Bob Frank and the Libertarian Welfare State

In a forthcoming book, economist Bob Frank advances a bold proposal for a "Libertarian Welfare State."  Following John Stuart Mill, Frank holds that behaviors can be legitimately regulated when they cause harm to others.  This is a position that, on its face, most libertarians would agree with (in ways that might make Mill uncomfortable, but that's another story). 

Frank is able to square this view with the apparent contradiction of a "welfare state" by (rightly) taking an expansive view of what constitutes "harm to others."  This is a brilliant jujitsu move, taking the libertarian stance seriously-individual freedom is paramount until it causes harm to others, and then it should be legitimately restricted in the least coercive way possible-and showing how it leads to counterintuitive solutions.

Frank deals with some classic "externalities," such as pollution and second-hand smoke, but he also takes into account coordination problems and competition driven by positional goods.

"The social environment profoundly affects individual decisions," Frank writes.  Wow!  There it is, out in the open, and straight from the mouth of an economist.

Recognizing this, then, radically shifts our conception of causing harm to others.  Frank writes of high school hockey players, whose ruggedly individualistic identities and competitive team culture would, absent enforced rules, lead most to forego wearing a helmet; individual players (and certainly their parents) might want to wear a helmet but would feel constrained by group norms.  Thus, hockey players and teenage cyclists need a mandate, a clear rule, to wear a helmet or perverse coordination problems will lead them (some unwillingly) not to wear one; both for a utilitarian greater good and to ensure freedom of choice, rules to wear a helmet are necessary.

Frank also takes on the issue of "positional goods," that is, goods whose value derives in (large) part from how much they are desired and consumed by others.  Status symbols are the iconic example of positional goods.  Elsewhere and in his new book, Frank has written of super-sized houses as examples of counter-productive positional goods.  A 30,000 square foot house may actually reduce a household's utility but it may also feel necessary in a keeping-up-with-the-Jones atmosphere of competitive positioning. 

Frank presents a revealing thought experiment: Which world would you choose?

World A: You live in a neighborhood with 6,000-square-foot houses, others in neighborhoods with 8,000-square-foot houses;

OR

World B:  You live in a neighborhood with 4,000-square-foot houses, others in neighborhoods with 3,000-square-foot houses.

The materially maximizing rational choice is, of course, World A.  But most Americans would choose World B.  This little exercise reveals that the value of house construction is not in its pragmatic utility as a home but in its relative size compared to others.

This leads Frank to the surprising conclusion that a highly progressive consumption tax would not only divert resources toward more productive ends but actually might increase the utility and wellbeing of those same high-income households.

It also makes me think of all the grumbling I hear these days from unhappy airline passengers.  With airline flights, most bought online, a particular framing of choice leads us to privilege low price over all else.  Comparing prices online, we reduce the value of the seat from here to there to price only.  We shouldn't complain about food and service as we are all part of the system that is pushing it in that direction.  Another coordination problem, although this might be the sort of thing that just needs a nudge, an emblem with more information easily understood for example.

In this book, Frank moves beyond the "choice architecture" and gentle nudges of Thaler and Sunstein, who are resistant to advocating clear mandates.  Frank advances a more radical proposal that takes into account the social and relational (positional context) as well, willing indeed to invoke legislation, regulation and higher taxes to most efficiently determine cost/benefit analyses (and under a Libertarian banner, no less!).

Indeed, I read his proposal even a bit more radically than he intends, I think.  If the economy is meant to make us better off, and if we understand "better off" to mean a more holistic, multidimensional, fulfilled life (in the Aristotelian sense, or the Amartya Sen-ian sense of freedom and capabilities), then we could go far beyond not doing harm to others in our mandates.

Frank's work, and that of Lynn Stout discussed below, is part of an exciting new wave of social science that brings high-level theory into conversation with real world problems and policies.  This is a book that should be read by policy makers and pundits as well as academics and students.

Laffer, Godard; Taxes and Property

The newspapers today were filled with incredible stories--incredible as in they strain our credibility, bordering on the absurd or surreal.  To paraphrase Chilean author and filmmaker Alberto Fuguet, why read magical realism when what is really happening in the world is so much crazier.

The French are manning the barricades again, resisting raising the retirement age from 60 to 62 and talk of tinkering with the 35 hour work week.  At moments, the French seem almost hopelessly out of touch with economic realities, a contrast made all the starker by comparisons to the other big E.U. economy, austere Germany.  But it is not all dreary economics and gritty protests.  Today's New York Times also reports that Paris has installed its first public fountain that spurts sparkling water.  What a wonderful idea, perfectly capturing bourgeois eco-consciousness.  Maybe the Germans, who mostly drink their (sparkling) water from glass bottles, do have something to learn from the French after all. 

That same issue of the Times reports on Jean-Luc Godard's rejection of intellectual property rights.  Godard proclaims that "there is no such thing as intellectual property."  He goes on to state that:
"Copyright really isn't feasible. An author has no rights. I have no rights. I have only duties."
Godard's statement exemplifies the best of professional virtue, vocations driven by intrinsic rewards.  Rejecting what has become a sort of neo-feudalism for the knowledge economy, Godard argues that IP is not a private property right from which he is entitled to collect rents. He writes movies because that is his calling, he has "only duties" to himself and his audience.  The extrinsic rewards are nice, but secondary.  We would all do well to follow Godard's example: living a good life based around the pursuit of meaningful (and not just lucrative) projects.  To realize this, of course, we need more jobs with dignity, but that's another issue. 

Turning to The Tennessean, the editorial page today ran an opinion piece by Arthur Laffer (the trickle-down theorists of the Reagan years) and his associate Ford Scudder titled "Raise taxes on all-except the wealthy."  I assumed the title was a touch tongue-in-cheek, if not fully ironic, and read the piece eagerly.  Alas, there was not satire or irony, but a case that high-income workers (having more control over their destiny and less daily need to work) will defer income or work less if taxes rise, which the authors claim would more than negatively offset the gains proposed by higher taxes.  But taxing the wealthy will not only reduce tax revenue, they argue, it will also lead the wealthy to "close down factories, hire fewer workers, invest less and move jobs offshore."  In short, raising taxes on the wealthy will produce more poor people.  It would be cruel to the poor, really, to tax the rich.

Where to start?  I would refer the author first to Lynn Stout's new book discussed below in which she looks at the many ways folks (even the wealthy) are motivated by factors beyond short-term financial incentives.  Maybe high-income earners wouldn't shutter up all the factories and reduce their productivity if they took home a few percent less--perhaps in fact these privileged folks also have the privilege of doing some they like, something they are committed to, something from through and on the society in which we all live and to which we must all contribute. 

In fact, we need to raise the number of high income tax brackets.  The top rate is currently above about $370,000.  We should have brackets of over $500,000 and over $1m.  And those should have a progressively higher rate.

Speaking of intrinsic rewards rather than material incentives: The Tennessean today also reports on a Vanderbilt study that found  that offering teachers financial incentives for student performance had no impact on student test scores.  Again, as Lynn Stout argues in Cultivating Conscience, many professions, such as teaching, are perversely corrupting by financial incentive schemes.  We want to pay teachers well but we also want to accord the profession the dignity it deserves (and pay is a symbol of that) and attract teachers who are driven by a calling, by the intrinsic rewards of teaching and not just by instrumental financial incentives.

Lynn Stout's on How Good Laws Make Good People

Laws can oppress--for proof, we need look no further than North Korea, Turkmenistan, or, for many, Arizona.  Laws and regulations can also liberate.  They can liberate in the freedoms protected, we may all agree.  But they may also liberate in a more expansive, and counter-intuitive, way.  I have been writing lately about how, in some domains, regulations that reduce choice may improve overall wellbeing.

An even more powerful case is made in Lynn Stout's provocative new book, Cultivating Conscience: How Good Laws Make Good People (to be published by Princeton University Press in November).  Stout presents a powerful and compelling case for the role of law in promoting "prosocial" (conscientious) behavior.  (What she terms "conscience" is closely related to my use of the term "moral" in postings below.)

She convincingly shows the flaws in the current fetish for "incentivizing" certain behavior within organizations, demonstrating how the good-intentioned road paved with incentives and marked with accountability metrics can lead to the corruption of virtues and conscience.  (She also acknowledges that there are cases where these incentive structures seem to work well.)

She writes that
"Contemporary experts often assume the best way to get people to follow rules is to use material incentives and disincentives, much like a circus trainer who relies on sugar cubes and a whip to make an animal perform a trick.  Yet by assuming only incentives matter, they may be missing an essential ingredient in the recipe for changing human behavior.  This essential ingredient is conscience."

Since law "is mostly about promoting unselfish prosocial behavior," it follows that laws may act in ways that help us not only cooperate and compete better, but that help us be the sort of people we want to be.  Indeed, as Stout points out, there is a growing body of evidence that suggests prosocial behavior is positively associated with a holistic sense of wellbeing that includes economic prosperity and personal happiness.

This is an important message, and Stout makes a power and eloquent case.  Cultivating Conscience should be required reading for policy makers as well as academics.  

Love's Problems Lost

Medellín's El Combiano newspaper quotes my definition of romantic love to argue that love arose to solve problems we had before we became who we now are, a beneficial solution that has caused other problems.  My wife finds it funny that I am often quoted as an expert on romantic love.  Regardless (of the problems love may cause or of my personal failings), the benefits of love surely outweigh the costs.

But, as Deirdre McCloskey enjoins us, we should not reduce love to material cost/benefit analyzes--such an approach does violence to the very concept.  Rather, she argues, we should embrace love and incorporate it into economic models, for if we ignore the powerful motivation of love and regard for others we cannot begin to account for real human behavior.  

¿Que Pasa Nashville? Latin American Studies

On this episode of Que Pasa Nashville, Cristina is joined by Edward Fischer from the Vanderbilt Center for Latin American Studies who will tell us about a grant given to them to improve education and expand community outreach.

Would We Be Happier As Germans?

Tom Geoghegan argues that most Americans would actually be happier under German style social democracy.  I tend to agree, as the post below suggests.  He makes this case in his new book, Were You Born on the Wrong Continent? and on his blog. 

Although, I am not sure if "happier" is the right work--perhaps "fulfilled" would be better.  I went hiking with Andreas Weigend not long ago, and we agreed that if it had been raining, it would have been much more fulfilling in a uniquely German sense.

Other Explanations for Germany's Economic Performance

Below I have argued that Germany's "short work" (Kurtzarbeit) program, business culture, and frugal investment has led to its spectacular performance in the current downturn (lower unemployment than the U.S., healthy GNP growth, reasonable debt levels, etc.).

Perhaps there are other explanations, or at least other factors, at work.  Jon Shayne passed along this post from Naked Capitalism (which calls on a FT article), "Is the Eurozone Germany's Stalking Horse?"  In it Yves Smith suggests that the Euro zone's (led by the PIGS) debt troubles has kept the currency valued low, which in turn has led to increased demands for the now cheap German export products.

This certainly plays a role, although it is not a complete explanation.  Germany's labor, welfare, and monetary policies have also surely played an important role.

Our Future is Tied to That of Latin America

We are intimately tied to Latin America, economically, politically, and culturally.  We import more oil from Latin America than from the Middle East.  Salsa now outsells ketchup in the U.S.  Our discussion of immigration need to move beyond polarizing sound bites and stereotypes to look at our complicated relationship and work toward futures of mutual benefit.

See FOX 17's edited version of what I and others had to say about immigration today at a CLAS symposium.

Vanderbilt Center for Latin American Studies receives $2m grant

The Center for Latin American Studies at Vanderbilt has been designated a comprehensive National Resource Center for Latin America.

Merle is Double Dippin'

Check out Merle Hazard's latest, Double Dippin'.  Merele, once again has the catchiest take on our current economic woes, and he fears a double dip recession.  And, alas, while we are double dippin', our social fabric is rippin'.

Let Them Buy Cake

Mark Zandi, chief economist at Moody's Analytics, writes in an opinion piece in the 15 August New York Times ("The Tax Cut We Can Afford") that since the top 3% of U.S. household income earners account for 25% of consumer spending, we should not spook them now by letting the Bush tax cuts expire.  We need them to keep spending to keep the economy going.

This is a surprising argument.  The traditional case for tax cuts for high income earners is that they will use their money to invest in productive activities-creating more jobs and more wealth to spread around (or trickle down).

But here Zandi asserts that we need the wealthy's spending to keep the consumer economy on the road to recovery.

It would seem that whatever they do with the money saved from taxes (spend it or invest it), we need the wealthy to be wealthy.  This would suggest that the dramatic tend in extreme concentration of wealth and income in the upper 1% and 5% of households (greater than any times since 1928) is healthy.

But is it really economically and socially healthy or sustainable to be so dependent on such a small (and fickle) class of people?  Bob Frank, for example, has written on the positional goods arms race that emerges from such situations of inequality and aspiration.  Making money is well and good--I wouldn't mind making more myself--but extreme inequality tears at the social fabric that gives the good life meaning.

Less Choice, More Happiness

In previous posts and elsewhere, I have made the case that in certain contexts, limiting choices may improve individuals' overall wellbeing.  This is somewhat counter-intuitive-less choice making one happier-but it is in line with a number of recent studies in behavioral economics.  We may in fact want limits on our choices to help us pursue long-term goals that are vulnerable to being thwarted by short-term temptations.

Ron Lieber (writing in the 14 August New York Times) looks at MasterCard's new "inControl" service.  This allows customers to set spending limits on your card or restrict charges from certain sorts of vendors.  Lieber is "convinced that the ability to cut yourself off from certain kinds of spending will become a standard card feature sooner rather than later."

Another case of less choice leader to a more fulfilled ("happier") life.

Desires, Aspirational Capabilities, and the Missing Dimensions of Poverty

In thinking about the multiple dimensions of poverty and wellbeing, we should not underestimate the role of aspirations and desires.  Often there is an implicit distinction between the "desires" of the developed world (us) and the "needs" of the rest (Them), and this can seduce us into an easy and well-intentioned paternalism that discounts the dreams, hopes, and aspirations that motivate and orient long-term thinking, even among the poor.

This is not to say that material poverty doesn't matter.  It does, and the crushing material conditions of lived poverty shape the options and capabilities open to the poor.  But, as my friend Bart Victor always reminds me, "the poor" are not singular, as much as we may talk about them as such ("what we need to do to help the poor is . . . "); the poor are different not just from you and me but from each other as well, and poverty is always experienced in myriad quotidian and local ways.  And, even those suffering the worst sorts of absolute poverty say that they don't want their children to be poor-they dream of something more, something better for them, however that "better" might be defined.          

This speaks to the aspirations and desires that fuel self-determination.  It is odd, as Arjun Appadurai (2004) points out, that so much of anthropology defines "culture" in terms of the past when the folks we interact with are just as eager to talk about the future.  Appadurai outlines a "capacity to aspire" that provides a sort of dynamic metapreference structure for individual choices; it is a "navigational capacity" that orients horizons of desire and visions of alternative futures.  And the capacity to aspire is diminished, Appadurai argues, in conditions of poverty.

Appadurai characteristically does us a great service, giving us a conceptual language to think about local desires in the context of international development.  In fleshing out that project, we should stress the verdant landscape of desires and aspirations that do exist, even among the poor.  In Broccoli and Desire, Pete Benson and I make the case for taking seriously Maya farmers' desires for the future, even when those are at odds with our own distant moral projects.  Taking a capabilities approach, after all, means giving up some power, opening the possibility that those we seek to help will make choices we may see as counter-productive other otherwise "bad."

Debraj Ray (2006) important work notes that "poverty stifles dreams, or at least the process of attaining dreams."  She introduces the concepts of the "aspirations window" and the "aspirations gap," both explicitly defined socially in terms of relative standing to and relations with those with whom one interacts.

The role of aspirations and desires are seen clearly in times of boom and bust.  James Ferguson (1999), in a powerful account of the aftermath of the copper boom in Zambia, shows how expectations of a particular modernity had become important, internalized motivational forces; the aspirations window of ordinary Zambians opened wide and provided new points of reference for dreams of the future.  After the bust, these dreams became unviable, and new outlooks, disconnected from the modernist aspirations of the global ecumene, emerged: the material conditions shaping the form and limiting the range of aspirational capabilities.

Turning to another corner of the southern hemisphere, take the case of Maya farmers in Guatemala growing broccoli and snow peas for export to the United States.  Some argue that Maya farmers need to focus on subsistence production, growing corn and beans to ensure their own food security.  And there is good reason for such concerns.  But, talking to Maya farmers we hear a different vision of their future, one unironically modern.  Farming is hard work-something we sometimes forget from our distant studies-and Maya farmers want algo más (something more, something better) for themselves and their children.  They see export agriculture as the risky business that it is (fragile crops, fickle markets), but they also see in it hope for a better future for their kids.

In contrast to the methodological individualism of much of neoclassical economics, a notion of "desires" and "aspirations" should see them as shaped by collective experiences, cultural images, and political economic structures.  As Pete Benson and I have written, desires move individuals to take up stakes in certain activities that are compelling because they embody moral, economic, or symbolic values. As such, desires are specific to local worlds, which are themselves part of larger systems of production and affected by large-scale processes.

In this way, desires and aspirations form a key "capability" in the Senian sense.  Sabina Alkire, James Foster, and others at the Oxford Poverty and Human Development Initiative (OPHI) have developed an innovative framework that incorporates the "missing dimensions" of poverty: employment, physical safety, the ability to go about without shame, agency, and subjective wellbeing.  While agency and wellbeing capture certain aspects of an aspirational capability, there is value in treating aspiration as a capability in its own right, mutually constitutive with agency, for example, rather than subsumed to it. 

German Leisure and Missing Dimensions of Poverty (and Affluence)

Thomas Geoghegan, writing in the New York Times blog, writes of the German system that values leisure time (in relation to work) more highly than we find in the U.S.  Here, and in a recent Harper's article and presumably in his new book (which I have only just ordered), Geoghegan makes a case similar to the one I outline in the posts below-rethinking the values of the European system.  (Indeed, reading his work, I have that sinking feeling that comes when one thinks he has a clever, original idea only to find that it has already been done, and more eloquently.)

In the NY Times exchange, Peter Baldwin takes issue with the figures Geoghegan uses.  But, the fact remains that Germans work significantly less than Americans, and they work differently.  There is a clearer division among the professional classes, for example, between work and leisure, and one that is not lightly violated.  And, as the commentator Panicalep noted on the NY Times blog, Germans tend to work the hours that they do more efficiently and productively.

Baldwin is certainly correct when he writes about women in the German workforce: for the most part, Germany is not a women-friendly work environment.  This is not so much because of sexual harassment and old boys networks (if both are surely present, as they are here), but because of structural constraints.  Indeed, Germany companies are working hard to correct executive gender imbalances from a demand side.  But supply still lags due largely to lack of childcare, short school hours, and a cultural notion of proper motherhood.

All in all, I find the German system better promotes overall wellbeing even given all its problems.  This is to some degree subjective, my preference for a certain leisure/work balance.  But we find it in more objective measures as well.  Take life expectancy: the Germans born today are expected to live about 1.5 years more than Americans.  They smoke and drink more, and still live longer.

Speaking of "wellbeing" calls to mind recent innovative approaches in measuring poverty (and affluence) that go beyond GPD per head or absolute income. Inspired by the work of Amartya Sen, Sabina Alkire, James Foster, and the folks at the Oxford Poverty and Human Development Initiative (OPHI) are promoting holistic, integrated measures that take into account what they call the "missing dimensions of poverty."  These include agency, employment, physical safety, the ability of go about without shame, and psychological and subjective wellbeing.  Now, the danger is such holistic approaches is that they can minimize the importance of material conditions ("sure, they are poor, but they are happy, rich in so many other ways).  But the Alkire/Foster OPHI approach recognizes the role of absolute poverty while also accounting for these other elements (which, in fact, often directly impact material conditions).

A recent article in The Economist illustrates some of the OPHI's surprising results (which will form a key part of the UNDP's 2010 Human Development Report).

See also the debate between Sabina Alkire and Martin Ravallion (of the World Bank) at the OXFAM "From Poverty To Power" blog.  And James Foster's intervention at this World Bank blog.

It seems clear that we need to account for multiple dimensions of poverty to fully understand it--and to create policies and programs that can create the greatest good in terms of overall wellbeing.

It also occurs that another missing dimension of poverty has to do with the desires and aspirations of the folks we seek to help.  Pete Benson and I, in our book Broccoli and Desire, argue that we must take Maya farmers' desires (as well as needs) into account.  Maya subsistence farmers have clear aspirations for themselves and their children.  And, for the most part, they don't want their kids to be subsistence farmers--they would like for them have have a better life, algo más, however "better" may be defined.  It is precisely such aspirations for something more or something better that drive the capabilities Sen and Alkire and Foster rightly see as being central to leading a fulfilled life.

New Lessons from Old Europe

Just a few years ago we spoke derisively about Eurosclerosis-high unemployment, inflexible labor market, and so on.  How times have change.

Unemployment in German is now lower than in the U.S. (a 7.7% jobless rate compared to 9.5% in the States).  This is remarkable.  Inflation and both public and private debt are much lower than in the U.S.  Sure, both corporate profits and productivity in Germany lag behind the U.S. (although productivity per hour worked is higher, Germans work many fewer hours).  The New York Times (2.4.2010) reports that German profit margins have fallen to 0.6% from over 6% in 2008; in the U.S. profits are down to 3.6% from 7.8%.

But the German system is more stable; it is a trade-off: lower profits for greater stability.  And while there is much to be celebrated about the dynamism of the U.S. economy, our current situation also makes clear the virtues of a degree of stability.

In the current financial crisis, Germany responded with a modest stimulus package.  Indeed, it was far too modest for Obama's tastes, but it has worked in terms of keeping unemployment low and thus maintaining (already low) domestic consumer demand.

The Kurtzarbeit ("short work") program provides government subsidies to companies to keep on their employees but reducing their working hours.  German companies have largely embraced the program, and go beyond its mandates, to keep workers, reducing their productivity but allowing them to keep the talent they have built up, to save it for better times.

The engine of the German economy are the Mittelstand businesses, small to medium sized enterprises that are often family or otherwise privately owned.  The Mittlestand have a reputation for honoring a commitment to their employees, embracing the German system of stakeholding and co-determination.  And this commitment shows through in keeping workers employed in hard times.  A key work in German discourse is "solidarity," and this embrace of the concept of solidarity produces different incentive structures for Mittlestand management.

Mittlestand companies rely on the patient capital of Germany's cross-holding banking system.  But the Landesbanks are under threat because of their ill-time foray into the U.S. exotic derivative market and from E.U. regulations to promote competition, and thus penalize state subsidies of banks.  Indeed, the current reforms in the German banking system may have a much wider impact than is thought, in terms of capital markets and their social implications.

Biking in the Rain, Bildung, and German (Un-)Happiness

Yesterday in Hannover it was cold and rainy.  So, in good German fashion, I went for a long bike ride.  I used to be puzzled by German forms of recreation, which sometimes border on the masochistic.  And I always got puzzled looks when I asked, "was it fun?"

It isn't supposed to be "fun."  At least not in that word's adolescent, giggly, common American usage.  It is more about the satisfaction of doing something that should be done.  It is about Bildung, a key word in German discourse that means, roughly, improving one's self or building character.  Bildung is the hallmark of the German bourgeoisie.  Rather than seeking mere fun, it is thought, one should strive to lead a fulfilled life (the Aristotelian good life, eudaimonia).

Germans also tend to be uneffusive.  A common reply to "how's it going?" (wie gehts?) is "Muss, ja?" ("it has to, doesn't it?").  A great compliment is along the lines of "Kann man nicht meckern" ("Cant complain").  Germans also tend to think Americans are more shallow because of their happy-go-luckiness, that a focus on "fun" and "happiness" is a weak basis to build character upon. 
  
Perhaps this is why Germans rank relatively low in the World Values Survey's (available at www.worldvaluessurvey.org) measure of subjective well-being (happiness and life satisfaction, equally weighted):
        Denmark              4.2
        US                       3.6
        Guatemala            3.5
        West Germany     2.6
        East Germany       1.8

Germany's low ranking on subjective "wellbeing" is surprising because in so many indicators (income, leisure time, health, etc.) German does exceptionally well.  Indeed, my argument about Bildung is that the German middle class does largely strive for multidimensional wellbeing through the cultivation of a "good life."  I attribute these results to the above survey's emphasis on "happiness" and the German cultural disposition toward understatement in this context.

(Interestingly, East German incomes increased dramatically after the 1991 reunification, and yet happiness levels have not gone up.  In 2006, unemployment was still above 18%, and in some areas it topped 25%.  Germany's generous social benefits and massive investment in the former East have raised incomes, but happiness depends on more than just income.  It also depends on doing something meaningful with one's life-having hope, which implies direction, which implies moral values with we just vest our very notions of self.)

Benefits of a Bike-Friendly CIty

In some places around town, bicycles far outnumber cars.  Indeed, Hannover, like most German cities, is remarkably bike-friendly.  Most streets have bike lanes, usually with their own stop lights.  There are well-marked and maintained bike paths through the wooded areas, around the lakes and marsh, covering the urban planners' green space.  There are tunnels under train tracks and bridges over highways for bikes.  High petrol taxes discourage driving and traffic congestion and parking problems make biking more appealing.  But the attraction goes beyond that-people tend to feel a strong connection to their bicycles. 

It's not just the bikers that benefit from this extensive and expensive infrastructure, for biking produces lots of positive social and economic externalities.  It reduces pollution and eases traffic congestion.  Biking promotes better fitness and health, lowering overall health costs.  Bike-friendly cities are more attractive to young, educated, creative-class workers.  And, beyond that, biking puts one in closer contact with the world, forcing closer contact with fellow citizens and the natural and manmade environment, subtly reinforcing a sense of community, belonging, and ownership.

Thus, investments in bike infrastructure produce larger social and economic returns than one might first think.  For U.S. cities, it is not just about catering to a small group of avid bikers, but reducing the barriers to biking, making it more feasible and convenient, and thus reaping the health, pollution, and social gains to be had.

More folks say they would like to commute by bike than do, for example.  Economists might say that they reveal their true preference when they get in their cars and drive.  But we should also take folks' stated preferences seriously.  And, in fact, making it easier to bike does increase the number of bikers on the street dramatically.  I have seen it happen in Nashville.  When I first started biking to work there five years ago, there was hardly anyone else on a bike.  Since then, bike lanes have been added to street in my part of town, and the number of bikers has shot through the roof.  Just reducing barriers slightly, providing a little nudge, is enough to change behavior-and allow people to do what they want to do.

We can learn a lot from places like Hannover in terms of making our cities more bike-friendly.  The bike lanes on streets are clearly marked.  At intersections, there is a painted box on the street where bikes can move in front of cars when turning.  Bikes often have their own light at intersections, and the choreography of stop lights and crossing signals is elaborate: the pedestrians' light turns green a few seconds before the others, and bikes too are given a few second head start (which is both safer and clears the intersection faster).  On many one-way streets, two-way bike traffic is still allowed (more convenient for bikes, and slowing cars down as well).  Bike paths in the woods and surrounding countryside are well marked with directions and distances.  And there are frequently park benches and trash cans and even little kiosks dotting the bike paths, even seemingly out in the middle of nowhere.

Kapitalismus

Reading the major German newspapers (Die Zeit, Frankfurter Allgemeine Zeitung-although perhaps not the more mass-market Bild tabloid), one is struck by how often the word "Kapitalismus" appears-much more often than in the New York Times or the Nashville Tennessean. The U.S. press talks a lot about "the economy," but that is different-it takes a particular free-market variety of capitalism for granted, simply the way things are. Explicitly naming the system ("capitalism") highlights the more overtly negotiated nature of the German variety of capitalism-not so taken for granted that it can be left unnamed, not yet a part of a hegemonic common sense. (On the other hand, it should be noted, Kaptalismus is sometimes used by German journalists as pejorative shorthand for market excesses.)

On editorial pages, subway graffiti, and in daily conversation, one finds in Germany a widespread critical perspective toward capitalism. Even the Hannoverian neighborhood Südstadt Magazin (which is filled mostly with ads from local businesses and announcements of neighborhood events) takes this tone: a recent letter from the editor warned readers that "capitalism demands its tribute, and it demands it first and foremost from the place that appears weakest." A 2008 survey by the Bertelsman Foundation found that 75% of Germans felt that economic conditions in their country are "unfair." Overwhelming majorities agreed or strongly agreed that workers deserve a bigger percentage of company profits (96%) and that managers should worry less about profits and more about the social impact of their decisions (93%). More Germans than ever had lost confidence in the German "social market" economy (spiegel.de).


What Germans see as so unfair would seem downright socialist to many Americans. It is important to remember that while we often speak of "capitalism" (or "globalization") in the singular, there are in fact a multitude of capitalisms, or varieties of capitalism. Germany's version of compassionate capitalism-the soziale Marktwirtschaft (social market economy), the Rhenish model, the German model, ordoliberalism, or the stakeholding model-differs in important ways from Anglo-American capitalism. The German model tends to be more "coordinated" than the "liberal" Anglo-Saxon market economies.

And this speaks to questions of what is and what ought to be: if we question the basis of the economy, if free-market capitalism is not seen as somehow "natural" or inherently given, then we open ourselves up to new possibilities. What is the right balance between labor and capital interests? What should be the trade-off between leisure time and income? Rather than defer to mathematically-modeled market forces, how can ensure that our economy is producing the greatest utility (as broadly conceived) for the greatest number?

Indeed, perhaps if we saw our "pursuit of happiness" more as a pursuit of "fulfillment," and if we were willing to define fulfillment holistically-rather than over-privilege a single factor, such as income-we would induce very different incentives into our economic system, and strike a different balance between individual material advancement and regulatory frameworks that promote common goods. We might look to Bhutan's index of Gross National Happiness as an example. And wouldn't this get at fulfillment in a way that escapes measures of the GNP, much of which is composed of unhappy transactions (paying the divorce lawyer, or one too many bottles of vodka, or whatever).

German Paper Clips, Books, and Three-star Restaurants

Today I went out to buy some paper clips. They were €1,49 (more than $1.75) for a small box of 100. Now you might think paper clips are paper clips, but most German ones are different. These Hansa brand clips have a heft to them that the ones I normally get from Office Depot in Nashville don't have, and they hold together my writings almost as well as a staple. It's a small thing, the heft and resistance of a paperclip, but here and in many other obscure corners of German daily life, we find preferences that value quality as highly as price.

My €1,49 purchase helps pay for the generous worker benefits at the Hansawerke factory outside of Hamburg and for the value of patronizing my friendly local office supply store. I could take a bus out to Staples and get cheaper clips, I'm sure. But I like the subtle heft; it feels like Germany to me.

Customers don't always have a choice to save money or not. Germany has legal, structural constraints that favor small shops and higher quality products. I wrote previously about store opening hours. There are also stringent laws governing the timing and depth of discounts for store sales. And in the book trade, retailers generally have to sell at the suggested retail price, Amazon.de the same as the little corner store down the street.

At the same time, there is a pronounced German cultural propensity to be thrifty (Günstig) and to downplay socio-economic inequalities. Take fine restaurants, for example. Carter Dougherty reports (in a 2008 New York Times article) that Germany now has more three-star restaurants (9) than any European country except France. But such high-end dining is a bargain in Germany: these restaurants charged about half (circa €$150) of what a similar full menu in France would be. Dougherty reports that upper-end diners' sense of justice and fairness would be offended at higher prices. (My wife and I like Michelin-starred Vau in Berlin, which offers its succulent neo-German cuisine in €12 portions at lunch.)

Thus, we find both structural constraints that favor small producers and vendors as well as deep-seated cultural notions of equality and solidarity that produce the particularly German paradox of thrift and a willingness to pay a premium for quality and positive social externalities.

Enforcing Leisure: German Store Opening Hours and the Common Good

There is a price to pay for the many intangible benefits we gain from living in a community. Personally, I like it that the butcher, the guy at the office supply store, the woman at the café, all know who I am and make small talk when I come in. We aren't great friends, what we know about each other is pretty shallow, and yet there is a sense of human connection that gives greater satisfaction to my little economic transactions.

Yet, we are too often unwilling to pay the price to sustain our communities. The reasons are varied, from the eternal tension between individual freedom and social obligation to a distrust of bureaucratic inefficiencies and corruption to what some would argue is an innate propensity for economic maximization.

Germans are generally more willing to pay a premium for positive social externalities. This is partly cultural and partly structural. There is a tendency to value quality over quantity in personal consumption, and yet this is often enforced through regulations that reduce choice. Practices are rapidly changing here, but compared to the U.S. the difference in attitudes is striking.

Within a few blocks of my Südstadt apartment in Hannover, there are four bakeries, an apothecary (Apotheke) , drug store (Drogerie), a news stand, a book store, a bottle drink store and delivery service (Trinkhalle), an office and school supply store, and any number of kiosks and cafes. These are all owner-operated, single-location small businesses. (They coexist alongside the chain supermarkets in the area.)

I could take a bus out to the Staples and get my printer paper cheaper, but it is worthwhile for me to pay a bit more to save the time and hassle of getting there and to have a brief social interaction with my purchase, and leave with the feeling that I have supported a business and a person that I like.

But in late July and August, it can be a real pain in the ass, as small businesses here take a summer break (Sommerpause) and reduce their hours. I've been frustrated lately going to get bread (the bakery that makes the good Gästebrot was closed) and a notebook (the store closes early during Summer).

When I first started coming to Germany, I found the laws and norms around store opening hours inconvenient to the point of being oppressive. Under the Ladenschlussgesetz, the federal law that governed store opening and closing hours until 2006, most stores could open only Monday through Friday between 6:00am and 6:00pm and for a half day on Saturdays. Some cities and states additionally allowed extended hours on a "Long Thursday" (or other weekday) once a month. Stores in train stations and gas stations were exempt, and these grew into mini-supermarkets for emergency purchases. (Since 2006, state laws have replaced the federal regulation, and most have significantly loosed restrictions; two grocery stores in my neighborhood now stay open until 8:00pm six days a week.)

These hours can be a huge hassle as one tries to balance shopping for necessities with the other demands of daily life. But it also helps sustain small businesses, as many family-run stores cannot afford to stay open extended hours. So, it would seem, the market can make a rational choice for us here: we may value convenience more than the experience of shopping in local stores, and so the market responds. But it might also be the case that we find it difficult to place a clear value on the social externalities of going to our local stores, which heightens the attraction of a clear financial, euros-and-cents-in-my-pocket advantage.

Behavior economists have show that most of us are highly predisposed to take modest short term-gains over more lucrative long-term rewards. Would you rather I give you $1 right now or $2 in a few weeks? Waiting a bit would produce a 100% gain, but most would rather take the money now and run. Most smokers would like to quit and see the long term gain in abstinence, but the pull of the immediate hedonistic gain proves too compelling.

Might it be the case then that laws, regulations, and social norms that reduce our range of choice and individual freedom might make us better off? Not just better off physically or financially, but a greater self-defined, subjective sense of well-being, of being the sort of people we want to be, approaching an Aristotelian eudaimonia.

Having to do one's shopping on a Saturday sometime sucks. But the Saturday shopping experience also speaks to the social externalities of store opening hour laws. Forcing a concentration of shoppers at certain times brings folks from all walks of life into communion. Sure, it is convenient to grocery shop at 2:00am, but there are also benefits for us collectively when we all go out Saturday mornings and see each other.

It is not only store opening hours, but vacation times that can be a hassle for customers, as my late summer shopping experiences here have shown. By law, German workers get four weeks of paid vacation, although the national average is a much higher 7.8 weeks of vacation (paid and unpaid); the U.S. average is 3.9 weeks. All in all Americans work on average 1824 hours per year and Germans work 1480. The value added per employee in the U.S. is substantially higher, but productivity per working hour is higher in Germany.

This suggests one (economic) reason why Americans work more: their time is more valuable. Salaries are higher, and so taking time off become more costly. Other economists have suggested it is European tax rates: working is not as lucrative in Germany, which tilts the balance toward taking more time off.

Another, more plausible, solution also emerges from economics, namely that this is a coordination problem. Except for those at the extremes of the socio-economic spectrum, vacation time is not decided unilaterally. This is not just a matter of formal regulation but informal norms as well. A young associate in a law firm would be at a huge disadvantage if she took off on vacation while her colleagues worked. It might be the case that everyone at the law firm would love to take off more time, but the coordination problems of the network-the structures and incentives of the system as a whole-would thwart those desires. Americans might want to work less, but in the competitive economy there is little chance to coordinate such desires. In a recent paper, Alberto Alesina, Edward Glaeser, and Bruce Sacerdote (quoted in The Economist) argue that "national policies that enforce higher levels of relaxation can, at least in theory, increase welfare." And not just in theory, I would add.