crises.rmd

# A Tale of Three Crises {#crises}

<!-- > I'm still trying to climb out from under the avalanche of horror, nightmare and disgust that all of this [the 2011 US debt ceiling crisis] dumped on me, along with, I suppose 300 million other Americans and it's a little hard to sort out your thoughts after this much awfulness comes along.
> [..]
> Sorry but I actually do think that this [the 2011 US debt ceiling crisis] is one more symptom of a long, slow constitutional crisis, it goes back further than the 2000 election.
> This kind of thing keeps happening again and again, it's as if our system is getting hardening of the arteries, we get a stint once in a while [\ldots] but to me it's getting scarier and scarier over the long haul.
> [...] -->
> There are a lot of rational (tax) ideas out there, there are a lot of ways you could build something from scratch that would look roughly like the society we have now, but would work better, would be smoother and fairer and all that.
> And of course, these things are proposed in politics [...] and then they cannot be done.
> Then our system prevents them from happening or garbels them in such a way that they look supremely ugly, once they are created [...].
> This is a machine for creating disillusionment with government, cynicism, Tea-Partyism, and over time, this is our county, our democracy eating itself alive.
> [...]
> And that's why I get a little discouraged sometimes.
>
> --- [Hendrik Hertzberg](https://www.newyorker.com/contributors/hendrik-hertzberg) on the [* Political Scene*](https://www.newyorker.com/tag/political-scene-podcast) podcast by the *New Yorker*, discussing US tax reform plans in 2011.


<!-- also, this kinda feels like the "good old days", as if things were much better earlier.
that's not really the point
this is not primarily, an account of how things have gotten worse *empirically*: in part, that becomes pretty hard, because so many other things change (multicollinearity)
there may not be much to be gained here, or, in any case, that's not what I offer here.
Instead, across tax, welfare state and democracy, I point out *a priori* inconsistencies in the ideal-typical versions of these institutions, as they were instituted in the past.
This need not imply that the past was actually all that great.
It's really just a pragmatic way of going about this: one might also call this a tale of three not-quite-great systems, but that just doesn't have the same ring to it.
nothing wrong with urgency
but be careful here, I don't actually have a posteriori (empirical) account.
more crucially, this being a priori stuff, it also *needs* no such account; pointing to the contradictions suffices.
this is just politicisation, in a way.
WHY this chapter?
because it points to the importance, and takes the first step to the last reasons, to the deep disagreements undergirding this all.
politicisation is, broadly speaking, necessary for any deliberation.
you need some kind of a question.
if this were in fact all completely "normal", and just the way things are, then there's no need.
so going back to the ideal-typical formulation of these institutions, no matter how much they were ever attained in the real world, is an exercise in policisiation.
The empirical record, is only used to cursorily *illustrate* these claims. -->

<!-- %Dahl "on democracy''
	% there is normative things, and actualities, or empirical things.
%We should look at both
	% democracy and market capitalism are in a mutually reinforcing, but also antagonistic relationship
	% one of the four essential questions for democracy is how it will continue to co-exist with market capitalism, now that the latter is the only game in town.
%Also, the inequalities that market capitalism brings, easily translate into political inequality.
	% one of the possible scenarios of democracy is that it will spread wider (new countries) but become ever thinner.
	% dahl in his time didn't know what the problem was: we know see a little clearer
	% he also identifies internationalization as a problem, which makes sense.
%Tax is at the intersection of the market/state mix and internationalization -->

<!-- %Genschel 200 deutscher Artikel
	%Both the sceptics and apologetics of the race to the bottom are wrong.
	%There is indeed no empirical evidence for a race to the bottom \ldots
	%\ldots but that is not because of no competition, but because there is at the same time a need for greater state spending and the inability to tax other things (labor, consumption, indirectly) without doing great harm
	%results are: labor and consumption don't flee the country, but you get unemployment and a shadow economy.
	%the above is all p 268
	%I think it is wrong to assume great unemployment to be "given", it is rather caused by the inability of the state to tax other stuff.
	%Genschel 2000 269 points out that present tax regimes are historical artefacts, from a time of closed borders.
	%two assumptions overall: taxation would decrease, but also: relocate to less mobile things (labor, consumptioN)
	%Genschel finds: total tax stayed the same, but expenditures grew faster than revenue, hence public debt
	%There is a fundamental problem with Genschel's argument. -->
  <!-- %and also: procyclical, hits labor intensive service industry, with high price sensibility in particular (you won't go to the restaurant)
  	%Please mention that taxing capital, in and of itself, is also problematic in welfare terms.
  %It's not the perfect tax, because we want capital accumulation.
  	%Mention Genschel's treatment of intelligent tax-evasion through intra-company strategies.
  	%Genschel 1999 is hopeful about ways to resolve the prisoners' dilemma.
  	%repeated games, shadow of the future
  	%institutions
  	%transparency, monitoring
  	%but again, they say: it may not be a defection problem, but zero-sum distribution between small and large states
  	%my bottom line: empirical pictures are always messy, complicated.
  %But still, if you introduce a normative hypothetical, it is obvious that really, the situation is quite dramatic.
  	%Genschel calculates how large the coalition would have to be (421)!
  %his is awesome!
  	%note later comparison to trade union theory and trade creation vs.\ trade diversion -->

<!-- TODO we're in a bad place, but it could be better -->

<!-- TODO use mixed economy in all of the below, not welfare state, explain why -->

<!-- or, you can forestall all this by:
- racking up payments crises 
- asset Bubbles, especially real Estate
- ITF
- etc.
 -->

<!-- explain here why deliberation matters? -->
<!-- explain why taxation matters (to the welfare state) -->

<!-- reiterate some empirical findings here -->

<!-- %The result of the two crises is an economy with runaway inequities, foregone productive capacity and a suboptimal net savings rate, in the face of greater challenges ahead (for example, aging, global warming).

%First, developed welfare states, in spite of their unprecedented prosperity, appear to be increasingly constrained in their ability to raise revenue and redistribute it as their legislators see fit.

%Structural underfunding is caused by a state that is increasingly unable to raise sufficient revenue necessary for the provision of risk pools, public and common goods, as well as to finance its allocative goals.

%The result of the two crises is an economy with runaway inequities, foregone productive capacity and a suboptimal net savings rate, in the face of greater challenges ahead (for example, aging, global warming).
 \begin{figure}[htbp]
	\centering
	\includegraphics[width=1\linewidth]{dual-crisis}
	\caption{The Dual Crisis of the Late Welfare State}
	\label{fig:dual-crisis}
\end{figure}

%Today, welfare states are challenged or changed on a number of fronts.
%Internally, welfare provision is challenged by aging societies in the developed world, with resulting higher dependency rates and costs under “pay-as-you-go” systems (Castles 2002).
%Moreover, revenues and costs are affected by prolonged and extensive macroeconomic disequilibria, especially structural unemployment (which of course, can also be an effect of inadequate welfare regime design).
%Decreasing rates of productivity and output growth have heightened concerns, and de-industrialization and increasing flexibility of working arrangements have called existing setups into question, especially those featuring corporatist institutions.

<!-- %My research interest emerges from two puzzles of the late, developed welfare state.

%might want to link this to PCA and efficiency wages;
%you need some equality for markets to work their magic.
%Efficiency and equity are not a zero-sum trade-off.

%Note Stiglitz on education it's part of the twin crisis:
%102
%Wilson in stiglitz
%Kennedy in stiglitz

%Crouch
	%Crouch 158 also notes absence of wealth distribution data.
		%Bingo great argument in Crouch 3:
%democracy is, again under US influence defined as liberal, if not electoral democracy.

%---
%McCaffery and Hines 2010:
%4
	%appear beyond the pale.11
	%What are we doing?
%Where are we headed?
%Are we forever set in a post-Reagan mindset
	%when it comes to tax rates?
%What has happened to the argument for more steeply progressive marginal rates?
%Why does a country that seems to believe in redistribution not seek it more forcefully in its major policy instrument devoted to doing so?
	%see
	%this is the big question!
	%This is, in part, a story of how academics, ordinary politics, popular understanding---and inertia---can lead a democracy to a place far removed from its initial hopes and dreams.
	%There's also a neat reference to elastic, vs.
%inelastic savers on page 7, which is the same as my talk about positional consuption (or not)
	%There's a key argument why spending can be more progressive (7):
%it's unlikely that people will anticipate the tax they ultimately have to pay.
%say McCaffery and Hines. -->

## A Crippled Mixed economy

In the preceding , I have tried to shed some light on the in much of the current [oecd]{acronym-label="oecd" acronym-form="singular+short"}-world (, p. ).
The puzzle is now a little clearer:

1.  In spite of unprecendented prosperity, late [oecd]{acronym-label="oecd" acronym-form="singular+short"} welfare states are less efficient, equitable and sustainable than they could be, because they fall short of an (, p. ).
    Among the institutions of the mixed economy, especially, because it is by far the most effective and efficient tool for government to improve upon, or redistribute market outcomes (, p. ).

2.  Equipped with a deficient mixed economy and suboptimal taxation, democracies are forced to make unnecessarily unattractive trade-offs between efficiency, equity and sustainability, eroding their *output* legitimacy.
    At the same time, the legitimacy of democratic *inputs* may be undermined by a widening gap between the complexity of an advanced (mixed) economy and the simplifying tendencies of electoral democracy.
    Potentially, pluralist democracy may, in part, have fallen victim to the tightly concentrated special interest that late capitalism offers, especially in the field of taxation.

    Taken together, such diminished legitimacy in outputs and inputs, may help explain widely reported dissatisfaction with democratic performance (but not institutions) [for example, @Dalton-2004-aa] and contribute to the apparent mismatch between popular opinion and the governing abstractions of the mixed economy.

3.  Net of such constrained welfare and confused democracy, material and political equality would suffer.
    A deficient mixed economy and suboptimal taxation would corrode the social contract, by which democratic government should have some ability to redistribute the fruits of non-zero-sum
    games borne by the free exchange of state-protected property rights [compare @Crouch2004].
    Offered only unattractive choices, and thoroughly confused about the abstractions of the mixed economy, citizens would be increasingly impotent under the social contract.
    One suspects, especially poor and poorly educated citizens would be effectively disenfranchised from the social contract.


## Possible Better Worlds

## Better Taxation

In the following (p. ) and (p. ), I show that under liberal-pragmatic axioms and orthodox ontology (, p. ), we could have vastly and .

Among doable taxes, a potentially supplemented by a , and/or appears to offer more attractive trade-offs between equity, efficiency and sustainability than the current tax mixes dominated by , and (see , p. ).

![The Vector Field of Taxes with Trends[]{label="fig:tax-with-trends"}](tax-with-trends){#fig:tax-with-trends width="1\linewidth"}

## Better Democracy

Among doable forms of democratic rule, deliberative democracy [for example, @Cohen-1989-aa] appears both more promising and demanding than pluralism.

Deliberation promotes egalitarian, inclusive, well-reasoned and civic-minded discussions for (possibly) consensual political decision-making.
Its normative theory draws heavily on @Habermas-1984' concept of *communicative action* and @Rawls-1971' "Theory of Justice" as fairness.
Where pluralism encourages the representation of particular interest, deliberative democracy demands *alternative* conceptions of the common good [@Cohen-1989-aa 18].
Where pluralism aggregates given, pre-social preferences, deliberative democracy is all about forming preferences.
Where pluralism assumes individual voter error to balance out, when errors are random [@Page1993; @Surowiecki2004], deliberative democracy insists on perfecting the deliberators understandings (see , p. ).

Deliberative democracy offers more attractive trade-offs between participation, enlightened understanding and political equality [@Fishkin2009] (, p. ) and promises to alleviate some of the public choice contradictions of pluralism [for example, @Condorcet1785; @Arrow1950] (, p. ).
It also transcends the impoverished, and dubious ontology of pluralism (homo economicus!), and opens legitimate rule to feminist or even virtue ethics.


### Crisis of Equality

<!-- (not sure about this one) -->

<!-- %look into the short paper by Frank again.
%\cite{Frank1996} argues that top salaries have grown because of 1) technological forces that greatly amplify small increments in performance (non-linear returns to scale?) and 2) increased competition for services of top performers (not sure what this is).
%In winner-take all markets you pay by relative, not absolute performance.

%note the ``expenditure cascade'' Frank argument. -->

Again, not an empirical claim per se, but it seems worth nothing that as per a priori logic, there may be runaway dynamics of inequality, for which we might have no *possible* counteracting tax institution.
pperhaps, we don't actually want to use that institution, or only to a limited amount, because its costs are too high, or the boons of overall growth are too great, but whatever, it'd be nice to have it available to the sovereign.

A complete empirical test of the governing dynamics of inequality is beyond the scope of this thesis.
[^5]
Here are some tentative statistics which support the thesis of self-reinforcing inequality.

According to the US Survey of Consumer Finances (SCF) the range between the lowest and highest sextile (!) of median before-tax family income has risen from \$145,000 in 1989 to \$170,000 in 2004 [@Bucks2006].
During the same period, the mean gap between the outer sextiles has increased from roughly \$245,000 to \$295,000 (*ibid.*).
The mean income gap for extreme quartiles of education of head of household has increased from \$80,000 \$115,000 (*ibid.*).
While the *median* net worth is reported to to be roughly \$90,000 in 2004, the respective *mean* is around \$450,000.
The median (mean) range between the outer quintiles (!) of net worth has increased from \$1,000,000 (around \$1,800,000) in 1989 to above \$1,400,000 (\$3,000,000) in 2004.
Interestingly, even the median (mean) gap between the topmost quintiles has increased from \$600,000 (\$1,500,000) to \$900,000 (above \$2,500,00).
[^6]

In Germany, a similar trend is discernible.
From 1998 to 2006, the Gini coefficients
[^7]
in real gross wages (not incomes!)
[^8]
continuously rose from 0.407 to 0.453 [@Bundesregierung2006 14].
Interestingly, even the range between the topmost deciles in share of all gross wages rose from 9.8 to 10.6 [@Grabka2007a 64].
For all gross (net) incomes the Gini coefficient rose (roughly continuously) from 0.465 (0.261) to 0.520 (0.316) [-@Grabka2007a 82].
The Gini of wealth distribution rose continuously from 0.745 in 2002 to 0.795 in 2007 [-@Grabka2007a 138].

In sum, inequality seems to be increasing over time, in labor and capital income, and in wealth.
Distributions of income and wealth are, in fact, decidedly non-normal, but starkly positively skewed as evidenced by the ever diverging medians and means.
These tentative statistics then support the central tenet of self-reinforcing governing dynamics of inequality.

[^2]: I assume here that market wages are low *only* because of low productivities, in keeping with condition itm:infinite-buyers-sellers ().
    If, by contrast, employers have great bargaining power over non-unionized workers (as appears to be the case in much of the service sector) they may receive low wages even when their labor productivities are adequate.
    Such Manchester-capitalism styled exploitation should be met with regulatory, not fiscal interventions:
    otherwise, government may end up transferring to exploitative firms.

    It does not matter *why* labor productivity of some groups of workers is in *relative* decline.
    Candidate culprits include international trade and finance (for example, discredited @Stolper1941) as well as skill-based technological progress [@Card2001].
    Whatever the reason for low relative labor productivities, an efficient fiscal configuration should help factor markets clear.

[^5]: Also, comprehensive data about income and wealth distributions are conspicuously hard to come by.
    Most government or international organizations report only various *risk of poverty indicators* or, at best, decile ranges or ratios.
    Gini coefficients, histograms or more comprehensive measures of income dispersion are not readily available, particular for wealth.
    The statistics that are provided oddly focus on poverty --- not on inequality --- and use *ordinal* measures of dispersion (decile ranges), which, by definition, conceal outliers in skewed distributions.
    The few, notable examples of more comprehensive datasets include the German Socio-Economic Panel Study (SOEP) [@Wagner2007; @Grabka2007].

[^6]: Comparing two years, of course, does not make a trend.
    For most indicators of inequality in the triennial SCF, there is a continuous upward trend beginning in the latter half of the 1990s, with a noticeable dip in inequality in the early 1990s [@Bucks2006].

[^7]: The Gini coeffecient is a comprehensive measure of inequality in cardinal distributions.
    It measures the divergence of actual distributions from uniform ("egalitarian") distributions.
    Zero is perfect equality, one is perfect inequality.

[^8]: Labor incomes are likely to display relatively *less* inequality than total incomes, or wealth.
    Labor incomes are (page ).

    It emerges the picture of a world, where the link between initial states and outcomes is highly non-linear.
    Marginal increases in, say, education, may lead to very large income effects --- or none at all.
    A world, where not everyone can be the meritocratic master of her own luck.
    A little more effort *may* get you that big year-end bonus, or a lot of effort may get you no reward at all.
    A world, where economic and social outcomes do not follow a bell-shaped distribution, with most people around mean incomes and status, and very few at the extremes.
    This is a world, where both those left and right of the mean will get ever farther away from it.

    The governing dynamics of inequality are that of the Matthew Principle, popularized by Robert K. [@Merton1988; @Jackson1968].
    Left to its own devices, the (post?)industrial economy is a "winner-take-all ecology" [@Taleb2007], accurately described in the words of scripture cited above.



## Bad Tax

> *"Things in tax are bad today."*\
> --- Edward J. @McCaffery2005 [893]



## Deliberation and Democracy

Why does deliberating taxation matter for democracy?

A dysfunctional mixed economy without good taxes may produce illegitimate outputs, and, in so far as it disturbs the state-market balance of the mixed economy, violates output congruence of a democracy [compare @Zurn-2000-aa 190].
Yet, even if experts could agree on a tax --- such as a promising, post-paid, cash-flow based [pct]{acronym-label="pct" acronym-form="singular+short"} --- the tradeoffs involved in choosing or calibrating a tax regime are irreducibly political.
For example, experts cannot *positively* inquire whether economic "growth" [^positive_sum] is in itself *virtuous*, which inter-subjective aggregation would be *utility-maximizing*, what *deontological* rights owners have or which human *relationships* should be governed by prices or command at all --- even if they could agree on any of those alternative ethics.

[^positive_sum]: More precisely, the reaping of greater non-zero-sumness from social integration [@Wright2000].

<!-- TODO these are all discussed in *wanted* chapter -->
<!-- Even to the extent that tax choice can be left to economic a-priori or empirical analyses, of, for example, \glspl{dwl}, such expertise relies on contentious views of human nature \citep[for a review,][]{Persky1995}, and observations of nature are, in any event, devoid of moral messages \citep[43]{Gould1982}. -->
These metaphysical conundrums are reflected in very concrete, technocratic issues in taxation.
<!-- TODO add complete list here, those are old links issues in taxation, including \glspl{dwl} (p.~\pageref{sec:tax-optimality}), \hyperref[sec:diminishing-marginal-utility]{diminishing marginal utility} (p.~\pageref{sec:diminishing-marginal-utility}), the \hyperref[des:structural-agnosticism]{treatment of capital income} (p.~\pageref{des:structural-agnosticism}), or \hyperref[sec:love-marriage]{joint spousal taxation} (p.~\pageref{sec:love-marriage}), respectively. -->
Likewise, experts cannot justify the axioms on which their (economic) analyses rest:
whether, and under which institutional circumstances we are homines oeconomici, cannot be exhaustively answered from observation, because nature provides no intelligible moral messages on what kind of man we *should* be [@Gould1982 43].
<!-- again reference wanted chapter -->
This ontological stance matters for tax, too:
for an expert to model a general equilibrium is to invoke, as well as to make, a homo economicus.

Of all conceivable institutions to resolve these disagreements, deliberative --- not aggregative, not pluralist, not participatory --- democracy offers the greatest normative appeal, because these disagreements raise, in @Habermas-1984's words, competing *validity claims*, in need of argumentative redemption, as in:
is "growth" *comprehensible*, who *truly* bears a [cit]{acronym-label="cit" acronym-form="singular+short"}, is homo economicus *right*, and are social insurance employer co-payments *truthful*?
I illustrate further more, and less valid claims on taxation.
<!-- %I illustrate further more -- language does not work -->
<!-- TODO referer to validity-claims tex table here! -->
<!-- TODO INPUT validity claims table here! -->

Liberal democracy, born out of the hope that material inequality and political autonomy *can* be reconciled, especially, rests on deliberation, because if anywhere, it is in taxation that money and power may have replaced language to govern meaning and action [@Habermas-1971].
In fact, if you wanted to hide some process of (re)producing inequality anywhere, you could hardly find a better place than the intricacies of (income) taxation (consider, for example "tax planning 101" in @McCaffery2005 [888]).

Instead of communicative action [@Habermas-1984], what emerges today from citizens, their legislatures and public spheres, may be more "analytic muddle of tax" [@McCaffery2005 862].
The beliefs held and issues considered in the public [for example, @Caplan2007], appear to bear little resemblance to the abstractions suggested by economists [for example, @Harberger1974].
People seem to ignore fundamental choices in tax [for example, @McCafferyHines2010], and may fall for inconsequential alternatives [for example, @SausgruberTyran2011], possibly even err systematically against their own material interest --- if they are on the lower economic rungs [for a German example, @Kemmerling2009].
Here, too, (input) congruence of democratic rule may be violated if and to the extent that people are confused about policy choices [compare @Zurn-2000-aa 90].


<!-- %What is wrong with pluralist democracy?
	%veto playing violates equality (in consociational designs, Tsebelis 2002)
	%Cooperation problems (in complex systems, for example, Hardin 1968, Scharpf 1997)
	%Rational ignorance (Surowiecki 2008, Taleb 2008)
	%Non-attitudes (converse 1970)
	%Heuristics and Biases (Tversky and Kahnemann 1982)
	%Amalgamated preferences (Condorcet 1785, Arrow 1950)
	%Cognitive Limits (Rosenberg 2003) -->
  <!-- %public choice is another way to say government failure, or failure of democracy \cite{Coase1964}
  %Of course, deliberation does not so much solve this problem, as it merely defines it away
  %But it may still be worth it to list them, for we cannot just ignore them.

  %[ ] PREFERENCE STRUCTURATION is the word for the public choice fuckup.

  %So I think there are two ways to go from this crisis of democracy:
  %- follow Caplan and seek solice in more market
  %This assumes, and strengthens the homo economicus view
  %For starters it may not work because some problems inherently require governance at a larger level, and not a market.
  %- follow Habermas and do DD
  %Assume and strengthen homo reciprocans, or at least homo intersubjective. -->

<!-- %collective action Manson why some issues get represented, others not. isn't that mancur olson? -->

<!-- \subsubsection{Condorcet}
			%for example, (\citealt{Mankiw-2004-aa}:485)

\subsubsection{Arrow}
			%for example, (\citealt{Mankiw-2004-aa}:485)

\subsubsection{Median Voter}
			%for example, (\citealt{Mankiw-2004-aa}:485)

\subsubsection{Liberal Paradox}
			%get into this proof by Sen http://en.wikipedia.org/wiki/Liberal-paradox -->

<!-- 
%from raes lecture on capitalism no 14 youtube
	%concentrated interests trump dispersed ones
	%well-financed interests trump poorly financed ones
	%defending the status quo is far easier than promoting change
	%agency capture is a big advantages
	%regulation may help those regulated more than it helps their putative victims -->

<!-- preference structuration: taxation should be especially vulnerable -->

<!-- %Value research points to increasing disaffection of voters, not with democracy as a system of rule, but with the institutions and performance of real-existing, sustained democracies \citep{Dalton-2004-aa}
%\footnote{
	%Dalton (ibid.) has pointed out that voter disaffection may in fact be regarded as democratically desirable, if we hold it to be indicators of critical citizen oversight of governance.
%This assumption --- that changing evaluation criteria may be for the better of democracy --- has some merit, but does not warrant inaction.
%Except to a very cold-hearted, and epistemologically narrow mind of rational choice, dwindling voter turnout (ibid.) must be alarming everyone that, if this ``snake [does not] shed its skin, [it may well] perish.'' (Antoine de Saint-Exup\'ery, The Little Prince).
%In any case, the material deficiencies and inequalities of our world point to political systems that are not beyond improvement.}.

%Explanations for voter disaffection and perceived underperformance vary, invoking amongst others ``government overload'' \citep{HuntingtonInternational-Affairs.-1968-aa}, ``post-material'' or ``emancipative'' change and dimensions of values \citep{InglehartWelzel-2005-aa}, mind-boggling ``reflexive modernization'' \citep{BeckGiddens-1994-aa} or a democratic deficit inducing ``denationalization'' {Zurn-2000-aa}.

%I employ here \citeauthor{PutnamPharr-2000-aa}'s \citeyearpar{PutnamPharr-2000-aa} model to explain decreasing citizen confidence in government and political institutions.
%As relevant ``boundary conditions'', they list increased \emph{information} about the flaws of the political process ``post-Watergate'', and heightened \emph{evaluation criteria} due to either, or both, rising and diverging expectations.
%Citizens then assess the performance of representative democratic institutions, which is in turn a product of the \emph{capacity and competence}, the \emph{social capital} and \emph{fidelity} of the governors.
%The capacity and competence refers to the \emph{ability} of governments to choose and to implement policies in the interest of their citizens, highlights a routinized decision-making process as such and points to a systemic level of analysis.
%Fidelity is an individual-level determinant of government performance, focusing on the incidental misconduct.
%Social capital affects performance as a ``civic lubricant'' as an infrastructure, or network of generalized trust between individuals. -->

<!-- %\subparagraph{Capacity} By capacity, I understand the \emph{ability} of democratic rule \emph{to act} in the interest of the people, that is, in the last instance, the ability to enforce collectively binding decisions.
%This reflects \citeauthor{Zurn-2000-aa}'s (\citeyear{Zurn-2000-aa}:
%188) notion of congruency between the social and the political spaces, where inputs and outputs of both realms must always occur at the same level.
%In simpler words:
%an input incongruence occurs (for example, disenfranchised illiterates), where people are affected by a political decision (or non-decision) of their own polity, in the making of which they had no say and an output incongruence (for example, international tax competition) is given when a polity is affected by a dynamic, over which it has no jurisdiction. -->


<!-- %\subparagraph{Competence} By competence, I understand the ability to \emph{reason} on and \emph{identify} \emph{policies} that are in the interest of the people, and, conversely, those, that are not --- and why.

%The distinction between capacity and competence --- in reality as in the following discussion --- is not as clear-cut as here stipulated.
%Where capacities are constrained, even a competent discussion is likely to anticipate which decisions are impossible to collectively enforce, and thereby retract on other ``second-best'' solutions.
%Conversely, a capacity to organize a public good hardly makes sense abstracted from, or in the absence of a competent understanding of its very possibility.
%The distinction therefore serves rather to structure the argument from different, albeit not entirely orthogonal angles. -->

<!-- Liberal, representative democracy, rests on a pluralist theory of governance (Louw 2005:15). Pluralism, being both empirical hypothesis and normative prescription supposes that political power is, and should be widely dispersed among society’s interest groups. These interest groups, made up of ever active citizens, openly compete with one another, thereby preventing any one of them to become a dominant elite. -->

<!-- Compared to gun control and abortion rights, the environment is a weakling of an issue. (...). (There,) the devil is in the details and voters don’t like details. (ibid.: 201) -->

<!-- # Loftager
deliberative democracy is the opposite to economic theories of democracy -->

<!-- %\section{How it Used to / \emph{was Supposed} to Work\ldots}

%\subsection{Preference Aggregation in Liberal, Representative Democracy}
%Liberal, representative democracy, rests on a pluralist theory of governance (\citealt{Louw2005}:15).
%Pluralism, being both empirical hypothesis and normative prescription supposes that political power is, and \emph{should} be widely dispersed among society's interest groups.
%These interest groups, made up of ever active citizens, openly compete with one another, thereby preventing any one of them to become a dominant elite.

%Institutional manifestations of pluralism abound in today's real existing democracies, both of the majoritarian and consociational type \citep{Lijphart-1999-aa}, including the right to form parties, (particularistic) associations, minority protection as well as constitutional checks-and-balances on government.

%\subsection{An Economic Theory of Democracy}
%Anthony \cite{Downs-1957-aa}, in his seminal spatial modeling of democratic competition, expanded pluralism into a democratic theory of public choice, based on the rational self-interest of both voters (to live under policies they prefer) and politicians or parties (seeking or maintaining political power).
%\begin{figure}
%	\includegraphics[width=1\columnwidth]{Downs-Median-Voter}
%\label{fig:Downs-Median-Voter}
%\caption{The Median Voter (Downs 1957:
%118)}
%\end{figure}

%\paragraph{The Median Voter}In its simplest form, reproduced in \autoref{fig:Downs-Median-Voter}, the ``Economic Theory of Democracy'' suggests that in a unimodal, unidimensional and symmetric distribution of voter preferences under a single-member plurality (SMP) electoral system, only two parties will compete for the median voter, taking on a central position only marginally different from one another.
%Any new parties or otherwise diversions from the median position would quickly move towards that equilibrium position again.

%Downs provides a theory, explaining how differing preferences and disjunct interest groups get channeled into fewer parties and stable equilibrium.

%\paragraph{The Median Voter\emph{s}}In Downs' defense from often misconceived reiterations and undue criticism:
%his theory, misleadingly reduced to a ``Median Voter Theorem'' does \emph{not} stop here.
%He employs his theory to a wide range of given preference distributions and electoral systems, including multimodal distributions (with \emph{several}, local median voters), multiparty competition under proportional representation and antecedent coalition government.
%He even suggests, in a prelude to the much later ``issue'' literature (for instance \citealt{Abbe2003}), that parties may choose to ``sprinkle'' their position over a number of issues, so as to appeal to a broader electorate (\citealt[137]{Downs-1957-aa}).

%\paragraph{In a Nutshell \ldots} What remains of Downs' theory, and is of central importance here is distilled in the following axioms:
%\begin{enumerate}
%	\item{Voter preferences can be modelled on a \emph{single dimension}.}
%	\item{Voter preferences are \emph{presocial}, or given \emph{ex-ante}.}
%	\item{The mode of party competition is a function of the voter preference distribution and the electoral system.}
%	\item{In the equilibrium, any mode of the preference distribution is occupied by a party, so as long as the electoral system threshold allows for another party.}
%\end{enumerate}

%\subsection{The Good Old Days:
%Late-Modern Pluralist Political Competition}
%Both \cite{Lazarsfeld1968} study of the 1940 U.S.\ presidential campaign and \cite{LipsetRokkan-1967-aa} historical account of party systems and voter alignments serve well as a contrasting foil for the post-pluralist critique to come.

%\paragraph{Erie County, OH, c.a.
%1940}Let's begin with Lazarsfeld, who in 1940 set out to study how voters made up their mind in Erie County, OH.
%He found a highly stable, neatly aligned political spectrum.
%77\% of the voters, he found, voted as their parents and grandparents had (\emph{ibid.}:
%xxxiii).
%People thought politically, as they were, socially:
%``social characteristics determine political preference'' (\emph{ibid.}:
%27) in that long past rural county.
%Also, and most significantly for the criticism to come, Lazarsfeld found that:
%\begin{quote} \emph{A very large majority of \textbf{both} groups thought that it would be the common man, the plain people, the working class, who would benefit if Roosevelt were elected.
%\textbf{Both} groups also agreed, although not to the same extent, that Willkie's victory would be best for the business class.\\ \citealt[28, emphasis added]{Lazarsfeld1968}.}
%\end{quote}
%Where campaigns where influential, they acted to make voting \emph{more} consistent with the social group of the voters (\emph{ibid.}:
%139).

%This is of course a finding very much in line with the modeling assumption of \cite{Downs-1957-aa}:
%voter preferences seemed to differ on a single dimension, and, to a large extent, where given.

%\paragraph{Where You Stand on an Issue Depends on Where You Sit \ldots}
%\cite{LipsetRokkan-1967-aa} provide a broader history of social cleavages and and antecedent voter alignments and party systems, of which the ``worker'' --``business'' nexus in Erie County is only the last of a number of stages.
%Analyzing the history of political competition in Europe, they lay out a dialectic of conflict and integration, ranging from early modern centre-periphery and church-state struggles to early-industrial urban-rural and late-industrial owner-worker conflict (\emph{ibid.}:
%93).
%These evolving cleavages, in their account, shape and diversify preferences and parties as new ones layer on past ones, slowly fading away.
%While their historical analysis is limited to Europe, a broader insight remains:
%how, at least in the past, political preferences and parties followed broader patterns of socio-economic difference and bifurcation\footnote{It should be noted that \cite{LipsetRokkan-1967-aa} with their suggestion of layered, cross-cutting cleavages, do of course stand in sharp contrast with \cite{Downs-1957-aa} assumption of a unidimensional preferences space.
%The implications of this early, conceptual disagreement with Downs are however of little relevance to the argument presented here.}.

%\paragraph{No Nostalgia\ldots}
%To be clear, not all was good in Erie County, OH, c.a.
%1940.
%These neatly-aligned voters, following more their family tradition than their own thinking, were far away from to the ideal of a well-informed, active citizen.
%The socio-economic determination of the preferences they displayed are the vert politics of zero-sum redistribution, which all too often result in violent strife and the destruction of a democratic system.
%This bifurcated electorate is the very antithesis to those cross-cutting cleavages that at least the consociational theorists of democracy cherish so much \citep{Lijphart-1999-ab}.

%\paragraph{\ldots and yet:
%it \emph{Worked}}
%Its non-emancipated voters and explosive configuration notwithstanding, some key characteristics of this late modern political competition seem worthy do condense, building on the aforementioned axioms of Downs:
%\begin{enumerate}
%	\item{Political preferences are presocial, given ex-ante.}
%	\item{Political preferences are determined by socio-economic status.}
%	\item{Political parties compete on differential policies, geared to different socio-economic strata, but on the same dimension.}
%\end{enumerate}

%\section{A Doubtful Demand Side:
%The Woes of the Rational Voter}

%\subsection{Our Dumb Voters:
%Non-Attitudes}
%The first grain of normative and conceptual doubt in the reliability of a Downsian, pluralist aggregation machine comes from \citeauthor{Converse-1970-aa}'s \citeyear{Converse-1970-aa} seminal work on ``Attitudes and Non-Attitudes''.
%In his panel studies, he finds that a substantial sub-group of voters has entirely random attitudes on, amongst others, the relative role of government and the market, with close to zero correlations between test and retest.
%This result, Converse warns, holds even when respondents were encouraged \emph{not} to respond.
%Moreover, the subgroup that displays random attitudes is more likely to report extreme attitudes in either direction.

%Less elegantly modeled, but more broadly applied findings come from a vast array of public opinion surveys, aptly summarized by \cite{Delli-CarpiniKeeter-1996-aa}.
%Findings suggest that many voters do not have even the most basic knowledge of political processes or platforms.

%A discussion of the complications and questions that arise from this area of research is beyond the scope if this treatment, and with limited relevance to the question at hand.

%It remains to be noted that the Downsian \citeyearpar{Downs-1957-aa} assumption of pre-social, unidimensional preferences, and to an even greater extent, Lazarfeld's \citeyearpar{Lazarsfeld1968} findings of socio-economically determined preferences, may no longer apply given widespread ignorance of voters.

%More generally, these findings cast doubt on the liberal assumption that an \emph{electoral} democracy with pre-social preferences and particularistic interest representation will achieve socially optimal decisions.

%\subsection{\emph{Rational Ignorance} to the Rescue}
%Theorists of Rational Choice respond to these doubts by pointing out that ignorance may well be rational, given how small a chance an individual vote stands to turn the election (particularly under SMP) \citep{Olson-1971-aa}, and that largely ignorant masses can still produce socially optimal outcomes if their errors are random \citep{Page1993, Surowiecki2004}.

%While I find the pride, that evangelists of Rational Choice take in the Olsonian escape from participation quite dubious, a broader appraisal of the merits and problems of Rational Choice is beyond the scope of this piece.

%It will suffice to accept their framework of human motivation and to simply question the empirical validity of the ``Wisdom of Crowds''.
%This argument presented by a host of authors (see above), and recently popularized by \cite{Surowiecki2004} proceeds as follows:
%if all those ignorant voters cancel each other out in their \emph{random} aberations from the socially optimal, the remaining, knowledgeable voters will decide the election, as \emph{their} choices will differ \emph{systematically} from the mean.

%\subsection{What if Errors are Systematic?}
%Bryan \cite{Caplan2007} has recently provided ample evidence and a compelling framework to cast doubt on this assumption.
%In his passionate dismantling of ``The Myth of the Rational Voter'', he describes how uneducated opinions on economic matters will \emph{systematically} differ from the average, following what he describes as an \emph{antimarket}, \emph{antiforeign}, \emph{make-work} and \emph{pessimistic} bias.

%If \citeauthor{Caplan2007} is right, and voters do in fact err systematically on matters which they understand inadequately, there will be no Wisdom of the Crowds, but instead a tyranny of the biased masses.

%\subsection{What if the Value Space is \emph{N}-Dimensional?}
%Another set of empirical finding incompatible with \cite{Downs-1957-aa} assumption comes from political sociology, where an entire field of sophisticated surveys and competing theories has evolved, probing into the dimensionality and change of the postindustrial value space.

%It will suffice to point to one set of findings here.
%In their work, \cite{InglehartWelzel-2005-aa} not only single-handedly integrate value change into a reanimated version of modernization theory, they also provide a host of empirical findings from the World Values Surveys, showing that, at the least, the value space is now two-dimensional, with an axis of traditional vs.\ secular-rational values, and a second axis of survival vs.\ self-expression values.
%The authors describe a wide-reaching change in direction, from the former pre-modern to modern dimension to the latter modern to postmodern dimension, but note that this is neither an irreversible nor universal process and that in any given society, people will differ on more than one dimension.
%Other, broadly corroborating findings come from \cite{FlanaganLee-2003-aa}, who explicitly relates value change to a complication in political competition and \cite{Schwartz-1994-ab}, who suggests a whole circle\footnote{The problem of visualizing more than two dimensions in a \emph{circle} is duly noted.
%From statistical work for Chris Welzel, this author can attest to the apparent necessity to (overly) simplify empirical findings of the value space until they are readily presentable in two-dimensional form.
%Such multidimensional scaling and forced factor analyses at almost all cost in terms of model fit, to the author, indeed appears to be a troubling habit of value research.} of independent dimensions.

%\subsection{Problems with Downs}
%From these empirical findings and conceptual refinements arise a number of potential incompatibilities with Downs model of political competition and antecedent, optimistic ideas of socially optimal public choice under pluralist democracy:
%\begin{enumerate}
%	\item{A substantial subset of voters appears to harbor irrational, and systematically skewed beliefs.
%A simple aggregation of preferences appears unlikely to result in socially optimal policies.}
%	\item{Any given postindustrial electorate is likely to differ on more than one dimension in their political preferences.}
%\end{enumerate}

%These incompatibilities alone, albeit preliminary in nature, would require a thorough rethinking of pluralist prescriptions and analyses of liberal, representative democracy undergoing Downsian aggregation.

%\section{Messing with the Supply Side of Democracy ---\\A Theory of Dysfunctional Political Competition for Dealigned and Irrational Voters}

%\begin{quote}
%	\emph{I'm a little angry that I apparently was voting in a completely different election than most of the country.
%I thought we were having a rational discussion about how best to protect ourselves in perilous times ---\\ and actually, it was a referendum on boys kissing.}\\\\
%	Comedian Bill Maher on his HBO special ``I'm Swiss'', referring to the 2004 U.S.\ presidential election.
%\end{quote}

%Speaking in economic terms, the preceding section dealt with questions regarding the \emph{demand side} of \citeauthor{Downs-1957-aa}'s \citeyear{Downs-1957-aa} ``Economic Theory of Democracy'':
%the condition and abilities of voters.

%In the following, I want to direct the view to the \emph{supply side} of political competition:
%to the parties and candidates that compete for majorities and to the campaigns they wage.

%\subsection{A Neo-Downsian Theory of Dysfunctional Political Competition}

%To hypothesize a Neo-Downsian Theory of Dysfunctional Political Competition, accounting for and problematizing the above described dynamics in political campaigning, I add to \cite{Downs-1957-aa} model specification the following:
%\begin{enumerate}
%	\item{Voters differ in their preferences on a number of mutually orthogonal dimensions.}
%	\item{Voters differ in the importance they assign to different dimensions.}
%	\item{Voters differ in the importance they assign to positions \emph{along} one dimension.}
%	\item{Parties can choose which dimension(s) to campaign on.
%No agreement on dimensions is necessary.}
%	\item{Campaigning is costly.}
%	\item{Costs are the financial and otherwise efforts required to activate or convince a voter of any party given position on any given dimension.}
%	\item{Dimensions have different cost functions.}
%	\item{Cost functions are allowed to take any form, independent from the preference distribution, and including skewed and/or multimodal.
%(See \autoref{fig:Neodowns})}
%	\item{Parties aim to maximize their utility function, where marginal costs of campaigning are same as marginal vote increases.}
%\end{enumerate}

%\begin{figure}
%	\includegraphics[width=1\columnwidth]{NeoDowns}
%\label{fig:Neodowns}
%\caption{The Median Voter (Downs 1957:
%118), with an inverse cost function overlaid.
%For more intuitive appeal, the overlaid function is \emph{not} the cost function, but the propensity of voters at the given position to be activated or convinced by a campaign.}
%\end{figure}

%It is unfortunately beyond my abilities to completely visualize the multidimensional model specified in the above, which would also have to be fully specified in formal math for further elaboration.

%For illustration, I have merely overlaid a hypothetical cost functions to Downs classic graph in \autoref{fig:Neodowns}.

%\paragraph{Introducing Variable Costs of Campaigning} It is first assumed that voters do in fact, vary in their preferences on more than one dimension.
%The number of, and potential correlations between dimensions (making them less than completely orthogonal in a multidimensional scaling) is of no concern here.
%Furthermore, the costs and rewards of campaigning are overlaid on Downs model.
% It is assumed that the effort required to activate (GOTV) or convince a voter vary as a function of her position on the chosen dimension.
%It is furthermore assumed that these cost functions differ in their overall integral as well as their shape:
%some dimensions are cheaper to campaign on overall, and some positions on some dimensions are easier to communicate than others.

%The above model specifications also allow voter preferences to vary in importance \emph{across} different and \emph{along} single dimensions.
%It is assumed here that these differences in assigned importance of voters are fully captured in the cost functions of the parties.
%This is a reasonable simplification:
%voters will be more easily (and cheaply) activated on positions and/or dimensions they already feel strongly about.

%\paragraph{How Will Parties Act} The incentives for parties to act are then substantially complicated.
%They will no longer, as \cite{Downs-1957-aa} assumed, simply compete for a vote share around some mode in the unidimensional preference distribution.
%Instead, given their budget constraint, they will choose their positions on, and dimensions they compete on, as a function of their campaigning costs and the chances to activate or convince a voter.
%In simple terms:
%they will campaign so as to maximize the ballot bang for their buck.

%From these incentives then emerges a rationale to choose positions \emph{between} preference distribution modes (the classical Median Voter prescription) and nereby, \emph{local} minima in the cost of campaigning function, or conversely, \emph{local} maxima of importance assigned by voters.

%Parties will multiply the ex-ante preference distribution with the costs of campaigning function and solve for that position that offers the best ratio of votes for campaign money invested.
%Exogenous budget constraints of parties may further alter this calculation.

%\paragraph{Introducing Strategic interaction}
%Choosing party platforms, and campaign positions is of course, as \cite{Downs-1957-aa} pointed out, a \emph{strategic interaction}, or simply:
%a game.
%The rationale of one party to choose a position depends, amongst other things, on the chosen positions and dimensions of all competing parties.

%This further complicates party incentives.
%As parties in an election --- per definition --- care about \emph{relative} payoffs, rather than \emph{absolute} payoffs, they will choose positions and dimensions, which, based on the real or anticipated campaigning of competing parties, will offer them the relatively highest ballot bang for the available campaign buck.

%\subsection{Different Dimensions for Different Voters}
%\paragraph{Converse, Redux:
%A Sweet Spot for Dumb Voters?}
%This model becomes more tangible and persuasive when interpreted in light of \citeauthor{Converse-1970-aa}'s \citeyearpar{Converse-1970-aa} insights.
%His subset of ``random'' voters appears to be more likely to be easily swayed by campaigns on dimensions \emph{different} from the mainstream of political competition than those ``systematic'' voters who held reliable, and potentially educated beliefs on the relative role of government and the market.

%Without conceptually stretching Converse's finding too far, they can at minimum be interpreted as support for the model's specification that different groups of people can relate with different ease and reliability to different dimensions.
%In political campaigning, that ease and reliability translates into campaign spending required to harvest voters.

%Converse's staple item on the relative roles of government and the market, appears to be a suitable dimension to appeal to some, educated voters who will \emph{systematically} respond to positions taken by competing parties.
%Other voters, who have displayed \emph{randomly} changing attitudes on the subject matter are unlikely to be reliably activated or persuaded by campaigns on this dimension.
%For them, in particular, other dimensions unbeknownst to Converse may be more suitable.

%Note also that the second, uneducated group of voters may be \emph{per se} more interesting to political campaigns:
%with relatively less developed political attitudes, and party alignment they constitute a battle ground where potentially, with the right, effective dimensions chosen, many more votes are at stake for political campaigns.
%By contrast, the group of educated voters with systematic and stable responses on the government-market dimension may be hard to win over, and relatively ineffective to mobilize given the typically higher turnout among these voters.

%In the language of the proposed model, the first, uneducated groups may provide a number of dimensions on which cost functions have a relatively small integral, or provide concentrated, ``sweet spots'' where a large number of voters can be reached with little effort.
%Put provocatively, dumb voters may just provide parties with more bang for the buck.

%\paragraph{False Class Consciousness, Redux:
%Screwing \emph{Joe the Plumber}}\footnote{No pun intended.}

%\begin{quote}
%	\emph{It's not surprising then they get bitter, they cling to guns or religion or antipathy toward people who aren't like them, or anti-immigrant sentiment or anti-trade sentiment as a way to explain their frustrations.}\\\\
%	Barack H.~Obama at a closed-door fundraiser in 2008, referring to the economically disadvantaged, sparking off the ``Bittergate'' controversy.
%\end{quote}

%While Barack Obama's comment in the 2008 primaries may be regarded as strategically unwise, it's sociological intuition does point to more worrisome implications of the above-mentioned dynamics.
%Political sophistication, like education in general, of course tends to correlate with socio-economic status.
%Richer, better-off people tend to have more systematic political attitudes and more knowledge of policy and process.

%I does not take a Marxist view of class or history to understand that this correlation, taken together with the greater and cheaper electoral benefits that relatively uneducated voters stand to offer, may blanket out from the political competition the interests of the underprivileged.

%\emph{Joe the Plumber}, who during the 2008 campaign criticized Barack Obama's tax cuts as being ``socialist'' and erroneously believed that he himself were to be disadvantaged by Obama's plan, is now a proverbial shorthand for screwing the poor in discourse and campaigning.

%The above model hypothesizes a compelling dynamic that could explain the systematic errors of attribution of their misfortune, to which Joe the Plumber and bitter Rust Belters fall prey.
%It may just be cheaper for parties to appeal to gun ownership, anti-foreign sentiment and religiosity rather than address head-on the economic condition of these unsystematic voters, whose redistributive repercussions, in turn, may alienate other, more systematic and richer voters.

%Moreover, and without a historical-materialist conspiracy theory in mind, a critical analysis must ask whom this dynamic benefits in the broader socio-economic scheme of things.

%\subsection{A Race to the Bottom of Impoverished Politics}

%\paragraph{Some Speculation, Some Informed Intuitions}
%Granted, much of the above critical application of an hypothesized neo-Downsian theory of dysfunctional political competition is in the realm of speculation, and far outstretches the empirical findings of \cite{Converse-1970-aa} and others.

%Particularly the concern about a possibly resultant socio-economic uncoupling belongs into the realm of empirical testing, not self-righteous certainty.

%And yet, some informed intuitions remain uncomfortably plausible.
%If voters do indeed differ in the degree of their political sophistication, then those relatively uneducated voters may provide parties with a fruitful battle ground, if on different dimensions.

%What are these dimensions going to be all about?
%By definition, they will try to persuade and mobilize voters on preference spaces and positions that are relatively easy to communicate and understand.

%\paragraph{Cooperation Problem on the High Road}
%There remain little reason why these easily communicated dimensions should then retain any meaningful relation to the true \emph{Public Choices} of our common polities.
%A political competition on preferences remote to the actual policy alternatives ahead, is, in fact, reasonably unlikely to foster the common good, as pluralist and liberal theorists of democracy had hoped.

%What could emerge, is a \emph{Prisoner's Dilemma} game between parties and our wider polity, where going the easy, cheap and low road, is always a dominant strategy, given the broader and more concentrated benefits that it provides vis-a-vis the widely distributed costs of socially suboptimal policy.
%The payoff matrix of such a Prisoner's Dilemma with approximate strategic choices is reproduced in \autoref{tab:BottomRace}.
%It includes, for illustration, examples policies easy to communicate for the Republicans and Democrats, compared to payoffs for a political competition on ``alternative conceptions of the common good'' (\citealt{Cohen-1989-aa}:
%23)\footnote{This payoff matrix is not a well-defined model of a strategic interaction, but rather an illustration of an intuited race to the bottom dynamic.
%In its complete strategic form, the payoff matrix would have to account for a greater number or different specification of players, where the costs of socially suboptimal policy are accrued not to the parties, but, as they are in fact, to the entire population.}.

%\begin{table}[htbp]
%  \small
%   \begin{center}
%\begin{tabular}{m{1cm}m{2,3cm}m{2,3cm}m{2,3cm}m{2,3cm}}
%& & \multicolumn{2}{c}{\emph{Democrats}} \\
%& &Common Good Argument & Anti-Trade\\
%\cline{3-4}
%\multicolumn{1}{c}{\multirow{4}{*}{\emph{Republicans}}} & \multirow{2}{2,3cm}{Common Good Argument} & \multicolumn{1}{|r|}{3} & \multicolumn{1}{r|}{4}\\
%\multicolumn{1}{c}{} & \multicolumn{1}{c}{}& \multicolumn{1}{|l|}{3} & \multicolumn{1}{l|}{0}\\
%\cline{3-4}

%\multicolumn{1}{c}{} & \multirow{2}{2,3cm}{Pro Gun} & \multicolumn{1}{|r|}{0} & \multicolumn{1}{r|}{1}\\
%\multicolumn{1}{c}{} & \multicolumn{1}{c}{}& \multicolumn{1}{|l|}{4} & \multicolumn{1}{l|}{1}\\
%\cline{3-4}

%\end{tabular}
%\end{center}
%   \caption{A Prisoner's Dilemma of Racing to the Bottom of Impoverished Political Competition}
%   \label{tab:BottomRace}
%\end{table}

%\subsection{Past and Current Conditions of Public Choice and Socio-Economic Structure}
%Comparing this model to the foil of late-modern political competition documented by \cite{Lazarsfeld1968}, one vexing question arises:
%why would political competition have been any less dysfunctional in the 1940s than today?

%Surely, voters were no more --- probably a lot less --- sophisticated than today, and parties were as self-interested as ever.
%And yet, from the almost idyllic account of Erie County, OH, emerges the idea of a somewhat functional political competition between Roosevelt and Willkie.

%One must be careful not to idealize the past, and in particular, the politics of the 1940s.
%These were, as described in the above, seemingly idyllic, but also times of suppression, unquestioned authority, tradition and unyielding socio-economic division, all overcome today.

%What makes Roosevelt vs.\ Willkie a fairer fight, even given its ``proto-democratic'' playing field, is that the policy alternatives of the day were sufficiently crude so as to be easily, and cheaply communicated.
%As \citeauthor{Lazarsfeld1968} (\citeyear{Lazarsfeld1968}:
%28) chronicle:
%\begin{quote}\emph{A very large majority of \textbf{both} groups thought that it would be the common man, the plain people, the working class, who would benefit if Roosevelt were elected.
%Both groups also agreed, although not to the same extent, that Willkie's victory would be best for the business class}.
%\end{quote}

%At the time, as \cite{LipsetRokkan-1967-aa} describe, this capital-labor cleavage was indeed still the dominant socio-economic fault line.
%Surely, other issues, such as U.S.\ intervention in the war and the respective fitness for office of the candidates were also important --- and arguably much harder to decide.
%But still, one preference dimension at least remained on which people could easily, and appropriately locate.
%For at the time, redistributive interventions (New Deal, worker rights, progressive income tax) in the mass late-industrial bifurcation of ownership of the means of production, were in fact predominant, and \emph{real} Public Choices.

%In game theoretic terms, campaigning on late-industrialist redistribution was a \emph{dominant} strategy, which, because it was so cheap to communicate and resonated so well, would pay, no matter what the other party did.

%Today, I argue, the Public Choices and socio-economic structures of a postindustrial economy are much too complex to be easily communicated.
%Redistributive alternatives, or, more topically, questions of \emph{equal opportunity} remain, to be sure.
%But in a time of widespread ownership of the means of production (think:\ private insurance, pensions) and increasing international competition (think:\ offshoring), answers are more complicated.

%These are questions on which even professional economists can reasonably disagree on, as the common adage goes, and surely, communicating their vexing complexity is no easy business for a campaigner --- especially, when the opponent takes the low road.

%The redistributive positions and dimensions that \emph{are} campaigned on by todays parties are so obviously misleading in their empty sloganeering that not even the faintest relation to substantive policy, let alone socio-economic interests of voters can be ascertained.

%To name just a few from recent German debates and campaigns:
%\begin{enumerate}
%	\item{Is a smaller net/gross tax gap really good for everyone, when the balance is paid through an increasing (degressive) VAT?}
%	\item{Is a minimum wage really good for the working poor and unemployed people if it risks greater unemployment?}
%	\item{Is a cash-for-clunkers scheme really good for the environment and the broader economy?}
%\end{enumerate}

%In fact, just from a cursory evaluation of these, and many other widely communicated policies, it appears that their greatest merit may lie in their very simplicity and intuitive feel --- and not so much their quality and appropriateness.

%This is now the very condition of a globalized, postindustrial economy and society, where individual life chances and the collective good are determined by complex, mutually reinforcing, often non-linear causalities, with ever greater interdependencies between the parts and the whole.

%To this world, it appears, a political competition between self-interested parties, following dominant strategies to campaign on the cheapest dimension available, is a uniquely poor match.

%\section{A Reality Check:
%Political Campaigning Today}
%Changes in the available technologies and methods for political campaigns are of course another corollary of that complexly interacting, and ever progressing world.
%These very innovations of political campaigning could be understood as enabling a dysfunctional race to the bottom.

%In the following, I list and critically evaluate recent developments in campaigning in the light of an hypothesized theory of neo-Downsian political competition.

%\subsection{Accounts of Changing Political Campaigning}
%\subsubsection{Deconstructing the Hype}
%A vague air of dysfunction much in line with the hypothesized dynamic presented in the above emerges, for example, from \citeauthor{Louw2005}'s \citeyearpar{Louw2005} account of ``The Media and Political Process''.
%He warns that we increasingly inhabit a world of secondhand, (mediated) images which we naturalize as `the way things are'.
%In classic constructivist manner, he asks to `de-naturalize' these image, and render visible the conditions and rationales of their production.
%While more concerned with the highly professionalized scripting (or constructing) of hypes, Louw's culture pessimism of the constructivist kind can also be construed (no pun intended) as a critique of competing on easily communicated dimensions:
%\begin{quote}\emph{Those scripting hype politics are concerned with agenda setting --- i.e.\ trying to direct the gaze of the public away from issues that might prove problematic for policy makers, and directing their gaze towards issues deemed helpful for steering society in the direction desired by policy elites.}
%(\citealt{Louw2005}:
%274)
%\end{quote}

%Constructivists have long described the efforts of \emph{identity entrepreneurs} --- or issue entrepreneurs -- as a self-interested project of constructing meaning \citep{Brubaker-2002-aa}.
%Borrowing \citeauthor{Weber-1918-aa}'s \citeyearpar{Weber-1918-aa} classic adage, these entrepreneurs live \emph{for} as well as \emph{off} the issues and identities they construct.
%In the proposed neo-Downsian theory of dysfunctional political competition, much the same can be said of self-interested parties, choosing and testing positions and preference dimensions.

%\subsubsection{Issues are Non-Issues}
%The recently evolving literature of \emph{issue-based} campaigning, properly re-interpreted also provides some support for the hypothesized neo-Downsian dynamic.
%The theory specified here, however, also suggests that this field of research should denaturalize its concepts and should adopt a fundamentally more critical perspective.

%Quite trivially, \cite{Abbe2003} report that voters are more likely to support candidates and parties with whom they agree on the importance of issues, for example centering a campaign on either restoring moral and ethical standards (Republican owned) or improving education (Democratic owned).
%They conclude from their analysis of staffer-reported campaign issues and vote shares in the 1998 U.S.\ House of Representatives election that issues are superseding socio-economic status, and almost happily advise that candidates ``dominating the issue agenda enjoy important advantages at the polls'' (\citeyear[428]{Abbe2003}).

%\citeauthor{Abbe2003}'s \citeyearpar{Abbe2003} work on issue voting is fraught with a number of troubling misconceptions.

%Most importantly, they naturalize the list of issues presented to them uncritically, and make the campaign staffer sloganeering on ``education, social security, taxes, the economy, health care and moral/ethical standards'' (\emph{ibid.}:
%421) part of their analytical toolkit.
%You do not have to be a hardcore constructivist to endorse its lesson that such concepts are indeed ``what we want to explain, not what we want to explain things \emph{with}'' \citep[165]{Brubaker-2002-aa}, emphasis in original).
%In fact, one would expect that it does not take more than common sense and a critical mind to recognize that ``education'' vs.\ ``taxes'' are not \emph{real} policy alternatives, on which \emph{any} real political competition could, let alone \emph{should} be waged --- if only for the obvious point that public education \emph{requires} taxation.

%At the least, when all their sloganeering-gone-science is done, \cite{Abbe2003} should deconstruct the issues presented into the ideological alternatives that underly them:
%a belief that ``the economy'' is a more important issue than ``education'' \emph{does} embody an ideological --- if unsophisticated --- predisposition to place more emphasis on the market and material values, rather than typically public and emancipating education.
%Were \citeauthor{Abbe2003} honest, they would concede that even their data bears out this conclusion that \emph{really, issues are non-issues}:
%the conditional probability for a voter to vote republican with shared issue priorities (.17) is --- hardly coincidentally --- the same as the respective coefficient for republican ideology (.18) (\emph{ibid.}:
%425).

%The flawed reasoning on ``issue'' campaigns becomes apparent when you consider ``social security''.
%That a republican candidate is unable, as they show, to successfully campaign on this issue to voters who prioritize it, has obviously little to do with any sort of ``ownership'' of the issue:
%it is just that Republicans happen to be widely known to wish to \emph{cut} social security, an agenda that is unlikely to be popular with people who think of these government programs as important.
%In short, there \emph{is} no successful way for a Republican to campaign on social security, not because he lacks ownership, but because this \emph{issue} is in fact a \emph{preference}, and one that Republicans do not share.

%Latently affirmative of the changes they chronicle, \citeauthor{Abbe2003} should remake their work on issues into critical analyses of these foul tricks to remake the political and social world into a world of choices that really do not exist.

%Likewise, theoretically lightweight as their present work is, they should set out to explain how and under which circumstances campaigns are able to discursively establish these pseudo-choices and priorities, an attempt that will likely lead them to the more fruitful framework of Agenda Setting.

%\subsubsection{Innovations in Campaigning}

%\paragraph{Professional Campaigns}
%\cite{Gibson2001} provide a succinct analytical integration and party-centered explanation of the changing nature of political campaigning.
%Like others in the field, they see three stages in the development of political campaigns, with the recent transformation towards \emph{professional campaigns}, that are elsewhere referred to as \emph{post-modern} or \emph{Americanized} campaigns.
%These new campaigns share their use of modern information and communication technology (including automated analytics and messaging technologies), are generally expensive, continuous and neatly targeted in their efforts, with a strong national center\footnote{Local chapters are however able to carve out some degree of independence, and may launch their own professional campaigns, as \cite{Strachan} describes.}.

%In accordance with the framework suggested here, \cite{Farrell2000} describe professional campaigns as changing from catch-all to a market-segmentation approach and \citeauthor{Gibson2001} \citeyearpar[32]{Gibson2001} point out that:
%\begin{quote}\emph{Voters are seen more as consumers than loyal partisans, to be wooed with sophisticated advertising rather than serious political education.}
%\end{quote}

%Professional campaigns should not be thrown out like the proverbial baby with the bathwater.
%Their power to organize communication in large and functionally differentiated societies is  a blessing --- when put to use responsibly.
%Deploring mediatization, as some of \citeauthor{Strachan}'s (\citeyear[72]{Strachan}) protagonists do, is besides the point.
%In a modern, functionally differentiated society (``mass'' being a redundant qualifier), facing a multitude of complex public choices, some degree of specialization and mediatized communication is of the essence.

%And yet it also carries within it the organizational and technological seeds enabling a neo-Downsian race down to the lowest discursive denominator and is deeply embedded in this dynamic.

%\cite{Gibson2001} may understate and misconceive the role of parties in the emergence of professional campaigning, when they only point to increased education of the electorate, newly available communications technology and regulatory changes, tipped by recent electoral defeats and internal power struggles.
%Rather, it is suggested here, professional campaigns should be understood as (dominant) strategies adopted by parties, seeking to maximize their ballot bang for the campaigning buck, in a complex world of partly unsophisticated voters, who can no longer be activated or convinced on a single or simple preference dimension.

%When professional campaigning is in fact found to serve this purpose, we must turn our analytical attention to the \emph{interaction} and \emph{interdependence} of organizational and technological innovations and the degenerate political competition they serve to target, script and optimize.
%We must then describe and criticize professional campaigns as what they are:
%a dysfunction.

%\paragraph{Technology is Epiphenomenal}
%A prominent theme in the literature on professional campaigns is technological innovation, particularly web-based products and services.
%As awe-inspiring as these technologies are, they are, as such, as epiphenomenal as the shift from black-and-white to color TV.

%\cite{Gueorguieva2007} provides an instructive example of the dangers of a-theoretical technological determinism and hype.
%When she describes how a democratic campaigner was staffed to record public appearances of the republican opponent and upload borderline racist ``mishaps'' onto YouTube, with subsequent outrage and wide popularity, it is not clear at all what the substantive contribution of YouTube as a medium is.
%Clearly, any local cable station or even network, would have gladly accepted the same footage, and brought it to a wide audience by much of the same logic that said inflammatory material garnered popularity in YouTube.
%Genuinely excited, \citeauthor{Gueorguieva2007} really seems to believe that YouTube ``provides free and broad dissemination of campaign messages and ads, thus affecting the campaign budget'' and that ``its nearly 20 million unique visitors per month are also a considerable audience'' (293).
%She fails to note that visitors on YouTube --- which also is \emph{not}, as she claims, a \emph{social network} --- are not \emph{all} exposed to \emph{all} the footage uploaded, but that views are widely dispersed, and that six-digit views for any \emph{single} video are exceedingly rare and hard to achieve.
%The much more relevant dysfunction of campaigning based on verbal mishaps of one's opponent appears to be amiss to her.

%Much of the excitement and, more often than not, misconceived \emph{namedropping}, should be replaced by a theoretically integrated argument explaining \emph{why} and \emph{how} exactly this new technology matters.
%Surely, these technologies appear likely to allow for much greater individualization, targeting and new forms of interaction --- but a mere \emph{restating} of that question, with a few Web 2.0-references thrown in for good measure is not quite yet social \emph{science}.

%Following the framework suggested herein, technological innovations must be investigated in terms of them enabling parties to gather intelligence on, and compete on more preference dimensions and optimize their dominant strategy of ballot bang for the campaign buck.

%\paragraph{From the Evil Campaign Strategist's Cookbook}
%Clear and unabashed support for a neo-Downsian theory of dysfunctional political competition --- while unbeknownst to him --- comes from \cite{Malchow2003}, providing hands-on advice how to maximize your ballot bang for the campaign buck in his handbook on ``The New Political Targeting''.

%Right in line with the above model specification that parties care about the ballot bang/campaign buck ratio, he shamelessly admits that ``The task of the campaign strategist is to find the easiest path to victory'' (\emph{ibid.}:
%9) and advises to ``spend your money where you get the most value'' (\emph{ibid.}:
%256).

%He is also outspoken with regard to the dimensions and preferences that will work best:
%\begin{quote} \emph{Compared to gun control and abortion rights, the environment is a weakling of an issue.
%(\ldots).
%(There,) the devil is in the details and voters don't like details.} (\emph{ibid.}:
%201).
%\end{quote}
%He goes on to describe how powerfully and easily gun control can be employed to mobilize\footnote{He also notes how, in a uniquely perverse irony of history, increasing gun registration legislation has generated databases that allow pro-gun campaigners to target and mobilize their sympathizers effectively.}:
%\begin{quote} \emph{Gun control has been an important factor in deciding the outcome of many elections --- usually by defeating the pro-gun control candidate.
%While broad majorities in most states support gun control laws, those opposed to gun control are more energized and ready to vote for their guns.
%The ability of the National Rifle Association and other gun-owner organizations to find and mobilize
%their supporters has become a powerful force in politics and has given the gun lobby clout far in excess of its public support} (\emph{ibid.}:
%198).
%\end{quote}

%These cynical admissions of a campaign strategist corroborate the suggested neo-Downsian theory in a number of ways:
%\begin{enumerate}
%	\item{Professional campaigns maximize vote share for the buck.}
%	\item{Professional campaigns choose and pick dimensions and positions on which to campaign strategically.}
%	\item{The cost function to mobilize or convince voters is independent of the overall, underlying preference distribution:
%in this case, the nutbar ``pickups and shotguns'' guys (an official type from Malchow's book, \emph{ibid.:
%10}) rule the day, not because they are many, but because they are easily committed.}
%	\item{Campaigns are willing and able to choose supposedly socially suboptimal positions (pro-gun), independent of the median voter's position (anti-gun), and on a dimension (gun control) arguably somewhat secondary in importance.}
%\end{enumerate}

%In a revealing choice of words, \cite{Malchow2003} also supports the supply-side view that this theory adopts, and casts into doubt any hopes for voter empowerment by dealignment and individualization when he describes his trade as one of ``harvesting voters'' (\emph{ibid.}:
%10).

%\subsection{There is no Conspiracy}
%Democratic governance has met its enemy:
%it is us, when we heed the temptations of strategic campaigning.
%And yet, even after peeking into \citeauthor{Malchow2003}'s cookbook, some cautionary notes against conspiracy theorizing are required.

%As \cite{Louw2005} reminds us in classic pluralist fashion, even insiders are no conspirators:
%they are many, they compete, and they are in factions.
%More often than not, attempts to seize power by discursive manipulation of the strategic kind fail.
%As \cite{Hall1980} has forcefully argued:
%encoding and decoding are complex processes, and they are imperfectly understood and anticipated by would-be manipulators.

%\subsection{Strategic Interaction under Agenda Setting}
%I will introduce one further complication to the above model by relating to the theory of Agenda Setting, a frequent topos in the campaigning literature, aptly summarized as `not telling you what to think, but what to think \emph{about}' \citep{McQuail-2000-aa}.

%To model agenda setting in the context of the theory suggested here, model specification four has to be altered:
%when agenda setting matters, parties \emph{cannot independently} choose dimensions to campaign on, they are instead limited in their choice by whomever moves first, or more effectively.
%In line with this specification, \cite{Farrell2002} note that there are ``conscious attempts to set the agenda and define the terms of public debate''.

%On the other hand, it appears unlikely to assume that the agenda setter can impose any issues or dimensions on other players.

%Agenda setting under a neo-Downsian theory of dysfunctional political competition then appears as a veto player problem \citep{Tsebelis-2002-aa}, where first movers or powerful agenda setters can exert undue influence on the consensually agreed-upon dimension(s) of campaigning by anticipating other players indifference curves, and pre-empting other players moves.

%A full adaptation and specification of Tsebelis is unfortunately beyond the scope of this piece, but will surely be a worthwhile endeavour.

%\section{The Only Fix:
%Deliberation on the Common Good}

%\subsection{Avenues and Imperatives for Further Research}

%\paragraph{Lots of Questions Asked} Surely, all of the above presented is but an hypothesis awaiting empirical tests, albeit a plausible one.
%Key empirical questions include:
%\begin{enumerate}
%	\item{Does political sophistication vary with socio-economic status?}
%	\item{Do political parties choose campaign dimensions and positions based on costs of convincing and mobilizing, when other positions closer to the median voter are available?}
%	\item{Do qualitative interviews with campaign strategists corroborate the dynamics of political competition presented herein?}
%	\item{Are chosen campaign dimensions and positions systematically of subordinate importance, or tend to obscure redistributive issues?}
%\end{enumerate}

%\paragraph{No Benefit of the Doubt}And yet, when a dysfunctional political competition of the neo-Downsian kind can be made plausible, or even just from a cursory inspection of today's political debates:
%in a critical social science, there can be no \emph{benefit of the doubt} for professionalized, targeted and strategic campaigning.

%\paragraph{Theory, no Post-isms} The study of post-modern campaigns, as it is with all the \emph{post-isms}, must not settle for a vague sense of something being \emph{past}.
%Instead, it must explain what dynamic replaces the old one, and theorize the process of social change at work.

%This is not what \citeauthor{Abbe2003} do when they act as disinterested bookkeepers of a fundamentally dysfunctional political competition.
%This is not what \cite{McAllister2002} does when he lightheartedly reports on more ``calculating'' and ``capricious'' late deciders, ignoring entirely the question of whether these calculations make any sense.

%\paragraph{\href{http://maxheld.de/2009/10/13/setting-goalposts/}{Disinterested Just Doesn't Cut it Anymore}} The study of professional campaigning has to achieve more than a-theoretical, empiricist, uncritical and latently \emph{affirmative} accounts of the status quo.
%\cite{Farrell2002} miss an important point when they merely ask:
%``Do Political Campaigns Matter''?

%Instead, the question ought to be:
%what is the level of debate at which these stalemates are reached, issues are chosen and voters are targeted?
%Are we likely to see socially optimal and equitable policies emerge from this political competition?
%And if not, why not --- and what can be done about it?

%\subsection{Reconstructing Public Choice, Starting Here, Step by Step.}

%\begin{quote}
%	\emph{You're like the French radical watching the crowd run by and saying, \\`There go my people.
%I must find out where they're going so I can lead them'}\\\\
%	Fictional pollster Joey Lucas on \emph{The West Wing}
%\end{quote}

%\paragraph{R.I.P., Pluralism} It would appear from this neo-Downsian theory of dysfunctional political communication that the pluralist idea of liberal democracy has failed, on empirical grounds:
%``there is no active citizenry'' (\citealt{Louw2005}:
%15).

%Or rather, I would add, there is no citizenry with sufficiently sophisticated political beliefs ex ante, and no political movement willing to do anything about it.
%Instead, professionalized, targeted campaigning allows parties to exploit this very inadequacy, and to put on a decent horse-race show, for good measure.
%Strategic campaigning and the race to the bottom it gives rise to are the last nails to pluralism's coffin.

%\paragraph{My Brother's Keeper / My Sister's Keeper}
%So, what to do?
%How to reform and reinvigorate political competition in a world to complex for any one citizen to master?

%To make that marketplace of ideas fair and real again, in hopes for socially optimal and equitable outcomes, we have to move toward deliberative democracy as best we can.

%A deliberative ideal of democracy does away with \emph{all} pre-socially formed beliefs and attitudes, and puts it all up for a fair, and common-spirited debate.
%It is not a totalitarian democracy of the Rousseauian kind --- it allows for, and encourages \emph{alternative} conceptions of the common good \citep{Elster-1998-aa, Cohen-1989-aa}.
%For it to work, the very opposite of pluralism, a sense of ``Justice as Fairness'', has to prevail, where only arguments are permissible that assume away knowledge of one's own position in society, under a veil of ignorance \citep{Rawls-1971}.

%And so, rather than speaking for yourself, a good argument will always speak to the common good, and remind us of that biblical command, to \emph{be our brothers' and sisters' keepers}, whatever their political sophistication and socio-economic status.

%\paragraph{Starting Here, Step by Step}
%So, how do we get there, to that mythical land of deliberative democracy, which, admittedly, exists largely in abstraction?

%Real reform starts in the here and now, and evolves towards that more perfect union from the status quo.

%For us, the status quo are mass political organizations, orchestrating mediated campaigns, waged on millions of often ill-prepared citizens.
%There is no near-term option to do overcome this functional differentiation, if there ever will be.
%And an unequally sophisticated electorate is here to stay, for our lifetimes at least.

%So we must pioneer an ugly hybrid:
%the \emph{deliberative campaign}, mediated and professional.
%We must resist the temptation to choose and pick the easiest way to a voter's cross, and instead be assiduous in our explaining, convincing, empowering and engaging ourselves, on to those \emph{real} public choices that we face.
%\emph{Those} public choices that are complex, even to the expert and seemingly inaccessible for the everyday voter.
%\emph{Those} public choices that matter so urgently, but the public choices, which, to translate into the experiences of everyday, and the opportunities of everyone, we must craft a whole new language.

%There remains hope that once given an honest chance, we, as voters will hear the difference in tone, and no longer fall for the dirty tricks.

%There remains the promise and the duty, that:
%\begin{quote} \emph{Democracy is not being, it is becoming.
%It is easily lost, but never finally won.}\\\\
%William Hastie (1904 -- 1976), first African-American Supreme Court Justice.
%\end{quote}



%different types of issues:
%For once, the issues that are represented in unconventional forms of participation are different from those of other modes.
%Typically, these organizations make protest demands, following a negative logic (“against”, “stop” …) and they maintain “at best rudimentary (…) platforms” (Offe 1985:
%829).
%Their claims are not part of an encompassing agenda, but are non-negotiable single issues.
%Consequently, unconventional modes of participation do not have to face trade-offs between goods, and are structurally incapable of bargaining, compromise and issue-linkages.
%While this is an effective strategy to mobilize people and to communicate concerns, it is an incentive structure that distorts the political competition at the expense of political parties, possibly contributing to their legitimacy deficit.
%Additionally it is a political logic that is not in line with the limitations to the input aspects of democratic governance as stated above.
% I therefore believe it may be a lot too simple to say that merely the repertoire of political participation is changing (Welzel 2002b).

%The deliberative argument, as young says is "reason over power".
%(Young 1996:
%122).
%Now if you drop reason, too, you're left with nothing.
%She points out that deliberation so competition.
%No, no no.
%It's persuasion, whicha lways entails understanding the other persons circumstance.
%I am not even talking about the baad essentializing (male speaking, female speaking)

%The CoelhoPozzono 2005:
%181 account of participation in local health administration is insightful when it comes to the boundaries of involving people:
%"The dendecy of citizen representatives to construct their arguments in a way that is regarded as unstructured, combined with their focus on highly localized issues, makes their speeches appear unclear, emotional, disruptive or irrelevant to most representatives of the other sectors.
%Moreover, this style of speech tends to be associtaed with poorer and less educated people, and it is regarded as not only ineffective, but also virtually unintelligble". -->

### The Good Old Days

<!-- %\paragraph{Dealignment}
%When \citet{Lazarsfeld1968} went out to Erie County, OH in 1940 to figure out ``How the Voter Makes up His Mind in a Presidential Campaign'' they found that citizens voted in relatively socio-economically homogenous groups, that socio-economic status neatly predicted their voting behavior.
%Also, people would typically vote as their parents had, and swing- or late-deciding voters where relatively scarce.

%This has since changed dramatically.
%Party alignment as weaked, arguably both as a corellate of a broader disaffection with (mass) associations \citep{Putnam-1995-aa} as well as as a function of an unfolding value space, whose multiple dimensions two (or even multi-) party systems can no longer accomodate \citep{InglehartWelzel-2005-aa}.

%\paragraph{Individualization, Targeting of Voters}
%The second, not entirely disjunct trend is one of individualization \citep{Beck-2002-aa}.
%The lifestyle choices of people diversify, and become (at least superficially) more independent from socio-economic status.

%This sociological trend is part and parcel with the emergence of new means of production, that allow for customization of products and services.

%Also, advances in information technology allow for an ever greater degree of automatic capture and intelligent analyses of these increasing differences between people.
%In the ream of political campaigning, this is happening in targeted political advertising.

%As \citet{Malchow2003} describes in his handbook of political campaigning, modern technologies in analysis (ranging from the mundane correlation and regression to cutting-edge neural network modeling or data-mining) and information-\emph{narrow}casting (for example:
%from ZIP-code cable TV to bloc-specific mailings, or household-specific phone banking) allow professional campaigners to act on the increasing differentiation of lifestyles.
%Specifically, Malchow advocates that professional campaigners use as much available (seemingly unrelated) lifestyle and otherwise information to concentrate their efforts on those voters they are most likely to activate (for GOTV efforts), convince (for swing voters) or persuade (for supporters of the opposing party).

%\paragraph{Political Campaigning under Dealignment, Individualization}
%What does money spent in campaigns have to do with all of this?
%Simple:
%the above trends of party dealignment and individualization, in the current configuration of political competition \footnote{More on the arguably dysfunctional dynamic of the current configuration of political competition in my other assignment}, require intensive professionalization of campaign efforts (otherwise referred to as ``Americanized'' or post-modern campaigns), which in turn, is costly.

%Once this dynamic is set in motion, as \citet{Gibson2001} argue, typically by electoral defeats, followed by changes in internal leadership and a consolidation of power at the center, other competing parties have to follow suit.
%\citet{Strachan} observes this dynamic even at the grassroots-level of local campaigns, where alternative, low-budget, face-to-face campaigning was the norm until recently:
%``Jack didn't want to do the kinds of things candidates have to do.
%It's commendable to run a race on \$50,000, but when the opponent has \$400,000 he sets the rules, and that's what happened in this race''  (\citealt[72]{Strachan}).

%Professionalization, and with that, increasing spending of political campaigns, then emerges as a dominant strategy, speaking in terms of game theory:
%no matter what the other party does, you're always better off professionalizing.
%And low-budget campaign ``collusion'', while potentially Pareto and socially optimal (as is arguably the case at the municipal level), becomes a Prisoner's Dilemma of cooperation.

%\section{How does increasing campaign spending affect the political process?
%--- \\The normative debate}

%\paragraph{The Facts:
%Money Doesn't Seem to Buy Elections}
%Conventional, if cynical, wisdom holds that with increasing spending, money can buy elections.
%Empirical findings supporting that claim, however, are scarce.
%In a cleverly designed study, comparing repeat contestants (thereby controlling for a large share of candidate-inherent qualities) in U.S.\ House elections, \emph{rogue economist} \citet{Levitt1994} found no significant effect of campaign spending on electoral outcomes, controlling for a large number of other factors\footnote{Levitt, concerned with social welfare, however, concludes from this finding, that some cap on campaign spending would be beneficial, as results are unlikely to change and wasteful, irrational extravagance could be avoided.}.

%An intuition along these lines, doubting the measurable effectiveness of one's campaign and spending was also offered by Frank Stauss of the Berlin-based Butter agency in class, reflecting on the impact of the 2009 SPD federal campaign.

%\paragraph{The Path-Dependency of Professional, Expensive Campaigns ---\\ Leading to \emph{Hyper-Majoritarian} Democracy?}
%A methodological note of caution should be in order here.
%Levitt's, as much of the other research on the impact of campaign spending (and its antecedent professionalization) was based on majoritarian systems \citep{Lijphart-1999-aa} of governance in the Anglo-American world.
%With their single-member plurality electoral system (``First Past the Post'', FPTP), and its correlate two-party system, it appears reasonable to assume that most electoral contests would feature only two (reasonably feasible) candidates, who will relatively easily achieve some degree of media and otherwise exposure in their districts.
%Under proportional representation electoral systems (PR), where more parties compete not just for plurality seats, but for percentages of the popular vote, ex-ante exposure of candidates may be much more unequally distributed, with many of them marginalized.

%As Levitt implicitly concedes in his paper, fundraising is likely subject to great path dependencies and economies of scale:
%it is disproportionately easier to raise funds for a successful, well-known candidate than for other, less well-known contestants.
%Even in systems where all, or more of campaign spending is publicly funded (as in many European systems), a similar dynamic is conceivable.
%Also there, public funds depend on past performance at the polls, and, if campaign spending is to feature curvilinear effects, path dependencies could be at work.

%Taken together, the possibility of hyper-majoritarian competition in both consensus as well as majoritarian democracies arises, where few candidates (or issues, or parties) stand a chance at gaining some popular support, given how high the ``market entry costs'' are.
%Granted, however, the recent German trend for large parties to loose shares seems not to support such a dynamic.

%\paragraph{The Ties That a \$1000 Breakfast Plate Binds \ldots}
%More questions towards the legitimacy of high campaign spending, and, related, private fundraising remain.
%Even if Levitt is right as it seems, and private campaign donations are unable to buy elections, it is conceivable that, given the Prisoner's Dilemma of high-spending, donors may be able to exert undue influence on or at the least, access to office-holders.

%\section{Conclusion}

%I first conclude that private campaign donations should be outlawed, if only for the reason of \emph{suspected} undue influence.
%In all of the below, I refer to a scenario of high, but entirely publicly funded campaign expenditure.

%\paragraph{Campaign Spending and Trends in Representative Democracy:\\ Yes, It Is Inevitable}
%I conclude from the above, and the potential Prisoner's Dilemma-type competition between parties, as well as the broader trends of dealignment and individualization, to which professional, expensive campaigns respond, that indeed, higher campaign spendings are an inevitable outcome for all representative democracies.

%\paragraph{Campaign Spending and Voter Apathy}
%Going back to the aforementioned background trends and correllates of high campaign spending, party dealignment, and individualized targeting, given persistent if not increasing voter apathy I wonder whether really, the link with high campaign spending is a causal one.

%It could well be argued that voter apathy, possibly caused by dealignment and a misconfiguration of the political competition, is the independent variable to which frantic individualization and expensive professionalization of campaigns are merely dependent responses.

%But more importantly, I wonder whether increased campaign spending is not completely epiphenomenal to the potentially misaligned political competition, and related voter apathy.
%At least at the federal or state level, it appears inevitable that cheap, unmediated, face-to-face campaigning for representative democracy, is no option.
%As simple and reliable class voting patterns dealign and dissolve, previously instrumental to mass mobilization, more (financial) effort to communicate competing ideas is clearly necessary.

%Much rather, it seems possible that the slicing and dicing of the electorate into neatly defined groups, some (or many) responding strongly to their own (if relatively irrelevant or ill-defined) ``hot-button issues'' will lead to a political competition at the lowest, dysfunctional denominator.
%I try to explore how such a dynamic could work in the other assignment.

%I would then conclude that high campaign spending is not as such the problem for voter engagement, at least if realistic opportunities for entry are available to new contestants or ideas.
%With a publicly funded, regressive schedule of campaign finance (relatively less money for successful parties in the past, a sort of party ``infant-industry'' protection), and political competition about the \emph{true} alternatives (not ``issues'') of public policy, effectively communicated and exchanged, expensive campaigns should be considered a wise investment, not a frivolous extravagance.


%The crisis is not one of overload, that i expect Crozier, Huntington and Watanuki (1975) as cited in Warren 2003, but one of underresourcing.
%And in these questions you always have to think about the ideal, utopian hypothetical, which, sadly, we hardly ever do. -->



## Misunderstanding Tax

<!-- %John Steinbeck:
%Socialism never took root in America because the poor see themselves not as an exploited proletariat, but as temporarily embarrassed millionaires -->
<!-- above steinbeck quote is actually, for the most part, *not* the problem.
it's much deeper than just plain false class Consciousness
actually, that is *not* the emphasis here -->

<!-- ## The Detective Story of Income Taxation (Who Dunnit? Who killed progressivity?)

> "The real and pressingly practical question for tax is not whether to have an income or a consumption tax, but what form of consumption tax to have. The stakes in this battle are clear and dramatic: the fate of progressivity in tax lies in the balance."
> Edward J. McCaffery (2005: 817)

> "Advocates of redistributive taxes must wake up and realize that their end is in jeopardy on account of their poor choice of means: they are fighting, and losing, the wrong war."
> Edward J. McCaffery (2005: 848)

The political alternatives now seem to be between progressive income tax and prepaid proportional/flat consumption tax (VAT, Social Contributions, Payroll, all equivalent). This is an incomplete choice set.
The one progressive component of today's tax regimes, the personal income tax, has deficient backstops.
- Estate and gift taxes (buy, borrow, die)
- Corporate income tax (indeterminate incidence, no progression, indeterminate location of value generation)

The personal income tax as structural flaws, remaking the PIT ever more into a wage or prepaid consumption tax.
1. Macomber. Tax on accession/accrual or tax on realization? The Supreme Court rules: you can tax only on realization (selling).
 this problem is much exacerbated in the case of income in illiquid assets.
2. Tax Planning 101 aka Buy, Borrow, Die. Mrs Macomber could simply borrow on her (appreciating!) stock as collateral. Recall that borrowing, is not income under an income tax. Mrs Macomber can spend out of the borrowing tax-free.
3. Heirs never pay the estate tax, because that is (as it makes sense) a net tax on assets minus liabilities. In the extreme case of Tax Planning 101, there is no estate.
4. Also, Tax Planning 101 incentivizes people to never realize, to never sell. This may lead to markets freezing up and asset as well as derivatives (!) bubbles, at great cost to the economy. -->


## A Vicious Cycle

These two crises --- an ineffective and/or inefficient welfare state and a confused democracy --- may partly reinforce one another into one perfect storm of societal reaction by stealth:

> The two issues, the crisis of egalitarian politics and the trivialization of democracy, are not necessarily the same.
> Egalitarians might say that they do not care how manipulative of democracy a government is, provided it divides society's wealth and power more evenly.
> A conservative democrat will point out that improving the quality of political debate need not necessarily result in more redistributive policies.
> But at certain crucial points, the two issues do intersect [\ldots].
> My central contentions are that while the forms of democracy remain fully in place --- and today in some respects are actually strengthened --- politics and governments are increasingly slipping back into the control of privileged elites in the manner characteristic of pre-democratic times;
> and that one major consequence of this process is the growing impotence of egalitarian causes.
> --- Colin @Crouch2004 [6]


<!-- \begin{quote}
	\emph{``Politics is like the fabled Sphinx:
	It devours all those who cannot solve its riddles.''}
	\\*
	--- Antoine de Rivarol
\end{quote}

\begin{quote}
	\emph{``A popular government, without popular information or the means of acquiring it, is but a prologue to a farce or a tragedy, or perhaps both.''}
	\\*
	--- James Madison (1822):\ Letter to W.T.~Barry
\end{quote}

\begin{quote}
	\emph{``All of these reforms cannot occur unless people learn to think about taxes without the isolation effect we have found.
	They need to see the big picture.''}
	\\*
	--- Edward J.~\citet[23]{McCaffery2003}
\end{quote}

%CIT works with  concentrated interested because small firms suffer from ti, big ones can calculate themselves to zero

%Deliberation is more than a method, here.
%Tax is more than a case, here

%this is all Olaf:
%consider, says Olaf, Habermas (Theory of communicative action) on "fragmentisierung des Alltagswissen) /  assumed theoretical link:
%if you want to hide injustice, than you'd best do it in a really complex system, like tax.
%/ this can be answered best by comparing tax to other topical areas, where people's knowledge is less biased, and where injustice is not a concern // Olaf says:
%knowledge is key.


%Farrar
        %* (334) 3 hypothesis
%      * attitudes (=continuous dispositions towards policy alternatives) change (individua/gross and aggregate/net)
   %   * preferences (ordinal rankings of alternatives) become closer to single-peakedness (no cyclical majorities of the sort identified by Condorcet and Arrow)
%      * both effects are stronger (interaction!) for less salient issues (tax? vs.\ Stuttgart 21)
%   * 335:
%the driving effect is learning.
%the people who learn the most change the most and are the most single-peaked
%   * now this article tests salience vs.\ deliberation (people are randomly assigned to 2 issues, salient/non-salient)
%   * single-peakedness means there is a Condorcet winner (an alternative that beats, or is tied with, all others in pairwise majority voting)
%   * people may become more single-peaked for different reasons:
%      * adopt what (elites) other people think
%      * acquire a more shared, intersubjective understanding
%      * indepedently excogitate a natural ordering compelled by logic
%   * i'm not happy about the scope of the deliberation; they seemed very micro, very confined.
%I would think that my setting (a mixed economy) is a lot broader and requires a lot less axioms.

%for an example of empirical work on deliberation, cite Farrar et al 2003:
%single-peakedness and structuration increases after deliberation.
%Tax is exactly the example that this, in a pluralist debate, is not the case.

%n some way, the fact that pluralism no longer works (because of positive sum situations) should not surprise us:
%that is the story of societal development over all.
%It is actually good news, too:
%We don't want a zero-sum society, that is dangerous.

%Maybe, in the past, things were a little more zero-sum, and we should be grateful that they no longer are.
%But more importantly, in the past, as societal differentiation was at a lower level, issues were probably not as complicated and interests less finely concentrated (the sugar subsidy thing).
%Or maybe not. -->

<!-- Here, as well, I find conspicuous signs:
a public thoroughly confused about the abstractions and trade-offs of their economy and marred by dysfunctions of pluralist democracy.
These leads run deep, too, implicating the entire edifice.
To the questions of what democracy \hyperref[chap:desirable-democracy]{should} (\autoref{chap:desirable-democracy}) an On closer inspection, pluralism may be a minimal formulation of democracy, skeptical about what people can do and restrictive about what democracy should do.
Once a historical accomplishment, the institutions of representative democracy are today outmatched by the vast complexity, and tightly concentrated special interest of the modern economy and needlessly conservative about human nature.


\subsection[Bastard Keynesianism]{Bastard Keynesianism \\--- Arbitrarily High, Real Saving \emph{is} Possible}
%"Bastard-Keynesianismus":
%Der weit verbreitete (Irr)glaube, eine Volkswirtschaft könne nicht beliebig viel Sparen, weil dann die "Binnennachfrage" zusammenbricht.
%Dies ist falsch, da auch Investitionen, nicht nur Konsum, Nachfrage sind.
%Wenn die Volkswirtschaft langsam genug die Sparquote hochfährt, entsteht keine Nachfragekrise.
%Als Folge dieses Missverständnisses (so meine Hypothese) können viele Bürger systematisch über eine sparfreundliche Steuer nicht nachdenken.
%or known as:
%franckenstein keynesianismus,  is when we can have no arbitrary savings rate.

%addition to Frankenstein Keynesianism.
%Keynes is concerned about output, because of Keynes, we are concerned with GPD (even though he didnÄt like it).
%But GDP was never meant to be a sufficient condition (but merely necessary in the short and medium run) for prosperity.
%It measures only activity, not what we add to the stock of the economy.
%In part, as a result, by looking only at GDP, we get very confused about what kind of savings rates we can have.

%frankenstein hayekianism:
%Frankenstein Hayekianism is when we can have no arbitrary state rate.

%frankenstein beggar-thy-neighbor:
%when a lot of exports are good


\subsection[Technocratic Myopia]{Technocratic Myopia \\--- Greater, Real Saving \emph{is} Necessary}
%People think we save enough (real myopia) or, more specifically, they fall for nominal indicators.


\subsection[Government vs Market]{Government vs Market \\--- Societies \emph{can} Choose Arbitrary Government Quotas}
%state vs market is a zero/positive sum game, not ``mehr netto vom brutto''
\subsubsection{Zero-Sum}
	%trade-offs graph/coordinate space of the mixed economy

%	negative sum:
%People think government harms the economy (it does)

\subsubsection{Positive Sum}

\subsection{Cooperation Problem of Tax}
%congruence or arbitrage

\subsection{Confusion of Pigovian and Revenue/Redistributive Taxes}
%redistribution and revenue are one, others are different.
%show table.

\subsection{Only Natural Persons are Moral Subjects}
%you shouldn't tax corporations
%People want to tax non-natural persons (corporations as people)

\subsection[Flypaper Theory]{Flypaper Theory \\--- The Incidence of Taxation is \emph{not} Trivial}
%you can't tax corporations
%People think we can distribute the burden of taxation at will (flypaper theory 0-sum)

\subsection{Markets Will React with DWLs}

%"Flypaper Theory of Tax":
%Der weit verbreitete (Irr)glaube, der Gesetzgeber könne die Steuerlast qua fiat verteilen, also etwa durch die Besteuerung von Unternehmen.
%Tatsächlich ist die reale Inzidenz von Steuern komplexer (sie hängt von den relativen Preiselastizitäten der Marktteilnehmer ab).
%Als Folge dieses Missverständnisses (so meine Hypothese) überschätzen viele Bürger systematisch die Möglichkeit von indirekten, insbesondere Unternehmenssteuern.
%(so ähnlich haben dies auch McCaffery und Baron gezeigt, allerdings für indirekte Steuern im Allgemeinen).

 %  * flypaper theory of tax:
%taxing corporations is stupid.
%but it's also necessary.
%but people like it (ARlen and Weiss 1994, as cited in McCaffery Baron 2003:
%7)

\begin{landscape}
 \begin{figure}[htbp]
	\begin{center}
	\includegraphics[width=1\linewidth]{tax-with-all}
	\caption[The Vector Field of Taxes with Systematic Biases]{The Vector Field of Taxes with Systematic Biases}
	\label{fig:tax-with-all}
	\end{center}
	\input{./tex/tax-table-description.tex}
\end{figure}
\end{landscape}

\subsection[False Omniscience]{False Omniscience \\--- Flows of Income \emph{Cannot} be Easily Known}

\subsection{Tax Aversion}
%this is (\cite{McCaffery2003}:
%12ff), people simply react to the labeling of ``tax'' even when the economics are the same as for a ``payment''.

%Tax aversion effect:
%people react (negatively) to the label "tax".
%People prefer indirect taxes (tax aversion effect)

\subsection{Metric Effect and Progressivity Illusion}
%this is (\cite{McCaffery2003}:
%15ff) people want more progressivity in percent than in dollar terms.

\subsection{Penalty Aversion and the Schelling Effect}
%this is (\cite{McCaffery2003}:
%17ff) people prefer bonuses to penalties, even when they are the same; people reverse their tax preferences according to the wording under the Schelling effect (together with some illusion of progressivity).
%Schelling effect:
%People prefer bonuses over penalties

\subsection{Disaggregation Bias}
%this is (\cite{McCaffery2003}:
%19ff) note that this relates to my point on ordoliberal hygiene; and wrapping different taxes in one tax.
%People don't understand that they can make up for the schedule of one tax with the schedule of the other tax (when the BASE is the same!) This is key!

%Disaggregation bias:
%People do not integrate different taxes on the same base

\begin{landscape}
 \begin{figure}[htbp]
	\begin{center}
	\includegraphics[width=1\linewidth]{tax-with-biases.pdf}
	\caption[The Vector Field of Taxes with Systematic Biases]{The Vector Field of Taxes with Systematic Biases}
	\label{fig:tax-with-biases}
	\end{center}
	\input{./tex/tax-table-description.tex}
\end{figure}
\end{landscape}

%consider ``small is beautiful'' by Schumacher.
%It's not about the size.
%Look for Brian sth.
%pictures of dead malls.
%Small is beautiful always implied that bastard keynesianism was wrong.
%Cite Bush "I encourage you to shop more".
%Here's a tax that does away with thos.

%McCaffery, E.
%J., & Baron, J.
%(2003).
%Heuristics and Biases in Thinking about Tax.
%Los Angeles, CA.
%doi:
%10.2139/ssrn.467440.

%   * 7:
%Our most general hypothesis is that we expected to find a wide range of heuristics and biases in people’s understanding of and attitudes about tax.
%The general complexity of the subject matter, the low benefits for any individual to obtain on a personal level from fully understanding it, the absence of any general, widely available mechanism to debias or educate people about tax, can all be expected to, if anything, make the usual heuristics and biases more acute in the field of tax.
%people's results differ if they call it "tax" vs.\ "payment" metric effect (people want less progression in dollar terms than in % terms(they don't understand the difference b/w payroll and income tax,bottom line:
%hidden taxes will flourish (22)

%drawing on Simon (1955), Kahnemann and Tversky (1974, 1979, 1984), McCaffery and Baron 2003 show that this is the big thing.

%McCaffery Baron 2005:
%hope for more expert judgment.
%Uh, maybe this won't help.

%McCaffery, E.
%J., & Baron, J.
%(2005).
%The Political Psychology of Redistribution.
%Psychology.
%Los Angeles, CA.
	% * Cite first and second welfare theorem, on efficiency and equity.
%Efficiency should be maximized by law, tax is the place for redistribution
	%   * [ ] might want to follow-up on Kaplow and Shavell who do this kind of work.
	%ibid.
%draw n Kahnemann and Tversky behavioral economics, aka
	%Note that cognitive psych, and even prospect theory is but a pretty feeble attempt to fit the data.
%Will have to wait for real, maybe evolutionary psych theory.
%In the meantime, I don't care.
	%   * Taxes in Dollar vs.\ Percent Terms
	%   * People prefer taxes that aren't called taxes but "fees" or aka social contributions
	%   * Transparent burden or not
	%   * Nature and Level of public provision
	%Bottom line:
%heuristics and baises will make taxes inefficient, and less redistributive than people wold prefer in the abstract.(47)
	%49:
%"This is fifth, finally, and perhaps most disturbingly:
%a skilled politician or political party can manipulate public opinion and get a public finance system in place in conflict with prevalent democratic preferences."
	%49f:
%``She might first choose hidden taxes, with a regressive incidence, and raise money through a series of relatively flat surcharges not labeled as taxes.
%People would support these, and a surplus might even result.
%Larger surpluses might follow from selective “privatization” of government goods and services, reducing the need for taxes.
%Cuts could then be made to the most salient tax alone—the income tax—which tax could be brought to reflect moderate progressivity, even as its importance in the overall budget declined.
%Indeed, the politician could take this a step further, and separate out the topics of tax and spending cuts, cutting taxes—again, the income tax—now, postponing spending cuts until later.
%The resulting deficit would curtail government growth, and could lead to replacement taxes less progressive than the initial baseline.
%And so on:
%we would wake up one day with a smaller government, less dependent on the single remaining progressive tax system, and that tax system would continue to have only moderate levels of progressivity.
%Over all, the series of steps would lead to dramatically less redistribution than the people themselves wanted, at the outset, and the cumulative changes would also fail to meet the basic paretian constraint.''
	%Earmarking, as they suggest (52) to break the disaggregation bias, I think is NOT the solution.
%First, not all stuff can be earmarked.
%Second, most earmarked taxes tend to be proportional or regressive.
%Third, there's a constitutional norm against that in Germany to avoid clientelism.
	%ibid.
%(53f) seem to be initially skeptical as to whether people can learn.
%But they think so in the context of (rationally ignorant) voting (!) It is hard to expect that ordinary citizens, consumed enough with far more pressing matters, can or will become expert, consistent decisionmakers on complex economics subjects.
%More hope might lie, indeed, in better voting procedures.59
	%I agree, you need to cover some abstractions (54).
%This will be key in designing the deliberative poll.
%There'll need to be a class in the beginning, not just a paper, not just discussion groups.
%First, we need a class.
	%Economics is complicated because it takes everything into account.
%It overcomes focusing by looking at indirect effects and hidden effects.
%But it also simplifies by integrating.
%Often the simplification is striking.
%Simple principles like “conservation of money” (analogous, perhaps to conservation of mass in Newtonian physics) can make public policy seem easier to understand, not harder.
%For example, such a principle would lead to immediate questions about how tax cuts will be covered, who will pay after privatization, and so on.
%It is not hard to learn that free lunches are rare.
%Why isn’t economics a requirement for high-school graduation? 60
	%They also suggest that tax design could be outsourced to an agency, arguing that there could be expertise there, without legislators micromanaging the tax code.
	%Yes, bingo:
%65 Our hope is that, in the long run, better understanding of the imperfections of democratic government can bring it closer to perfection, as we can see no other alternative to democracy itself.

\subsection{No Arbitrage Possible}
%These misunderstandings are akin to those observed in private markets, but as opposed to those, the public realm is not amenable to arbitrage (\cite{McCaffery2003}:
%3)

%ideas, quotes from andrea nahles at the FES re:
%Sozialabgaben
	%hält sicher, ist populärer"
	%kannst du leicht erhöhen kein Problem
	%it isolates this from the political struggle about tax, which according to andrea nahles is a good thing

%auch vom fes seminar:
%1.
%tradionelle SPD:
%revolution 2.
%klassische SPD:
%dekommification 3.
%moderne SPD:
%3rd way, flexicurity, but this ignored the baumols effects etc

%check:
%what is intelligbility (gender studies)

%oddly the proponents of SIC seem to think that politically, SIC will be less political, and therefore more robust than taxes (this naturalizes the defunct political process).
%In contrast, I think making it a tax makes it more robust, because more flexibe. -->


## Critique of the Literature

<!-- On that count, some of the literature falls short:
it fails to bring the @Mills-1959-aaian sociological imagination and @Keynes1936ian economic abstraction to bear on the nitty-gritty empirical data of and other welfare reform, to even discern the offense to the post-war social contract.

This blithe ignorance comes in at least four different flavors, that I here summarize as follows: -->

<!-- 1.  *TINA*-flavored literature holds that the mixed economy expired unavoidably and therefore, requires no further investigation.
    For TINAs, the mixed economy is not murdered, but dies a natural death.

2.  *Pangloss*-flavored literature accepts possible alternatives to death, but assumes that, axiomatically, it was the best possible course of action, and therefore acquits any possible suspect.
    For modern-day Panglosses, the defunct mixed economy is collateral damage to a worthy cause.

3.  *Newsspeak*-flavored literature shrouds itself in impermeable and misleading language.
    For newsspeakers, the mixed economy is not dying, but just "restructuring" into less complex organic compounds (known as "decay" in oldspeak).

4.  *Bystander*-flavored literature abstains from judgment, or even conclusion.
    For bystanders, it may or may not be murder, but it's none of their business. -->
    <!-- ### TINA

    > *"There \[...\] is no alternative."*\
    > --- Margaret Thatcher (London, 1980)

    TINA is hardly observed directly in the literature, if only because, as a political strategy, it aims to "veil the essentially political character of political decisions" [@Bluhdorn-2007-aa 314], and therefore, will not even explicate itself.
    The purported lack of alternatives, mostly, asserts itself not by negating existing alternatives, but by ignoring them. -->
    

Welfare regimes are, as [@Esping-Andersen-1990-aa] has said, systems of stratification in themselves, and they have been, from the very beginning socialist demands in the 19th century more than epiphenomenal income replacement.
They are tools to socialize the costs of painful, but welfare-enhancing @SchumpeterSwedberg-1942-aaian economic transformations as well as individual hardship and serve as engines to redistribute this very welfare as the legislator wishes.
The indeed quintessential and highly political question for globalization and welfare entrenchment is then, whether the state can *still* (or ever could) socialize and redistribute as it wants, with no limitations resulting from the behavior of other states.
Welfare state sustainability then has to be pitted not against past or current performance, but against a hypothetically desired welfare regime under global trade with global redistribution, both within and between countries.
In game theoretic terms, to gauge how badly welfare-depressing defection is, you first have to calculate the payoff for mutual cooperation.
In the global context, this certainly requires quite a bit of political imagination, something that political scientists, it appears, like to shy away from.
Even leaving normative considerations aside, in this case, academic rigor alone requires such exercise.

If welfare states can be well or poorly designed mixed economies, achieving different outcomes, we should also judge its prospects by comparing actual or evolving regimes to such hypothetical, but possible and desirable configurations.
That is a very different question than testing whether welfare states en- or retrench, let alone its spurious correlates of income replacement [@Swank-2005-aa] or even spending [@Kleinman2002 24], and a question that would deeply unsettle Pangloss.
As @Offe2003 reminds us:

> "The mode in which welfare state institutions change can be explicit reform and retrenchment.
> But it can also be inconspicuous and gradual decay.
> For instance, people may defect from public health and pension systems, trade unions see themselves forced into single-employer concessions bargaining, workers resort to unprotected forms of pseudo self-employment in order to avoid social security dues, if not to illegal ("black") forms of employment."\
> --- @Offe2003 [364]

@Genschel2005, too, reminds us of what Pangloss would rather have us forget:
"The effect \[of globalization\] is not so much to force change upon the tax \[and thereby, welfare\] state as to reduce its freedom to change.\" [-@Genschel2005 53].
This is why political scientists such as [@Pierson2002; @Pierson1996] that assume institutional constraints (for example, veto points, @Tsebelis-2002-aa) to only work to *prevent* retrenchment, are wrong:
the very same constraints that may prevent or delay nominal cuts will also make it harder for welfare states to *adapt* to, rather than just to recede in the face of changing economic and demographic circumstance.
Nondecision does *not* "generally favor the welfare state" [@Pierson1996 174].
While the welfare state might nominally have retrenched only "cautiously" [@Pierson1996 174], the ground underneath it has shifted, leading to a much graver de-facto change of positions:
it can no longer expand or react, relies on unsustainable deficits or real dissavings and must make do with growing inequality, and sometimes, structural unemployment, non of which @Pierson1996 even mentions.

To shake off Pangloss, and see clearly the demise of the welfare state, we must ask three new questions, that so far, much of the retrenchment literature has shirked:

1.  What, *given* a hypothetical, intact mixed economy, would welfare states be capable of, if their democratic sovereigns wanted it?
    This is a question that, absent natural experiments on the matter, cannot be subjected to straightforward positive test, because precisely such a hypothetical, intact mixed economy does not exist.
    Still, we must compare actual to hypothetical regimes, to find out just how constrained actual welfare states may, or may not be, by whichever second-order process we subsequently propose.

2.  What is the highest possible trade-off between equity and efficiency that an intact mixed economy can offer their democratic sovereigns?
    As I have argued in the above, better-designed mixed economies face less harsh --- or even no --- trade-offs between equity and efficiency than worse-designed mixed economies.
    The price for an additional increment of equity in efficiency (or vice versa) not only varies at the margin,
    [^17]
    but it also varies depending on the set-up of the mixed economy.
    For example, a highly progressive tax on consumption may allow same or greater equity at a much lower price than a compressed tax on labor income.
    [^18]
    More broadly, @Ganssmann2010 has proclaimed the Scandinavian welfare state as the "winner" to achieve higher levels of *both* equity and efficiency [-@Ganssmann2010 343].

    Amongst these higher trade-offs between equity and efficiency, there may, additionally, be local optima of equity-efficiency mixes, complemented by quite distinct institutional constraints and --- somewhat related --- path dependencies, ranging as wide as educational systems and industrial relations.

    I have here mostly ignored these *Varieties of Capitalism* [@HallSoskice-2001-aa]
    [^19]
    They, too, are important detail.
    They strongly suggest that there may not be *one* universal mixed economy design, but that quite different designs might coexist and specialize.
    Still, also within *each* of these varieties, there are again different trade-offs between equity and efficiency.
    Interestingly, the institutions that @HallSoskice-2001-aa identified as markers of [cmes]{acronym-label="cme" acronym-form="plural+short"} and [lmes]{acronym-label="lme" acronym-form="plural+short"} do *not* mention variants of tax, social insurance or any of the other key welfare state institutions.
    While [cmes]{acronym-label="cme" acronym-form="plural+short"} may correlate with, and are often conflated with Bismarckian welfare states, there is nothing about [cmes]{acronym-label="cme" acronym-form="plural+short"} that would make them necessarily rely on, for example, labor income-backed social insurance.
    Of course, the variant of capitalism will be reflected in the nitty-gritty of welfare state institutions:
    for example, the statuses originally maintained by Bismarck are, arguably, related to the categorical groups that [cme]{acronym-label="cme" acronym-form="singular+short"} educational systems create, or [cme]{acronym-label="cme" acronym-form="singular+short"} industrial relations are organized around.
    This institutional spill-over notwithstanding, I would hypothesize, that [cmes]{acronym-label="cme" acronym-form="plural+short"} and [lmes]{acronym-label="lme" acronym-form="plural+short"} might be able to achieve equally high trade-offs between equity and efficiency, even if the institutional implementation may vary:
    for example, [cmes]{acronym-label="cme" acronym-form="plural+short"} might continue to sport extensive job protection, while [lmes]{acronym-label="lme" acronym-form="plural+short"} will allow quick "hire and fire", potentially complemented by generous unemployment benefits (as in "flexicurity").
    Allocative results, either way, may be very similar, which is my point here.

    Even carefully crafted positive research into changing welfare states currently looks, at best, at cross-sectional or longitudinal variation in social transfers as a percentage of output [for example, @Ravenhill2005 249].
    This is much better scholarship than the naysayers who like to look only at absolute spending or income replacement, but still, it does not tell us how good a trade-off we are getting.

    To gauge the *level* of trade-off between equity and efficiency available to democratic sovereigns, the retrenchment debate has to look at allocative *results*, not at transfer flows, that is, at inequality (for example, Gini-coefficients) and growth (preferably measures more comprehensive than [gdp]{acronym-label="gdp" acronym-form="singular+short"}).

    Out of logical necessity, if nothing else, welfare state retrenchment, inequality and growth are *one question*.
    The compartmentalization of these into different academic areas allows not, as one would hope, greater theoretical clarity but instead confuses and waters-down concepts.
    If "welfare" is to mean anything, surely, it must be the ability of states to alter allocative *results*, and to do so at a minimum, or democratically acceptable price in efficiency.

    Consider the alternative research designs, that currently predominate.
    If income replacement stays the same [@Swank-2005-aa], but, realistically, incomes become more unequal and states more indebted, is that evidence of a non-retrenched welfare state?
    If transfer volumes rise absolutely, or stay constant relative to output [@Ravenhill2005], but, realistically, ever more people rely on ever smaller transfers, all paid for the labor-incomes of an already squeezed middle class, is that evidence of a non-retrenched welfare state?
    Surely, just external validity requires more extensive operationalizations.
    The best, theory-driven operationalization of a non-retrenched, welfare state is the intact mixed economy.

3.  How well does the welfare state work as an entire system of production and distribution, that is, as a mixed economy?
    This is a very different question from those based on a traditional, more limited definition of the welfare.

    @Offe2003, for instance, takes pains to remind readers that welfare states have nothing to do "with equality of outcomes', neither normatively nor positively", that "the guiding principle of principle (...) is the security and protection of workers, not equality" [-@Offe2003 450].
    This is a historically accurate definition, but it is no longer an externally valid conceptualization of welfare states, if the term is to be more than an empty hull devoid of positive reality and economic possibility.
    "Welfare states as worker protection" is not [mece]{acronym-label="mece" acronym-form="singular+short"} any more.
    By this definition, an economy, or rather, sectors thereof would be classified as a "welfare state", in which poorly qualified workers are nominally protected, but either structurally unemployed because their gross wages are higher than their productivity, or live in working poverty, ever unable to participate in the riches of the wider economy.
    To the people working in cleaning or security in Germany today, such a definition would not have a lot of face validity.
    The labor market for poorly qualified workers in Germany is then, at the same time, evidence of a welfare state and evidence of a non-welfare state.
    Conversely, by the traditional definition, an economy, or rather a sector thereof with no nominal protection, but generally high compensation and little economic hardship, would be classified as a non-welfare state.
    For example, freelancers in management consulting, earning handsome but unsteady labor (!) incomes, but equipped with enough assets to weather rainy days, surely do not enjoy welfare state protection.
    Still, at face validity, they also do not exactly suffer from Manchester style laissez-faire.
    Under the traditional definition, they reality is neither welfare-state, nor non-welfare state.

    @Offe2003 might, asked about the plight of German cleaners, point to a leak in the "Keynesian" roof of full employment, protecting the lower storeys of welfare states.
    Today, full employment is only a necessary, but not a sufficient condition for an intact roof.
    In fact, full employment might always have been merely necessary, and we were just lucky that in the past, all other necessary conditions were mostly met.
    To stay in @Offe2003's elegant metaphor, the welfare state house is facing much harsher weather.
    For example, severe crosswinds of rising income inequality (for example, winner-take-all, efficiency wages) diverging factor returns (for example, Stolper-Samuelson trade), threaten to further drive apart the different economic strata making up the house, threatening to tilt the building.
    In addition, international tax competition, but also home-made dysfunctions are eating away at some of the load-bearing walls, putting enormous stress on the few remaining walls and the (already struggling) people making it up.
    If all we care about in this house is whether the roof is still tight against cyclical unemployment, the structure will not stand much longer.
    If the house of the welfare state is to survive the throes of economic transformation, it needs strong cross-beams, to re-balance the load of its stories.
    These cross-beams are progressive redistribution, and we measure their solidity by looking at overall inequality.
    Today, if not always, the ability of a mixed economy to efficiently curb runaway inequality is the *sine qua non* of welfare states, too.

    This is not new to [@Offe2003], who also includes "monetary, fiscal, trade and economic policies" in the roof [-@Offe2003 543].
    However, he seems to neglect that consequently, the different stories of welfare protection *cannot* be organized (financed) irrespective of overall inequality:
    if, for example, the fiscal shingles are to remain intact, the protection schemes must charge those most who can best afford it and in a way that will least affect them.
    [^20]

    Surely, Pangloss would already despair over [@Offe2003]'s insistence on a full-employment protecting roof.
    But with inequality, we can and should ask him an even harder question that might reveal his unreasonable optimism in starker colors.

    In addition to these functional reasons, there are normative and empirical reasons to demand of welfare states worthy of the label to, at least, be able to curb inequality.
    Normatively, it seems questionable to constrain the surely emancipative agenda that once endowed welfare states to worker protection.
    That's quite little to ask of Pangloss.
    Empirically, we know that people care about *relative* differences in access to resources [@Frank2005], that they suffer from *relative* inequality [@Pickett-2009-kx].
    If we are welfare state researchers and, as humanists, care about the human outcomes of institutions, maybe more than evident at Bismarck's time, today inequality *is* that relevant outcome, even if and to the extent that absolute material security is achieved.
    
    To do meaningful second-order, sociological or political science work on the welfare state, you first have to do some first-order, economic work, if nothing else, because it lets us talk about welfare as if people mattered:

    > *"In the first instance, we are interested in the welfare state because we are interested in human welfare."*\
    > --- @Haggard2009 [236]


<!-- %note from new yorker article how jk galbraith said that the rich should erect a statue to the PIT, because it allows great income inequality.
%Note to that that things might have changed today

%Some introduction of why tax matters, what this thesis looks at.

	% it is by the states capacity to reallocate market equivalent incomes that the welfare retrenchment should be all about, and that is:
%reallocation WITHOUT debt of one form or another.
%Important:
%a welfare retrenchment test should be independent of how market outcomes are reallocated, be it through taxation, or whatever.
		%Hunch:
%welfare state is worse today. -->

<!---

## Why it Matters: The Welfare State as Mixed Economy {#sec:why-mixed-economy-matters}


At this point, a reader may ask:
why would all, or even any of this, matter to the welfare state?

Materially possible and normatively desirable welfare states are, and must be thought of as, well-designed mixed economies, for at least three reasons:

1.  *Engaging Complexity.*
    In a welfare state, (p. ).
    For example, a (p. ) and the (p. ).

    To eradicate today, as Lord Beveridge promised 150 years ago, the five 'Giant Evils' of want, disease, ignorance, squalor and idleness, you have to anticipate this interplay of market and government and choose accordingly.
    The mixed economy provides us with a toolset to analyze the complexity of welfare states, including the dynamics presented here.
    For example, the mixed economy suggests we should always check the [dwl]{acronym-label="dwl" acronym-form="singular+short"} (p. ) and (p. ) of any redistribution, a welfare state may undertake.

    To answer the first-order question of welfare state design, as I have here tried to do, we need the abstractions of the mixed economy to know what is *materially possible* in a scarce world, filled with (at least some) homines oeconomici.
    For example, price controls may not be possible (without grave losses), but a well-designed, personal, almost arbitrarily progressive taxation *is* indeed possible in a closed economy.

2.  *Denaturalizing Market Allocations.*
    When we consider welfare state programs in isolation from the markets which they supplant, we easily end up naturalizing whatever markets have allocated.
    In fact, any given market exchange which a welfare state may seek to correct, is already and always *contingent* on the institutions, dynamics and distributions under which it occured.

    For example, rather than "fighting poverty" --- as if that were an objective reality --- welfare states must consider overall allocative dynamics (such as , p. ) and distributions (such as , p. ), and counteract them, as is seen fair.
    Markets do not make some people below an arbitrarily defined threshold "poor", and leave others ok or even untouched.
    Instead, markets allocate incomes across the *entire* spectrum contingent on a host of institutions, dynamics and initial distributions.
    If government pursues a particular minimum standard of living for everyone, it might not only transfer income to those who fall below it, but may need to counteract those dynamics under which people slipped below the minimum standard in the first place.

    Market allocations, in short, are --- and should be --- no less subject to enlightened, collective human choice than remedial welfare state programs:
    "Increasing dependency is no law of nature but the result of socio-economic changes, which in turn react to human intervention" [@Esping-Andersen2002 x].

3.  *Caring about Outcomes.*
    @Haggard2009 ([-@Haggard2009 236]) remind us about

    > *"\[...\]
    > the importance of pushing the research on the \[Eastern European\] welfare state down the causal chain towards its social consequences.
    > \[...\]
    > \[A\]ny meaningful strategy of comparison of the welfare state must ultimately engage its consequences for a variety of outcomes, from poverty and inequality, to physical quality of life measures, to economic outcomes such as the efficiency of labour markets, competitiveness and even economic growth.
    > In the first instance, we are interested in the welfare state because we are interested in human welfare."*\
    > --- @Haggard2009 [236]

    The abstractions of the mixed economy I have summarized here synthesize a lot of what we need to know about the material, and therefore social consequences of a capitalist welfare state.

    When we care about social consequences, the mixed economy suggests a great deal more to consider than just nominal welfare programs.
    For example, welfare states should not only provide social insurance, but also redress failing (p. ) and (p. ).

    When we care about social consequences, the mixed economy also implies that not all welfare programs are created equal.
    For example, welfare states interventions should (p. ) and use (p. ).

    When we care about social consequences, the mixed economy suggests that governments and markets are better at different things, and it ties welfare state interventions to specific justifications.
    For example, welfare states should nationalize or regulate utility markets if and to the extent that they are (p. ), but there is no reason to (as Germany presently does) redistribute within (p. ), who was supposed to only save the risk pool from (p. ).
    Caring about social consequences also means to leave markets alone, if they will likely serve material human need best.

    When we care about social consequences, the mixed economy reveals that efficiency and equity are not always opposed, but often go hand in hand.

    1.  *Inefficient is Inequitable.*
        @Titmuss1974 urged welfare states not to exclusively concentrate on poverty relief because such "residual services (...) often become poor services for poor people" [-@Titmuss1974 134].
        This intuition is supported by the abstractions of the mixed economy:
        as the rich are forced or allowed to take the inefficient --- but for them, affordable --- exit route from government provision, a retrenched welfare state will offer only inferior provision, or none at all, to those too poor to exit.

        This problem is particularly acute in health or disability insurance:
        as the rich and healthy exit the risk pool, coverage becomes ever more expensive, driving even more people out until it (p. ).

        Similar distributive effects occur in a wider class of market failures, too.
        For example, a failed (p. ) of global climate or local public safety will not only be wastefully inefficient, but it will also hit hardest the poorest regions and people, who can least afford substitutes, such as building a levee or hiring private protection.

    2.  *Inequitable is Inefficient.*
        On the other hand, the abstractions of the mixed economy also imply that sometimes, slicing the pie unequally, will also make it smaller:
        "(...) there is a very good argument that equality of opportunities and life chances is becoming sine qua non for efficiency as well" [@Esping-Andersen2002 ix].

        For example, people may not be able to align the when collateral is not widely available (p. ), and overly taxing low and middle (labor) incomes may contribute to (p. ).

    To answer the first-order question of welfare state design, as I have here tried to do, we need the abstractions of the mixed economy to know what is *normatively desirable* in a scarce world, filled with (at least some) homines oeconomici.

#### Higher Equilibria.

The first-order conflict about the best, possible welfare state is about the trade-offs, contradictions and uncertainties of the mixed economy explained in the above.
My aim here was not to resolve that conflict:
we may not know for sure, let alone agree on what *the best* welfare state looks like (even though I offered some well-informed hunches).
A mixed economy can --- in principle and for my purposes here --- make *arbitrary* trade-offs between equity and efficiency, presence and future, or any of the other dimensions of human material need.

But given *any* preference set for these (sometimes!) competing goals, there are still more and less efficient institutional configurations for the mixed economy.
More efficient, in this broadest sense, means that these configurations achieve more on *all* goals.
These preferable mixed economies will still trade off preferred goals for less preferred goals, but the trade-off will be less harsh.
For example, a [nit]{acronym-label="nit" acronym-form="singular+short"} may achieve the same, if not more equity than a minimum wage, but at much lower cost in growth, or unemployment.
Of course, you still have to break eggs for the proverbial omelette, just fewer of them.

\centering
![A Production Possibilities Frontier of Equity and Efficiency in Different Tax Regimes[]{label="fig:ppf-tax-regimes"}](ppf-tax-regimes){#fig:ppf-tax-regimes width="1\linewidth"}

The competing goals of human material need, in other words, are not always in a pure and immutable zero-sum relation, where, for example, one increment more in equity means one less in efficiency, one more in present consumption one less in future consumption.
Depending on the institutional design, these conversion rates will differ:
sometimes, for example, one increment in equity will cost only a half-increment in efficiency.
Alternative mixed economies, more often than not, are a positive or --- equivalently --- negative sum proposition.

Just entering the preferences between purposely competing goals does *not* yield a single configured mixed economy, but many different blends of command and exchange production and distribution.
Again, we may not know or agree what the globally optimal configuration is, given our preferences, but checking and of a mixed economy, we *can* know better from worse configurations, or local optima.

A better welfare state is that mixed economy which elegantly combines and components to , , , and .
That is, a welfare state that offers one of the higher possible trade-offs of growth, individual security, equality, saving and convergence.
It does so without effectively borrowing from the future through , or hidden, but .

This view of the welfare state differs markedly from other perspectives:

Full Employment or Growth.

:   A popular variant on the purposive trade-off between equity and efficiency, is that between the policy goals of full employment or growth, sometimes supported by "demand-" or "supply-side" economics.
    @Offe2003 [-@Offe2003 453] finds a similar controversy about how to best keep up the full employment "roof" over the metaphorical Keynesian welfare state house, protecting the lower floors:
    market liberals (or supply-siders) want to deregulate so that *growth leads to more employment* and social democrats (and, sometimes, demand-siders) want to sustain welfare state protection so that *more employment stimulates growth*.

    These contenders both once had a (somewhat overstated) point, but as market failures grew and monetary policy improved, they are now both increasingly wrong.

    Market liberals are wrong because not all deregulation, or any amount of it, will stimulate growth, and conversely, not all redistribution or other intervention will depress growth.
    The abstractions of the mixed economy suggest that sometimes, command production is more (p. ).

    Social democrats, or more accurately, demand-siders are wrong because, of course, in the long run, *only* supply determines prosperity, and the depressed aggregate demand they *always* seem to suspect is clearly defined as a monetary phenomenon and unlikely to persist for very long.
    If it occurs, monetary expansion and fiscal stimulus should smooth it out, but that does not make for a roof.
    Social democrats are also wrong to believe that all redistribution and regulation is cost-free:
    there *are* [dwls]{acronym-label="dwl" acronym-form="plural+short"}.

    The indicators of *activity* that both market liberals and social democrats usually obsess about --- [gdp]{acronym-label="gdp" acronym-form="singular+short"} and full employment respectively --- are both emphatically not related to greater (p. ).
    And so, they both sometimes fall for (p. ) and ignore (p. ).

    So how can we rescue full employment?
    By *not* fighting this last war, for at least two reasons.

    1.  Pushing macroeconomic policy to full employment risks overheating the economy and building up inflationary pressure.

    2.  More fundamentally, full employment no longer is (if it ever was) a necessary, let alone sufficient factor for anything we might consider socially desirable outcomes for a welfare state.
        Full employment in itself cannot, as the house metaphor suggests, provide any shelter for depleted , lemon-market , let alone address intertemporal failures or bubbles, to name just a few.
        More dearly to social democrats, full employment will also be increasingly unable to --- as the proponents of power resources had hoped --- level the playing field between capital and labor, simply because some of the major inequities no longer are between capital and labor, but also *within* labor incomes as (p. ).
        Even if the "reserve army of the unemployed" is fully activated, the resulting upward pressures on low (or all) wages will be no match for the governing dynamics of inequality enveloping the postindustrial economy (such as Baumol's cost disease).

    Full employment, and (properly defined) growth are still desirable --- because they are an efficient *outcome* --- but neither serves as a powerful *instrument* to reduce poverty or economic insecurity:
    "Promoting labour market participation is no substitute for income redistribution and the fight against poverty:
    more work does not necessarily mean less poverty" [@Esping-Andersen2002 ix].
    @Offe2003's metaphorical house of the Keynesian welfare state, in other words, does not need a few new shingles, but an altogether new roof.

    That new roof is the ability of the mixed economy to redistribute, efficiently and progressively as the democratic sovereign wishes.
    With that ability, welfare states can subsidize any (however small) minimal labor market income to any desired minimum standard of living (for example, through a [nit]{acronym-label="nit" acronym-form="singular+short"}), and can provide any level of social protection desired without counterproductively burdening low incomes (for example, by paying social insurance out of general tax revenue).
    Progressive redistribution could, if desired, dampen or counteract any existing income dynamic, including markets.
    @Offe2003 may be right that the welfare state did not "have much to do with 'equality of outcomes' ", but that does not make it tenable or desirable today [-@Offe2003 450].
    If you are serious about even just "security and protection of workers, not equality" (*ibid.*) you have to care about inequality and redistribution, at least a little.
    Without it, you will not have the resources to guarantee even such minimal, unequal outcomes for workers.
    I further develop this argument in my critique of the literature (p. ).

Decommodification

:   still serves well to distinguish different welfare states [@Esping-Andersen-1990-aa], but it, too, is no strategy for a possible and desirable mixed economy.
    Of course, welfare states may still "decommodify" (or *subsidize*) health care, education and replace (or *insure*) the incomes of the sick, disabled, old and unemployed, but such programs may be better described in the language of the mixed economy:
    as *specific* market interventions and redistribution.

    The difference is not merely semantic, but at least three substantial misunderstandings easily follow from this choice of terminology:

    1.  Decommodification suggests --- misleadingly --- that welfare states *could* take some aspects of life, and some people *off* the market.
        But, because command and exchange modes of production and distribution always interact, that cannot be done.

        For example, decommodification of disability income is easily misconstrued to mean that disability would no longer be affected by the market, and that markets would no longer be affected by disability.
        That is not so.
        When welfare states support the disabled, they not only exempt them --- as intended --- from earning a market income, but they may also make it cheaper, and therefore more likely for labor markets to *produce*, say, burn-out, depression or back pain.

        Thinking in the abstractions of the mixed economy helps us to avoid such pitfalls.
        In this case, we know that *insurance* of risks is prone to moral hazard, and that (Pigouvian) co-payments can save the commons of a prudent risk-pool.
        We can, if desired, slap a Pigouvian tax on risky or strenuous employment and activities, to make sure it is more costly, and is avoided.

    2.  Decommodification easily morphs from description to prescription, as for example, when income replacement becomes a measure for welfare state re- or entrenchment.
        Caring about outcomes, there is nothing inherently desirable or essential about decommodification, for four reasons:

        1.  To decommodify someone out of the market also means to exit someone out of the central institution, that aside from providing the substituted material sustenance, mediates much human cooperation, generates self-worth to many and allows people to shape the world around them, however marginally.
            Instead, we should "enable all citizens to participate in the mainstream of social and economic life" [@Esping-Andersen2002 ix].

        2.  Complete decommodification is a last resort response to hardship.
            Mixed economies have several alternative, and less intrusive, approaches to, for example long-term unemployment.
            Instead of generous, universal and unconditional --- and therefore decommodifying --- benefits, a mixed economy may subsidize low market wages with a continuous and regressive [nit]{acronym-label="nit" acronym-form="singular+short"}.

            The availability of a *specific* tool, may not much matter to the desirability of a welfare regimes:
            social outcomes do.

        3.  Decommodification, conceptually, if not always in reality, is ignorant of potential welfare losses, as some person is provided, or some activity done under command instead of exchange --- without a respective, justifying market dysfunction.
            Thinking instead, in the abstractions of the mixed economy, always ties a market intervention to a particular market failure or broader dysfunction, and considers the potential welfare losses.

    3.  Decommodification is both radical as a prescribed tool (exit the market) *and* strictly limited in its reach (only a set of included people or activities).
        To be sure, sometimes a complete move to (entitled) command provision and distribution may be necessary or desirable.
        Likewise, a democratic sovereign may choose to only care *a lot* about some market outcomes --- and decommodify them ---, and not care about others *at all*.
        But there is no reason that all welfare states should do so, let alone that we carve this specific vision of a social compact into our conceptual toolbox.

#### It follows:

for a better welfare state to strike any such optimal balance, even given arbitrary preferences, it needs an intact set of (p. ), (p. ) and (p. ) of a mixed economy.

Of these, tax is the elephant in the room:
it is by far the most versatile, precise and powerful tool of command production and distribution in the mixed economy.

None of this is a merely abstract or academic concern.
Much lies this balance of command and exchange:
everything we materially value, and with that, a great deal of the life chances of us all depends on an intact mixed economy.

This is also not a revolutionary project.
It does not ask for a new man, but it accepts, and timidly merely reforms *homo economicus*, the civilized version of our selfish demons.
It does not ask for a new institution, it carefully compromises existing ways of exchange and command.
The mixed economy, by any historical standard, is not a radical proposition.

This much, I hope, is widely agreeable.

> *"Taxes are the price we pay for a civilized society."*\
> --- Oliver Wendell Holmes, Jr. (1904), Washington, DC

\centering
![Macroeconomic Regimes and Political Priorities[]{label="fig:ganssmann-macro-regimes"}](ganssmann-macro-regimes){#fig:ganssmann-macro-regimes width="1\linewidth"}

\scriptsize{\cite{Rodrik2002} as reproduced in \citet[348]{Ganssmann2010}}
\centering
![Forms of Rule and Welfare State Regimes[]{label="fig:ganssmann-rule-ws"}](ganssmann-rule-ws){#fig:ganssmann-rule-ws width="1\linewidth"}

\scriptsize{Reproduced from \citet[334]{Ganssmann2010}}
\centering
![Trilemma of the Service Economy[]{label="fig:ganssmann-trilemma-service-economy"}](ganssmann-trilemma-service-economy){#fig:ganssmann-trilemma-service-economy width="1\linewidth"}

\scriptsize{Reproduced from \citet[341]{Ganssmann2010}}
\centering
![Welfare Provision and Political Ideologies[]{label="fig:ganssmann-welfare-provision"}](ganssmann-welfare-provision){#fig:ganssmann-welfare-provision width="1\linewidth"}

\scriptsize{Reproduced from \citet[334]{Ganssmann2010}}
Tax
---

Taxation in the [eu]{acronym-label="eu" acronym-form="singular+short"}, for the most part, remains an exclusive competence for [ms]{acronym-label="ms" acronym-form="singular+short"}.
Under the acquis, only indirect taxes (VAT) are harmonized --- at ineffective, minimal levels --- with very limited cooperation in other fields (for example, @EuropeanCommission2009, @TaxCoordinationandTaxCompetitionintheEuropeanUnion-EvaluatingtheCodeofConductonBusinessTaxation2001).
Per its treaties, the [eu]{acronym-label="eu" acronym-form="singular+short"} can harmonise only *indirect*, always proportional taxes --- such as [vat]{acronym-label="vat" acronym-form="singular+short"} --- and only by *unanimous* decision of the Council on proposals by the Commission (Article 113, Treaty of Lisbon, 2009 / Article 93, Treaty Establishing the European Economic Community, 1957).
Union members do not even fully cooperate in collecting existing, national taxes:
instead of full reporting of all incomes, some incomes (for example, dividends) and some countries (for example, Luxembourg) are exempted and instead levy a proportional, much lower withholding tax.
It is, in short, no exaggeration to say that the [eu]{acronym-label="eu" acronym-form="singular+short"} has no fiscal institutions or even coordination to speak of.

In the [eu]{acronym-label="eu" acronym-form="singular+short"}, there is no match between the scope of economic activity --- the union-wide common market --- and the scope of taxation.

With no union-level taxation, what does this mismatch do to
[ms]{acronym-label="ms" acronym-form="singular+short"}-level taxes?
As the abstractions of the mixed economy suggest, tax competition results.
For example, [@Genschel2009] find that tax competition is different and greater within the [eu]{acronym-label="eu" acronym-form="singular+short"} than outside of it, and that it accelerates with time and enlargement.
[eu]{acronym-label="eu" acronym-form="singular+short"} tax competition is a [pd]{acronym-label="pd" acronym-form="singular+short"}, where states (strictly) dominantly prefer low taxes over high taxes and (Nash) equilibriate in suboptimal, mutual low taxation () on ).

If, and to the extent that such a race-to-the-bottom is at play in the [eu]{acronym-label="eu" acronym-form="singular+short"}, it will affect both levels and schedules of national taxation.

#### Levels.

Straightforwardly, [ms]{acronym-label="ms" acronym-form="singular+short"} will be strictly limited in the overall level of taxation they can sustain.
Governments will no longer be free to set a level of taxation, or, equivalently, determine the command-exchange components of the mixed economy.
In some cases, tax levels may even fall, as has been shown for [cit]{acronym-label="cit" acronym-form="singular+short"} rates [@Piatkowski2008].

#### Base.

Moreover, and more importantly, competition will also alter the base composition of taxation.
To avoid large [dwls]{acronym-label="dwl" acronym-form="plural+short"}, as they should, governments will turn to bases that are relatively price inelastic, that is, economic transactions that cannot be altered to escape taxation.
[eu]{acronym-label="eu" acronym-form="singular+short"} integration opens up a lot of new escape routes, especially for newly mobile capital, and, to a lesser extent, high-skilled labor:
they can relocate their economic activity to wherever the tax burden will be lowest.
This causes welfare-depressing distortions in the high-tax economy:
rather than face a now voluntary tax, these pareto-optimizing exchanges will not be made at all, and instead happen elsewhere.
For example, a rich entrepreneur otherwise willing to open a new factory in high income-tax Germany, may, faced with the new alternative of building the same facility in a low-tax location, forego his original plan.
Germany unambiguously looses welfare, both because the investment is not made, and also because it does not even generate any fiscal revenue.

Faced with these dynamics, governments will, again rightly so, shift their taxation to bases that are less prone to [dwls]{acronym-label="dwl" acronym-form="plural+short"}, or equivalently, bases that are relatively less mobile.
Relatively less mobile bases in the [eu]{acronym-label="eu" acronym-form="singular+short"} will be consumption and labor incomes, because consumers and workers cannot easily do their shopping and working in another country.

Other --- partly dysfunctional --- taxes traditionally used to raise revenue for mixed economies will be rolled back or falter altogether.
This applies especially to --- anyway defunct --- national [cits]{acronym-label="cit" acronym-form="plural+short"} that large corporations can often evade easily, in part because nailing down the locale of any particular increment of income of a multinational firm will always be conceptually difficult.
For example, the German holding of Deutsche Bank AG can easily reassign a particular income stream to a Luxembourg-based subsidiary, arguing that a crucial business process occurred there.
Tax administrations will always, and necessarily, be unable to argue where any particular value was created (@Ganghof2006, @Ganghof, @Ganghof2007 [5]).
Similarly, higher brackets of progressive [pit]{acronym-label="pit" acronym-form="singular+short"} will also cause large [dwls]{acronym-label="dwl" acronym-form="plural+short"} or, more likely and wisely, disappear, as high-income individuals change residence or citizenship, offshore their income-generation to other countries, or at least shelter it in foreign corporations no longer affected by high, backstop [cits]{acronym-label="cit" acronym-form="plural+short"}.
For example, a rich German entrepreneur can establish a new holding in Ireland to buy up his German-based firm, and have it retain most if not all of the earnings, effectively escaping german income taxation.

If and to the extent that Pigouvian taxes, or even fees fall on mobile bases, these will also either cause excessive market distortions, or, more likely, disappear.
For example, a German steel producer may, (hypothetically!) faced with the German ecotax, relocate to Poland, avoiding the higher energy price, *without*, as the Pigouvian tax intended, raising the price of steel.
Overall energy intensity will remain the same, steel production will simply fall below equilibrium levels in Germany.

#### Schedule.

Crucially, by shifting the base, [eu]{acronym-label="eu" acronym-form="singular+short"} [ms]{acronym-label="ms" acronym-form="singular+short"} will also alter the schedule of their tax regimes.
By relying more on taxing labor incomes, schedules will become more regressive:
most large incomes in developed capitalist economies are not labor, but capital incomes.
By relying more on (pre-paid) consumption and other indirect taxes, schedules will become regressive or --- at best --- proportional:
even if rich people, just as others, eventually spend all their income, they will only pay the same percentage in [vat]{acronym-label="vat" acronym-form="singular+short"} or similar taxes.
If union member governments wish to avoid, as they should, excessive [dwls]{acronym-label="dwl" acronym-form="plural+short"} they will have to sacrifice progressivity in tax.
The already impaired, but lone vestige of progression, the [pit]{acronym-label="pit" acronym-form="singular+short"} together with its ugly, but necessary backstop,
[^1]
the [cit]{acronym-label="cit" acronym-form="singular+short"} will either disappear altogether, or, largely equivalent, depress their schedules and degenerate into effective labor income taxes, with, at best, some residual but proportional taxation of capital.

Dysfunctions {#sec:defunct}
------------

What kind of an economic reality results from this open, but heterogeneous [eu]{acronym-label="eu" acronym-form="singular+short"}, with unbounded trade, mis-configured currency union and rampant tax competition?
It is, and must be, a deeply dysfunctional design, boxing the European household in unattractive policy dilemmas, wasting its communal resources, ever building new imbalances, harboring new crises, and, ultimately, fracture the social contract.

### Underfunding {#sec:public-squalor}

Straightforwardly, the strictly limited revenues of [eu]{acronym-label="eu" acronym-form="singular+short"} [ms]{acronym-label="ms" acronym-form="singular+short"} confine them to structural underfunding, or at least, constrain the command-exchange that mixed economies are otherwise free to make (p. ).
By subjecting taxes to competition, any increment in more command production and distribution must be bought at an increasing price in lost economic activity, or [dwl]{acronym-label="dwl" acronym-form="singular+short"}.

In this scenario, governments rebalance their Haig-Simons identities --- as they always must --- by cutting public consumption or dissaving out of their wealth.
This can take many, but entirely equivalent forms.
For example, governments can save on public goods, such as road maintenance, or it can reduce transfer payments, such as welfare benefits.
It can also dig into its savings, and take on new debt, or, let infrastructure fall into disrepair.

Here, too, government is faced with unattractive choices:
to either cut public spending to suboptimal levels, to go into debt or to otherwise dissave.

### Unemployment

The neoliberal agenda promised that if states cut their spending, at least their economies would greater economic growth.
Under a dysfunctional mixed economy, that is not necessarily so.
In the [eu]{acronym-label="eu" acronym-form="singular+short"}, mixed economies cannot have the cake and eat it, they cannot even do one of the two.
Instead, its welfare states are faced with a twin crisis that is mutually reinforcing:
one of structural unemployment, and one of structural underfunding, as illustrated in (p. ).

Structural underfunding, aside from causing (p. ), in the long run may also diminish the kind of public and common goods that drive future economic growth, such as basic research or infrastructure, and especially, education.
Over the long haul, structurally underfunded states will ill-equip workers for a global marketplace, and leave them with comparatively poor labor productivities.

In addition, structurally underfunded governments are increasingly unable to transfer low- and middle-income workers, or, at least, exempt them from taxation.
In particular, the greater tax burden on immobile labor, and the constrained progressivity of tax under competition will make it even harder for workers to make ends meet at any given market income.
They have to pay more --- not less --- to the state, or, misleadingly named "social insurance" and keep even less for their personal consumption.

As a result, at least some workers will be relatively unproductive and face high taxes on their already low or middle market incomes.
If and to the extent that [eu]{acronym-label="eu" acronym-form="singular+short"} welfare states maintain some minimum socially acceptable living standard, either through a minimum wage, or, equivalently, welfare transfers, these low and some middle income earners will find it increasingly difficult to earn enough on the market to meet this standard.
Any --- already diminished --- income will be further depressed by a tax wedge driven between the gross and net disposable incomes.
Both in a minimum wage, and a welfare transfer regime, those workers with productivities too low to make the minimum income on the market will exit the market, and collect welfare instead --- not out of laziness, but out of necessity.

The ensuing structural unemployment, in turn, reinforces the structural underfunding of the mixed economy government.
First, it creates greater needs for transfers, putting further strain on public transfers.
Secondly, it also depresses growth, and in the long run, diverges the economy from its long-term growth path, as segments of the labor force lie needlessly idle.

Alternatively, of course, governments can lower effective price floors by cutting welfare benefits, minimum wages or by raising work requirements.
By lowering minimally acceptable social standards --- frequently euphemised as "structural realignments" or "labor market flexibility" --- states will have to abandon central welfare tenets and create and accept, once again, widespread working poverty.
That is, [eu]{acronym-label="eu" acronym-form="singular+short"} welfare states can brake the vicious cycle of underfunding and unemployment if they cease to be welfare states, a configuration that [@StreeckMertens2010] have aptly called a "permanent austerity regime".

Governments of dysfunctional mixed economies, here, as always, are faced only with equally unattractive options:
to either save social standards at the price of structural unemployment and depressed growth, or to abandon them and risk widespread working poverty.

This dual crises, and the uneasy choices it forces, will only be exacerbated in a modern and open economy.
Modern economies already produce highly unequal returns, as winners take all and, equivalently, Baumols cost disease looms.
A modern economy will, by its very structure tend to produce people whose productivities are much lower than the overall productivity of their host countries.
Trade, migration and capital mobility add even more pressure.
As countries specialize even more according to their factor endowments (think: Romanian Nokia, German Management Consulting), remaining, relatively scarce factors (think: unskilled laborer in Germany) may find their market wages fall even further below the respective socially acceptable minimum income.
Especially rich states may then be forced to redistribute income to these individuals, but find themselves unable to raise the necessary revenues (progressively) without further reducing their competitiveness.

### Inequality

Lacking any union-level fiscal institutions and marred by tax competition between the [ms]{acronym-label="ms" acronym-form="singular+short"}, the [eu]{acronym-label="eu" acronym-form="singular+short"} mixed economy lacks effective tools to redistribute market outcomes.
Both *within* and/or *between* member states, rampant inequality will remain unchecked, or even further widen.

At home, the mixed economy has lost its ability to dampen (possibly accelerating) winner-take-all dynamics, and to compensate the losers from trade and economic transformation.
[^2]
The great U-turn back towards more inequality, in Europe as elsewhere in the [oecd]{acronym-label="oecd" acronym-form="singular+short"} is well under way [@AldersonNielsen-2002-aa].
As tax competition both erodes the base and depresses the progressivity of taxation, market allocations, increasingly, are final.
Moreover, structural underfunding and associated public squalor will also hit hardest the lower and middle income earners, further widening the divide in living standards.
Rich people can afford to exit from public provision, for example by paying doctors out of pocket, by sending their children to private schools or even walling their gardens and gating their communities.
Lower and middle income earners have no such exit option, but are stuck with decrepit public provision.

Between [ms]{acronym-label="ms" acronym-form="singular+short"}, too, inequality will remain unchecked, as member and union level governments have no instruments to alter distributive dynamics of trade, that may --- or may not --- lead to fast convergence of productivities, and related, living standards.
What is worse, the poorer mixed economies are especially constrained:
at low productivities, they can least afford to burden mobile capital, and other mobile, high-earning factors, such as professionals with any, let alone progressive taxation.
With open borders, but without coordinated tax or union-level transfers, these poorer [ms]{acronym-label="ms" acronym-form="singular+short"} currently can only take the hard, unmitigated route to economic convergence:
they tax mostly (low-productivity) labor, proportionally if not regressively, and at low overall public spending levels [for example, @DaudUngl2008 267].
By contrast, in the higher-productivity, rich [ms]{acronym-label="ms" acronym-form="singular+short"}, corporatist arrangements, strong trade unions and substantial, if increasingly dysfunctional welfare regimes can still eek out pockets with sometimes generous welfare provision:
in always capital-intensive, often high-value add and sometimes oligopolistic --- not commodity ---production, these economies can, at least in some sectors, afford welfare.
For example, a Bavarian specialist engine builder with high capital and relatively low labor inputs and maybe a handful competitors on the world market, may, faced with strong unions, accept above-equilibrium, possibly efficiency wages.
Not so in Romanian manufacturing:
Producing low-margin commodities, with little capital but hundreds of competitors and easy access, firms have to compete tooth-and-nail on labor costs.
And so, [ms]{acronym-label="ms" acronym-form="singular+short"} may not only fail to converge as quickly, or as closely as they could, or hoped to, but the very *conditions* for economic development will diverge widely.
The rich, high-productivity [ms]{acronym-label="ms" acronym-form="singular+short"} can still, if inefficiently and incompletely, dampen and distribute the pain of whichever economic shock hits or transformation sets in.
In the poor, low-productivity East and South, it will be bare-bones laisséz-faire capitalisms.
[^3]

In the [eu]{acronym-label="eu" acronym-form="singular+short"}, Kuznet's and Keynes' grand hopes, that welfare would --- and should --- always follow growth, are dashed (as cited in [@Galbraith2002a 22].
If they have any choice at all, it is a very unattractive one for the governments of the union:
they can either stay in the common market and reap the gains from trade and abandon all or some welfare, *or* they can exit the union, stall economic integration, save their welfare regimes and retreat to autarky and recession.

### Imbalances and Crises {#sec:imbalances}

> [50 Ways to Leave Your Lender](http://www.npr.org/blogs/money/2012/03/01/147720368/50-ways-to-leave-your-lender)
>
> The problem is all inside your head, she said to me,\
> You can't pay back 200 percent of GDP,\
> You have to negotiate, if you want your country free,\
> There must be 50 ways to leave your lender.
>
> You really don't want the IMF to intrude,\
> Furthermore, they'll force austerity for the interest that's accrued,\
> Imagine your middle class, subsisting on cat food,\
> There must be 50 ways to leave your lender.\
> Fifty ways to leave your lender.
>
> You just stretch out the loan, Joan,\
> Cut the creditors' hair, Claire,\
> Or boost GDP, Lee,\
> Just listen to me.
>
> Print more money, honey.\
> No need to pay back, Jack!\
> Structure a default, Walt.\
> And get yourself free.\
> --- Planet Money / National Public Radio, 2012

Democratic governments, firms and households alike will be under great strain from the underfunding, unemployment and inequality that a dysfunctional mixed economy creates.
They may take on any possibility to temporarily relief the pressure they are under, even if it will not solve, or even exacerbate the situation in the long run:
here, too, humans and the institutions they man, suffer from time inconsistency.

In modern financial capitalism and complex societies, there are some powerful painkillers to numb the effects of a dysfunctional mixed economies.
As painkillers go, they treat the symptoms, not the disease, and have serious side effects.
And so it is with the macroeconomic temptations in the [eu]{acronym-label="eu" acronym-form="singular+short"}:
as powerful drugs, they seemingly let economies transcend their material means, spread euphoria and frenzy.
Only their cure is, ultimately, delusional, their treatment addictive.
While under the charm of such chimerical boom and prosperity, economies keep building pressures and imbalances, that, one day, will unload in financial shocks and systemic crises, that, if sufficiently large, can disturb or bring down entire markets.
After this kind of ecstasy always comes a day of reckoning, with a catastrophic hangover.

Just when an economy is in such drug-enduced delusion, and living beyond its long-term growth path is, as always in uncertain markets, hard to tell.
National balance of payments accounts provide as in (p. ) an intuitive, if rough-and-dirty first indication.
Between economies, too, an identity akin to Haig-Simons and the conservation of matter, holds:
for any good or service that leaves the country, there must ultimately be imports of equal value, or, a change in ownership of foreign assets, that is, the promise of *future* imports of goods and services.
Conversely, any import must be matched by exports of equal value or it will be offset in *foreign* ownership of domestic assets, that is, claims against future domestic production.
As all the most important economic abstractions, this one is simple:
balance of payments accounts are double-entry bookkeeping, only at the economy level.

The components of balance of payments accounts, as the Haig-Simons identity, break down over households, firms and governments.
For example, in a fictions German account, households can import olive, or firms can import particle filters as semi-manufactured inputs, or governments can import commuter trains for public transportation (, p. ).
In these accounts too, positions of one owner are offset by positions of other owners in the same economy.
For example, German household exports of home-made cuckoo clocks can be offset by said firm imports of particle filters in a roundabout way, when clockmakers buy French-particle-equipped German cars, or following some other chain of exchanges.
Positions also offset across the equality sign.
For example, German household imports of olive oil may be offset by government issues of German bonds to Greek oil producers, with the government channeling the revenue to oil-consuming welfare recipients, or through a myriad of other transfers.

![A (German) Balance of Payment Account with Examples[]{label="fig:bop"}](balance-of-payments){#fig:bop width="100%"}

Balance of Payment accounts are easily misunderstood or oversold, for a four reasons:

1.  Trade deficits and surpluses between any pair of countries are frequently reported, but meaningless and entirely unproblematic, just as shoppers need not worry about a trade deficit with the local supermarket.
    Trade deficits --- as consumer debt --- are potentially worrying only if they are *net* of all exchanges with all trading partners.

2.  Conversely, balance of payments accounts do not apply only between countries, as is easily assumed, but is, in fact a meaningful and true identity between any group of market participants and the rest of their trading partners, all the way down from nations to households.
    For example, a trade deficit may also arise between laggard regions, impoverished demographics or even generations, and the rest of an economy, with much the same possible problems.

3.  In the short term, even such trade deficits may not be problematic, but, in fact, help to stabilize economies from exogenous shocks.

4.  Even in the medium and long run, persistent trade deficits may be ok if and to the extent that the resultant capital inflows can reasonably be expected to currently, or in the future, earn whichever factor income was promised.
    For example, emerging economies may well experience persistent trade deficits for some time, while machinery is imported to equip the workforce, if and to the extent that the resulting, now capital-deepened production pays off as expected.

Still, balance of payments accounts are an immensely enlightening abstraction, without which trading mixed economies cannot be well understood:

1.  Trade deficits are not a sufficient, but still a necessary condition for building macroeconomic imbalances.
    Not every trade deficit will betray an economy living beyond its means, but every economy artificially held above its long-term growth path by said financial drugs *will* leave a grave trade deficit in its wake.

2.  The balance of payments identity shows, as Keynes argued forcefully, if somewhat ineffectively at the Bretton-Woods conference in 1944, that these macroeconomic imbalances know no *one* culprit.
    The loaded language notwithstanding, both deficit *and* surplus economies are, equally, at fault.
    One parties excessive imports are another parties dumping exports.
    To get to equilibrium, where imports equal exports, either of the two parties, or both, must change its prices.
    To pride oneself, as German leaders frequently do, in being an export champion --- but not an import champion --- is but a mindless return to the folly of beggar-thy-neighbor, and, before that, mercantilism.

3.  Financial flows always track flows of tangible goods and services, as well as vice versa.

4.  It does not much matter *who* --- households, firms or government --- in an economy creates the trade deficit.
    Only the deficit net of all economic actors in a given region matters.

How, then, do we know the acceptable trade deficits, from the unsustainable ones?
We look at the offsetting changes in the capital account, and check whether these are intertemporally efficient, or whether they were enabled by failed markets.
In the [eu]{acronym-label="eu" acronym-form="singular+short"}, as in any other mixed economy, we must beware of these smoke and mirrors, that only forestall and worsen the inevitable day of reckoning:
credit bubbles, asset bubbles, inflationary pressure, and nominally invisible, but real dissavings.

Credit Bubbles & Default.

:   Trade deficits can precipitate in capital inflow, as new foreign-held debt.
    To receive their extra imports, deficit economies issue different forms of IOUs, including government bonds, corporate debt and household credit, sometimes backed by physical collateral, as in a mortgage.

    If the sum of these debts, is sound, so is the trade deficit.
    If debts, sour, or were overly optimist to begin with, the trade deficits cannot stand.
    Consider the two scenarios:

    1.  The loans are performing as long as, if, and to the extent that whichever projects they financed generate sufficient earnings to pay back interest and principal.
        For example, if the extra, imported surplus production the IOUs enabled were transformed into a competitive factory that now churns out export merchandise, the loan can be paid be back out of these exports and revenues.

        In the [bop]{acronym-label="bop" acronym-form="singular+short"}, the initial trade deficit is first offset by the loaned capital inflow, which later flows out again as the loan amortizes, offset by foreign factor payments and exports of the produced merchandise.
        In effect, the loan has, as efficient credit should, inter-temporally balanced past trade deficits with future trade surpluses and/or foreign payments.
        It matters little whether, and in which proportion the amortization on the capital account is offset by either foreign payments or equivalent actual exports, and whether the factory's merchandise is actually for export or domestic consumption.
        In the balance of all economic transformations and exchanges, successful factories and other projects can always honor their loans *without* curtailing the living standard of the population.
        Interest, and maybe even collateral, are paid back out of *extra* production that would not have otherwise occurred.
        We need not worry about this kind of trade deficit:
        because it moves everyone closer to the long-term growth path, is an inter-temporal Pareto, or at least Kaldor-Hicks optimization.

    2.  The loan goes bad as soon as, if, and to the extent that whichever projects they financed do not generate sufficient earnings to pay back interest and principal.
        For example, if the factory is not competitive, or --- more to the european point --- no one needs or can afford the airports, malls and mansions into which the extra imports were coagulated, there are no revenues or exports to pay back the loan.
        In the extreme, but conceptually similar and now plausible case, the extra imports were not meaningfully coagulated into capital at all, but were simply consumed away at present.

        Come the day of inevitable reckoning, the deficit economies have two choices:

        1.  If the loan in question carries effective recourse, the deficit economy has to return the loaned capital in other, *material* ways.
            As when a leasing company repossesses a car on which payment the lessee has fallen behind, deficit countries must return the surplus production in some form.
            For example, the deficit economy may ship back the foreign-financed machinery in the project, or, more likely, return the same amount of surplus production transformed into some other good or service.

            This is the hard way of rebalancing the [bop]{acronym-label="bop" acronym-form="singular+short"}:
            the inevitable, promised outflow of capital on the capital account (reflecting net changes in the ownership of, but not generation of, assets) can be balanced only with an often painful trade *surplus*, because there are no factor incomes to be otherwise offset on the current account, reflecting a nation's income.
            Either way, a failed investment enforces a later, and often painful trade surplus to return principal and return.

        2.  Alternatively, if and to the extent that debtor economies (can) forego recourse and exert sovereignty vis-a-vis creditor economies, they (partially) default on their commitments and simply refuse to return the coagulated surplus production.
            In that case, creditors are stuck with their claim.
            By fiat, the original loans become full, or partial *transfers* from the debtor to the creditor economies.
            Here as always, the two sides of the [bop]{acronym-label="bop" acronym-form="singular+short"} identity cancel out:
            the original trade deficit is matched by a later, ex-post, enforced, foreign payment in the form of debt forgiveness, haircut or default.

        No matter the choice, this kind of trade deficit is never an optimization, but an unavoidable *redistribution*, either from surplus future to deficit present if and to the extent that debtors pay, or from creditors to debtors, if and to the extent that debtors default.

        Crucially, it matters very little who in the deficit economy --- households, firms or government --- initially took on debt.
        These non-performing loans will redistribute from future to present, or creditor to debtor no matter who signed them.
        In many cases, government will be forced to act as the lender of last resort and take on, or guarantee all the bad loans, both to counteract adverse selection and, often to save an exposed banking system from systemic crash.
        Even if and to the extent that government, or, equivalently, future taxpayers, can avoid to take on the bad loans, the redistribution is merely concentrated on whoever remains nominal debtor.
        Domestic policy can force only *some* people --- ideally those responsible --- to repay, but, short of default --- another redistribution --- it cannot void the need to repay.
        Here, as always, something akin to economic conservation of matter reigns:
        when credit bubbles burst, someone will have to pay back the future, either some debtors, all taxpayers, some creditors, or any combination thereof.

        In addition to these mere inter-temporal distributions, credit bubbles and associated mass defaults or austerity, of course, also waste economic welfare, because of the turmoil they harbor, not to mention the hardship they imply.
        As the business cycle fluctuates wildly in such crises, the economy diverts from the long-term growth path, leaving resources either depressively idle, or manically scarce.

        Credit bubbles are a market failure that may plague any economy --- not just the [eu]{acronym-label="eu" acronym-form="singular+short"} --- but the european, defunct mixed economy is particular prone to them, for at least three reasons:

        1.  The [eu]{acronym-label="eu" acronym-form="singular+short"}, until at least 2012, exercised most macroprudential oversight and otherwise mostly regulated financial markets at the [ms]{acronym-label="ms" acronym-form="singular+short"} level.
            Here, even the regulatory arm of the mixed economy was impaired, and regulations might have been arbitraged to suboptimal levels.

        2.  Monetary policy drives bank lending.
            The [ecb]{acronym-label="ecb" acronym-form="singular+short"}, because it can set only *one* monetary policy, was unable to react to credit bubbles in individual markets or regions, such as Spain or Greece.

        3.  Equivalently, if there were in the [emu]{acronym-label="emu" acronym-form="singular+short"}, or ever hoped to meet the its nominal convergence criteria, deficit and credit-crazed [ms]{acronym-label="ms" acronym-form="singular+short"} also could not devalue their currency through monetary interventions.

Asset Bubbles & Crashes.

:   Broadly similar, and often concomitant to credit bubbles, asset bubbles can also fuel trade deficits.
    As some assets in the deficit economy are persistently overvalued, foreign investors buy up these domestic assets, offsetting the trade deficit on the current account with a capital inflow on the capital account.
    Real estate, stock or some other asset that did not previously exist, or belonged to domestic investors, changes hand to foreign investors, expecting an ex-post unreasonable return.
    Come the day of reckoning, asset prices plunge, and much the same process sets in as when credit bubbles burst, only in asset bubbles, the default incidence is on the foreign investor, because she will usually, if not always, have taken risk-bearing equity in the asset.

    Asset bubbles, too, are a redistribution from a future day of reckoning to a manic present, and, in that future, a redistribution from foreign investors to the domestic economy.
    In addition, asset bubbles also waste welfare:
    when they burst, they spiral downwards, often cause grave systemic risk and generally divert the economy from the long-term growth path.

    Asset bubbles, too, are a universally looming market failure, but the [eu]{acronym-label="eu" acronym-form="singular+short"} is particularly vulnerable, again, because of likely regulatory arbitrage and ill-fitting monetary responses to local business cycles.

Monetary Expansion & Inflation

:   Overly expansive monetary policy can also enable unsustainable trade deficits.
    In this scenario, central banks simply inject more fiat money into the economy to offset the current account deficit with a Potemkin inflow of capital.
    Fiat money, of course, never creates capital, and if, when and to the extent that this bluff is called, inflation ensues:
    money supply and demand equilibrate at new, higher price levels.

    This problem is widespread in the [emu]{acronym-label="emu" acronym-form="singular+short"} with asynchronous business cycles, a single interest rate target and no transferred stimulus to speak of.
    In those regions where a low interest rate pumped too much money into the economy, as now appears to have been the case in Ireland, Spain, Portugal and Greece preceding the 2008ff crisis, loose money silently credit and asset bubbles, and might have already built yet-to appear inflationary expectations.

    Inflation, here, as always, wastes resources and redistributes arbitrarily.
    The middle class and older people, with frequently nominal denominated assets (pensions), but real denominated liabilities (rents) will be particularly vulnerable to whichever level of inflation this crisis might, eventually, bring.

    Inflation, too, as the other temporary diversions from the long-term growth path, redistributes from the future to the present.
    Even inflation does not spiral to double-digits or more, *any* additional increment in medium-term inflation and expectations is costly, as disinflating to previous levels is painful and often causes prolonged unemployment.

Dissaving & Depletion

:   Trivially, economies can also go into unsustainable trade deficits by real dissaving.
    Instead of, say, selling shares in domestic companies, the deficit economy can just burn more of strictly limited fossil carbon, diminishing its real, if not its nominal assets.

    Because such real assets, including an economies infrastructure, demography, environment or CO2e levels as unresolved commons have no defined ownership rights, they do not nominally show up in the capital account of an economy.
    Whatever this assets are transformed into, however, may well show up as an export in the current account.
    For example, a deficit economy can dig into its coal and iron ore resources, transform them, and export them as steel, offsetting other imports.
    Because the dissaving in natural resources is not usually recored, and thus triggers no change in the capital account, the steel export revenue will erroneously be attributed as a domestic *income* in full, when in truth, much of the revenue comes from dissaved domestic assets, that ought to be recorded on the capital account.

    Such dissavings --- by definition --- redistribute from the future to the present.
    As dissaving most easily and nominally invisible occurs out of vulnerable commons, it also wastes the welfare of some of our most precious, communal resources.
    If, when and to the extent that they are depleted to sustain trade deficits, we may never or only at great cost be able to restore them.

I cannot marshall evidence here to show how each of these dynamics caused the 2008ff Euro, let alone the broader sovereign debt crisis.
Nor can anyone, in 2012, reliably predict which of imbalances may yet turn out to be unsustainable, and why.
What I do claim here is that whatever the actual imbalances and crises of the embattled [emu]{acronym-label="emu" acronym-form="singular+short"} and [eu]{acronym-label="eu" acronym-form="singular+short"} are, or will be, they will, underneath it all, follow these scripts.
Using some economic imagination, *these* are imbalances and resulting periodic crises we would expect to plague any such internally open, but dysfunctional mixed economy.

While this european mixed economy may be of its own kind, the market failures that enable these imbalances and trigger the resulting crises are in no way *sui generis*.
The herding and information externalities that inflate asset and credit bubbles, the systemic chain-reactions that loom on large defaults and the tragic commons depleted by real dissavings are the kind of market failures that plague all real-existing capitalism.
As such, they must be meet the appropriate regulatory, fiscal, and --- to a lesser extent --- monetary responses.
Similarly, loose money tempts governments of all market economies, not just --- in fact, probably, least of all --- in the [eu]{acronym-label="eu" acronym-form="singular+short"}.
It, too, must everywhere be curtailed by policy:
a constitutionally-enshrined monetary governance, preferably a robustly independent central bank, bound to a well-defined goal.
Because as dangerous drugs endemic to capitalism, these problems are not European problems, they also do not require a European solution.

Still, the deficient european acquis exacerbates the imbalances and crises looming everywhere, in at least three ways ([echoed by @Bordo2011 25]):

1.  Without a monetary union or nominal convergence criteria thereto, trading economies can intervene in their exchange rate, or, at least, let their currencies depreciate freely.
    As adjustment mechanisms, none is as fast as currency devaluation to get out of trade deficits.
    In an instant, imports become more expensive and exports become cheaper, ideally, until import and exports equilibrate at the free exchange rate.
    Alternative --- and ultimately equivalent --- domestic readjustment of (higher) prices and (lower) wages often takes longer, maybe too long to avert a [bop]{acronym-label="bop" acronym-form="singular+short"} crisis.

    Discretionary exchange rate interventions are difficult to get right, and easily deteriorate into competitive devaluation, or beggar-thy-neighbor by a fancy name.
    Freely fluctuating exchange rates, in turn, are costly as the second theory of optimal currency areas reminds us,
    and they, too, might be the result of herding or otherwise failing global currency markets.

    As drug addiction therapies goes, the methadone of devaluation is, at best, a mixed blessing.

    And still, it is a prescription, the european economy has to do without, no matter the indication.
    Within the [emu]{acronym-label="emu" acronym-form="singular+short"}, everyone in the [eu]{acronym-label="eu" acronym-form="singular+short"} who ever wants to join, currencies cannot fluctuate.
    To readjust, member economies can only hope their wages will not be too downwardly sticky.

2.  Creditors and debtors alike will anticipate the systemic risk and spillovers that the monetary union bestows on all its members.
    They know that other members too, would suffer from defaults or, related, [emu]{acronym-label="emu" acronym-form="singular+short"}-exit, and, therefore, will likely bail them out.
    With systemic default risk as a union-level commons, but decisions in individuals, firms and, at best, [ms]{acronym-label="ms" acronym-form="singular+short"}-hands, credit everywhere, but particularly in the high-risk economies, will be too loose.

    The [eu]{acronym-label="eu" acronym-form="singular+short"}, in other, metaphorical words, is not only plagued by powerful and addictive drugs, but dealers and addicts alike can reasonably expect to be saved --- as the should --- if they overdose.

3.  Lastly, and familiarly, the european mixed economy lacks the fiscal means to otherwise rebalance internal demand, that intact mixed economies use to mitigate regional imbalances, including public works, industrial policy, or even straightforward transfers.

The imbalances that have built up over the last years of European integration, and the crises in which they now seem to erupt, tell of the market failures of our capitalist economy.
But they also betray the underlying dysfunctions and unfairness of an impotent mixed economy, that built these pressures in the first place.
To bemoan only the market failure, and to seek to redress it is as naive as it is dishonest.
Even worse, to simply wish away the crises, and to blame someone ("the banks") --- *anyone* ("'the markets") for our misfortune, is to shoot the messenger, rather then to heed her warning.

In drug policy, if you are faced with a rampant substance abuse, you have to follow [@Mills-1959-aa], and sociologically re-imagine the saddening observation of an overdosed corpse:
you have to ask how, and why, people socially turn to harmful drugs in the first place, and then, if you can, cure this anomie, whatever it may be.
If you only wage a war on drugs, they will always win.

And so it is with the imbalances and crises facing the [eu]{acronym-label="eu" acronym-form="singular+short"} today:
we have to use our economic imagination to explain how, and why, the european economies turned to delusional market failures in the first place, and, if we can, strengthen them to resist any siren call.

Our anomie, now, should be clear enough:
it is the underfunding, unemployment and inequality left untouched by an impaired command arm, that slowly, but steadily, unravels the social contract of the mixed economy.
Faced with such pressures, it is little wonder that individuals, firms, states and the household-writ-large they collectively make up turn to the sirens of delusional growth.

Boxed in, as it is, the dysfunctional mixed economy, and especially its poorer constituents, find ways to relieve such economic pressure *somewhere*, to postpone such austerity to *somewhen* and disguise such anomie *somehow*.

To now, as many do, deplore only the failing markets,
[^4]
to demonize investors or politicians is an act of exorcism.
It was *we*, who made a Faustian bargain with these devils:
to let them reign free, if only they could numb the economic pain.
They obliged us.
But no one, as Doctor Faustus, should be surprised if some day, there is hell to be paid.

An Old Deal
-----------

> *"We can't start another new deal."\
> "How about fighting for the old one \[...\]?"*\
> --- The West Wing (Season 5, Episode 5), created by Aaron Sorkin.

To insist on an intact mixed economy is not so innovative.
The mixed economy is, in fact, a very old deal, prepared by the social reforms of Chancellor Bismarck, forged by Presidents Roosevelt and Truman, institutionalized by Lord Beveridge and, with miraculous success, reactivated in war-torn Germany, by Chancellors Adenauer and Erhardt.
If there is such a thing as a European social model, or really, *any* capitalist social model, it is the mixed economy.

To insist on an intact mixed economy is also not radical.
The mixed economy, is, at heart, a compromise of exchange and command, of market and state, of individual freedoms and duties, of efficiency and equity.
The mixed economy hopes not for an end of history, nor harbors any overhaul of society:
it makes amends with capitalism.

Tax --- the cornerstone of the mixed economy --- in particular, is a reformist, never a revolutionary project.
Good taxation, especially of consumption, accepts private property as given, even legitimate and desirable, and merely adjusts the sticks and carrots that people reap for their personal enjoyment.
Minimizing their [dwl]{acronym-label="dwl" acronym-form="singular+short"}, good taxation maximizes the freedom of all market participants to do as they would *absent* the tax.

Today, Europe is reneging on this old deal.
Without union-level taxation to speak of but with full factor and goods mobility, tax schedules are compressed and levels lowered.
Without fiscal complements, the common currency allows imbalances and lets diverging business cycle fluctuate widely.
Even regulation is yet incomplete, such as in labor market legislation, and is arbitraged away by competition.

On these institutions rides it all:
that we can efficiently produce public good cancer research or preserve our environmental commons, that we can pool the risks of the healthy and the frail, that we can restore some fairness between market winners and losers, that our children will receive at least what we have received, and that our neighbors prosper, too.
Tax especially, and together with regulatory and monetary institutions, *are* the social contract of modern capitalism.

European regional integration does not rewrite the social contract, but sins by blithely omitting much of passages on tax, monetary and regulatory policy.
Absent them, the european polity is no longer free to choose between
command and exchange, but --- without explicit popular consent --- defaults to ever more market, and ever more present consumption.
Our household-writ-large now occupies a greatly constrained coordinate space (), boxed in by chronic underfunding, looming unemployment and rampant inequality, shaken by recurring imbalances and crises.

![Constrained Coordinate Space of a Dysfunctional Mixed Economy[]{label="fig:coordinate-space-constrained"}](coordinate-space-constrained){#fig:coordinate-space-constrained width="100%"}

By its dysfunctional design, the european mixed economy yields ever more to markets while the other part of the mixed economy, the state, is on the retreat.
Bereft of their old, flexible and capable social contracts, the acquis will, nay, already *has* --- however fortuitously --- remade european society in the neoliberal, consumerist image.
"Neoliberalism" and "consumerism" are, in this case, not catch-all labels of disaffection, but I choose them with equal anger and care, and they apply precisely.
The aquis is:

Neoliberal,

:   because, eviscerating the state, it morphs markets from one of several *means*, to inescapable *reality* or even ultimate *end*, neither of which it is, nor should be.

Consumerist,

:   because, it cannot set a positive savings rate, and leaves austere members no choice but to loot real savings, and give into the temptations of bubbles.
    As a result, much of the resources of the communal household will be devoted to near-term consumption.
    [^5]

Just how angelic the postwar mixed economy really was, I do not know.
[^6]
Still, *relative* to 19th century mass poverty [@MarxEngels-1848-aa], 20th century "mob politics" [@Crouch2004 158] and the spectre of 21st century neo-laissez-faire, the mixed economy, and the welfare state it has enabled, appears as singular achievements of the modern era.
The economic institutions of Postwar Western Europe have brought about unseen prosperity and equity, all in relative peace and freedom.

That is an old deal worth fighting for.



## Why Tax Matters to Democracy

> *"But who can say how much is endurable, or in what direction men will seek at last to escape from their misfortunes."*\
> --- John Maynard @Keynes1936


## The Social Contract

Crucially, we must, again, understand that economic integration must always beget more economic and political integration, that, production at great economic scale implies solidarity at the same scale.

*That* is the story of economic integration and material progress.
Living on a scarce and harsh planet, for which, alone, we are ill-equipped, we escaped the @Malthus1798ian curse of overpopulation and starvation by scaling up our production.
That is, to this day, how we remake an arithmetically growing material world, to feed our geometrically growing hunger:
we join forces to bend upward the production curve, and wrest from it above-linear returns.
To reap such economies of scale, in agriculture [@Diamond1997], in the production of violence [@Tilly-1985-aa], or in europe-wide automotive engineering [@Krugman-1980-aa], we have to master the feat of cooperation in the face of atomistic incentives.
Akin to ever-increasing entropy, the arrow of pre-historic organic life, and history of human life on earth progresses by increasing complexity, specialization, but also, always, mutual dependence.
@Wright1994 thus describes the transformation of individual cells into higher organisms:
they become richer, more resilient, but they must also sacrifice, and will do so only to the extent that they have successfully merged their genetic instructions [-@Wright1994 Chapters 7, 8].

And so it is with european, or other regional economic integration:
opening up commerce to one common market makes everyone richer by the magic of comparative advantage --- if not necessarily by the same amount.
But, if this association is to remain stable, some other elements of human organization have to follow to that higher level, if they are not to perish and destabilize.
In the [eu]{acronym-label="eu" acronym-form="singular+short"}, continent-wide commerce also requires continent-wide taxation, regulation and monetary policy, if the formerly stable and re-productive system of a mixed economy is to remain operative.

The genius of the otherwise hyper-federal, and hyper-liberal US Constitution is that it foresees this functional necessity in its commerce clause.
[^11]
It stipulates that, precisely as commerce traverses the otherwise autonomous states, the federal polity asserts itself.
The German constitution knows a similar norm:

> *"The Federation shall have the right to legislate on matters \[...\] if and to the extent that the establishment of equivalent living conditions throughout the federal territory or the maintenance of legal or economic unity renders federal regulation necessary in the national interest."*\
> --- Basic Law for the Federal Republic of Germany: Article 72, Paragraph 2 (Bonn, 1949)
> [^12]

It too, displays the same genial insight into the relationship between economic and political integration:
as the commerce clause, it does not compel any particular social or other policy, but, if economic integration has occurred, endows the democratic sovereign to rule at the newly emerged, higher level of societal organization.


Optimists, not just of the Panglossian kind, are always inclined to see glasses half-full, and so many argue that any, even imperfect or negative European integration is better than none.
That is not so much optimistic, as it is hopelessly naive.
The metaphor is flawed.
Societies are not just glasses half-full or half-empty, they are dynamic systems, residing within, and reproducing the walls of this glass:
half-*built* glasses, as the [eu]{acronym-label="eu" acronym-form="singular+short"} defunct mixed economies, are not merely waiting to be filled, they can also drain of all remaining water, or topple and fall over.

The democratically governed mixed economy is *the* institutional achievement of the century, and as a social compact, it is fragile.
As @Offe2003 points out, "it is much more likely that a European-styled \[mixed economy\] capitalism transformed itself into a liberal model" than the other way around, or, appropriating Lech Walesa, "it is easier to make fish soup out of an aquarium than the other way around", because it --- like the mixed economy --- depends upon "supportive dispositions of a cognitive as well as moral kind" [-@Offe2003 446].
A mixed economy, as the democracy that governs it, is "easily lost, but never finally won", as the first African-American federal judge William H. Hastie ominously warned.

We have already lost much of the mixed economy, and we are now risking to harm or loose democracy, too:
not just democratic rule *of* the [eu]{acronym-label="eu" acronym-form="singular+short"}, but democracy *in* Europe, too [@Scharpf1997 19].

Over time, the hardship that this arrangement inflicts on people, especially in the poorer, more austere [ms]{acronym-label="ms" acronym-form="singular+short"} (Greece), and when the imbalances and crises unload (Spain, Ireland), will corrode the inputs of popular rule, too, and fray the social contract.
@Offe2003 has already seen the grave-diggers of liberal democracy, capitalizing on the resulting popular discontent of such "permanent austerity" [@StreeckMertens2010]:

> *"Also, a third voice, luckily with much less resonance, is making itself increasingly heard in European politics, a voice which claims that the social security of workers (as well as the protection of citizens from violent crime), on the one hand, and efficiency of production and competitiveness, on the other, can only be reconciled if national borders are sealed to the influx of foreign people, foreign workers, foreign goods, and those praying to 'foreign' gods.
> Since the mid-1990s, integrating Europe has seen the sometimes sudden and spectacular rise to electoral success of figures such as Pia Kjaersgaard (Denmark), Umberto Bossi and Gianfranco Fini (Italy), Pim Fortuyn (Netherlands), with Jean Marie Le Pen (France), Jörg Haider (Austria) and Carl Hagen (Norway) being among the pioneers of this new field of populist political entrepreneurship.
> Le Pen has described himself in the 2002 French electoral campaign as being a leftist in social affairs, a rightist in economic affairs, and a nationalist for everything else.\
> This formula, which is designed to resolve the tension between liberal market freedom and welfare state status rights by ethno-nationalist, xenophobic, and anti-European appeals, is applied by his rightist populist colleagues as well.\"*\
> --- Claus @Offe2003 [454]

The ground of popular resentment will only grow more fertile as the Euro crises goes on.
The crippling economic depressions of the south, and the ever-insufficient, multi-billion bail-outs from the north are political dynamite, waiting to be ignited by fringe populists.

If the extreme right, or extreme left, and/or nationalists start playing with this fire, the moderate voices of social democracy, liberalism and conservativism will have little to douse the flames, because in fact, both the polities in the north and south *are* faced with thoroughly unattractive alternatives.

In the now often wretched south, policy makers must either accept the conditional straightjacket imposed by the [eu]{acronym-label="eu" acronym-form="singular+short"} and its rich sponsors, or jump the cliff of secession and sovereign default, all but ensuring all-out economic collapse under autarky.
In the still largely isolated north, policy makers must either continue to periodically support often (but not always) failing governments in the south to alleviate the gravest imbalances, or splinter the union and forego the years, maybe decades of economic growth that wide integration brought.

European democracies thus are also no longer *input congruent* [@Zurn-2000-aa], in addition to the already grave, but homemade democratic deficit of a heavily intergovernmentally-biased institutional setup.
Faced with such non-alternatives, the people of Europe are no longer subjected only to decisions in the making of which they had a say.
For the past two years, every couple of months, German or Greece executives, legislators and voters are asked to choose between bail-out or break-up, austerity or abyss, always at gunpoint, with the entire european project held hostage (for example, *Grexit*, followed by Portugal, Spain, Italy, followed by doomsday).
If the people of Europe merely get to choose between a rock and a hard place, popular sovereignty becomes a farce.

@Offe1998's [-@Offe1998] intuition is, tragically, fully borne out:

> *"\[...\] that every interim solutions between the extremes of intact national sovereignty on the hand, and complete european supranationalty of a European Federation will, inevitably, violate both the reference point of welfare state protection and that of democratic legitimacy."*\
> --- Claus @Offe1998 [41]
> [^15]

The political fringes will prosper, as they exploit these violations, both from the extreme left and the extreme right.
The extreme left will fan the flames of societal disintegration by pitting liberal freedoms --- especially those of property and contract! --- against welfare protection and democratic sovereignty.
Merely a change in tone, the extreme right will push societal regress by pitting all cosmopolitan integration and solidarity against always national welfare and sovereign rule.
This new game is rigged against liberal democracy and the moderate voices (or cross-cutting cleavages, @LipsetRokkan-1967-aa) on which it so thoroughly depends.

What the glass-half-full-optimists forget is that societal, political and economic integration can reverse course, too.
The self-reinforcing dynamics of integration operate in *both* directions:
more integration begets more integration (as Monnet had hoped, according to [@Schmitter1999 948], but regress also begets more regress.
As a matter of fact, the neo-functionalists are right, if one-sided (Tranholm-Mikkelsen 1991 as cited in @Bieler2003 [1])

The course of economic disintegration is quite clear:
literally the milli-second that an over-indebted [ms]{acronym-label="ms" acronym-form="singular+short"} is thought to leave the [emu]{acronym-label="emu" acronym-form="singular+short"}, anticipating massive devaluation, all holders of cash in, say, Greek institutions, will take their money out.
[^16]
Faced with such an economy-wide bank run, the Greek government will be forced to install capital controls, effectively leaving the common market.
Without international finance, the remaining trade, too, will be greatly constrained.
Just the credible rumor of *Grexit* could, thereby, almost in an instant, unravel 21 years of integration since the country joined in 1981.

We tread the course of political disintegration if --- outflanked by populists --- our [ms]{acronym-label="ms" acronym-form="singular+short"} democracies increasingly re-embrace the supposed trade-off between national interest and political unification, and again entertain the nationalist politics that the union was built to overcome, in a scenario of decay similar to that painted by [@BeckGrande-2007-aa 339ff], or [@Schmitter1999 947].

Writ large on society, this is the disintegration that @Offe1998 presciently feared in [-@Offe1998]:

> *"\[...\] one could suspect a downward descent on the ladder that T. H. [@Marshall-1950-aa] suggested as a model for european political modernization.
> The three rungs on this latter are the cumulative expansion of liberal, democratic and social rights.
> The question is, whether during the course of european integration, we will pass the democratic and welfare state stages on our way down, and, as a result, european citizens will be equipped merely with the rights of a (neo-)liberal market participant."*\
> --- Claus @Offe1998 [41]
> [^17]

[^1]: Personal income taxes on capital necessitate a corollary taxation of corporate income.
    Without it, taxpayers could easily evade payment by incorporating capital it in a firm, withdrawing earnings only slowly.

[^2]: For example, @Beckfield2006 finds for the [eu]{acronym-label="eu" acronym-form="singular+short"}-12 that nearly half of the rise in within-country inequality between 1973 and 1997 can be explained by regional integration [-@Beckfield2006 979]:
    inequality almost everywhere in the [eu]{acronym-label="eu" acronym-form="singular+short"}, has been widening, at least in part due to regional integration [for example, @DaudUngl2008 265].

[^3]: @Galbraith2002a [25] precisely describes an analogous, worldwide dynamic:

    > *"In sum, it is not increasing trade *as such* that we should fear.
    > Nor is technolocy the culprit.
    > To focus on 'globalization' as such misstates the issue.
    > The problem is a process of integration carried out since at least 1980 under circumstances of unsustainable finance, in which wealth has flowed upwards from the poor countries to the rich, and mainly to the upper financial strata of the richest countries.
    > In the course of these events, progress toward tolerable levels of inequality and sustainable development virtually stopped.
    > Neocolonial patterns of center-periphery dependence, and of debt peonage, were reestablished, but without the slightest assumption of responsibility by the rich countries for the fate of the poor.
    > It has been, it would appear, a perfect crime.
    > And while statistical forensics can play a small role in pointing this out, no mechanism to reverse the policy exists, still less any that might repair the damage.
    > The developed countries have abandoned the pretense of attempting to foster development in the world at large, preferring to substitute the rhetoric of ungoverned markets for the hard work of stabilizing regulation.
    > The prognosis is grim:
    > a descent into apathy, despair, disease, ecological disaster, and wars of separatism and survival in many of the poorest parts of the world.
    > Unless, of course, the wise spirits of Kuznets and Keynes can be summoned back to life, to deal more constructively with the appalling disorder of the past twenty years."*\
    > --- John K. @Galbraith2002a [25]

[^4]: For some social science that seems to physically placing "markets" in quotation marks, see, for example @Beckert2012.
    In lieu of an economic, or social scientific explanation of failing or corrupted markets for sovereign debt, this rhetorical device works to distance the social scientist from these market messengers, as if their price signals were merely social constructs.
    There is, however, such a thing as objectively given, materially tangible, unsustainable debt that higher interest rates might merely communicate [@Wihlborg2010 55].
    "Punctuation", in any event, does not replace an explanation.

[^5]: The [eu]{acronym-label="eu" acronym-form="singular+short"} commission is quite explicit about this:

    > *"The Single Market Review put *(sic!)* citizens, consumers and [smes]{acronym-label="sme" acronym-form="plural+short"} at the centre of policy-making."*\
    > --- @Commission2008 [3]

    One wonders, at least, why, in addition to *citizens*, consumers and *some* (though not other) firms are also mentioned, when, in a functioning market, the latter two should be served only as proxies of the ultimate beneficiary, the citizen.

[^6]: To mention just a few red flags, it is unclear what costs Postwar prosperity extracted from others (dependence or world systems theory), we do know whether or how Western affluence can be repeated without the same gigantuan carbon footprint and we worry whether broad-based growth in value-add is but a historical episode (cost disease).

[^7]: For example, László Kovács (2004), then Commissioner for Taxation and Customs asked that tax rates must be allowed to differ 6-8% simply to make up for the remote location of some markets.

[^8]: Capital inflows will be particularly effective in relatively poor economies.
    As these economies, supposedly, still lie far below the golden rule of saving [@Solow1956], returns on capital will be much higher than in richer economies where further (near-Solowian) capital deepening faces diminishing returns (for example, @Barro1995 or *ibid.* 1992 as cited in [@Beckfield2009 3].

[^9]: To remind readers that this is not, in fact, what the acquis currently stipulates:
    The overall structural and cohesion funds for 2007--2013 amount to no more than € 347 billion, less than 3 times the budget of the city of Berlin (€ 21 billion in 2009), or about 0.005 % of the budget of Germany (€ 1,164,000 billion in 2011).
    In addition, [eu]{acronym-label="eu" acronym-form="singular+short"} budget negotiations are still marred by *juste retoure* attitudes, with [ms]{acronym-label="ms" acronym-form="singular+short"} wanting to get paid out what they have received --- the very opposite of a redistributive regime [for example, @Begg2008a].

[^10]: It too, is neither new nor revolutionary:
    internally heterogenous mixed economies have always, with varying results, dealt with this question.
    In the US, much of the controversy about the role of the federal government boils down to the question of how much rich Texans should dole out to poor Louisianans.
    In Italy, the rift is between North and South [for example, @PutnamLeonardi-1993-aa]) and in Germany, initially between industrial and rural states, since 1990 between old and new *Laender*.

[^11]: ...the reach of which was only recently discussed in the 2012 US Supreme Court ruling on the Affordable Care Act.

[^12]: In the German original:

    > *"Auf den Gebieten \[...\] hat der Bund das Gesetzgebungsrecht, wenn und soweit die Herstellung gleichwertiger Lebensverhältnisse im Bundesgebiet oder die Wahrung der Rechts- oder Wirtschaftseinheit im gesamtstaatlichen Interesse eine bundesgesetzliche Regelung erforderlich macht."*\
    > --- Grundgesetz der Bundesrepublik Deutschland: Artikel 72, Absatz 2 (Bonn, 1949)

[^13]: ...the reach of which was only recently discussed in the 2012 US Supreme Court ruling on the Affordable Care Act.

[^14]: In the German original:

    > *"Auf den Gebieten \[...\] hat der Bund das Gesetzgebungsrecht, wenn und soweit die Herstellung gleichwertiger Lebensverhältnisse im Bundesgebiet oder die Wahrung der Rechts- oder Wirtschaftseinheit im gesamtstaatlichen Interesse eine bundesgesetzliche Regelung erforderlich macht."*\
    > --- Basic Law for the Federal Republic of Germany: Article 72, Paragraph 2 (Bonn, 1949)

[^15]: [\[fn:Offe-regress\]]{#fn:Offe-regress label="fn:Offe-regress"}
    In the German original:

    > *"Meine These ist, dass jede Zwischenlösung, die zwischen diesen beiden Extrempolen intakter nationalstaatlicher Souveränität einerseits, einer kom-plettierten europäischen Supranationalität in der Gestalt eines föderalen eu-ropäischen Staates andererseits gefunden wird, zwangsläufig beide Be-zugswerte verletzt, den des wohlfahrtsstaatlichen Schutzes ebenso wie den der demokratischen Legitimation.
    > Demnach könnte man im Blick auf die europäische Integration einen Abstieg auf jener Leiter vermuten, die T. H. [@Marshall-1950-aa] sich als Modell für den Prozess der europäischen politischen Modernisierung vorgestellt hat.
    > Die drei Stufen dieser Leiter sind bekanntlich die kumulative Durchsetzung liberaler, demokratischer und sozialstaatlicher Rechte.
    > Die Frage ist, ob im Prozess der europäischen Integration die demokratische und die sozialstaatliche Stufe in rückwärtiger Richtung passiert werden und im Ergebnis der Euro-Bürger allein mit der Rechtsausstattung eines (neo-)liberalen Marktteilnehmers dastehen wird."*\
    > --- Claus @Offe1998 [41]

[^16]: In fact, the run on Greece is already underway, with the country having lost almost a third of its domestic bank deposits by May 2012, according to [@TheEconomist2012].

[^17]: For the german original, see footnote [\[fn:Offe-regress\]](#fn:Offe-regress){reference-type="ref" reference="fn:Offe-regress"}.
-->

<!-- %ganssmann is absolutely crucial for the constrained alternatives. -->

<!-- %McCaffery
	%our tax system is a disgrace, and has been so for decades.
%The way we tax is complicated, inefficient, and unfair.
%Yet whenever elected officials in Washington actually try to do something about tax, they tinker at best.
%At worst, they make the system even more annoying.
%We need fundamental, comprehensive tax reform, not ad hoc tinkering.
%Two, there is a widening gap between the rich and the not-rich in this country.
%It may surprise many readers to learn that there is a deep connection between these two facts.
%Tax as it is today is a cause of the wealth gap.
%Tax as it could be tomorrow would narrow it.
%That'sRead more at location 50   • Delete this highlight
	%Note:
%this is key.
%It's fucked up, but systematically so.
%Edit -->


<!-- \section{Tax Competition}
%maybe this should happen somewhere earlier?
%the below section is a duplicate from the dual crisis
%Background:
%Taxation Trends in the European Union

	%The Directorate General for Taxation and Customs Union issues an annual report on taxation in the European Union.
%Results from the 2009 edition include:
	%Tax ratios in the EU-27 remain relatively high (39.8% of GDP), but differ greatly between old and NMS (Romania 29.4%, Denmark 48.7%).
	%NMS raise relatively more revenue by indirect, non-redistributive taxes in immobile bases.
	%Almost all member states increase the (indirect) burden in (relatively immobile) consumption through VAT and excise duties.
	%Top average (not marginal) Personal Income Tax (PIT) rates (37.8%) are in decline across almost all EU member states, but continue to vary dramatically between old and NMS (Bulgaria 10%, Denmark 59%).
	%Corporate Income Tax (CIT) rates are in rapid decline, from 35.3% in 1995 to 23.5% now.
%Again, NMS tend to have lower tax rates than older member states.
	%Implicit Corporate Income Tax rates (CIT-ITR) are however, stable if diverging, possibly due to cyclical effects, base broadening or cannibalizing on the PIT.

	%Is there European (Corporate Income) Tax Competition?

	%In a liberalized Single Market, where capital and, to a lesser extent, labor through trade, investment and migration flow to their most profitable use, it appears reasonable to assume that these factors of production will also respond to taxes.
%Investors and workers will, as much as they can, flock to locations where tax rates are lower than the respective costs of relocation.
%To sustain output and growth, states would then have to compete for factors of production with low tax rates.

	%Before turning to the central question of whether this would be a desirable or undesirable dynamic, first ask whether it is real, and if so, how it came about.

	%Genschel, Kemmerling and Seils (2009) suggest (corporate income) tax competition is shaped by four interrelated institutional mechanisms of the EU:
	%Market integration (↑) reduces transaction costs of cross-border arbitrage (think:\ exchange rate volatility, tariffs) and thereby facilitates tax competition.
	%Enlargement (↑) adds new, attractive markets:
%new members are diverse in size (!) and economic development (GDP/Capita).
%Smaller and poorer countries have greater incentives and possibilities to lower taxes.
	%Tax coordination (↓) makes taxation more similar, and therefore reduces the ways in which governments can compete for capital and labor.
	%Supranational judicial review (↑) enforces the non-discriminatory liberalization (think:\ Cassis de Dijon) and limits the ability of governments to unilaterally defend against tax competition (think:\ Tobin Tax).

	%Genschel et al.
%find that tax competition is different and greater within the European Union than outside of it, and that it accelerates with time and enlargement.

	%They also suggest that larger countries suffer disproportionately from tax competition as smaller countries can boost their revenues (and growth) with the low rates on the massive inflowing capital from larger neighbors.
%Conversely, poorer countries have greater incentive and ease to compete for scarce capital.
	%The competition is less harsh amongst (now delegitimized) preferential tax regimes (PTR) (think:\ Hong Kong).
%When countries target only the most mobile of factors with tax breaks, the overall revenue effect tends to be smaller and more symmetric.

	%(A Prisoner's Dilemma Game of Tax Competition.
%Payoffs are tax revenues#.)

	%If these empirical results are correct, EU tax competition can be modeled as a Prisoner's Dilemma game, where states (strictly) dominantly prefer low taxes over high taxes and (Nash) equilibriate in suboptimal, mutual low taxation.

	%The Case against European Tax Competition:
%It's a Race to the Bottom

	%The argument against European tax competition builds on the assumed Prisoner's Dilemma dynamic, and suggests that EU states may not only be incapable to maximize public revenue under competition, but that thereby depressed tax revenue will lead to debt crises, the underprovision of public or common goods and impaired redistributive ability or a retrenchment of the Welfare State.
%It could also be argued that a harmonized European Tax regime better equips member states to withstand shocks with countercyclical tax and spend policies.

	%A related argument can be made about a presumed inability to respond to structural misalignments caused by liberalization.
%When trade, migration and investment allow countries to specialize even more according to their factor endowments (think:\ Romanian Nokia, German Management Consulting), remaining, relatively scarce factors (think:\ unskilled laborer in Germany) may find their market wages# fall even further below the respective socially acceptable minimum income#.
%Rich states may then be forced to redistribute income to these individuals, but find themselves unable to raise the necessary revenues (progressively) without further reducing their competitiveness.
%Tax competition could then exacerbate vicious dynamics of structural unemployment.

	%Tax competition is harshest on tax bases (capital, labor, firms) that are highly mobile (think:\ private equity).
%EU member state tax codes may be forced to converge on certain kinds of taxes.
%To appreciate this possibility, consider the qualities of different redistributive-/general-revenue taxes#.

	%(reproduced from Genschel 2007:
%11) (whatever this was?) -->