What’s Wrong with Kansas — and Palo Alto?
Many people in Kansas don’t have much money, and they’re voting against progressive candidates, who would give them more money
A few years ago, the book “What’s Wrong with Kansas?” pointed out that many populist conservative voters were voting against their own economic interests. Many people in Kansas don’t have much money, and they’re voting against progressive candidates, who would give them more money.
In a recent morning newsletter, editors pointed out that the richest counties in Virginia suburbs just voted against their economic interests by voting solidly Democratic. People in Palo Alto do the same.
With their votes, rich people in the suburbs are trying to give money to poor people in the country. And with their votes, the poor people in the country are saying they don’t want the money.
The morning newsletter letter took the position that if both sides are voting against their economic interests, then it must not be about money, it must be about culture. That could be part of it. But there are probably more basic things about money and emotions happening. This is America. Money gets complicated.
The first challenge could be around receiving a handout. Past comments from politicians about “welfare queens,” still ripple through society. Americans, in general, value standing up for themselves, more than saying thank you for (or worse, asking for) a handout from anyone, especially rich people. It’s probably more true for people who feel increasingly left behind by a culture they worry they have little influence over. “Here, you’re so left behind that we’ll start giving you some crumbs.”
Politically, the message of “vote for our party, we’re going to support you because you don’t have money” is a big pill to swallow. It’s asking someone to let go of the fantasy that they will have lots of money next year. And it’s asking someone to hold the label of needy. “Cast your vote now, and admit that you need a handout!”
Thud, like a lead balloon. There’s nothing wrong with Kansas. It’s the messaging that’s terrible.
In this country, there’s also a racial and caste component, where progressive welfare typically goes to the poorest people, with a higher representation of Black people. So in America, asking me to vote for a candidate, who might give me more money as part of a progressive agenda, is also asking me to vote to put myself in the lowest rung of the American Caste. If I don’t think I’m already there, then putting me there challenges too much of our collective social subconscious, too quickly for most of us.
Besides, if I don’t have money, giving me some doesn’t help as much as fixing the system so that I can make my own money. The government is the problem. If it’s coming directly from the government, then it has to be broken or dysfunctional at some level, and I don’t want any part of that. And if rich elites are setting up the policies that give me that money, I might start worrying about what their real intentions might be. Sadly, today, social trust is that broken.
Voting is more intuitive, it’s not rational. The poor person choosing populist ideals, over more money, is like the baby monkey without a mother choosing the comforting stuffed model of a monkey, over the harsh wired contraption that actually has the food. All of us have those kinds of instincts first. The poor person is choosing the collective comfort of togetherness (with nothing, or worse, from the government), over more money. Remember the monkey in the experiment doesn’t choose the wired model with the food, until he’s essentially starving.
We all vote like that, and find comfort and attachment first. Increasing tribalism makes that easier and more obvious. And when it becomes easier and more obvious, we have increasing tribalism. That in turn leads to fewer real decisions being made through the democratic process. Instead politics is now mostly about the show to enable the tribalism. It’s a meta-layer that distracts us from more fundamental issues, at our own peril.
And the rich person might not be voting completely against their long-term economic interests. If everyone isn’t at least somewhat supported, society could start to fall apart, and money itself would become less valuable. It’s in a rich person’s long-term interest to make sure everyone is at least somewhat taken care of, so that society keeps valuing money. Or in a more positive and incremental light, we need consumers to drive a consumer-driven economy, so everyone needs to have enough money to consume. And that consumption makes rich people richer, so let’s get enough money to everyone. Please, take the money.
The trick is figuring out how to give money to people without it feeling like a handout. The first way to do that is to give it as a public service that we all share: the military, the roads, the schools, the police. To help everyone more, we could increase schools to include universal pre-K, make more colleges free, or more affordable. Or in the light of our poor response to covid, we could have true public health efforts, that are more about prevention and healthy living for the population, paid for by the government.
Large parts of the government are trying to make those things happen, and large parts of the government are pushing back against making those things happen. One reasonable worry is that collectively, individuals make better decisions about how to allocate money (distributed decisions are better than centralized decisions). There’s truth there, but this line of thinking also implies that government-run things (like the military, and the government research money that funded most of the current technology revolution) don’t work well.
If the military were actually that important, why don’t we finance it privately, so we can do it better? — That’s rhetorical. I wouldn’t choose it for restaurants, books, and music, but some things do work better when coordinated more centrally.
There’s an opportunity here. In addition to improving public services, we could have a third dial for the fed and the treasury, and like the others, it could be removed as much as possible from presidential and congressional influence.
Today the fed decides how to set short-term interest rates, and how much to support the treasury market by buying longer-term bonds. Lower interest rates encourage more borrowing and more economic activity. Buying longer-term bonds artificially increases demand for bonds, bidding up their prices, and lowering the interest rate, which again increases economic activity.
From a 1970s perspective, the fed tries to get things balanced right. If the economy grows too fast, we’ll have inflation, and if it doesn’t grow fast enough, we’ll have unemployment. Given the current economic position in the business cycle (boom/expanding, or bust/contracting), the fed adjusts the short and long-term rates to keep things in the “goldilocks” middle. That’s the hope.
There are several problems with that model. The first is that both of these dials have the most impact on businesses that borrow money, and have more indirect impact for the rest of the economy, including businesses and consumers who either have no credit or carry little debt. The second is that we’ve now gone through several boom and bust periods without seeing much inflation. The current “covid bump” in inflation is not expected to be long-term.
The main driver for the new inflation reality is likely the economic efficiencies of scale from technology, that lowers prices, adding deflationary pressures. In that context, the role of the fed has become to keep interest rates as low as possible, pedal almost to the metal, to keep pace with the deflationary pressures of increased technical efficiencies.
If it weren’t for the covid-related shipping problems, we would still be buying amazing amounts of bonds, while keeping short-term rates at zero, with very high employment, and ideal (~2%) inflation. One worrisome scenario is what would happen if 0% interest rates and all the bond buying weren’t enough to keep up with technical efficiencies, and keep inflation positive. At some point, we’d have to do something more to avoid deflation, which can spiral and would likely trigger a recession or worse.
The obvious third dial, that would help the fed carefully manage employment, and inflation, in the context of deflationary pressures from technology, is control over some general distribution of money to everyone: universal income.
We currently spend just under $800 billion, or a little less than 4% of our GDP on defense. That works out to about $200 per month for every person in the US. (And we aren’t at war — it’s mostly for posturing.) Politically, if the universal income were universal, then it’s not a handout to an underclass. It’s just being part of the American economic experiment. Who knows the right initial base amount, but maybe our current military spending provides a starting point.
From a consumption perspective, universal income stimulates spending, and that stimulates the economy directly for everyone. That adds inflationary pressure to offset the deflationary pressures of technology improvements.
Real economics are trickle up, not trickle down. Giving money to the poor helps the poor, and when they spend that money, that spending helps the rich even more. That’s the beauty of a real economy (or a real relationship), it’s never zero sum. We don’t play the game to fight for our piece of a fixed pie, we play the game to make a bigger pie for everyone (even if we don’t see it yet).
Politicians will of course ridicule the idea of a family of 4, with a household income above $30K/month, getting an addition $800/month from the government. But without everyone getting it, it becomes stigmatized, and it implies a threshold, where the government stops paying, which disincentivizes incremental income gains. Worse, without everyone getting it, it risks defining and cementing an underclass, which is bad for individuals and politics.
But still, if it feels like bad optics, the people receiving the money could have 4 options: (1) deposit the check in my (checking, education, retirement) account; (2) keep my money and count it as part of my estimated taxes; (3) give the money to someone/something else (person, non-profit, for-profit, government) (4) redistribute the money to this program.
Anyone could change their allocation at any time. People who choose (2) are saying they’d prefer a tax break, and people who choose (4) are saying the economy would grow more for everyone, if my share were redistributed. Assuming anyone chooses option (4), that would mean that the exact amounts given would always be more than the base amount ($200/month in this example so far).
Parents decide the allocation for their children until they’re 14. Most people would say 18, and maybe they’re right, but there’s another piece to write about why 14, or even younger, helps everyone more.
The fed controls the base amount, and its increase (or decrease) over time. The population controls how and whether that money is more progressively redistributed. A flat gift to everyone will always be most important to those with the least money, and as a population, we’ll do better than that if some (many?) of us choose to redistribute our share. But that’s up to us as individuals.
The poor people in Kansas are making good common-sense choices today. They don’t see an option they like, so the one that does the least is always best. And if that option locally pulls people together (around almost anything, including “lock her up”), then it feels even better. And the rich people in Palo Alto are doing their best to get even richer, by trying to give money to everyone.
The sad part is that the people with more money haven’t figured out how to give it in a way that feels like it’s helping, and the people with less money haven’t figured out how to receive it. If so, that seems fixable.
