What do you call it when socialists and nationalists govern together?

In my last post (and elsewhere), I criticized Trump’s (self-appointed) ideological vanguard for their Lefty/statist orientation, i.e. government-as-mechanic that tightens a tariff here and raises a rate there and — voila — The Economy! I also warned that a one-party system, with the political battlefield reduced to an internecine struggle between two Lefty coalitions fighting over the means of production coercion, was really scary news for all the peace and freedom loving people stuck in between, i.e. liberals.

Recently, Arnold Kling wondered about the same thing: what does a compromise look like between these two lefty coalitions?

My first thought is national socialism. It needs another name, because of all the Hitler/holocaust baggage, but here is why it makes sense.

The nationalism would include immigration restrictions, protection of “culturally significant industry” (e.g., wine in France), and cultural pride. This would appeal to the anti-Bobos. The socialism part, which requires technocratic management of economic outcomes, would appeal to the Bobos.

To get to national socialism in the U.S., the left would have to give up its attachment to multiculturalism and the right would have to give up its attachment to free markets (which Alberto Mingardi says has happened). Right now, it is easier for me to imagine the latter than the former, but maybe if the left loses one more election that could change.

That sounds about right (and it’s always been strange that the National Socialist movement is widely accepted as the epitome of right wing politics, but that’s another thought for another day).

Again, ethnonationalist socialism is actually pretty common. Off the top of my head, most of the regimes in North Africa and the Middle East (except for Israel and the emirates) are basically fascist: militant, ethnocentric, nationalist and socialist. It’s an observation that typically gets dismissed because of all the “baggage” associated with the original national socialists, but I think that’s a diagnostic failure.

For many a good reason, our cultural memory of the Nazis (and Hitler) is that of frothing at the mouth madmen and true Bond villains. The problem with that caricature, however, is that we’ll never see the next Nazis coming (indeed, they’ve been here for a long time) because we’re expecting some ghoulish evil mastermind to emerge as their leader — i.e. Hitler as we’ve reimagined him. But that Hitler wasn’t real and those characters by and large do not exist outside of their parents’ basement.

More importantly, one doesn’t require evil intentions to perpetrate great evil — quite the contrary, it’s righteous intentions and a broadly inspiring message that are (and always have been, including with Hitler) the prerequisites for inflicting harm at an order of magnitude to be considered evil. Indeed, it’s pretty unlikely that people would willingly destroy the lives of others if they didn’t genuinely believe it was for “the greater good.” Sociopaths are by far the exception and not the norm.

I view this diagnostic failure as part of the good intentions fallacy. People generally think intentions are predictive of outcomes and therefore their policies and leaders are righteous and altruistic, while the other team’s are heartless and selfish. That’s a mistake.

Intentions are more or less the same across the political spectrum — everyone generally wants to help the unlucky and stop the bad guys. We impute bad intentions to people we disagree with because we have no other way to explain their disagreement (since how can people with the same intentions desire divergent policies if intentions are all that matter?!). We also create a robust market for outrage and character attacks to justify our inferences about the other team. Tell me whether the candidate is a baby killing Christ-hater / racist oppressor of women, so I know who to vote for.

What we don’t do is pay sufficient attention to incentives, which actually do vary a good deal and truly are predictive of outcomes. And when we focus exclusively on intentions and ignore incentives, we get fascists and their multicultural counterparts, i.e. communists. [For related reasons, I think there should be a Godwin’s Law for Godwin’s Law.]

If you want to call Trump a Nazi, go ahead, just make sure you’re doing it for the right reasons: i.e. he’s an advocate for a robust state apparatus to “reengineer” a more “just” nation. Y’know, just like the early progressives who, concurrently with the Nazis, empowered labor cartels (through commercial and immigration regulation) in order to “protect” the American “working class.” And just like the present-day progressives who want to do the same thing for the international proletariat “multicultural working class.”

When politics is reduced to national socialists fighting with the international socialists, bad stuff happens.

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Valid Criticisms of Trump / Let’s Hope We’re Not a One-Party Country

The American Affairs Journal, the self-appointed ideological caretaker of Trump’s populism, has published a statement of policy . . . and it’s gawdawful. It might be summarized as “reclaiming populism from the Democratic Party” or “We Want Our Progressive Movement Back!” If you look closely, you can almost see Matt Yglesias’ fat bald head staring back at you. As the editors point out, Bernie Trump is their real hero:

Throughout 2016, the media presented both Trump and Sanders as essentially lunatics. The former was supposed to be seen as evil and the latter adorable, but neither was supposed to be taken seriously. Yet it was they who addressed the serious concerns of the electorate.

Anyways, some highlights:

On Trade:

Trade: Trade policy is a key area of focus for us and a broad topic that includes everything from tariffs to monetary policy and more . . . At bottom, however, rethinking trade means rethinking the theoretical foundations of economics and moving beyond the textbook abstractions that have justified decades of failed policy.

Um, I think the “textbook abstractions” are the ones where government officials tweak a rate there and a tariff here and *BEEP BOOP BOP* like an engine, THE Economy springs back to life. What’s not an abstraction is that it’s dumb to tax the entire country in order to subsidize a few special interests.

On Healthcare:

Health care: In general, we support universal health care administered by the government. This could involve an outright “single-payer” system—which we have no ideological objection to—or something like a “Swiss system” . . . The government should also take a much clearer role in controlling costs and setting prices for procedures and prescription drugs . . .

Conservatives’ insistence on “private” health care is at this point purely ideological and counterproductive. We have not had a “free market” health care system in this country for decades, and obscuring that fact only makes it more difficult to improve the system. Today’s small cartel of health insurers no longer offers any meaningful market in the choice of health insurance, which for most people is chosen by their employer anyway. In most circumstances, the choice of actual medical care is hardly governed by market principles.

Yeesh. “Setting prices” does not “control costs.” It never has and it never will because prices are not costs. Prices are dynamic signals: to entrepreneurs they whisper “supply here,” and to consumers “demand here.” If you mess with those signals, then you just confuse people and the result is shortages and surpluses, i.e. supply untethered from demand. Again, it’s like the lobsters and the herring (or starvation and disease in Venezuela) — these problems are way too complicated for any central decisionmaker to grasp, let alone solve. As Poppa Milton once said, if you put the federal government in charge of the Sahara Desert, in 5 years there’d be a shortage of sand.

The editors are at least correct that “we have not had a ‘free market’ health care system in this country for decades.” However, their solution — total government ownership of the healthcare industry — is lunacy that betrays their own ignorance of the “theoretical foundations of economics” they claim to “rethink.”

On Financial Regulation:

Financial regulation: Financial regulation is by nature complex and difficult to summarize, though we support measures such as the elusive “Glass-Steagall for the 21st Century” and the closing of the “carried-interest loophole.” The deregulation that occurred during the Clinton and Bush administrations has rightly been blamed for contributing to the financial crisis, but trade and other imbalances contributed to the expansion of the financial industry and its bubbles as well.

Durrr, it sure is complicated but one thing we know for certain is that regulations (that we can’t explain) definitely, 100% would have stopped a financial crisis (that we also can’t explain). ‘Nuff said. Bernie Trump! Goldman Sachs, rawwwr!

On Immigration:

Immigration: Although it has become something of a cliché, we favor a “Canadian” approach to immigration. Streamlining high-skill immigration while limiting low-skill—and eliminating illegal—immigration offers one means to support wage growth.

It’s only partly terrible, and again, the rationale is stupid. “Wage growth” in isolation is just cost growth and making things more expensive will cannibalize any perceived increases to income. Imagine if New York City made it illegal for non-native New Yorkers to work in New York City — now, consider how much more expensive financial services would be at that point (before the whole industry finally moved to a different part of the country leaving hollowed out factories sky scrapers behind). You don’t have to think hard — financial services are already incredibly expensive given the currently regulatory barriers to entry. Productivity is what you’re shooting for, i.e. making the pie bigger, and not scarfing a larger slice of the pie. When the salt of the earth complains that healthcare costs too much they can blame the healthcare labor cartels who only wanted their turn at “wage growth.”

As for the stuff I skipped, there are bits on taxes (make them simpler and more protectionist), infrastructure (build it), tech (army gizmos) and foreign policy (America First). Only the last (and sorta the first/second) is a coherent view, but query whether it’s a prudent one.

The editors conclude with a somewhat muddled love/hate rant about technocracy, but if I were to summarize, it’s: “Let’s geographically reorient progressive statism around the Unite States — the folks right here — rather than the United City-States of New York, Paris, London, San Francisco, Berlin and Brussels.”

The wonk’s conceit is that “politics” is simply a matter of tinkering with administrative arcana, a pastime best reserved for former or aspiring bureaucrats and lobbyists. The “policy innovation” preferred by the wonk mistakes complexity for seriousness and masks a fundamental affirmation of the status quo. Proposals for tweaking interstate barber licensing requirements or altering the opt-in clauses of health savings accounts, for instance, are ultimately as inconsequential as they are soporific. They are excuses to justify think-tank donations more than anything else . . .

The new “populism” has identifiable legislative commitments, yet its radicalism resides not in implausible policy demands but in a new intellectual outlook. It is about recognizing that the ideological categories of Right and Left are no longer relevant to the essential questions of the present. It is about recognizing that today’s economy has little in common with Adam Smith’s capitalism and that there is no longer a straightforward policy choice between the “free market” and “government intervention.”

It is about recognizing that leaving the people out of decision making results in a more fragile and dangerous politics. The choice is not between the apolitical individualism of universal consumerism and the ever-shifting narratives of identity politics. These are merely different sides of the same globalist, neoliberal coin. The true alternative is the reconstitution of a common American citizenship that stands in contrast to both. The essential task is the redefinition of the American people’s distinctive interests in the present, and their unique hopes for the future.

Donald Trump is and always has been a Democrat, i.e. a statist. He terrifies the Democratic party because (among other things) he’s reclaiming their brutish playbook for its original constituency and geographic locale. Democrats can’t really argue with any of these policies, so to oppose Trump, they’re forced to admit that they really, really don’t like his constituency. “The policies work, they’re just not for you, you ugly, no good nationalist patriots. Borders are so last century. Global cantons are where it’s at and we’ll never let you in our cities anyway!”

When both coalitions are essentially Leftist/statist in their outlook, that’s bad news bears for liberals.

Out with the old, in with the new

Working class, that is.

A small datapoint in favor of Guilluy’s argument that coastal enclaves are importing a new (cheaper and more ethnic) working class and banishing the old one to the periphery. From Tyler Cowen:

As Table 3 shows, eight of the nation’s 12 largest metropolitan areas have lost domestic migrants since 2010. These areas are either pricey coastal regions, or are located in the industrial Midwest. New York, Los Angeles and Chicago have led the nation in domestic out migration for more than three decades. However, because each also receives substantial numbers of international migrants, their overall migration loss for 2010-2016 is minimized. This is also true for other domestic migration losers on the list.

In contrast, Dallas, Houston, and Atlanta registered significant domestic in-migration gains.

That is from William H. Frey, there is much more at the link.  The pointer is from Amy Liu.

Validation for Purple Drift, as well.

Political Geography Update

From Tyler Cowen, signs of start-up life on the Periphery:

Sometimes significant news doesn’t make much of a splash, and that was the case for a major transaction last week. PetSmart Inc. announced the acquisition of Chewy.com LLC for $3.35 billion, the largest e-commerce deal ever. Also notable is that Chewy.com, which sells pet products online, is based near Fort Lauderdale, Florida, rather than San Francisco or Seattle or New York. Might we be at a point where startups and e-commerce drive economic growth and job creation in many regions of the country, not just a few of the more famous (and expensive) areas?

Ah yes, the bastion of globalist cultural elitism, Ft. Lauderdale, Florida.

But wait, there’s more:

A recent study by Michael Mandel, an economist with the Progressive Policy Institute, found notable signs of startup activity in Detroit, Pittsburgh, Cleveland, Cincinnati, Phoenix, Miami, New Orleans and Charleston, South Carolina, in addition to the locales more closely associated with tech. So this trend does have a chance of spreading, and at a time when the startup scene in Silicon Valley seems to be slowing down.

Mandel also estimates that the e-commerce sector has added 270,000 jobs to the American economy since March 2014, across multiple regions, and, in spite of all the recent problems, retail employment remains above its 2007 peak. Some additional good news is that e-commerce distribution jobs tend to be better paying and less of a dead end than most retail jobs. The warehouse and storage sector is growing dramatically, and those jobs are typically far from the wealthiest parts of the country — they are boosting Kentucky, Ohio and Tennessee.

In the last two years, again according to Mandel, “the regions outside the top 35 metro areas accounted for almost half of net new establishments,” compared with less than one-fifth of net new businesses during the seven preceding years.

Perhaps the urban v. periphery model is oversold? Perhaps it’s just inapplicable to the U.S.? Perhaps these data are misleading or a one-off?

Perhaps globalization . . . isn’t as bad as everyone claims, but like all waterfalls, those at the precipice drink first and then (after they’ve replenished their defensive moats) the gains flow downwards?

The preferred interpretation probably depends on one’s priors.

As an aside, this seems like a good federalism argument against centralized regulation. One way for peripheral regulators to enrich the periphery is to offer a better a better deal to consumers and entrepreneurs than the one offered by the rent-seeking coastal regulators. [Or as Arnold Kling lovingly puts it, the more F.O.O.L.ish coastal regulators.] Regulatory competition has helped Pennsylvania, Arizona, North Carolina and even Michigan get in on the tech boom, particularly with self-driving cars. If New York regulators want to drive all fintech investment from the city, perhaps it’s best they suffer the consequences of their actions . . . assuming anyone actually knows or remembers to blame them.

Out of my depth on Healthcare . . .

But Vox does it, so I guess I can too. Ezra Klein, a conflicted Keynesnian, writes that American Healthcare Can Be Free Market or Cheap. It Can’t Be Both.

1. I think the most charitable way to reframe this article is that Americans have unsustainable expectations about healthcare. Paraphrasing Arnold Kling: we want the very best healthcare, we want it to be relatively cheap — subsidized, if necessary — and at the ready, but we don’t want to pay for subsidies and we don’t want to save. Healthcare costs 1/6 of our economy, but no one wants to spend 1/6 of their income on Healthcare.

2. The title of the Vox piece is literally gibberish. The best analog I can come up with is “You can either sit on the couch and be fit, or exercise and stay fat. You can’t do both.”

Markets optimize costs better than any known alternative. The only sense in which government ownership could conceivably make things cheaper is borrowing costs — the gov’t credit card has a very low APR, but it will creep up the more it borrows. So a gov’t can be flush with cash, but it’s terrible at all other parts of ownership.

A market cannot make things “more expensive.” Taking away a subsidy does not make things “more expensive.” A market will create a menu of prices ranging from Lamborghini to Kia, but so long as there is demand for a cheaper option, there will be supply and — more importantly — incentives to make things even cheaper. But taking away restrictions on supply (i.e. breaking up the government’s cartel) can only make things cheaper.

3. I think what Klein means by “cheaper” is fewer out of pocket dollars. So the claim is: if we backload our costs, then we will have fewer upfront expenses. Brilliant. That appearance of profitability is popular among financial frauds too. But paying for something later does not make it cheaper, and to state as much is highly misleading.

Klein knows this — he would never say “buying something with your credit card is free” — but Krugman specializes in this stuff, and Klein admires Krugman. Krugman calls the ACA “underfunded.” That’s true, if the goal of the ACA is “spending as much money as possible,” but then, of course, everything is “underfunded.” Krugman leaves that for the reader to figure out though. Most people will come away with the impression that the ACA is underfunded, in the sense that if it had more money, it would “work better.”

Again, in Krug-speak, “work better” means spend more, but other people understand spending more as a means to an end, and not an end in and of itself. Not so with Krugman. Spending is righteous, brah. Dig the ditches and fill them in. 

In a past life, Krugman was eventually purged by Stalin after a long and successful career.

4. Vox is an excellent example of every-man-on-the-street economics. Innovation? Sure, government can do that. Set prices? How hard could that be — when have price controls ever gone wrong? Rationing? Easy-peasy. That’s just crossing the t’s and dotting the i’s.

It’s like if government officials quit their day jobs to join forces with Vox’s staff, they could all found and manage immediately profitable and successful companies . . . because how hard is it to make something that people want at a price they are willing to pay? I mean, everyone knows that wealth is just handed to you on a silver platter by privilege.

In the real world, innovation, prices, rationing, etc. are extremely hard problems to optimize. Those aren’t the after-the-fact details, they’re everything. Subsidies (i.e. coupons) are after the fact details, until they very quickly start changing the way consumers behave, and then they too are front-and-center details. We certainly don’t know what optimal health care looks like any more than Bill Gates could have told you what Google would look like. The best we can do is commit to a process that works better than other processes: decentralized ownership under conditions where information and feedback are textured and subtle, i.e. PRICES, and incentives are aligned.

5. Klein’s reliance on the UK’s model is make weight.

Studies that show the UK and Canada innovate at a significantly lower pace than the US? Klein chooses to ignore those and just say “I’m not convinced.” Fine, everybody’s got studies.

That the UK (and Canadian) healthcare systems are in fact two-tier systems where only the most wealthy can afford top-flight, on-demand care, and everyone else muddles along in the breadline?  Klein says “that’s no so bad.”

But then why not have a multi-tier system with no breadline at all? *Blank Stare*

Klein knows that the platonic ideal of HEALTHCARE is something better than a Kia, but less than a Lamborghini. A free market would make it clear to consumers that there are a menu of options and that it may not always be prudent to buy the more expensive model. Since Klein knows that the *right* model is always the slightly more expensive one, then the free market makes healthcare more expensive, just like the free market makes cars more expensive because a Camry costs more than a Kia.

Klein would apparently be OK with a system where only Kias and Lamborghinis are allowed, but if there were a Camry, that would be “cruel” rationing. Two tiers = nirvana. Five, six . . . twenty tiers? Darwinian hell.

Klein’s Platonic ideal is a sad and dreary place, as Mr. Gorbachev would agree:

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Revisiting Fintech Protectionism

Dealbook chimes in on the fight over data between the companies that collect and curate the data (banks) and the companies that want to use that data to sell stuff (including that data).

As I pointed out last time, this is a commercial dispute masquerading as a regulatory one. If that wasn’t already clear, Dealbook lays it all out on the line:

Technology start-ups like Mint and Betterment have been building services that pull together your bank account and credit card records — after you supply the passwords.

But now big banks are making a concerted push to set new restrictions on how technology companies can get access to this personal financial data, in some cases refusing to pass along information like the fees and interest rates they charge.

The banks say that they can’t just give out data because giving out data wily-nily is pretty risky:

Banks like JPMorgan Chase and Wells Fargo say they want to give consumers access to their data, but are seeking new rules in response to a lack of standards for how technology companies handle personal financial data.

“When you think about millions of customers handing over their bank account credentials to third parties, who currently have no real oversight or examination of their security controls, you start to understand why our members get pretty nervous,” said Jason Kratovil, the vice president for government affairs for payments at the Financial Services Roundtable, which represents the largest banks.

The tech companies, however, say this is all about business:

The tech companies, in turn, complain that the steps being taken by banks will not lead to better security and are motivated, instead, by a fear that the data will allow the financial upstarts to offer better deals on loans and checking accounts.

William Harris, the founder of Personal Capital, a San Francisco-based start-up, said the problems with getting access to data from banks had grown worse over the last year. To him, it was a sign that the banks viewed open access to data as a threat to their business, given that it would allow customers to see how much they pay for financial products.

“It’s pretty clear the real intent of the banks is to limit this data because it puts their business model at risk,” he said.

Indeed. The “banks view[] open access to data as a threat to their business.” And since we don’t like banks, we’re supposed to cheer for open data, right?  Dastardly banks, trying to limit risks to their business models. But what Mr. Harris is really saying is that “start ups view the lack of open access to data as a threat to their business.” So start-ups are also trying to protect their business models? That’s so confusing. Whose side should I be on?

I would put it this way, however: banks think it’s a bad business decision to give away valuable stuff that they collect and store for free. Start-ups like free stuff that they can turn around and sell.

Both points of view are understandable, but as a general rule, it’s hard to justify robbing Peter to pay Paul. As much as I like start ups, I don’t think they need or deserve a subsidy.

Here’s the real kicker — data is really, really, really valuable:

The clash over personal financial data points to a broader recognition that personal digital records are among the most valuable currencies in the increasingly digital economy.

Dealbook describes some of the ways that data is used to make financial products, but that’s only the tip of the iceberg. Data is valuable in and of itself — data vendors clean the stuff up and hawk it to hedge funds, insurance companies, banks, etc. and let them figure out what to do with it. You don’t even have to build a beautiful product with data — you just need data.

It’s making more and more sense to force the banks to give this stuff away for free, right?

Dealbook actually puts the commercial dispute front and center, and only then turns to the regulatory angle:

The European authorities have largely decided that consumers, not companies, own the digital records associated with their accounts. As a result, European banks are generally being forced to make it easy for their customers to share their financial data with whomever they choose.

That’s an unfortunate and misleading choice of words. If consumers “owned” their digital records then they would be able to sell them, including to the very banks that create and store them. That’s obviously not the case, since the very next sentence tells us that banks are “generally forced to make it easy . . . to share their financial data.”

It’s more accurate to say that “European authorities have largely decided that European authorities, not companies or consumers, own the digital records associated with customer accounts.”

Not surprisingly, Rob Cordray, lame duck director of the People’s Consumer Liberation Army Consumer Finance Protection Bureau, agrees that he too should own personal financial data, just like European Authorities:

“We recognize that data access makes it possible to realize the many benefits of competition and innovation,” Mr. Cordray said in a speech this month in New York. “We remain concerned about reports of some institutions that may be limiting or restricting access unduly.”

Fortunately, the banks have eschewed expropriation and are pursuing more peaceful ways to resolve questions of ownership, like contracts:

Banks, in the meantime, have taken the initiative by pushing technology companies to accept new agreements on how they use the data they pull from the banks. . .

JPMorgan is hoping to create a dashboard on its website where customers can choose to turn on or off the data flowing from the bank to any outside provider . . .

In January, both JPMorgan and Wells Fargo signed agreements with Intuit — the owner of Mint, TurboTax and QuickBooks — that will give Intuit more streamlined access to data from the banks, in exchange for new rules about how Intuit uses the data.

That dashboard sounds pretty cool, actually.

But, of course, deal making goes in fits and starts, because again, this data is really valuable. Startups have been getting this stuff for free and making piles of money off it, but now banks want to get paid too. I mean, it’s all for the consumers, naturally, but everyone has to keep the lights on, right?

In recent negotiations, including those with Intuit, Wells Fargo has asked to be paid by technology companies that want better access to its data, a sticking point for technology companies that believe data should flow freely.

Mr. Pitts said the payments were intended to help the bank cover the additional infrastructure costs involved in providing real-time access to data.

The negotiations with Yodlee are particularly important because it is the largest so-called data aggregator. Yodlee and a few other data aggregators serve as the middlemen between the banks and the start-ups, pulling the data from the banks and putting it into a form that start-ups like Betterment and Digit can use.

Yodlee is the biggest aggregator, but it has also been the most controversial because of what it does with the data it collects.

In particular, the company has been criticized for taking the billions of credit card transactions running through its pipes and selling them to hedge funds and other investment firms. Investors want to look through the transactions for trading signals, such as any indication that a particular retailer or product is doing better than expected.

The data is digital gold. The banks know it. The startups know it. Even the regulators know it (which is why they want it too).

If you genuinely want the consumers to win, then let the bidding proceed apace and keep the grasping hand of blowhards with no skin in the game regulators out of it.

Misreading Political Tea Leaves

On the political will to repeal/replace the ACA, Kevin Drum (Mother Jones) gets it exactly wrong. Drum quotes a New York Times story about how political “intensity” now favors “Save Obamacare” as opposed to the “Repeal/Replace” rallies that were so prominent during Obama’s tenure.

According to Drum:

So reality has set in for everyone. The Republican rank-and-file has finally figured out they never really cared all that much about taxing the rich an extra three points to provide health care for everyone. The Democratic rank-and-file has finally figured out that Obamacare is a pretty good program and it’s worth fighting for.

No. 100% wrong. This is has nothing to do with policy and everything to do with political economy.

The rank-and-file of either party is no more or less informed about the (de)merits of Obamacare than they were before. Drum’s mistake is to think that political intensity has much to do with policy at all. To the contrary, it has far more to do with status and rivalry -our team versus theirs- and risk/reward for elected officials.

First, the status issue:

The fight against Obamacare was a fight against Obama. That campaign was successfully concluded with the election of Donald Trump. Without an actual Obama to rail against, railing against Obamacare (and all those complicated details) is a lot less fun. Plus it was exhausting. Likewise, the fight for Obamacare is now a fight against Trump, which wasn’t really possible until Trump became president. When Obama was president, by contrast, fighting for the status quo just wasn’t that inspiring. “Status Quo You Can Believe In” might have been Hillary’s campaign slogan.

What should be obvious is that people (especially the sorts of people who have the time to show up at rallies) have no real idea about how Obamacare works–not now, not before, not ever. Not even the “experts” can really agree on how Obamacare works because health insurance is a really complicated thing (really many things) with a zillion different moving parts that all interact with each other in unpredictable ways. Policymakers are guessing, just like everyone else that designs a product or makes an investment, etc. [The only difference is that policymakers get to offload the costs of their failures to someone else . . .]

Other than special interests (more on them below), the people who show up at rallies are just rallying against their diminished status as members of the losing team. Policy is besides the point.

Second, political economy:

The reason the GOP is having hard time repealing the ACA is because it’s hard to pass law generally – Congress is highly deliberative and there are a lot of mouths to feed. It’s especially hard to repeal entitlements because costs will be glaringly obvious – even if relatively small – while the benefits will be obscure – even if relatively large. For politicians, that’s a losing strategy. They favor small but obvious benefits with large but obscure costs.

Consider the political economics of repealing a subsidy: when you take a subsidy away, the loss is localized, salient and immediate, while the gains are dispersed, subtle and down-the-road. For example, if repeal will save 100 million people $1 each ($100,000,000) and will cost 1,000 people $100 each ($100,000), it’s almost certainly a great idea ($100,000,000 > $100,000) . . . but it will still be exceedingly hard to accomplish. The 1,000 people will holler “why us?! we’re so sympathetic!” and the 100 million people will be too busy to complain much about $1. That’s especially true when they’ve got so many other $1 charges on their bill it’s hard to pick just one. The only way the 100 million repealers will match the “intensity” of the 1,000 savers is if 100 Obamacares were all repealed at once. That’s a hell of a coordination and marketing problem – and again, it’s really hard to pass a law, let alone 100 laws.

Politicians live for this kind of stuff – spreading (future) costs widely and distributing (immediate) benefits locally – because that’s how elections are won. It’s also why elections create really bad incentives for politicians. Winning elections encourages a policy of death by a thousand cuts. Politicians are eager to take credit for a subsidy – 1,000 very happy voters – but when the total costs get too high, a politician can always say “my policy only costs you a dollar – blame the other 99 politicians for the high tab.” Credit is easily attributable, but blame is not.

It’s like hundreds of different credit cards all linked to the same account (paid for by millions of unrelated and exasperated parents). Each elected is eager to show off his/her shiny new purchase, but making a return will only be a drop in the bucket for the taxpayer . . . that all the other electeds will probably take credit for (without returning their respective shiny purchases).

For something like Obamacare, it’s even worse because some of the costs are sunk costs, i.e. no refunds. Shifting your business model around, building new products, and devising and implementing new policies and procedures is all really expensive. Shifting everything back will also be really expensive, and none of the money from the first shift is coming back.

When you hear people argue against repeal because repeal would be too “disruptive” that’s more or less what they mean. Of course, if something is going to be too expensive to fix if it goes wrong, then it’s probably a terrible idea to try it in the first place, unless you’re really sure it’s going to work. It’s even dumber to force everyone to try your little experiment all at once . . . because then it’s going to be really “disruptive” to clean up the mess you’ve made.

Saying repeal is “too disruptive” only demonstrates that it ought never to have been passed in the first place (which is all the more reason to repeal it). If repeal fails, Democrats will surely crow, but they’re really dancing on their own graves. If a policy as costly, disruptive and dysfunctional as Obamacare can’t be repealed, it’s just further evidence that elected officials lack the incentives to serve the public-at-large, as opposed to discrete interests. “Hooray! We’re just as harmful as you said we were!”