A couple years ago NPR's Planet Money podcast had an episode about Somali pirates. (The pirate part starts at 9:35). There was all sorts of interesting stuff about division of labor, allocation of shares, pirate venture capital, etc. Some of this paralleled early modern piracy (as given a scholarly analysis in Peter Leeson's work and a romantic perspective in innumerable books and movies since Treasure Island) but in other respects it's very different. In particular, whereas early modern piracy was mostly about seizing cargo and the crews were left alone if they surrendered promptly, Somali piracy is more similar to piracy in antiquity in that it's basically maritime kidnapping. The typical instance of Somali piracy isn't that different from what a young Julius Caesar experienced when he was kidnapped by pirates and held for ransom on his way home from political exile in Asia Minor. One interesting detail in Plutarch's report is that, "When these men at first demanded of him twenty talents for his ransom, he laughed at them for not understanding the value of their prisoner, and voluntarily engaged to give them fifty."
It's not entirely clear if we should take Plutarch's report at face value (he also tells us that Caesar constantly insulted his captors as being, for instance, too uncivilized to appreciate his poetry) but for the sake of argument let's accept that Caesar rather brashly gave away too much information in the game of price discovery. According to a hostage negotiator quoted by This American Life, giving away this information is apparently typical of hostages and is counter-productive to their release as it narrows the bid-ask spread. Economists would describe hostage negotiation as a bilateral monopoly price negotiation that is structurally just a special case of chicken. That is, unlike a barrel of oil or a freight car full of soybeans which can trade on an extremely liquid market with innumerable buyers and sellers, a hostage has exactly one seller (the kidnappers) and exactly one buyer (the employer and/or family of the hostage). When there is only one buyer, the opportunity cost for ransoming the hostage is zero. Likewise, the employer and/or family has no realistic alternative means to recover the hostage. In order for everybody to walk away happy, we need a cooperate-cooperate outcome: the kidnapper has to give up the hostage and the employer/family has to give up a ransom. This structure also characterizes art theft, which in practice is not a matter of fencing art on the black market but ransoming art to a museum's insurance company.
If we model a bilateral monopoly negotiation only two things should matter. The first is, as always in a game of chicken, the willingness to accept failure. The more willing you appear to walk away, the more bargaining power you have. In a more protracted game this can cash out as willingness to delay which we can treat as a defect-defect outcome on the installment plan. In fact in the Planet Money episode on Somali piracy, the hostage's party did balk and break off negotiations for weeks at a time until the pirates were willing to come down on price.
The other thing that should matter is the capacity to pay. If the pirate knows for an absolute fact that the hostage's people simply can't raise more than a million dollars then it would be pointless for them to demand two million dollars. Of course there is an issue of information asymmetry in that the hostage's party has much better information on its assets than do the pirates and so the pirates may be skeptical of the hostage's party pleading poverty (especially if the hostage has foolishly told them how much money they can get). We see this at work in the TAL story's point that kidnapping insurance holds the condition that you can't tell anyone you have kidnapping insurance.
Here's something that the econ model tells us shouldn't matter: the going rate. In normal markets the going rate matters, but only because it provides the opportunities for substitutes and this creates the "law of one price." For instance, when I go to a grocery store and see a loaf of bread for $4 I won't buy it. An economist would say I forgo this purchase because I know perfectly well that the going rate for a loaf of bread is about $2.25 and so I can go elsewhere and get bread cheaper. Similarly if I go to the Honda dealer to buy a Honda Accord, it is relevant for me to mention price quotes offered by other Honda dealers for an Accord or even how much Toyota dealers ask for a Camry because it is entirely credible that I'll walk off the lot and go to rival car dealers offering very close substitutes for this dealer's cars. However if my sister is locked in a basement in Ciudad Juarez and the kidnappers can credibly commit to not letting her go unless I raise $x, it is completely irrelevant that in the past kidnappers accepted ransoms of $x/2 since I don't have the relatively good fortune of dealing with a kidnapper who demands $x/2 but am stuck with one who demands $x. There are no other places where I can buy the freedom of my sister and so the only price that matters is the one being demanded by her particular kidnappers. (Note to any cartels reading this: I don't have a sister).
And nonetheless, much like how most people who haven't studied statistics balk at the idea that the ratio of sample size to population size is irrelevant to statistical inference, people seem to have a strong intuition that the "market price" is relevant to a bilateral monopoly even though the whole idea of a bilateral monopoly is that there is not really a market but only a series of discrete one-off transactions. In the absence of substitutability, "comparable" transactions are irrelevant as they don't imply opportunity cost. This is the main thing I found so fascinating about the Planet Money episode, over and over again the hostage's party balked at the pirates demands as unreasonable in being out of line with the "market price." We only get the pirates' story second hand, but apparently at no point did they explain to the hostage's party that "market price" doesn't really exist in a bilateral monopoly. (Maybe Mogadishu University needs a better econ department).
There are two ways, which are only partially incompatible, to look at why people insist that there is a market price. The simple model is to see us as making Bayesian inferences about the price the other party is willing to accept. If a pirate asks me for $10 million when I know that previous ransoms for similar hostages from similar pirates were about $1 million, I face two possibilities. It may be that I'm facing an usually greedy or unreasonable pirate and $10 million really is the price from which he will not budge. However it seems more likely that I'm dealing with a regular pirate, who like most pirates in the past will ultimately settle for about $1 million but who is just floating a high initial figure in case I'm especially bad at this. In this sense the distribution of prices for similar transactions may not be directly relevant in the sense of providing opportunities for substitution (or the credible threat to avail myself of them) but it is still relevant as information about the zone of possible agreement. This is consistent with the Planet Money story in that Filipinos are cheaper to ransom than Europeans by an order of magnitude. Presumably this reflects Bayesian inference on the part of the pirates from the hostage's nationality as to how much the hostage's party should be able to raise. Alternately we could imagine that pirates always start with the same bargaining position but the Filipinos are less able to pay and so the pirates eventually reach this through ad hoc price discovery on a case-by-case basis. This strikes me as implausible though and I think pirates probably learned pretty quickly what they can reasonably expect for each nationality.
This is a nice explanation and it has the appeal of bending but not breaking the economic model of the actor, but it's not clear how seriously we want to take it and even if it's ultimately true it may not reflect the subjective experience. For instance, one of the main explanations for racial discrimination is that it reflects Bayesian inference about aspects of human capital that aren't readily observable. This model was devastated by Devah Pager's audit study showing that employers prefer to hire white men with a criminal record rather than black men without a criminal record, whereas the "statistical discrimination" model predicts that ascriptive discrimination should be weaker than and diminish greatly in the presence of information about relevant traits at the individual level. In the wake of the Pager study the best case you can make for the statistical discrimination model is that our intuitions are Bayesian in the aggregate but are too low level for us to override with directly relevant information (or, for that matter, with the conscious desire to avoid stereotyping on legal or ethical grounds). It's not unlike the argument that evolution made sex feel good so that we will propagate our genes, but it still feels good when you use birth control. So we might prefer a model that is ultimately consistent with people using prevailing price as information in bilateral monopoly negotiations, but is proximately and subjectively more about meaning.
Although the discipline of economics has many valuable things to teach us about how markets work, especially in the long-run, the subjective experience of someone bargaining does not necessarily reflect thinking through how a rational actor would apply price theory (competitive markets) or game theory (monopolistic markets) to the situation. Rather people take moralized approaches to exchange and seem to apply various relational models to exchange, which includes not only market exchange but also gift exchange, patron-client ties, and primitive communism. Moreover, even when people accept that a situation is one of market exchange it does not come naturally to think of price like modern economists think of it, as "market clearing." Rather much as people intuitively expect physical objects to behave by Buridan's impetus rather than Newton's inertia, people's intuitive notions about price can have less to do with how economics thinks of it than how Aristotle, Aquinas, and Marx thought of it, as "just price" or "fair price." We see the Aristotelian/scholastic/Marxist understanding of price institutionalized in price controls and laws against gouging. The intuition many people seem to feel is that the long-run prevailing price has moral weight and deviations from this price (as for instance in a supply or demand shock leading to "gouging") are immoral. Hence historical bread riots often involve not exactly stealing food but rather mobs enacting vigilante price controls. Most recently we saw this is in a class action lawsuit against concession prices in movie theaters. As an American and someone who studies exchange professionally, economics comes naturally enough to me that my immediate reflex to this story is to think this guy needs to understand two-part tariffs and tell him if he doesn't like the theater's prices nobody is forcing him to go there or to eat once he arrives. However the fact that somebody felt sufficiently indignant to sue over being offered the opportunity to buy a bucket of popcorn for $6 shows us that the perspective assumed by academic economics doesn't necessarily come naturally to people. Similarly, when the hostage's party is negotiating a ransom with pirates both the pirates and hostages may be behaving in ways that are ultimately consistent with a game of chicken under conditions of bounded rationality and Bayesian inference about asymmetric information, but in the immediate subjective sense they may simply be feeling that the recent run of ransoms sets an expectation of what it is fair to pay for this particular hostage.
Oh, and one more thing about Caesar. Plutarch tells us that after he was ransomed he got some ships, raided the pirates, and had them all crucified.
The Republican Party laid the groundwork for dysfunction long before Donald Trump was elected president.
President Trump’s approach to governance is unlike that of his recent predecessors, but it is also not without antecedents. The groundwork for some of this dysfunction was laid in the decades before Trump’s emergence as a political figure. Nowhere is that more true than in the disappearance of the norms of American politics.
Norms are defined as “a standard or pattern, especially of social behavior, that is typical or expected of a group.” They are how a person is supposed to behave in a given social setting. We don’t fully appreciate the power of norms until they are violated on a regular basis. And the breaching of norms often produces a cascading effect: As one person breaks with tradition and expectation, behavior previously considered inappropriate is normalized and taken up by others. Donald Trump is the Normless President, and his ascendancy threatens to inspire a new wave of norm-breaking.
The foundation of Donald Trump’s presidency is the negation of Barack Obama’s legacy.
It is insufficient to statethe obvious of Donald Trump: that he is a white man who would not be president were it not for this fact. With one immediate exception, Trump’s predecessors made their way to high office through the passive power of whiteness—that bloody heirloom which cannot ensure mastery of all events but can conjure a tailwind for most of them. Land theft and human plunder cleared the grounds for Trump’s forefathers and barred others from it. Once upon the field, these men became soldiers, statesmen, and scholars; held court in Paris; presided at Princeton; advanced into the Wilderness and then into the White House. Their individual triumphs made this exclusive party seem above America’s founding sins, and it was forgotten that the former was in fact bound to the latter, that all their victories had transpired on cleared grounds. No such elegant detachment can be attributed to Donald Trump—a president who, more than any other, has made the awful inheritance explicit.
The right’s old guard faces an existential threat in populism. But it isn’t yet clear that they understand the stakes or possess the confidence to fight back.
Donald Trump’s rise to power put National Review, The Weekly Standard, and the sorts of journalists who work there in a distressing bind. Neither the president nor the #MAGA loyalists who staff his White House adhere to conservative principles. Yet many donors, subscribers, and readers who sustain their publications prefer Trump’s blustering, bombastic project, massively shifting the center of gravity on the right.
Tribalist populism is ascendant––and conservative publications no longer thereby benefit, in part because newer magazines and web sites are more closely aligned with it.
During the 1950s, when the postwar governing establishment presumed a liberal consensus and the right was as internally divided as it is now, William F. Buckley built a competing coalition in part by winning converts on the right to conservatism, famously declaring himself to be standing athwart history yelling, “Stop!”
More comfortable online than out partying, post-Millennials are safer, physically, than adolescents have ever been. But they’re on the brink of a mental-health crisis.
One day last summer, around noon, I called Athena, a 13-year-old who lives in Houston, Texas. She answered her phone—she’s had an iPhone since she was 11—sounding as if she’d just woken up. We chatted about her favorite songs and TV shows, and I asked her what she likes to do with her friends. “We go to the mall,” she said. “Do your parents drop you off?,” I asked, recalling my own middle-school days, in the 1980s, when I’d enjoy a few parent-free hours shopping with my friends. “No—I go with my family,” she replied. “We’ll go with my mom and brothers and walk a little behind them. I just have to tell my mom where we’re going. I have to check in every hour or every 30 minutes.”
Those mall trips are infrequent—about once a month. More often, Athena and her friends spend time together on their phones, unchaperoned. Unlike the teens of my generation, who might have spent an evening tying up the family landline with gossip, they talk on Snapchat, the smartphone app that allows users to send pictures and videos that quickly disappear. They make sure to keep up their Snapstreaks, which show how many days in a row they have Snapchatted with each other. Sometimes they save screenshots of particularly ridiculous pictures of friends. “It’s good blackmail,” Athena said. (Because she’s a minor, I’m not using her real name.) She told me she’d spent most of the summer hanging out alone in her room with her phone. That’s just the way her generation is, she said. “We didn’t have a choice to know any life without iPads or iPhones. I think we like our phones more than we like actual people.”
The first modern market crash, in 1987, reflected lasting changes in how Wall Street works. Regulators still haven’t adjusted.
Veterans of the stock market insist that the four most dangerous words on Wall Street are “this time is different.”
It rarely is. In the autumn of 1929, Irving Fisher, a prominent economist at Yale, assured Americans that stock prices had reached “what looks like a permanently high plateau.” That was on October 15, just days before the opening stumble in an epic crash that, by its nadir in 1931, would cut the American stock market’s value by almost 90 percent. In early 2000, exuberant tech analysts argued that revenues and profits were no longer the metrics that mattered in the internet age. Then the dot-com bubble burst and the technology-laden Nasdaq Composite Index fell almost 80 percent between March 2000 and October 2002. Clearly, when the market is soaring, it can be ruinous to believe that its highs are the mark of some fundamental financial shift.
What was it like inside the brain of an ancient prophet?
James Kugel has been spent his entire scholarly career studying the Bible, but some very basic questions about it still obsess him. What was it about the minds of ancient Israelites that allowed them to hear and see God directly—or at least, to believe that they did? Were the biblical prophets literally hearing voices and seeing visions, understanding themselves to be transmitting God’s own exact words? If so, why did such direct encounters with God become rarer over time?
In his new and final book, The Great Shift, Kugel investigates these questions through the lens of neuroscientific findings. (The approach is reminiscent of other recent books, like Kabbalah: A Neurocognitive Approach to Mystical Experiences, co-written by a neurologist and a mysticism scholar.) First, Kugel uses biblical research to show that ancient people had a “sense of self” that was fundamentally different from the one modern Westerners have—and that this enabled them to experience and interpret prophecy differently than we do. Then he uses scientific research to show that we shouldn’t assume their view was wrong. If anything, our modern Western notion of the bounded, individual self is the anomaly; most human beings throughout history conceived of the self as a porous entity open to intrusions. In fact, much of the rest of the world today still does.
Sooner or later, the company will be forced to take on the responsibilities that come with being the world's dominant news distributor.
Nine months after Donald Trump won the presidency by unexpectedly swinging key states in the upper Midwest by slim margins, Facebook’s role in the 2016 election is still not clear.
Just in the last week, Facebook’s advertising has come under new scrutiny. Friday evening, The Wall Street Journal reported and CNN confirmed that special prosecutor Robert Mueller served the company with a search warrant to gather information on Russia-linked accounts that Facebook said purchased $150,000 worth of ads on the platform.
A historian looks at the legacy of racism in the Church of Jesus Christ of Latter-day Saints.
So many recent events in American life have been a call for the country to grapple with its legacy of racism and white supremacy, including the violence in Charlottesville and even the 2016 election. These events have created turmoil among some conservative Christian groups, who have tried—in fits and starts—to confront their own racial divisions.
One group, however, has taken a slightly different path: Mormons. While a majority of Mormons voted for Trump in the 2016 election, he fared far worse than previous Republican presidential candidates among the minority religious group. According to The Salt Lake Tribune, many in Mormon-heavy Utah doubted the president’s moral character and strength as a role model.
It’s the rare interesting work by a politician—and it offers an important critique of the press.
Most books by politicians are bad. They’re bad because they are cautious, or pious, or boring, or some even-worse combination of all three.
They’re cautious because over the years politicians learn they have more to lose than gain by taking “interesting” or edgy stands. (Something I learned when working as a campaign and White House speechwriter: In “normal” writing, your goal is to make your meaning as clear as possible, ideally in a memorable way. For a politician, the goal is to make the meaning just clear enough that most people will still agree with you. Clearer than that, and you’re in trouble.)
They’re pious because in one way or another the “revealing” stories about the authors are really campaign ads—for future elections by politicians who have a big race still ahead of them, or for history’s esteem by senior figures looking back. Thus politicians’ biographies fall into the general categories of humble-brag (most of them) or braggy-brag (Trump’s).
How the militant group will fumble into the next Middle Eastern war.
Two weeks ago, James Mattis, the U.S. secretary of defense, attempted to justify the provision of U.S. arms to Ukraine. “Defensive arms,” he said, “are not provocative unless you are the aggressor.” The claim was as banal as it was wrong.
Secretary Mattis’s statement made for good politics, and it also makes a degree of intuitive sense. But three generations of students of conflict who have studied “the security dilemma” know it is not, in fact, the case. All too often, nations act in such a way—building up big armies or navies—that they assume will better protect them from their adversaries. What they fail to realize is that sometimes their adversaries will view these “preventive” or “defensive” actions as quite aggressive, in fact, and will make conflict more, not less, likely.