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Chris DeMuth Jr. is the founder of Rangeley Capital LLC. Rangeley is an investment firm that focuses on event driven, value-oriented investment opportunities. Rangeley Capital and his value investing forum, Sifting the World (StW), search the world for misplaced bets. Rangeley exploits them for... More
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  • How Useful Is The Political Spectrum? 16 comments
    Dec 8, 2013 1:25 PM

    Do words typically used to name your place on the political spectrum apply accurately to you? Here are some thoughts for updating the political spectrum. I have been thinking about the spectrum as it is used in modern American usage and think that it has a number of problems. What are the most commonly used spectrums and what are their problems?

    The Rejects

    • Right vs. Left
    • Republican vs. Democrat
    • Conservative vs. Liberal

    Right versus left makes only a little bit of sense when used in the US, but it appears to break down entirely when looking at the rest of the world or looking at history. Aesthetics seem to have a large role in earning "right-wing" credentials; a bit of a military flair and it is yours - regardless of one's actual policy goals (such as collectivization, central planning, etc.) or name ("socialist" right there in the very name can still allow one to stay "right-wing" in good standing, especially if the one offering the description objects to some aspects of the ostensible right-winger). This, this distinction is muddled beyond help.

    Republicans and Democrats have become increasingly coherent ideologically, with Democrats tossing New England Republicans out of office and Republicans doing the same to most southern Democrats. So this is not a completely useless distinction. However, it is not a very helpful distinction for the public policy debate. It has too strong a tribal connotation. As such, the labels tend to solidify previously held attitudes into policy preferences instead of elucidating reasoned beliefs.

    In many important respects, conservative versus liberal is not only misleading but is in fact backwards. Modern American conservatives directly follow eighteenth century liberalism. Elsewhere in the Anglosphere, one finds remnants of this past usage in places such as the Liberal Party of Australia, which is the less liberal party in the modern American sense of the word. The history aligns the word "liberal" with "liberty," which makes sense but has been reversed in the current usage. As for "conservative," there may be less about our current form of government that conservatives would wish to conserve when compared with their political adversaries. In fact, greater liberty and the liberalism of the 1700s would be a radical departure from current public policy. It should hardly be called "conservative". Just spending more, taxing more, regulating more, and politicizing ever more aspects of private lives? That has been going on long enough such that one might be willing to cede it the word "conservative".


    • Natural consequences and incentives
    • Contrafactuals
    • Rent seekers versus entrants

    My proposed replacements will be imperfect, but my goal is to offer three that will at least be somewhat more useful. First, do you broadly accept the role of natural consequences and the incentives that they provide? When someone takes a risk, builds a business, raises children, or purchases private property, do they - and should they - own the natural, innate consequences of such actions? If they prosper, do you look upon that as their prosperity? If they fail, is that their failure? Natural consequences create an incentive structure. Are incentives important and useful for encouraging certain behaviors? Alternatively, are incentives unimportant, ignorable, or are they something that needs to be undermined by the state? To me, this is a central spectrum that informs much of the public policy debate.

    Particularly in regulatory affairs, there is a key difference between those who rely on counterfactuals and those who do not. Should a given decision be made if it is better than the counterfactual, when all costs and benefits are considered including indirect costs, diffused costs, and unintended costs? This reliance on counterfactuals is distinct from a view that one should judge a public policy proposal on the basis of intent, particularly its empathy. Non-counterfactual thinking is often predicated with a "you cannot put a price on _____" or religious-type appeals that we should do "whatever we can to _____" without regard to risk or reward.

    Finally, I would propose that the battle between rent seekers on the one side and entrants on the other define much of our public policy discourse. Rent seeking is the effort towards getting paid for goods or services by manipulating the political process instead of by creating wealth. Rent seekers want to use your means to serve their ends. In short, they are not here for your principles; they are here for your stuff. Rent seekers have thrived in our political process. At the same time, they have also effectively seized the moral high ground: they want your stuff and they want credit for their generosity when they take it.

    What is on the other side of the battle against rent seekers? The other side of the spectrum includes some philosophical opponents, some that are tired of paying the costs, but mostly the entrants. Rent seeking is mostly a matter of political incumbents aiding economic incumbents. This has little if anything to do with aiding the least and the lost. Entrenched institutions exact high costs, but these are not just the direct, visible costs borne by the taxpayers. Perhaps most importantly, rent seekers are able to crowd out entrants. Subsidized industry makes it hard for new competitors to enter markets. High regulatory burdens are perfect barriers to entry in that the incumbents are the ones that can afford to pay.

    I believe that these designations are more useful and more accurate. In addition, it could change the substance of our debate if we can step away from our more tribal labels where our views are partially formed based upon our identity. Finally, it would be an improvement if political efforts were named for what they are. Politicians constantly undermine natural consequences and in the process create a host of new perverse incentives. Let's start by calling it what it is. Instead of considering costs and benefits, are they trying to narrow debate to the intended benefits only and are they mostly concerned with their best intentions? Do they use their empathy as a weapon to shut off debate on costs? There should be a contingent that at least calls them out on what they are doing. Are they simply rent seekers? If so, then economic entrants and any of us who are not on the take may want to step up to oppose those who are.

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  • The Sociology of Finance
    , contributor
    Comments (955) | Send Message
    I can tell where you're going with this, and the problem is that "wealth creation" and "political process" are not defined. As a result, the relationship between market and politics, as well as wealth and the state are under-theorized. Consider the following counterfactuals:


    1.) We decide that market forces rather than elections should determine qualifications for public office e.g. sell positions to the highest bidder. Also, political offices are transferable as they were in the Catholic church in 1400. These offices are very valuable. Was wealth created? Would this be more or less interference in politics than in our current system?


    2.) We decide no government interference in the economy, so we get rid of roads, schools, courts, police, public funding for hospitals etc. Think Afghanistan. Will it now be more difficult for our intrepid entrepreneur to create wealth? Can Robinson Crusoe create wealth?
    9 Dec 2013, 07:47 AM Reply Like
  • connellybarnes
    , contributor
    Comments (556) | Send Message
    Politics is a negative sum behavior. Like most of Wall St. If I discuss politics a lot, nothing has happened but I did consume a bunch of time and probably now have some negative emotions. The only way around this seems to be do actually run for politics, like my Mom ran for an office seat once in Idaho when I was a kid. We got a bunch of death threats and this convinced me that I never wanted to be a well known person. But since you seem to have a classic liberal view you could participate in say the Free State project in N.H. Or buy Bitcoin ;-) I love Bitcoin...
    9 Dec 2013, 09:22 PM Reply Like
  • Chris DeMuth Jr.
    , contributor
    Comments (11447) | Send Message
    Author’s reply » Not a Bitcoin fan, but it is something that I'll be writing more about soon. I agree on the disadvantages of being well known, but am astonished about the death threats. I love Idaho and always have found it to be such a peaceful place.
    10 Dec 2013, 06:25 AM Reply Like
  • connellybarnes
    , contributor
    Comments (556) | Send Message
    Idaho people are generally great, however there are a few rednecks who are crazy.


    I like being able to transfer a money-like asset anywhere in the world in a few minutes. I'm not sure if Bitcoin precisely will take off but I think something Bitcoin-like will eventually be a store of value / lightweight transaction system. In particular Bitcoin is almost but not quite useful for micro-transactions (the fees are still a bit too high) which could be very useful as a general infrastructure for deploying and buying Web services and computation. As a proof of concept at some point I want to make an 'economically self-sufficient program', which makes blogs and funds its own computation to produce blogs out of ad revenue that goes into a Bitcoin account.
    10 Dec 2013, 05:22 PM Reply Like
  • Chris DeMuth Jr.
    , contributor
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    Author’s reply » Cool idea. Please post the results at some point. I would be very interested to learn how it works out.
    10 Dec 2013, 05:24 PM Reply Like
  • Ba1k3es
    , contributor
    Comments (682) | Send Message
    Why do we need spectrums for politics at all? I rarely find a political issue that is only has two dimensions, so how is a spectrum useful? Why can't we just use sound logic backed by data, fundamentals, and morals to make our stances on policy issues and not worry whether these same people that you stand with on other issues. I've seen people swap their views once they find out what the "conservative" or "liberal" stance is, those people lose nearly all respect in my eyes.


    Way too much time is spent on trying to come up with only two views on an issue and decide what is the liberal side or the conservative side, when really it is a dodecahedran and not a line.
    10 Dec 2013, 08:55 PM Reply Like
  • Chris DeMuth Jr.
    , contributor
    Comments (11447) | Send Message
    Author’s reply » Good question. That tribal attachment to labels is exactly what I think should be avoided.
    10 Dec 2013, 09:00 PM Reply Like
  • Ba1k3es
    , contributor
    Comments (682) | Send Message
    I think some reasons may have to do with that people feel the need to fit in so they pick a side, despite they may not really have a strong understanding of the issue or care to gain one.


    Then I believe people have tendency to "stick with their team" regardless what the issue, and they may actually change their true views to "fit" to the group.


    We see often in political campaigns, a candidate being called out for "waffling" on an issue or voting for something in the past that they don't agree with now. This often depicted as "bad".


    I however love to see a candidate that has adjusted his voting on an issue over time. Why would I want someone who "sticks to his guns" even in the face of changing facts or new evidence? Would you select a portfolio manager that refused to change the price he is willing to sell/buy a stock despite new information or an earnings report? Hell no! I cannot figure out why people view this as a good characteristic for a public servant.
    10 Dec 2013, 09:16 PM Reply Like
  • Chris DeMuth Jr.
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    Author’s reply » I agree. Consistency is probably one of my very least favorite of virtues.
    10 Dec 2013, 09:31 PM Reply Like
  • connellybarnes
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    Comments (556) | Send Message
    My favorite virtue is directly understanding reality. I feel most people are unwilling to do so because it is terrifying. Far easier to buy the false comfort and camaraderie of an organized religion, political ideology, or a military leader of questionable goals. Even if one thinks for oneself, like a scientist or contrarian investor, it is easy to fall prey to one's own delusions of importance.


    "Our posturings, our imagined self-importance, the delusion that we have some privileged position in the universe, are challenged by this point of pale light. Our planet is a lonely speck in the great enveloping cosmic dark. ...The Earth is the only world known, so far, to harbor life." - Carl Sagan
    10 Dec 2013, 09:59 PM Reply Like
  • Chris DeMuth Jr.
    , contributor
    Comments (11447) | Send Message
    Author’s reply » I agree and I am a big Sagan fan. He's up on my quote board here: Compared to many investors, I am not too worried about whether something is immediately and obviously actionable. It is good to be rational and to figure something out. It is not always worth worrying about whether or not there is a clear way to make money off of it.
    11 Dec 2013, 06:30 AM Reply Like
  • connellybarnes
    , contributor
    Comments (556) | Send Message
    Agreed. Sone of my all time favorite investments have involved first understanding puzzles, then waiting a long time, then finally buying when the price reaches my target IRR. I like problems of patience and am happy to insure others' impatience. I should adopt this strategy even more -- to the extent that I get into trouble, it's often because I've merely been ordinarily patient instead of having a Klarman-esque level of paranoia and patience.
    12 Dec 2013, 08:01 PM Reply Like
  • TheSandman
    , contributor
    Comments (165) | Send Message
    I have found Arnold Kling's "Three-Axis Model" most useful in talking to people who have different perspective/outlook than myself. It's more in couching my argument in terms the other person can understand, rather than forcing them to see it from my point-of-view.


    Amazon eBook link for you:


    In short, right/left (et al. ad nauseum), is replaced by a conservative/ libertarian/ progressive 3d political spectrum. Each tribe speaks their own language: oppressor/oppressed, freedom/coercion, and barbarian/civilization.


    Matching language to tribe is, as we say, an exercise left to the reader.
    11 Dec 2013, 10:19 AM Reply Like
  • Chris DeMuth Jr.
    , contributor
    Comments (11447) | Send Message
    Author’s reply » Thanks for the book suggestion. 1-clicked. I have 1-clicked my way to a mid five figure book tab YTD.


    One really has to get the language correct in order to make any real progress. I am impressed by debates that seem to crisply fit into freedom/coercion are not seen as such by the pro-coercion side. The most salient aspect of the state is that it owns a monopoly on legal coercion and that coercion is backed by violence. There is always an implicit threat. Take away that threat and it is no longer the state. But advocates of unlimited government and state control of the economy rarely if ever think in those terms.
    11 Dec 2013, 10:39 AM Reply Like
  • TheSandman
    , contributor
    Comments (165) | Send Message
    It seems that the tribe most apt to be "pro-coersion" tend to really think and speak only in terms of opressor/oppressed, and argue that the state must coerce a specific favorable outcome (to the preferred rent-seekers, for example). The "natural consequences" as you outline above are necessarily a bug in the system, not a feature, to these people. I would argue the opposite.


    Re: getting language correct, I would wholeheartedly agree, and feel that people who think like me lost this struggle generations ago. "Rights" used to be something intrinsic possessed by man (life, liberty, chance to pursue happiness). Now a (small "R") "right" has been sullied to be a chicken in every pot, a job, healthcare, internet access, etc.
    11 Dec 2013, 10:59 PM Reply Like
  • Aharon Levy
    , contributor
    Comments (135) | Send Message
    There is a difference between useful and correct. That, to put it far too grossly, is the problem.


    Also, re: rent seekers vs. new entrants, perhaps important to keep in mind is that many entrants merely wish to replace old rent seekers. Many people want to saw off the ladder once they've climbed it...


    "Politicians constantly undermine natural consequences": I understand and to some extent (weasel words!) agree with this, but is it appropriate to talk about "natural" in the context of highly complex, thoroughly unnatural human society? Another interesting (?) question is whether the circumstance above outlines a new state of affairs or simple continuation of how things have always been. How perfect can the union get (what I'm getting at is the question of how to define at which point the perfect becomes the enemy of the good)?


    But of course questions are easy to ask...
    11 Dec 2013, 06:39 PM Reply Like
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