Chrystia Freeland

The next Russian Revolution started this month. It will be another two or three or even four decades before the Russian people take to the streets to overthrow their dictator — and the timing will depend more on the price of oil than on anything else — but as of Sept. 24, revolution rather than evolution became Russia’s most likely path in the medium term.

That’s because President Dmitri A. Medvedev’s announcement last weekend that he would step aside next March to allow Vladimir V. Putin to return to the Kremlin was also an announcement that the ruling clique failed to institutionalize its grip over the country.

We have known since 1996 that Russia wasn’t a democracy. We now know that Russia isn’t a dictatorship controlled by one party, one priesthood, or one dynasty. It is a regime ruled by one man.

“The party doesn’t exist,” said one of Russia’s leading independent economists. “The politics is all about one person.”

“There is no such thing as Putinism without Putin,” Nikolas Gvosdev, a professor of national-security studies at the US Naval War College, wrote this week in The National Interest. “Putin must still remain personally involved and at the helm for his system to function.”

That new reality might seem to be a victory for Putin. But it is a flawed triumph. His resumption of absolute power is also an admission that he and his cronies have failed in the project they set themselves in 2008. And that failure leaves the future President Putin with an Achilles’ heel.

The project was to create a self-replicating institutional base for the regime Putin brought to power in 2000, when he took over from Boris N. Yeltsin and dismantled the fledgling democratic structures the first leader of independent Russia had either created or tolerated.

“In 2008, Putin’s message was, ‘We aren’t like a Central Asian republic, we aren’t going to build a personalistic regime, we will have institutions,”’ Ivan Krastev, chairman of the Center for Liberal Strategies in Sofia and one of the most astute students of Russian power, told me. “This is all abolished now. The very idea of a governing party and party career, as you have in China, that didn’t work.”

Russia’s transformation into what political scientists call a sultanistic or neo-patrimonial regime is a break both with Russian history and with the global trend. The Kremlin has been home to plenty of murderous dictators. But the czars drew their legitimacy from their blood and their faith. The general secretaries owed their power to their party and their ideology. Putin’s rule is based solely on the man himself.

Russia’s shift to sultanism is out of step with the rest of the world, too. The Arab Spring was a revolt against some of the world’s most powerful neo-sultans; it is no accident that most of the remaining Middle Eastern dictatorships are ruled by dynastic monarchs, not strongmen. And among the world’s great powers — a group to which Russia is desperate to belong — only the Kremlin’s ruler need say l’état, c’est moi. China is certainly authoritarian, but it is a one-party state of precisely the sort Putin has failed to build.

One characteristic of paternalistic regimes is that they rule through fear and humiliation — remember the refrains from the streets of Tunisia and Egypt about people protesting to regain their dignity. That is being lost in Russia. One analyst, who has always spoken to me freely before, asked not to be quoted. When I asked a Russian businessman who was traveling in Europe what his friends back home thought, he was shocked by my naïveté: Kremlin politics, he explained, was no longer an issue it was safe to discuss on Russian telephones.

The sense of humiliation is even greater. “A lot of my friends are very disappointed that the private decision of two friends can determine the fate of their great and huge country,” one oligarch from the former Soviet Union told me.

Most humiliated of all was President Medvedev, who was required to announce his abdication from the Kremlin himself. “Medvedev is now the ultimate symbol of weakness,” Krastev said. “The liberals now hate him more than they hate Putin.”

Don’t, however, expect Western business to complain. When it comes to dealing with governments, especially foreign ones, chief executives love one-stop shopping, and that’s one thing a personalistic dictatorship provides. As one European chief executive told me, “We applaud this candidacy. Putin has been supporting industry in a way that is remarkable.”

Another thing Western chief executives like about dealing with dictators is presumed stability. That’s not entirely a myth — look at Ukraine to see how turbulent a post-Soviet state can be when it experiments with democracy — but it isn’t totally true either.

Paternalistic regimes can be very strong, but they are also very brittle. They have two great vulnerabilities. The first is money. Fear and humiliation are important tools for a neo-patrimonial strongman, but he needs cash, too. A Russian economist I spoke to calculated that if the price of oil were to fall below $60 a barrel, and stay there, Putin’s reign could soon be imperiled.

The second is succession. The central problem with a regime built on one man — and a reason Putin tried to institutionalize Russian authoritarianism — is that it has no mechanism for transferring power.

“For this type of regime, the only succession is that you clone yourself,” Krastev said. “In 2008, Putin wanted to convince us that he, like Yeltsin, could retire to the dacha. Now, there is no dacha for Putin anymore. He must die in the Kremlin.”

Yesterday Chrystia sat down with PIMCO CEO Mohamed El-Erian, Washington Post columnist George Will, and former Council of Economic Advisors Chairman Austan Goolsbee on the set of ABC’s This Week with Christiane Amanpour. Here’s the video of their discussion about the latest developments in the European debt crisis, China’s economic slowdown, and other dangers facing the global economy today:

Also, be sure to check out El-Erian’s op-ed on Europe’s crisis that Reuters published today.

This is a transcript of Yuri Milner’s presentation to the Yalta Annual Meeting in September 2011. To read Chrystia’s column about the presentation, click here.

A few months ago not three but eight leaders in the world gathered at Deauville in France at their regular G-8 meeting. But for the first time ever they invited six businessmen to meet with them and talk about the future. It’s interesting that four out of six were related to internet, and then I was among those invited. Each of us was given three minutes to say something, and I will now present to you a slightly expanded version of that presentation that I gave back then.

If we can look at the slide number 1, that you hopefully can see on the left-hand side, it basically shows the unprecedented growth of internet users globally. And I just want to bring your attention to the fact that this is probably the fastest proliferation of any technology ever, and the most fundamental fact being that right now around 2 billion people are connected to the internet and in the next 10 years you will see another 3 billion added to that number to a total of 5 billion people connected around 2020.

If you turn to the next slide, one would assume that internet is only about people, but actually it’s not. Around 5 billion devices are currently connected already, and this number will zoom to more than 20 billion devices connected to internet 10 years from now, and this will add to 5 billion human beings, so you would assume that there will be 25 billion people and devices connected and producing information.

On slide 3, I would like to bring your attention to one really unprecedented and not very well appreciated fact: how much information is actually being created. If you add all information that was generated by the mankind for the last 30,000 years beginning with the first drawings on the walls of the caves until year 2003, equal amount of information was created last year for only two days. It took two days to create equal amount of information to the one that was created by all people that ever lived from the dawn of civilization until 2003. And moreover the same amount of information will be generated in ten years from now only within one hour.

On the next slide, I want to show you that not only is information being created, but it is also being shared among people. And it is being shared at the ever increasing pace, and the pace is actually accelerating. One of the companies that we’ve invested in is called Facebook. In only two years, between 2009 and 2011, the information exchanged between people increased 28 times. And that cannot be explained by new people joining Facebook. Actually every single participant in this process is exchanging multiple times more information than only two years ago. Same applies to Twitter, where in the last two years we have seen a tenfold increase of the information that is created and distributed and exchanged on Twitter. And a very small fraction of this information is created by organized institutions like news organizations, and the vast majority of it is created by people themselves, and consumed by people who are interested to hear the newsfeed that is being produced by other people. If you are not the user of Facebook or Twitter but probably user of e-mail, you might have noticed that in the past few years the number of e-mails that you have been receiving daily was actually exploding. On average we are now receiving six times more e-mails than just four years ago.

And on the next slide I want to explain where it’s all leading, and it’s all leading to really unprecedented proliferation of Internet media compared to traditional media. The largest newspaper in the United States is only reaching 1 percent of population. We are kind of assuming that Wall Street Journal, USA Today, and other newspapers are very important. Yes, they’re extremely important, but only to 1 percent of the population on a daily basis. And that compares to internet media, which is used by 25 percent of the population daily and growing. The largest TV channel is reaching maximum of 10 percent of the population, and this ratio is constantly going down with the increasing number of channels that people watch and the further fragmentation of people’s attention.

On slide 6, one can see a very important trend which is accompanying this creation of information and emergence of internet businesses that are actually much more efficient than traditional offline businesses. Big internet company on average is capable of generating revenue of $1 million per employee, and that compares to 10 to 20 percent of that—$100,000 to $200,000—that is normally generated by traditional offline business of comparable size. And this efficiency is not going away; it’s with us to stay for a long time. And that creates alongside these efficiencies serious challenges for offline businesses trying to compete with online businesses. I was really deeply impressed by one fact that became apparent to me when we first invested in Facebook. Each single engineer in Facebook is capable of supporting 1 million users. There are only around 700 engineers working at Facebook, and there are more than 750 million users of Facebook, so that level of efficiency is really unprecedented and unheard of, and it never happened before. And this efficiency will deeply influence every single sector that we recognize as a traditional sector.

And on the next slide 7 I would claim that every type of human activity will be deeply influenced by internet. And the next sectors to be impacted I would forecast will be health-care and education. With digitizing clinical records and new educational institutions emerging allowing outstanding scholars to address tens of hundreds of thousands of users at the same time. In this September semester at Stanford, there is one experimental course of teaching artificial intelligence that is read by an outstanding professor for the first time online with 58,000 students signing up—not only from Stanford, but from every corner of the world—and this course is actually free.

On slide 8, I want to emphasize the next big trend, which is the accelerated emergence of artificial intelligence, which is capitalizing on all the information that is being generated everyday and every minute. We used to think about companies like Google as really a part of our lives and pretty static. We go use Google today, we use it tomorrow, and we believe that it is the same algorithm. But in fact algorithm is changing every week based on searches that we make and based on the feedback that users provide by using the service. And that’s what makes companies like Google so pervasive and almost monopolistic that their algorithms are constantly adjusting to better cater to our needs based on our feedback. And this virtual cycle continues at an ever increasing pace, making these companies even harder to catch up with. The same applies to Amazon which is trying to sell us new goods based on the ones that we already purchased, and Facebook, which is trying to form our relationships based on the relationships we already have. They have a very interesting feature that suggests new relationships to us, and these algorithms are so good right now that there is a more than 50 percent chance that we will accept friendship based on this artificial intelligence recommendation. And I clearly see that times that are not so far off where companies like Facebook will be in fact forming our social connections to a very significant extent.

And on the last slide today, I just want to draw a little bit of a futuristic picture, which is the emergence of the global brain, which consists of all the humans connected to each other and to the machines and interacting in a very unique and profound way creating an intelligence that does not belong to any single human being or computer but really spread out and living its own life and defining significantly the actions of each particular individual in the not so distant future. One striking fact is that about 20 percent of the global energy 10 years from now will be dedicated solely to maintain this global intelligence, and this number is around 10 percent already today in developed countries. And that actually can comfortably compare to 20 percent of calories that our human brains consume daily to support our traditional intelligence.

Get ready for the global brain. That was the grand finale of a presentation on the next generation of the Internet I heard last week from Yuri Milner. G-8 leaders had a preview of Milner’s predictions a few months earlier, when he was among the technology savants invited to brief the world’s most powerful politicians in Deauville, France.

Milner is the technology guru most of us have never heard of. He was an early outside investor in Facebook, sinking $200 million in the company in 2009 for a 1.96 percent stake, a decision that was widely derided as crazy at the time. He was also early to spot the potential of Zynga, the gaming company, and of Groupon, the daily deals site.

His investing savvy propelled Milner this year onto the Forbes Rich List, with an estimated net worth of $1 billion. One reason his is not yet a household name is that he does his tech spotting from Moscow, not a city most of us look to for innovative economic ideas.

Milner was speaking in the Ukranian city of Yalta, at the annual mini-Davos hosted by the Ukrainian pipes baron and art collector Victor Pinchuk (disclosure — I moderated at the event). What was striking about Milner’s remarks was how sharply his tone differed from that of the other participants.

The Americans — among them the economists Lawrence H. Summers and Paul Krugman — were glum about their country’s economic stagnation and its political inability to adopt policies that could end it. The Europeans — a group that included the foreign ministers of Sweden and Poland, and Jürgen Fitschen, who has been named co-chief executive of Deutsche Bank — were worried about the sovereign debt crisis.

Even the Turks and the Indians, whose economies grew more than 8 percent last year, were anxious about uneven development at home, and the threat of economic tsunamis coming from abroad.

Milner’s perspective was entirely different. For one thing, at a time when where you sit so often determines where you stand, Milner almost perfectly represents a global technology elite whose frame of reference is planet Earth. He mostly lives in Moscow, but has recently purchased a palatial home in Silicon Valley. He addressed the Ukrainian conference by video link from Singapore.

From that vantage point, the most pressing issue in the world today isn’t recession and political paralysis in the West, or even the rapid development and political transformation in emerging markets, it is the technology revolution, which, in Milner’s view, is only getting started. Here are the changes he thinks are most significant:

• The Internet revolution is the fastest economic change humans have experienced, and it is accelerating. Milner said that two billion people are online today. Over the next decade, he predicts that number will more than double.

• The Internet is not just about connecting people, it is also about connecting machines, a phenomenon Milner dubbed “the Internet of things.” Milner said that five billion devices are connected today. By 2020, he thinks more than 20 billion will be.

• More information is being created than ever before. Milner asserted that as much information was created every 48 hours in 2010 as was created between the dawn of time and 2003. By 2020, that same volume of information will be generated every 60 minutes.

• People are sharing information ever more frequently. The pieces of content shared on Facebook have increased from 140 million in 2009 to four billion in 2011. We are even sending more e-mails: 50 billion were sent in 2006, versus 300 billion in 2010.

• The result, according to Milner, is the dominance of Internet platforms relative to traditional media. “The largest newspaper in the United States is only reaching 1 percent of the population.” he said. “That compares to Internet media, which is used by 25 percent of the population daily and growing.”

• Internet businesses are much more efficient than brick-and-mortar companies. This was one of Milner’s most striking observations, and a clue to the paradox of how we find ourselves simultaneously living in a time of what Milner views as unprecedented technological innovation but also high unemployment in the developed West. As Milner said, “big Internet companies on average are capable of generating revenue of $1 million per employee, and that compares to 10 to 20 percent of that which is normally generated by traditional offline businesses of comparable size.” As an illustration, Milner cited Facebook, where, he said, each single engineer supports one million users.

• Artificial intelligence is part of our daily lives, and its power is growing. Milner cited everyday examples like Amazon.com’s recommendation of books based on ones we have already read and Google’s constantly improving search algorithm.

• Finally — and Milner admitted this was “a bit of a futuristic picture” — he predicted “the emergence of the global brain, which consists of all the humans connected to each other and to the machine and interacting in a very unique and profound way, creating an intelligence that does not belong to any single human being or computer.”

More than most of us, Milner understands that changes in what he calls “the offline world” can have real bite: He lived through the collapse of the Soviet Union, and the politics and economy of Russia today are no cakewalk. But, in a year that has seen the Arab Spring and the threat of the collapse of the euro, Milner’s predictions are an important reminder that the most significant revolution may be happening in cyberspace.

Amid all the fears surrounding the future of the euro, Chrystia appeared on Stephen Colbert’s show last night to answer what is perhaps the most pressing question in the field of international political economy today: will the upcoming Oktoberfest celebrations in Germany complicate Europe’s rescue package for Greece?

Posted by Peter Rudegeair

We know one thing for sure: the gap between rich and poor in the United States has widened in the past 30 years. In 2007 the top 1 percent of earners took home 18.3 percent of national income — that is more than two and a half times their level in 1973, when their share was 7.7 percent. Those at the top haven’t enjoyed such a big slice of the national pie since 1929. The middle-class dominated nation that the Greatest Generation inhabited has become as polarized as the plutocracies of Latin America or as America itself was during its fevered Gilded Age.

For a long time, the United States was in denial about its growing income gulf. The middle class clung to the old promise of mass affluence — and used home equity loans and credit card debt to make that dream real.

The elite, particularly the conservative intellectuals who have dominated the national economic debate since the Reagan era, insisted that growing income inequality was propaganda invented by the class warriors on the left, and cited robust consumer spending as evidence. In a 1998 speech at Jackson Hole at the annual gathering of American economists and economic policy makers, Alan Greenspan, then chairman of the Federal Reserve, argued that what mattered was what people could buy, not what they earned.

“Inequality in consumption, when measured by current outlays, is less than inequality in income,” he said. Greenspan illustrated his point with some unusual measures of inequality — ownership of consumer goods like dishwashers, microwaves and clothes-dryers. The comforting result? Even though inequality as measured in dollars was growing, when measured in dishwashers, microwaves and clothes dryers it was decreasing.

The 2008 financial crisis and the prolonged economic downturn has eviscerated the consumption defense as ruthlessly as it has burst the credit bubble that allowed the middle class to feel richer than it was. Income inequality is today a fact of life, as essential to doing business as the rate of inflation: Proctor & Gamble executives study the Gini co-efficient, a technical measure of income inequality, to divine what is happening to their erstwhile middle-class consumer base, and have decided the best strategy is to give up on the center and to market instead to the top and the bottom.

Citigroup advises investors to design their portfolios around income inequality. It calls this strategy the “Consumer Hourglass Portfolio” and has created an index of companies that serve the rich and the poor while avoiding the vanishing middle.

Once income inequality has become a tool for marketing executives and stock pickers it becomes pretty hard to deny. But we can still argue over what is causing it.

The left likes to blame pro-rich tax policy. And it is certainly true that the gap in the U.S. has widened even as taxes on the rich have decreased. Today’s top tax rate, 35 percent, is half what it was 30 years ago. Capital gains taxes are even less than half of what they were 35 years ago — 15 percent today, compared to 39.9 percent in 1977.

Politics have tilted the playing field in favor of those on top in other ways, too. Unions are less powerful than they were 30 years ago, and an ever bigger gap between executive officers and the average worker has become acceptable to shareholders and boards: in 2010, C.E.O. pay at S&P 500 companies was 343 times the median wage.

But taxes, unions and compensation committees tell only part of the story. What’s also happening is an economic revolution — actually, a pair of them — that favors those on top and squeezes those in the middle. The technology revolution and globalization have allowed the very talented, the very lucky and the very brave to build companies and make fortunes nearly overnight. They have also created a highly numerate superclass of workers — technologists, engineers, traders — whose skills are in great international demand and whose salaries have soared accordingly.

Meanwhile, a vast swath of jobs — ranging from manufacturing, to clerical work, and now to routine law and accounting — can be done much more cheaply by machines or by people in lower-income countries, and this is devastating the U.S. middle class, even as those at the top prosper.

Justice is a central issue in American politics and in American society. That’s why it seems so important to figure out whether the rich are paying their fair share. It is a crucial question — and the truth is that the rich are getting a better deal than they used to. But the even more central issue — and it is one that both left and right are reluctant to acknowledge — is that the fundamental forces shaping U.S. capitalism today are hostile to the middle-class majority, which defines U.S. democracy.

The rancor and the paralysis that characterize American politics at the moment are the result of this conflict. Someone needs to admit that modern capitalism isn’t working for the middle class, and find a way to make it work better, before it is too late.

This piece was originally published on the New York Times’s Room for Debate blog.  You can read the rest of the debate here.

Where is a superpower when you need one?

Many Americans suspect that their country’s relative decline is being met with gloating in other parts of the world — and not just in the dictatorships that have good reason to fear a strong United States. Americans imagine that even many firm friends have long nursed quiet resentments of the rule of their big brother, and that those historic slights mean a certain pleasure is being taken in America’s waning.

Those suspicions aren’t wrong. If you have trouble understanding how even the most ardent ally can also have a younger sibling’s sense of grievance, watch “In the Loop,” the BBC comedy loosely based on the run-up to the 2003 invasion of Iraq.

In one scene, the British prime minister’s enforcer, a character modeled on Alastair Campbell, arrives at the White House for a meeting on the impending war only to discover that his counterpart is a 22-year-old. His poetically obscene response is classic Campbell, and an illustration of why even some loyal Brits might not be totally dismayed by the humbling of the superpower.

Although the schadenfreude is real, it is swiftly being replaced by an even more powerful emotion — nostalgia. From Berlin to Benghazi, it is becoming increasingly clear that in a crisis it is awfully handy to have a superpower around.

That sentiment is being felt most strongly this week in Europe. The Americans missed most of all across the Atlantic are American consumers — if only they were buying as voraciously as they did before the 2008 crisis and the U.S. economy was playing its old role as consumption engine for the world, Europe’s financial woes would be a lot less severe.

But the Europeans are also struggling with a lack of global political leadership. When Henry Kissinger was secretary of state in the 1970s, he pointed to the lack of a European political center with his celebrated question: “If I want to call Europe, who do I call?”

Today Europe has one central banker Kissinger could dial up, but it still lacks a single political boss. That absence is one reason the Europeans need U.S. leadership now more than ever.

In the late 1990s, when Russia’s economic woes menaced Europe, the United States dispatched the “Committee to Save the World,” the troika of Alan Greenspan, Robert E. Rubin and Lawrence H. Summers made famous in the iconic Time cover that depicted them as superheroes.

That team did help prevent the eventual Russian default and devaluation and the economic collapse in Asia from sinking the global economy. Today, though, that troika’s equivalents are mostly consumed by the effort to save their own nation’s economy — and, in the case of the U.S. central banker, to avoid the pitchforks of some of their more aggrieved compatriots.

But Europe is discovering that it is hungry for all the attention it can get, even from a politically distracted and economically weakened United States. On Friday, Timothy F. Geithner, the secretary of the Treasury, attended a meeting of European finance ministers in Wroclaw, Poland, at the Europeans’ invitation. That will be his second trip across the Atlantic in just seven days — Geithner was in Marseille at the beginning of the week, where he told the Group of 7 meeting of finance ministers and central bankers that Europeans needed to “act more forcefully” to address the crisis.

“It is so interesting that Geithner is going to the Ecofin meeting,” said Jim O’Neill, chairman of Goldman Sachs Asset Management. “There is nobody inside the euro area who has the leadership ability to solve it. So it might be that it is convenient for them to have a superpower appear as the great savior.”

A muscular United States is being missed on the world’s battlefields, too. Canada is one of the world’s most ardent multilateralists, for reasons of geopolitical necessity as well as cultural inclination, and Canadians have more cause than any other nationality to suffer from little-brother syndrome when it comes to the behemoth with whom they share a continent.

But in the testing ground of Afghanistan, Canadian soldiers came to love Big Brother. “Our own guys learned in Afghanistan that if you’ve got American capabilities behind you, you’ve got the best there is, but you can’t rely on NATO the way you can on the United States,” said David Bercuson, head of the Center for Military and Strategic Studies at the University of Calgary. “NATO is nothing without the United States. Our military discovered that.”

“The Europeans talked a very good game about setting up a European defense community. But now, with the deep budget cuts coming, the notion Europe would evolve into any significant military power seems further away than it was 10 years ago,” Bercuson said.

Both in Kandahar and in Wroclaw we are learning the unpleasant realities of living in what Ian Bremmer and Nouriel Roubini have dubbed “a G-Zero world.” As they argued in an essay in Foreign Affairs: “We are now living in a G-Zero world, one in which no single country or bloc of countries has the political and economic leverage — or the will — to drive a truly international agenda. The result will be intensified conflict on the international stage over vitally important issues.”

Michael Ignatieff, the writer and former leader of the Liberal Party of Canada, said we shouldn’t waste our time debating whether the G-Zero world is a good thing. The point is that “this long transition to a world which is not run from Washington” is a reality, and one which we need to figure out how to adapt to fast. “The fact is that America is being forced to step back from certain tables — so the rest of the world needs to step up,” Ignatieff said.

But as we are seeing in Europe, acting in concert without a clear and willing leader is hard to do. As the sun begins to set on imperial America, even the sometimes resentful little brothers are realizing the extent to which Washington’s muscular pursuit of its own self-interest has served us all.

As the United States prepares to commemorate the tenth anniversary of the 9/11 attacks this weekend, one of the most striking contrasts is between a country that was united in the face of a foreign enemy a decade ago, and that same nation today, which is so bitterly divided as it confronts domestic challenges of equal, if not greater, magnitude.

Most Americans do agree on one thing — the polarization and paralysis are the fault of failed politicians and a flawed political system. As a unifying rallying cry, this pox-on-all-their-houses approach has much to recommend it.

But what if the problem goes deeper than politics and politicos? Maybe America’s national discord is rooted in structural factors that even the most talented leader and effective political system would struggle to fix.

That is one of the arguments in a provocative book by Cornell economist Robert H. Frank, published this month. Frank is an economist for the rest of us — his métier is to write about big ideas for a broad audience — and he is often ahead of the curve: he was an early enthusiast of the now trendy behavioral economics and he began writing about the winner-take-all economy long before the idea became conventional wisdom.

His new work, The Darwin Economy, builds on those interests to focus on one paradox of economic life: behavior which makes sense for a particular individual can harm the community as a whole. Frank’s favorite example is from the natural world — the massive antlers of bull elks.

For the individual bull, engaging in the antler arms race is smart — the bull with the biggest antlers is most likely to win fights with other bulls and thus mate with the most cows. But for bull elks as a group, the antler wars are destructive, making it easier for wolves to trap bulls in the forest.

Frank doesn’t claim to have discovered this problem of collective action — indeed, as the book’s title indicates, his intellectual inspiration is Charles Darwin — but he believes it has become particularly acute in globalized, high-tech, twenty-first century capitalism. America’s bull elk are the winners in that capitalist contest and their antlers — so useful to themselves, but harmful, Frank argues, to the community at large — are their very large incomes.

The problem, he believes is that like the bull elks, the rest of us are driven to compete with the super-elite, spending more than we can afford on our equivalent of antlers — homes, schools, and status symbols like the suits we wear to job interviews. Just as the bull elks, as a community, “would be better off if each animal’s antlers were much smaller,” our economy would function more effectively overall if the super-elite, who set the frame of reference for everyone else, consumed less.

But even if you buy Frank’s argument — and he sets himself the ambitious task of winning over libertarians, his toughest potential audience — getting to that collectively better equilibrium could be very hard to do.

To understand why, read a 2009 paper by Raghuram Rajan, the former chief economist of the International Monetary Fund who is now a professor at the University of Chicago’s Booth School of Business. Rajan’s subject is political paralysis in developing countries: why, he asks, is economic reform so difficult to achieve in poor countries, even when they are democratic? After all, if reform would make the country as a whole richer, surely a majority of voters should support it.

But just as Frank argues that the self-interest of individuals can be at odds with an outcome which would benefit the group as a whole (including those individuals), Rajan finds that the interests of different economic constituencies may clash and thus make it hard to build a political consensus for reform. As each group seeks to preserve its meager advantages in an underdeveloped economy, “the collective choice is poverty.”

I asked Rajan, who earned his first two academic degrees in his native India, how his arguments about “paralysis” in developing countries could be applied to the politics of the country where he now makes his home.

“Where you stand effects what you see and what you believe,” Rajan said. “Take the working rich. A fair number will say, ‘you don’t need to spend more, you just need to spend more effectively.’ They have somehow convinced themselves that, yes, we need to improve education, but no, we don’t need to spend more money. That is very convenient.”

Constituencies — Rajan prefers the term to interest groups — on the left make the same sort of self-interested arguments: “The flip side is the liberal who says all we need is more taxes and just to protect good union jobs. That is refusing to see the reality that those good union jobs are history and trying to protect them means you will just continue to fall behind.”

The point, as with the bull elks, is that collectively harmful policies can make sense for you and your community. Which is why cookie-cutter appeals to the common good and to common sense — and disparagement of bad politicians — don’t capture the scale of the problem in countries which are democratic, but deeply economically divided.

“This notion that if only our politicians in Washington could behave and act like adults, I find very naive,” Rajan said. “Don’t blame Washington or the system, blame the divided constituencies that sent people there.”

You might call it the cognitive divide — the split between an evidence-based worldview and one that is rooted in faith or ideology — and it is one of the most important fault lines in the United States today.

President Barack Obama called attention to the cognitive divide, and reminded us which side he comes down on, at the beginning of this week, when he chose the Princeton University economist Alan Krueger to lead his Council of Economic Advisers.

Krueger is a labor economist, and at first blush, that focus may seem the important part of his résumé. Unemployment, after all, is still above 9 percent, and the president has said job creation is his priority. But when you talk to the insiders about Krueger, what they emphasize is his mastery of data and his utter commitment to the truths it can be coaxed to tell.

Lawrence Summers, the former Treasury secretary and a Harvard economist, described Krueger, his former student, as a “total empiricist” and a “great data monger following the data where it went.” Lawrence Katz, a fellow Harvard economist and one of the pre-eminent labor economists, enthusiastically agreed: “Alan has an open mind and lets the data speak.”

Krueger’s passion for data runs so deep that one of his major professional projects has been, as Katz put it, “to actually improve the data.” Krueger was the founding director of Princeton’s Survey Research Center. When he can’t find the data he needs to answer a particular question, he goes out and gets it.

“Alan is almost unique among leading economists in that much of his work is based on additional data he collected,” said Justin Wolfers, a professor at Wharton Business School at the University of Pennsylvania.

Krueger’s devotion to data is a key to understanding a question that has been puzzling a lot of Americans as they reflect on the past three years, and start thinking about how they will vote in the upcoming one: What does Obama really stand for?

To his critics on the right, the president is a socialist with dangerous foreign antecedents. To his critics on the left, he is a waffler with no real point of view and a craven desire to be liked.

Krueger’s nomination points to an entirely different explanation: The president is an empiricist. He wants to do what works, not what conforms to a particular ideology or what pleases a particular constituency. His core belief is a belief in facts.

Obama the empiricist is not the man who surged from behind to win the 2008 presidential election. That candidate was the Obama of soaring rhetoric, who promised hope and change.

But the pragmatist has always been there. Writing in September 2008, several weeks before the presidential election, Cass Sunstein, who has gone on to serve in the White House, had this to say about his candidate: “Above all, Obama’s form of pragmatism is heavily empirical; he wants to know what works.” Word crunchers found that the president’s 2009 inaugural address was the first one to use the term “data” and only the second to mention “statistics.”

That cognitive approach is one reason Obama attracted so much support, especially among younger people, on Wall Street and in Silicon Valley. Obama is a data-driven technocrat, and so are the traders and the Internet entrepreneurs. As one insider, who is equally familiar with Wall Street and with Washington, told me: “You want your money managed by people who are responsive to evidence, who care about results and who understand that the world is an uncertain place. Obama wants to get his economic advice from the same sorts of people.”

But as the presidential campaign begins to heat up, starting with the Republican primary race, the empirical worldview that Obama embodies is taking a beating. The candidates who have made the strongest start are those with a proudly faith-based approach. According to a Quinnipiac University poll released this week, Governor Rick Perry of Texas is the Republican front-runner. He spoke at a Christian religious rally on the eve of entering the primary contest last month and has questioned the science of evolution and climate change.

The Republican Party has its own evidence-based candidates, and they are struggling to respond to the faith-based worldview that Perry so powerfully embodies. One of them, Jon M. Huntsman Jr., is playing up his credentials as the right’s empiricist. He has said he thinks climate change is a fact and warned Republicans against becoming the “anti-science party.”

Mitt Romney, who was the front-runner before Perry blazed onto the scene, has been more ambivalent. Romney’s business background puts him squarely in the camp of the empiricists: it is hard to make millions in private equity without appreciating the power of data. But Romney knows who votes in Republican primaries, and last week he hedged his previously explicit position on climate change.

The divide between the empiricists and the believers is also the fault line between the highly educated, technologically adept super-elite and the squeezed and scared middle class. But those hoi polloi voters, who, in 2012, as they were in 2008, seem to be drawn to politicians with big ideas and strong beliefs, may also be responding to something even bigger than this cognitive divide.

We are today, as we were in 2008, living through an unprecedented crisis. The economies of the Western world are sick, and the international balance of power is shifting. To be driven by data is an admirable thing. But when you find yourself in dangerous and uncharted waters, there is no data to guide you.