful.  

Hey, I'll bet Rick would help with that!  He may be against gays getting married, but he doesn't want to see them getting executed or spending their lives in jail for it, I'm sure of that.  And I'll bet he'd love to make all the Lefties look like idiots by proving he's not a hater.  Note to self: call Rick." 

There is an interesting discussion going on at tpmcafe about what ended the great depression, led by Paul Krugman.  It's great, but something seems to me to be missing from the discussion.  It's inequality.

There are clear historical correlations between income inequality and financial instability. Inequality increased during the early 20^th century, peaking in the late 1920s, when we had asset bubbles that led to a crash and the Great Depression. Then, inequality was greatly reduced during the 1945-1973 period, which was financially stable. After that it started rising again, and so did instability, which became increasingly problematic after the brief stock market crash of 1987. Inequality now has again reached 1929 levels, and 1929-level financial instability is also occurring, with the financial system now in a constant state of crisis. I am very surprised that no one is talking much about a causal connection.

It also seems to me that the cause-and-effect links are pretty obvious. When inequality increases, more people experience absolute declines in their standard of living, and go into debt in attempts to maintain their consumption. Also, people at the top of the income distribution have much more money, which creates much higher demand for financial instruments and this leads to bubbles in financial assets. Ultimately, you would expect two things to happen that would reinforce each other: bubbles burst and debtors default, and then you would have a massive disappearance of wealth and a resulting crash in demand.

This is pretty much what happened with the Great Depression, and it's also a very good description of what is happening today.  This would imply that policies to reduce inequality are a long-term necessity. Am I missing something?

Inequality was reduced after the Depression by the New Deal safety net programs such as Social Security, and also by a very progressive income tax, with very high tax rates for the wealthy.  Conservatives like to claim that this kind of progressive taxation stifles growth, but the postwar period turned out to be a Golden Age economically, with strong growth and little or no financial instability. 

I truly wonder why this issue does not get more discussion.  I have searched regular Google and Scholar.Google,com for books and articles on this relationship, and find very little.  I'm not an economist, so there is probably a literature on it that I'm not familiar with, but I also have a suspicion that this topic may be ignored for political and ideological reasons, some of which may be subconscious.  If high inequality could be demonstrated to be bad for the economy as a whole, then a lot of wealthy interests would be threatened. 

If needs to be reduced, how could this be done?  Well, going back to the more progressive income tax would be an obvious answer, as would taxing capital gains in the same progressive fashion.  So would improving the safety net, with government-sponsored health care.  Stillidealistic has an excellent suggestion in this area on her current blog post "How's This for an Outside the Box Idea?"  Her proposal is to pay parents to stay home with their children, at least while they are young.  In addition to giving children more time with their parents, this would contract the labor supply and drive up wages.  It should be pointed out that this occurred after WWII when many women who had worked during the war left the labor force and had children, and the result was an economy in which a single earner made enough to support a family.   

A great deal of thought is being given to the topic of how best to stimulate the economy.   Overall spending seems to be falling off a cliff, with consumer, business, and state and local government spending all declining sharply.  In order to prevent the natural acceleration of this process caused by lower spending from the newly unemployed, economists and policymakers have largely reached a consensus that the federal government must step in and boost its own spending to rescue the economy.  This fiscal stimulus is now seen to be just as necessary as the banking rescue plan adopted recently.

The question then becomes: what is the best way to do this?  Obama and his economic team are proposing a combination of tax cuts, public works, increases in the social safety net (unemployment insurance, food stamps, heating assistance, etc.), and aid to states and localities.  Figures discussed are in the range of $500-$700 billion. 

The difficulty here is that consumer spending constitutes about two-thirds of overall spending in the economy, and too large a fraction of the proposed stimulus program is channeled to the other components of spending, such as construction and direct spending by government, and not enough to consumers.  The consumer component, tax cuts and safety net increases, is difficult to estimate from readily available information, but seems to be in the range of only $100-$200 billion, and a large fraction will be in the form of tax cuts to those who are well enough off that they will not need to spend them. 

What should policymakers do?  In the 1960s and 1970s a widely discussed policy option was the negative income tax (NIT), a progressive idea that was championed by conservative economist Milton Friedman.  In the NIT, the idea of a progressive income tax is extended so that poor people pay negative tax, which means they receive money from the government instead of paying it.   Currently, the federal government does have a negative income tax, called the Earned Income Tax Credit (EITC), but it is relatively modest, with outlays in the range of $35-$40 billion annually, and does not cover non-earners, who tend to be the poorest.  

I would propose a much, much, larger NIT, which would return at least $1000 to every household.  Those in the top four deciles (tenths) of the income distribution (the top 40%) would receive $1000, those in the fifth decile would receive $2000, the sixth decile would receive $3000, and so on, with the bottom decile, or poorest tenth of the population receiving $7000.  With about 115 million households in the U.S., this would cost roughly $355 billion annually, which is still only half of the upper figure discussed for a necessary stimulus package.  Over 80% of the NIT money would go to the bottom half of the income distribution in this scenario, with the roughly 20% for the upper half accomplishing the necessary purpose of creating widespread political support.

The moral arguments for a negative income tax have always been clear and simple.  It relieves economic suffering on the part of those who suffer most, and it significantly reduces income inequality.  The counterarguments, which are strong and, to me, usually persuasive, are that in weakens incentives to work (this has been tested and demonstrated empirically) and that it is unfair to those who are hardworking and productive to take their money and give it to others. 

The important, point, which I don't believe has been made by anyone else, is that under conditions of severe economic recession, these counterarguments do not apply.   Incentives to work may be weakened somewhat, but this will have no effect on labor markets and overall labor force participation because the demand for jobs will still exceed the supply of them so greatly that available jobs will continue to be filled quickly.  In fact, pushing people to work more due to hardship would only cause the displacement of willing workers with unwilling ones, which makes the economy less productive, not more. 

As for the argument that an NIT is an unfair burden on productive workers, this also does not apply because here the NIT is only using money that must be spent anyway in order to stimulate the economy.  In fact, the best way to minimize the taxpayer burden of a stimulus program is to maximize the degree to which stimulus checks are actually spent by consumers.  Therefore, a program that predominantly targets the poor, who will need to spend money immediately, actually keeps the long-term burden on taxpayers to a minimum. 

People may argue that this program will be a political non-starter because no one wants to give money to the poor.  I disagree.  First, this proposal is sound economic policy.  Second, it gives money to everyone without raising taxes, creating buy-in on the part of many taxpayers.  Third, and most telling, it costs only half of what Congress has already given to banks.  If it is politically possible to give $700 billion to negligent wealthy bankers, whom no one regards as deserving, then it must be politically possible to spend only half of that on everyone in the country. 

The way to do this would be to label it as a temporary expansion of the EITC, for the purpose of maintaining consumer spending while the economy is in recession.  The payments would last until the unemployment rate drops below 6%, when they would be cut in half.  When the unemployment rate drops below 5%, the payments would end. 

This program would be an enormous help to those who are suffering the most.  People who have to choose between food and medicine, people who can't pay their bills, who are in danger of homelessness, all would be helped.  Many working poor could replace possessions that are old and worn out.  Some would junk very old cars and buy newer used cars.  And all this alleviation of human suffering would also keep the economy afloat.  Win-win. 

Many people will doubt that enacting such a program is possible.  We should consider the example of the Bush administration.  While generally incompetent, they were masterful at using whatever circumstances were at hand to create political pressure for policies that were not inherently popular.  They did this with 9/11 to start a war with Iraq, and with the financial crisis to divert enormous sums to investment banks.  While I would never copy their morality or their policies, their political playbook should be studied.  Their now exists an economic crisis that has the nation scared.  If the Bush administration could use crises to frighten the country into bad policies, why can't the Democrats use one to frighten the country into good policies?

We have a progressive President and Democratic majorities in both houses of Congress.  We also have a crisis for which this proposal is perfectly suited.  If enacted, it would boost consumer spending significantly and immediately, unlike many other interventions, which take up to a year before they work.  This could prevent the current economic crisis from getting much worse.  Paul Krugman, Nobel Laureate, says 'Go big', on stimulating the economy.  This is the way to do it. 

I've been looking at the Obama transition website, change.gov, particularly at the American Moment tab, under which is the Share Your Vision tab.  This is where you can share ideas with the Obama transition team.  Since I'm quite impressed with the tpmcafe community I was thinking about ways that the two could possibly interact, and came up with an idea.  People could write posts that are intended to be submitted to change.gov, have the community evaluate and polish them, then submit good ones to change.gov with a link showing all the recommendations and comments.  That way, ideas could be submitted with the backing of a community instead of just being recommendations of individuals.   These ideas, in order to be new to Obama's people, would probably tend to address the smaller nooks and crannies of public policy, and would need a good level of detail, which the comments and discussion could help provide.  My suggestion for a title format for such posts is what I'm using here: Ideas for Change.gov: (fill in the blank).  Following this format would let readers know that the post is a proposed submission to that website. 

One suggestion I would make to change.gov is that they should have a discussion café just we have here at tpmcafe to evaluate, polish, and recommend ideas to Obama's transition team.  This would be an obvious benefit to the website.  Somebody who's been here longer and is more web-savvy would be better able than me to make such a proposal in the necessary detail, so I hope somebody tries.  Here's my first offering:

Ridematch.com

When I commute to work (alone) in my car, I'm always struck by the fact that most of the other cars also have only one person in them.  Clearly, a whole lot of gas is being used pretty inefficiently in transporting people this way, and a whole lot of unused transportation capacity is just whizzing around (or crawling along) on the highways every day.   

The obvious way to save some of this gas and use some of this extra capacity would be to have more carpools.  This would be great if it could be arranged.  Less oil dependence, less traffic congestion, no increased crowding on mass traffic, easier parking, it's a win-win-win-win. 

So why doesn't it happen?  Well, I sure wouldn't do it.  Set aside for a minute the fact that it's hard to find people who make the same commute that I do.  Even if I found some, what would it be like?  Maybe they smoke.  Maybe they're chatty (I'm not).  Maybe they like music I don't, or talk radio.  Maybe their car smells.  Maybe they're bad drivers. Maybe they're secretly driving without a license, or insurance.  Maybe one is a serial killer.  Maybe they're just really annoying.  All in all, there are so many ways that I could dislike carpooling that I'm just not interested.  And I've got lots of company, driving alongside of me every day. 

Some transportation planners advocate a coercive approach to deter driving alone.  They want to make it a lot more expensive, make it impossible to park, force you to put up with more congestion, in general they want to make driving alone so unpleasant that it's even worse than mass transit or carpooling.  Gee, I wonder why this is politically unpopular?

Here's a different approach.  Take steps to make carpooling more likely to be a good experience.  I've checked out a few carpooling websites.  They're lame.  Basically they try to match you up with someone who has a similar commute and that's it.  Actually that's all they really can do because the number of people participating is to small to serve preferences more detailed than that. 

What's needed is the carpooling equivalent of the dating site Match.com.  In Match.com you post an anonymous profile detailing who you are and what you are looking for in a dating partner.  Carpoolers need the same thing.  On my proposed site, Ridematch.com (the name would have to be bought from a current owner) you would post an anonymous profile.  It would have detailed information about who you are, your route and times, what kind of driving experience you prefer, what kind of car you drive, whether you want to contribute by driving or paying, how many people you would be comfortable with, and so on.  People would contact each other in the same way as on Match.com, by clicking on another profile to indicate interest, emailing if the interest is reciprocal, then speaking by phone, then meeting.  The website would also take drivers license and car info and check to see that license, registration and insurance are all up-to-date, and could also check driving records and conduct criminal background checks if any drivers expressed that as a preference and the potential carpoolers for them consented. 

Think about it, lonesome drivers.  Wouldn't you be a lot more receptive to carpooling if you felt that all your important preferences would be honored and the others were checked out for safety?  I would.  This is design-your-own-carpooling, not I-hope-I-don't -hate-this carpooling.  

Now come the policy issues, starting with free-market thinking, which would contend that if this was really what people want, then markets would have provided it.  Incorrect.  The service being discussed here is a network linking different customers.  It only has value to potential customers if it has other customers to connect to, and it needs a very large base of customers to serve the needs of people so precisely.  So it can't get started unless it is already very large.  That means it never gets started by market mechanisms alone.

The obvious policy recommendation that flows from this is that the government should set up this website, or provide funding and subcontract the implementation to a private concern (perhaps Google?).   The government should also advertise the website, and also give business strong incentives when the site is first launched to have their employees put up profiles.  Obviously, participation should be free.  If a large fraction of the commuting population could be signed up, then more and more people would find good matches, and word of mouth would cause more and more signups, creating a virtuous cycle.  At this point the site would have high traffic and so would probably actually be profitable simply from advertising revenue, which could be used to pay back the up-front costs. 

It's also useful to think about how this idea might interact with other social and economic changes and with other policy options.  First, since a recession is now occurring and people are tightening their belts, this would probably be more attractive now as a way for people to cut their expenses.  Also, high oil prices are very likely to return eventually, and this would become more attractive to people in that scenario also.  A lot of people bought expensive SUVs and now are regretting it, and this could be a way for them to actually use those vehicles in a socially conscious way (now that's an amazing thought). 

Another thing that interacts well with this idea is congestion pricing, which means increasing tolls during rush hours to reduce driving at those times and thereby cut down on traffic congestion.  Of course this a good idea on many economic grounds, but it always meets huge resistance because people can't really turn to mass transit at those times, since mass transit is already badly overloaded in many areas during rush hours.  Ridematch.com would allow congestion pricing to be much less onerous because it would give people a reasonably comfortable option to avoid the extra costs.  Also, some commuters now using mass transit would start to carpool, offsetting those drivers who would choose to turn to mass transit if congestion pricing was implemented. 

Fewer cars on the road, less energy use, less traffic, and more available parking.  People could read, snooze, work, chat, or listen to music comfortably while someone else drives them to work in a nice SUV, secure in the knowledge that what they are doing has been accepted beforehand, and that others have agreed to respect their desires.   And all it would take is for the Obama administration to commit some seed money.  No big transportation infrastructure required.  What's not to like?  

With the Democrats holding the presidency and solid majorities in both houses in Congress, Republican filibusters are now the only thing preventing truly progressive legislation.  Should the Democrats therefore try to change or get rid of filibusters?  We should keep in mind that the Democrats could do this if they wished, possibly turning the Senate into a majority-rule chamber like every other legislative body. 

How could this be done?  There are two possible ways to change the rules.  Rule changes in the Senate currently require a two-thirds majority of Senators present and voting.  So theoretically this is possible, but the Republicans of course would never allow it.  The other way is to use what is called the nuclear option (by its opponents), or the constitutional option (by its advocates).  

This is a complicated use of parliamentary procedure that ultimately results in a majority vote that ends a filibuster.  Essentially a Senator wishing to end the filibuster makes a point of order calling for an immediate vote and the presiding officer of the Senate upholds this, citing the Constitution rather than Senate precedent as a guide (hence the name Constitutional option).  When this happens the only recourse in parliamentary procedure is to appeal the decision of the chair.  If one of the filibustering Senators does this, then an anti-filibuster Senator immediately moves to table that appeal.  Since motions to table are non-debatable in parliamentary procedure, a vote to table the appeal is held immediately, and if it is passed by a simple majority then the chair's ruling that a vote must take place is upheld, and so a vote is taken.  The filibuster is broken by a simple majority.

The Republicans threatened to use this option when the Democrats were filibustering some of George Bush's judicial nominees, but a compromise was eventually reached and it was not employed. 

It has been used in the past, however, and it definitely does work.  If the Democrats wanted to use it they could, and once this option is employed it becomes precedent-setting, so the Senate would then become a majority-rule body.  There is no question, really, about whether this would work.  It does work if a majority votes for it.  The only real question is political: does the majority want to do it? 

A bit of history is in order here.  The Senate had unlimited debate, and no cloture rule,  until 1917, when a rule was adopted requiring a supermajority of two-thirds of Senators present and voting in order to cut off debate and end a filibuster.  This rule remained in force until 1975, and filibustering was used most importantly by Democratic Senators from the south in order to block civil rights legislation.  The longevity of this rule despite the fact that it can be overridden demonstrates the political considerations, as does the next step in the evolution of the rule. 

In 1975 a version of the nuclear option was used to change the filibuster rule by a simple majority vote of 51-42.  However, the filibuster was not eliminated, rather the supermajority that was required to end a filibuster was changed from two-thirds of Senators present and voting to three-fifths of the Senate's full membership.  This shows the political caution that Senators feel they must exercise regarding the filibuster rule.  Polls have shown support for the filibuster rule, so Senators have two reasons not to use the nuclear option.  First, they might want to use filibusters themselves at some point, second, they might not get re-elected if voters disapprove.  The result is that Senators are very reluctant to get rid of the rule completely. 

The 1975 change was supposed to reduce the use of filibusters by lowering the cloture requirement from two-thirds to three-fifths, but it hasn't worked out that way.  In the past, the requirement of two-thirds of those present and voting meant that the filibustering minority had to keep its Senators constantly present in order to maintain a one-third blocking minority anytime a vote to cut off debate might be held.  This required a lot of personal commitment and discomfort f the majority decided to keep the Senate in session around the clock.  This also produced high drama at times, as was depicted in the classic Jimmy Stewart movie Mr. Smith Goes to Washington. 

The 1975 change made the required supermajority to cut off debate three-fifths of the Senate's full membership, or sixty Senators if there are no vacancies.  This means that the filibustering minority really only needs to mobilize one Senator at a time to conduct a filibuster, just the one doing the talking.  If they rotate people speaking, then even if a cloture vote winds up 59-1 in favor of cutting off debate, it still fails and the filibuster continues. 

The result has been that the minority now just tells the majority that they intend to filibuster, and if the majority can't find sixty votes, it gives up.  This is called a procedural filibuster, because an actual one is no longer necessary.  Due to this, filibusters have proliferated tremendously.  In the old days, filibusters were only employed when the minority felt very strongly about something, because filibusters were really uncomfortable and took a lot of effort and sacrifice.  Now, any time a minority has 41 votes, they just announce a procedural filibuster, and they win. 

Given all this, I think we can expect that in the very near future we will see a huge number of filibusters.  There is a lot of pent-up demand for progressive legislation, and the Democrats control the presidency and both houses of Congress, but the 41 or 42 Republican Senators can still effectively kill all the new legislation that the country needs.  We also should keep in mind that several Democratic Senators are from Republican states, and we are as likely to lose votes at the margin as to gain them.

So, the question soon will be: should the Democrats use the nuclear (oops, I mean Constitutional) option?  I think they should, but in the same cautious way it was used in 1975.  The Democrats will not be willing to just go completely to majority rule, because voters are not in favor of it. 

I feel that the Democrats should use the constitutional option to amend the filibuster rule, changing it from three-fifths of the full membership of the Senate to three-fifths of those present and voting.  That would make it like the old days, but with the magic number being three-fifths instead of two-thirds.  Then the chronic absenteeism of Senators becomes a very big factor.  If only 90 Senators are present for example, then you would only need 54 votes to end a filibuster.  This would require the Republicans to work for it if they really wanted to oppose something.  They would have to do the Jimmy Stewart thing, which would also have the added benefit of making the Senate a lot less boring. 

I think we should expect this issue to be prominent in the coming months and prepare for it.  The slogan should be "the filibuster - amend it, don't end it", and I have some talking points.  The first is "when a vote is 59-1, one shouldn't win, and the second is "90% of life is showing up, except in the US Senate".  Be prepared.

Economics fascinates me.  It's the closest thing we have to a truly explanatory social science, and many of the theories that have been developed are truly useful and have helped many societies to prosper.  I have to say, however, that it is probably the oddest science I have ever seen. 

Economics is odd because it started out as an exercise in deduction, kind of like the Euclidean geometry you took in high school.  Economists, like contemporary philosophers in their day, started out by making assumptions and deducing the consequences that followed from them.  While this served economists well at the time, I think that the continued attachment to this obsolete way of interpreting reality is causing serious problems. 

Most economists, and especially those of the rational expectations school, like to start out by assuming that human beings operate by rationally calculating their self-interest and then acting according to these rational calculations.  As a psychologist, my reaction to that assumption is: Are you kidding? Have you ever MET a human being? Did you grow up on Mars?  As a psychologist, I see people acting irrationally, making miscalculations, and operating against their self-interest so often, that the fundamental assumption of economic theory strikes me as obviously and patently absurd. 

This would be very amusing except for the fact that economists make deductions about public policy based on this approach, and then convince policy makers to follow their recommendations. 

This leads directly to the second problem with economics and its practitioners, which is strongly related to the first problem.  The second problem is that many economists operate according to the rule: if the facts don't fit the theory, ignore the facts.  Some readers may find this harsh, but the history of the debate about financial deregulation clearly shows this. 

Anyone who reads economic history has to be impressed by the frequency of financial crises and resulting economic depressions, in all industrialized capitalist societies until the 1930s.  Every generation or so there would be a pattern of bubble, crash, panic, depression; bubble, crash, panic, depression; over and over, again and again.  Finally modern societies got fed up with this and strictly regulated their financial sectors.  The result was that this pattern was broken, and we went several decades without repeating it. 

Then in the 1990s, after most people who lived through the Great Depression had passed away, a number of economists began to assert that economic theory proved that unregulated financial markets would necessarily function optimally.  This is as if physicists in Isaac Newton's time had asserted that his theory of gravity had proven that flying was impossible, despite the existence of birds.  And so, despite the fact that their assertion was flatly contradicted by all historical experience with unregulated financial markets, economists convinced policy makers that they were right, and the financial markets were deregulated.  Result: bubble, crash, panic, and now a possible depression.  Omigod, who could ever have seen this coming? 

History has clearly shown that a capitalist economy with an unregulated financial sector is like a car with no brakes.  It crashes a lot.  In the 1930s brakes were finally installed, and the car stopped crashing.  In the 1990s some extremely smart people decided that the brakes were keeping the car from going as fast as it could have (Duh! That was the point) and succeeded in having the brakes removed.  Result: the car has crashed again (D'oh!). 

The scary thing is that several of the architects of deregulation are now going to be prominent in the Obama administration.  Larry Summers was Treasury Secretary when much of this deregulation was enacted, and he still refuses to admit that this was a mistake.  And he's the one that the others all look up to, the 'economist's economist'.  Now I admit that Summers and many of his colleagues were very adept at dealing with financial crises in the rest of the world during the Clinton administration, and we do need that expertise right now.  But with regard to preventing this in the future, the new Obama team strikes me as a group of confident, crack firefighters who also go around throwing cigarette butts in wastebaskets and knocking over candles.  

So two related problems with economists have been presented:  that they start their theories with unfounded assumptions and derive conclusions from them that do not accord with facts.  What these two problems have in common is a willful disregard of reality. 

And finally, this leads directly to the third problem with economics as a discipline, which is in my area of specialty: the motivations of the economists themselves.  While I find the assumption of rational pursuit of self-interest to be not usually true for people in general, let us imagine for a minute that it is at least true of economists themselves.  Unfortunately, if economists are constantly pursuing their own economic self-interest, then that means we can't trust what they say.  Policy is constantly influenced by interest groups that are shopping in the marketplace for arguments to justify their agendas.   Economists, meanwhile, are sellers of such arguments.  According to economic theory, economists, if rationally pursuing their self-interest, will then sell their opinions to the highest bidders.  Therefore, an unfortunate corollary of economic theory is that you shouldn't believe economists. 

As a psychologist, it seems clear to me that all three problems are intertwined.  The third problem gives economists incentives to generate and justify wrong ideas, and the first two problems give them methodological ways to do just that.  

Very much related to all of the above is an amazing fact: economics has no code of ethics.  Well of course not.  A code of ethics would make rational pursuit of economic self-interest much more difficult. 

As a psychologist I must be licensed by my state in order to practice, just like almost all other professions.  As with all licensed professions, I have to follow the code of ethics for my profession, and if I violate it I could lose my license to practice.  This system exists to prevent psychological malpractice.  Clearly, the same should be true for economics.  In fact, the lack of a written code of ethics for a profession so important to public policy yet so incredibly subject to conflicts of interest is really a scandal.  It certainly seems to me that practicing economists are just as capable of economic malpractice as psychologists are of psychological malpractice.  Therefore, they should have to have licenses to practice, meet continuing standards to keep them, and adhere to a written code of ethics specific to their profession. 

Now, I am not saying that economists routinely say things that they know are not true.  I actually believe that conscious lying is at most a minor part of the problem.  The human ego has very powerful mechanisms for avoiding psychic pain, and will tend to construct reality in ways that minimize such pain.  People don't enjoy knowing that they are bad, so they often construct reality in whatever ways are necessary for them to appear to be good. 

We can observe this easily in ourselves.  If we take a stance on an issue that we feel strongly about, and someone else offers a counterargument, what do we do?  We instinctively look for arguments to bolster our position, so that we won't have to admit being wrong.  This impulse is not driven by an attempt to see reality as it is, it is driven by a need to protect the ego from pain, in this case the pain of embarrassment. 

Economists are extremely good at this form of self-protection.  In my profession, in addition to a code of ethics, we also have a built-in awareness of this process, and attempt to correct for it.  In psychotherapy we have a concept called countertransference, which refers to the feelings therapists have toward patients that may arise from the therapists own psychological issues.  Therapists are trained and expected to monitor their countertransferences, and to seek supervision from other therapists to deal with them if they should become problematic.  It certainly isn't foolproof, but at least we try. 

I feel that economists, in addition to licenses and a code of ethics, should have a similar mechanism as a part of their training.  Just as psychologists are trained and expected to examine their psychological issues for potential adverse impacts on their judgments, so economists should be trained and expected to examine their economic issues for adverse impacts on their thinking. 

These are just a couple of suggestions, but the basic point should be restated.  We rely a great deal on economists to tell us how to structure our economy, and lately this has not worked out so well.  We need to ask why bad economic advice happens, and then do things to fix the problems. 

As a psychologist I naturally tend to scrutinize the character and temperament of public figures for any flaws that affect their decision-making.  Most public figures have them, just like most people.  Obama, however, has impressed me as being pretty much free of the major flaws that most commonly afflict VIPs. 

First, he seems not to have any out-of-control ego needs.  Most people have pretty strong needs to either feed or defend their ego.  Among public figures, Bill Clinton seemed to have a truly pathological need to be loved, admired, and worshipped by everyone at all times.  This manifested itself in his sexual issues, obviously, and in other ways as well.  George W. Bush, on the other hand, seems to have an overwhelming need to defend his ego against the possibility that his thoughts or actions could be in any way wrong.  This inability to tolerate any feelings threatening to his self-esteem has caused an inability to ever correct his course or change his mind.  Both these patterns have obviously damaged the nation. 

Obama seems free of both of these problems.  He doesn't compulsively seek attention, sexual or otherwise, and he does seem to be quite able to self-reflect and admit error and change course when necessary.   He obviously thinks highly of himself, since he ran for President, and feels confident he can handle difficult problems, but so far his faith in himself has proven to be rationally based and correct. 

I think that we are seeing signs of this basically sound ego in his process of putting together his administration.  He is clearly avoiding the trap of surrounding himself only with people with whom he feels psychologically comfortable, with familiar faces whose main attribute is personal loyalty.  Instead he seems to be filling top jobs with those who have important competences that his administration will need, and who are tied to important constituencies that can enlarge his mandate.  

Another thing that impresses me is his handling of conflict, of adversarial situations.  Most people have an emotional bias toward either toughness or niceness in interpersonal relationships, and this bias tends to affect how they handle conflict, and to predispose them to handle it according to their bias.  Thus, people who value and practice niceness tend to deal with conflict situations by always trying to cooperate and reach agreement, and are reluctant on an emotional level to dominate and use coercion because it makes them feel guilty.  People who value and practice toughness, on the other hand, tend to deal with conflict by always trying to dominate, and are reluctant to attempt to cooperate in such situations because it makes them feel weak and ashamed. 

Obviously, when the conflict issues are national or international rather than interpersonal, such emotional biases can lead people, and nations, astray.  Neville Chamberlain's appeasement of Hitler before WWII was an example of reluctance to use coercion that was disastrous.  The Vietnam War, and George W. Bush's initial refusal to deal with Sunni groups in Iraq, are examples of inappropriate toughness that were also disastrous. 

What is most important in leaders who must decide issues of international conflict is that they be aware of their own emotional biases and not let them control their decision-making.  Obama seems to me to have this capacity.  His emotional impulse in relationships is clearly to try to be cooperative, to be nice and respectful of others.  But in adversarial situations he clearly is quite willing to play hardball, and to throw whatever punches are needed whenever he needs to throw them.  Also very important, he thinks clearly before he gets tough, and does so strategically, never (as far as I can tell) out of anger.  This has allowed him to transcend the typical liberal/conservative nice guy/tough guy dichotomy, and makes people feel that he is both compassionate and strong.  Of course , this is only based so far on his conduct of a political campaign, not a war, but it probably shows the approach he will bring to international issues.  

A lot of people have said that Obama has both a first-class intellect and a first-class temperament, which is quite rare, and I can't find any reason to think otherwise.  My business is seeing the personality flaws that people always try to hide, and Presidential campaigns tend to brutally expose whatever flaws a candidate possesses.  Obama has gone through this and, as far as I can tell, come out with a clean bill of mental health.