Three Perversities of Indian Law

I came across this fascinating paper (pdf) by Jacob T Levy, a political science professor at McGill University, after reading another excellent piece of his at the Niskanen Center on liberalism and identity politics (which I may go into at another time). Coincidentally, the EconTalk episode this week also dealt with this topic, though with a broader focus.

I’ve long had an interest in the Native American experience, which I suppose comes from being born and raised in South Dakota, where there is a relatively large (~8%) Native American population. (The state correctly replaced Columbus Day with Native American Day in 1990, for whatever it’s worth). Inescapable is the fact that American Indians are overwhelmingly poor; the poverty rate nationwide is higher than any other minority group, some of the poorest counties in the entire country are on the reservations in South Dakota, and my hometown had the highest poverty rate among American Indians of any city with substantial Indian population (over 50% in poverty!).

Being interested in economic development as well, the economics of the reservation system have always seemed quite understudied. The conditions on many reservations are comparable to the poorest of developing nations, despite being within the borders of the richest country on the planet, and yet it’s hard to find much good research on them. It’s easy to find journal articles about theories of economic development in Indonesia or Nigeria or what have you, but despite similar examples right in our own backyard we seem to have comparatively little research.

What I’m trying to say is, the reasons many reservations remain so poor seems criminally understudied, which is why I liked this paper. Even though it is primarily about the law, it lucidly demonstrates how the design of legal institutions can have powerful effects on economic incentives.

Indian law is notoriously complicated, because the Native American tribes exist in some legal superposition both inside and outside the jurisdiction of the United States Federal government. Tribes retain the sovereignty they possessed over their members before being incorporated into the United States, except when that conflicts with their status as “domestic dependant nations” or Federal law. As such, tribes are both foreign nations and wards of the federal government. As a body of law has developed around this curious status, it has led to the three perversities of the title, which are:

  1. Criminal jurisdiction
  2. Civil and regulatory jurisdiction
  3. Economic policy


  1. If a non-Indian commits a crime again an Indian on a reservation, jurisdiction lies only with the federal government. Why? The Supreme Court has decided that it would be unconstitutional to subject a citizen to the jurisdiction of a government to which they have not given, nor ever could give, consent. This means that tribal governments do not have complete sovereignty over their territory, only over their members.


  1.  This idea has been expanded beyond the criminal sphere, so that tribes don’t have sovereignty over commercial activities either. Beginning with Montana v United States in 1981, the Supreme Court began a rollback that has resulted in a shrinking of the jurisdictional boundaries for tribal governments in virtually every subsequent case. In essence, tribal governments have little to no ability to regulate any sort of activity from non-Indians on tribal lands, from the same logic as above.


  1. Finally, tax incentives and regulatory exemptions lead to strong preference for tribally (i.e. government) owned businesses, even over Indian owned private businesses.


Together, Levy argues these facts strongly favor, on the margin, less economic activity. Why?

Imagine an outside company is considering building a factory on the reservation lands. The tribal government would certainly consider this would bring in outsiders to the reservation, outsiders the tribe has no criminal jurisdiction over (and the federal government isn’t exactly chomping at the bit to enforce the laws on reservations, particularly in very rural areas). A lack of civil jurisdiction as well means they would have no ability to tax or regulate such activities. In general, then, we would expect they would tend to err on the side of caution and not allow the company to enter.

The terrible irony is that in a situation where economic development were to begin growing apace, the tribal government would be faced with the prospect of shrinking jurisdiction over the activity on its territory.  Additionally, there is considerable historical precedent for the shrinking of reservation boundaries once enough non-Indians had taken up residence. (Yes, the Federal government has essentially decided in instances that since so many non-Indians were living on particular land, it should no longer be considered as part of Indian territory.) On the margin, most governments don’t want to shrink their authority, and will avoid courses of action that would lead to such a situation. As Levy summarizes, “Tribes’ institutional incentives to discourage newcomers amounts to a disincentive for economic growth.” (p. 31)

Regarding the perversity of economic incentives, “The domination of reservation economies by firms owned by tribes has been occasionally remarked upon, but typically in connection with the ostensibly socialistic cultural inheritance of the tribes. I am agnostic as to the importance of that inheritance, but mean to point out that, regardless of cultural explanations, tribes have been left with strong legal and policy incentives to engage in government-led and government-owned development.” (p.41) These incentives include: tribally owned enterprises are exempt from federal corporate taxation (while private enterprises are not); non-Indians are exempt from tribal taxation; tribally owned enterprises have the potential for sovereign immunity.

It should not be shocking that government run enterprises tend to be less efficient than privately owned ones, particularly when there is no other economic activity as competition. Furthermore, the casino based economy that has come to dominate many tribal areas is not altogether different from finding oil or diamonds: a single, lucrative resource in a small area. As such, the ‘resource curse’ present in many developing countries is likely also a contributing factor to poor governance and more robust economic activity.

To conclude (and Levy puts it better than I ever could), “If the rule of law, private sector-led and broad-based economic development, and effective democratic institutions are worthwhile goals for reservations, they ought not to be set in conflict with one another.” (p.48) While Levy does not intend his argument to be a complete explanation of the generally poor conditions on reservations, it certainly serves as a useful point of inquiry for more serious research.


Our Kids are Coming Apart, Part II

What causes the heritability of socioeconomic status (SES), and thereby leads to inequality of opportunity? We need to understand the mechanism by which this occurs if we hope to devise a remedy.

From these authors, I see two ultimate spheres of explanation: 1) biological and 2) social. 1) can be further divided into 1a) genetic and 1b) developmental factors, and 2) as 2a) cultural and 2b) tribal factors.

1a) The base from which all other factors are built upon. We all begin as raw genetic material inherited from our parents. While not concretely determinative, our genes set our limits and predispositions.

1b) The actual implementation of the genetic blueprint. This is where the environment interacts with genes to produce the individual, and when when some portion of our potential is realized.

2a) Different cultures have different values. Some values are more or less amenable to success in different contexts. For example, the famous ‘Protestant work ethic’ is often invoked in explaining the success of Northern European cultures in the context of the rise of capitalism.

2b) Humans have innate desire to form in and out groups, often based on some sort of tribal identity. I use tribal in the loosest sense: Cubs fans are a tribe; Republicans are a tribe; Texans are a tribe. In a society we both identify with and are identified as belonging to a tribe (but these need not be the same). This area gets into deep questions of identity, but sufficient for now is the assumption that people tend to want to associate with others they identify as belong to their tribe.

Both Putnam and Murray stress the importance of sorting in the inheritance of SES, and I can’t see any scenarios of increased divergence play out without it.  What I’d like to do now is run through some quick monocausal explanations for inequality of opportunity through each of the four factors above (with sorting assumed), and then go into what these authors feel is most responsible. I should reiterate that this discussion is taking place in the context of the modern American economy. One hundred years ago, when much of the economy was still agriculturally based, we would be telling a very different story. For 1), the cognitive requirements of the information economy are paramount in success; for 2), they are less so.

1a) Cognitive ability is mostly determined through genes: on average smart people tend to pair up with other smart people and have smarter children.

1b) Cognitive ability is mostly determined by early childhood development: children exposed to poor environments will grow up to be less successful and unable to provide a good developmental environment for their own children.

2a) Regardless of cognitive ability, success is dependent upon possessing particular virtues. Children raised in cultures that don’t value ethics like industriousness and honesty will be less successful than those that do.

2b) Even if there is no meaningful difference between two groups of people, if one possesses the levers of power and the other does not, the tribal nature of humans leads to the group in power towards directing resources and opportunities away from the out group and to the in group.

I think Putnam (and most people in the center-left policy space) view 1b) as the primary culprit. Specifically, low income families are not able to provide such that children reach their full potential in early childhood (particularly with regards to cognitive ability), which has lifelong repercussions. Lacking the capability to perform cognitive tasks at the level of those who were raised in an environment of abundance, such individuals end up at the bottom of the income distribution, and the cycle continues.

Murray is interesting because he falls so far outside the usual discussion space. His primary culprits are 1a) and 2a). Put simply, he believes that cognitive ability is mostly genetic and there is a strong sorting mechanism via elite institutions (i.e. Ivy League schools). Since most people meet their partners in college, and elite institutions sort their members by cognitive ability, you have high ability people only mating only with other high ability people. Where 2a) comes into play is that Murray also thinks that certain values are critical for success and can even make up for a lack of cognitive ability, but those values (his four ‘Founding Virtues’) are currently lacking in the low SES culture (as to why that is he does not address in Coming Apart, but his other body of work suggests he believes the incentives of the welfare state are the culprit).

Next time I’ll get into what I find most convincing.

Belated Book Review: Our Kids are Coming Apart, Part I

What’s the Big Idea?

Class has become a, if not the, central determinant of life outcomes in the United States. This is in stark contrast to the situation fifty years ago, when life outcomes had a more egalitarian distribution. Furthermore, class appears to be heritable and the classes are increasingly separated from each other, resulting in a vicious circle. Most disturbingly, on many metrics even the worst outcomes among the offspring of the rich still outperform the best of the poor.

More Details, Please

Our Kids: The American Dream in Crisis is Robert Putnam’s contribution to the growing literature on the staggering class divides that have become apparent in the lives of Americans. A useful complement to this work is Charles Murray’s Coming Apart: The State of White America, 1960-2010, which hits many of the same points but from a rather different political viewpoint. (In fact, these two authors have appeared together at many events lately discussing these issues)..

Now, why does Murray’s book have that subtitle, the state of white America? Because what these lines of research are finding is that class has eclipsed race in determining life outcomes. Obviously, in the past being a racial minority was a significant obstacle in reaching success, which is not to say that race doesn’t matter anymore. But it does seem that on average, the fact of belonging to one race or another is no longer a determinant of class: class membership has become deracialized to a large extent. But the door swings both ways, and as a passage to a better life has opened up for minorities, the fact of being white is no longer a screen keeping one from falling too far in society.

What kind of life outcomes are we talking about? The square footage of your house? The size of your television? Unfortunately, we’re talking about things beyond material wealth (and thus harder to fix with simple tools like redistribution): employment, educational attainment, health, personal relationships, and so on. Basically, everything we tend to think of as important in a life is worse for you with low socioeconomic status. (A quick note: when talking about class, the terms upper and lower tend to be laden with value judgements. Instead, I’ll be using the term socioeconomic status (SES), which can be thought of as a vector of the aforementioned qualities. SES is not a smooth continuum: there are peaks and valleys that have to be navigated to move across the scale, and many of the different categories of life outcomes are correlated, which leads to clustering. This makes it reasonable to speak of low and high SES as analogous to lower and upper class.) Broadly speaking, persons with low SES don’t get married, have children with multiple partners, don’t go to church or engage in community activities, have few close friends, are more likely to be unemployed, have higher rates of obesity, and live in high crime environments with poor schools.  

Society always has some who do better than others, and Americans have always been comfortable with some level of inequality. And it need not be the case that inequality of income and wealth inevitably lead to an inequality of opportunity; after all, for a time at least, this was more or less true in the United States. Hence, a growing distinction between classes, while worrisome in many aspects, doesn’t inherently signal that there is something fundamentally broken about society. Indeed, some could (and do) view such a thing as a good source of motivation; if the life of the poor is getting worse, all the more incentive for a younger generation to try harder to make sure they don’t end up like that.

But the research strongly suggests that this is wrong. While there is disagreement on the mechanism, what the research of Putnam and Murray shows is that class is increasingly heritable. If your parents were poor, you are far more likely to end up poor and subject to all the negative life outcomes detailed above, and vice versa. This strikes at the very heart of the notion of equality of opportunity, and suggests that inequality of wealth is in fact intimately tied up with inequality of opportunity.

In the next installment I’ll delve into theories on the cause of this phenomenon.