Saturday, December 31, 2011

We Won An Award!

. Saturday, December 31, 2011
3 comments

Well, not "we". Thomas did. And not an "award" per se, in that there's no cash or statue or anything. But Thomas was just given a prestigious "Albie", named in memory of the great Albert Hirschman (whether A. H. would approve or not), by Dan Drezner, for his article "The Reductionist Gamble". In Drezner's words:

The Albies are awarded to the best writing in global political economy for the past calendar year. The writing can be in a book, journal article, think tank report, or blog post -- the key is that the article makes you reconsider the way the world works.
Thomas's article was listed second in the "no particular order" list, but it was the only article published in a top academic journal on his list -- there was a think tank paper and a UP book as well -- so in terms of importance for the discipline of IPE it in some sense stands alone. Last year, I believe, no academic IPE pieces made Drezner's list.

In my opinion this article should be on every IPE syllabus from the advanced undergrad level on up.

The link Drezner provided to the article is gated; an ungated pdf is here. The logical extension of that article is to forge a new IPE paradigm. Or, as I believe, to try to re-unify the open economy politics paradigm with the "complex interdependence" focus from IPE's early days, using more rigorous empirical tools. I think that's the track that Thomas is currently pursuing in his work, and it's the primary epistemological motivation for my dissertation as well.

So, congrats Thomas!

Thursday, December 29, 2011

There Is No Such Thing As a Free Market

. Thursday, December 29, 2011
2 comments

Matt Yglesias starts with a cute little point about trade politics -- the Marvel corporation has defined the X-Men as mutants rather than humans so as to exploit the difference in tariffs between human dolls and non-human "toys" -- but then, I think, misses an opportunity to explain something more significant about how the world works:

It's remarkable, incidentally, the extent to which the politics of "trade deals" have gotten away from the fundamental issues of free trade as seen in an economics textbook. What we have here is a federal 12% sales tax on dolls, but only if the dolls are made in foreign countries, and a different -- arbitrarily lower -- 6.8% federal sales tax on toys, but again only if the toys are made in foreign countries. There's no good reason to have special higher sales taxes on toys made in foreign countries, and there's certainly no good reason to tax dolls and non-doll toys at different rates. It's nuts and it could and should be addressed by a unilateral acts of congress. The amount of revenue that would be lost to the federal government by repealing these taxes would be tiny, and it's trivial to think of better ways to raise the money. And yet this core -- and quite simple -- trade policy issue is a world away from the incredible complexity of the trade deals of the past decade.
This goes back to what I was driving at in my old post arguing that "The Problem with Economics Is the Economists". The standard welfare case for trade assumes that through specialization in comparative advantage each country can consume more via trade than they can via autarky. That's where economics stops, unless they go on to mutter about something about "distributional consequences blah blah politics blah". In other words, economics books don't spend much time noticing that those employed in the sector/factor that does not have a comparative advantage all get put out of business.

In reality the distributional consequences drive everything. The length and specificity of trade agreements is mind-boggling. The "schedules" of tariffs from the last completed WTO negotiating round (the Uruguay round) is over 30,000 pages, and it's full of thousands of cases like the dolls/toys distinction Yglesias is describing. Each one has a highly-motivated domestic interest group behind it, who will fight to keep in each and every provision that benefits them even tangentially. As there is generally no countervailing force, Congress will listen to whoever is talking to them.

The reason why Congress does not, and will not, step in to change these rules is because there is no political reason why they should. Maybe it's "nuts" and maybe it isn't, but there is some group in this country for whom each of the rules represents the difference between profit and loss. For example, if Marvel can sell X-Men as "toys" rather than "dolls", then they get an immediate competitive advantage over DC Comics, who has to factor in the higher tariff rate when it produces Batman dolls. So Marvel will lobby Congress not to change the tariff schedule. Because, as Yglesias notes, the issue is really pretty trivial for almost everyone in the country (except for Marvel) the likelihood of it being changed is pretty low.

Issues which are generally of very high salience to a small group and low salience to a larger group are high susceptible to capture by the small group. There's a ton of political economy research developing this point (Mancur Olson made a prominent career out of it), but it doesn't seem to have captured the public's mind. Or the mind of many economists.

Here is what it means: there is no such thing as a free market, anywhere or in anything. The reason why is because of politics. To the extent that economics ignores this, economics is irrelevant.

Wednesday, December 28, 2011

Who Wants to Be a President?

. Wednesday, December 28, 2011
0 comments

Never heard of this happening before:
Moldova risks a prolonged political stalemate that may further slow down reforms in one of Europe's poorest nations as the only candidate for president said on Wednesday he was pulling out of this month's election.  
The withdrawal of parliament speaker Marian Lupu means the presidential election, which takes place in parliament rather than by popular vote, might be delayed if no other candidate steps in. The vote is currently scheduled for January 15.  
Ex-Soviet Moldova has been without a president for over two years as no group in parliament has been able to muster the necessary 61 votes out of 101.
I know nearly nothing about Moldova so I have no idea what's motivating this. The article suggests that the Parliament is sufficiently fractured that no candidate will get 61 votes, and if a candidate fails to do so then the Parliament is dissolved and a new special election is held. Right now Lupu is acting president, so not running for president might actually mean that he can remain president longer than he otherwise would. Interesting.

Tuesday, December 20, 2011

Political Survival in Syria

. Tuesday, December 20, 2011
0 comments

I've got my issues with selectorate theory, but I think this take from BdM & Smith on Assad is pretty right.

The IMF Isn't Technocratic Either

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1 comments

The title of a recent post at The New Republic is "How the IMF Got It's Keynesian Groove Back". I don't want to pick on author, Jared Vary, too much as he appears to be an intern at TNR, but I see this line of reasoning proffered from more credentialed folks all the time and it drives me crazy. It basically goes like this: originally, the IMF was a fairly kind, generous, technocratic "Keynesian" institution, which was corrupted over time by a "Chicago school" ideology that made crises worse rather than better by insisting on harsh austerity. After the IMF botched up 1990s crises, they started to return to their postwar Keynesian roots.

This type of narrative relies on a view of the IMF that is, I think, inherently flawed. IMF actions have varied along with the geopolitical issues of the time. More specifically, it has always taken actions that the major Western powers, particularly the U.S., wanted. (The U.S. is the only single country with an effective veto, since it has always controlled over 15% of the voting rights and actions must be approved with an 85% majority.) These preferences were not consistent across countries or time, and there is no reason to expect that they would be. During the Bretton Woods period, the IMF was used to used to balance the fixed exchange rate system that embedded the U.S. at the center of the international economic system. In the 1970s and 1980s, the IMF was used as a sort of bailout device for commercial banks in the U.S. and Europe, which owned too much emerging market debt. Harsh conditionality was tied to these loans because the purpose of them was to help the banks, not the indebted countries. In the 1990s the IMF behaved differently depending on the geopolitical context. Loans to countries undergoing post-communist traditions had fewer conditionalities attached to them than loans to East Asian countries or the Latin American countries in the 1980s.

The above paragraph draws from a fairly long string of research on these questions. While the ideational view has some support from folks like Chwieroth, materialist explanations of the IMF's behavior are more prevalent in the literature. Strom Thacker wrote about the "high politics" of IMF lending, and showed how countries that "move toward the political space of the U.S." -- for example by voting with the U.S. in the U.N. -- have a greater chance of receiving loans. Oatley and Yackee extend this further, showing that countries with a lot of indebtedness to U.S. financial firms receive larger IMF loans, as do countries that are allied with the U.S. Randall Stone finds that conditionality is enforced less on countries that are important to the U.S., and can offer the U.S. something valuable in return. Finally, Grigore Pop-Eleches argues that the size of IMF loans and type of conditionalities attached to them varies according to geopolitical, rather than economic, concerns. Indebted Latin American countries in the 1980s had more strings attached than transitioning Eastern European countries, because the major Western powers had an interest in a smooth transition away from communism towards capitalism, and towards greater integration of the European continent.

The point of all of this is to say keep reiterating that there is no technocracy. Institutions like the IMF are inherently political, and act accordingly. The constituent members of these institutions are also political, and will use the institution to suit their ends when they are capable of doing so. Often this will involve issue-linkages and quid pro quo arrangements, so it may not always be transparent, but that doesn't mean it isn't happening.

Update: See also this previous post from Thomas.

Monday, December 19, 2011

Hitchens and Iraq

. Monday, December 19, 2011
5 comments

Two events this week -- the withdrawal of U.S. troops from Iraq and the death of Christopher Hitchens -- have brought to mind something that has always bothered me in conversations about the Iraq war: the fact that the "pro-war" side is often made to answer for the crimes of the other side. In the case of Hitchens, a general criticism is that he never changed his mind on Iraq despite the fact that hundreds of thousands of Iraqi civilians were killed, maimed, or forced to flee the country. Quite often he is accused of having blood on his hands. Here's one good example.

There are, in my mind, two possible answers to this. The first is to turn the logic on its head. If it is true that removing Hussein from power unleashed a "quagmire" in Iraq that could only be resolved when the power vacuum had been filled, then this was inevitable. Hussein was not going to live forever, and there would likely have been a protracted power struggle involving mass amounts of civilians deaths whenever he passed on. In which case the presence of large numbers of American troops may have had something of a pacifying effect; as bad as Iraq was, it wasn't Rwanda or Sudan. It may be true that the presence of foreign occupiers was what was driving the violence, but there are good reasons to think that that is not the case. There were different strong factions within the country, from the Kurds to the Sadrists to the Baathists and others, with fundamentally different interests and a strong desire to control the mechanism of the state to improve their own standing. There were a number of regional powers that would have been happy to encourage violence and instability in Iraq both as a method of proxy warfare and to prevent a strong Iraq from materializing and threatening their interests in the future. It simply is not clear that there was any realistic counterfactual scenario in which there was not large-scale bloodshed in Iraq.

And could you imagine how Hussein would have responded to an Arab Spring in his country?

The second is to flip the logic entirely. The groups most responsible for the violence in Iraq are the groups that Hitchens wanted to fight. The people Hitchens wanted to defend from these groups were the civilians being victimized by them. The level of violence that occurred in Iraq following the invasion can thus taken as vindication for Hitchens: these groups will use violence against civilians or governments whenever it is tactically advantageous to do so, and therefore they should be obliterated. Carrying that out will have costs, but failing to do so will have even greater costs, and for a longer period of time.

Many of the other criticisms of Hitchens' support for the war -- "blood for oil", "imperialism", your typical warmed-over '60s Marxist rhetoric -- have also turned out to be vapid. (Although I do recall Hitchens making the argument that if we were going to fight for any materialist reason, securing the supplies of energy that fuel the global economy was a pretty good one.) And as Nick Cohen once wrote of anti-war protests in London, it was pretty odd to see a bunch of leftists marching in opposition of a war against a fascist regime. It is true that the Bush administration made many excruciating mistakes, such as not getting the electricity back on quickly, or protecting the National Museum. Probably the biggest one was appoint Bremer as Viceroy, and then letting him screw up everything he possibly could. But these were actually less inevitable than the counterfactual that the internal politics of Iraq would have remained peaceful in the absence of invasion. And now there is some real hope that a stable state that is responsive to its citizens will emerge. That would have been exceptionally unlikely in any other state of the world.

Perhaps these reasons are not sufficient for supporting the war in retrospect. But too many people are too glib about it now. It's not enough to simply say it was a "mistake" and let it go at that.


Sunday, December 18, 2011

(Do Not) RIP, Kim Jong Il

. Sunday, December 18, 2011
0 comments



And another one. Be interesting to see how this plays out.

(Video above has some strong language.)

Update: Havel on Kim Jon Il, from 2004. (Via half of Twitter.)

RIP, Vaclav Havel

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0 comments

He was one of my favorite figures of the 20th century. His advice to dissidents living under oppression was to live as if you were free. His essay "The Power of the Powerless" is a landmark achievement in 20th century normative political thought. Here is one good brief remembrance.

It is perhaps fitting that he died in such proximity to Christopher Hitchens, who was one of Havel's biggest fans. The two were acquainted I believe, and both belonged to what now appears to be the only revolutionary opposition movement to have truly emerged from 20th century geopolitics: an opposition to socialist totalitarianism. To that end they were on the same side in the Balkans and in Iraq. Hitchens appreciated Havel for his literary ability -- and not just Havel; Hitchens once wrote that he most admired Obama for his book about his father -- and his understanding of how language is itself political.

It is a shame that Hitchens was not able to write an appreciation of Havel. (Just as it is a shame that he will not be able to write the obituaries of folks like Kissinger and Ratzinger.) But there are plenty of others. Havel's life was well-lived.

RIP.

Update: Drezner has a good post on Havel and Hitchens.

Friday, December 16, 2011

RIP, Christopher Hitchens

. Friday, December 16, 2011
0 comments

Tuesday, December 13, 2011

There Is No Technocracy QOTD

. Tuesday, December 13, 2011
0 comments

From Daniel Davies, talking about the new EU deal:

The ‘technocrats’ (which is apparently what they want to be called, although frankly I am seeing a lot of ideology and not much technical ability) want to reorganise the whole of Europe on neoliberal lines.

Monday, December 12, 2011

Insta-Classic

. Monday, December 12, 2011
0 comments

Andrew Gelman:

If some dude scratched my car, I wouldn’t be so quick to jump to the conclusion that he’s a rapist.
But would you think he was an atheist?

Context.

Apologies for the light posting. Hopefully we'll be back to normal soon.

Wednesday, December 7, 2011

Arbitrage Opportunity of the Day

. Wednesday, December 7, 2011
0 comments

Tyler Cowen points to a discussion of the possibility of physicists discovering the Higgs Boson Particle, and notes that InTrade has the odds of discovery prior to Jan. 1, 2014 as 88%. Which is true. But InTrade also has the odds of discovery prior to Jan. 1, 2015 as 60%. (The market for discovery prior to Jan. 1, 2016 appears to not be trading.) This makes no sense. It's illegal for folks in the U.S. to use sites like InTrade, but readers in foreign countries have a chance to make some money.

Tuesday, December 6, 2011

(There Can Be No) Flight to Safety Uh-Oh GOTD

. Tuesday, December 6, 2011
0 comments



Yikes. Clear here for bigger image. Discussion here, including this:
Historically, a Triffin Dilemma — and that’s kinda what this is — leads to funky innovations in the shadow banking system and all the complications that such innovations bring. Will the whispers of new kinds of financial alchemy get louder?

You can see in the chart that before the crisis, US Treasuries were an important but minority amount of the world’s stock of safe haven assets. Treasuries are now the vast majority of such assets. But this is because of the extraordinary decline in the other kinds of assets and because of quantitative easing by the Fed, not because the outstanding stock of Treasuries has increased by so much.
Perhaps the outstanding stock of Treasuries should increase.

Via Counterparties.

Friday, December 2, 2011

sdjfhklsdfjhslkhdks

. Friday, December 2, 2011
3 comments

3QuarksDaily is hosting a contest for best blog writing in politics and social sciences, to be judged by Stephen Walt. Nominations are open until end-of-day on December 3. In a characteristic fit of pugnaciousness, I'm very tempted to self-nominate one my posts blasting Walt. Like this one. Or this one. Or this one. Of course, we've run many other very good posts here that have nothing to do with Walt, and it'd be an honor if you kind folks nominated us for consideration.

Thursday, December 1, 2011

The Arab Spring and the Global Economy, or, The Geopolitics of NGDP Targeting

. Thursday, December 1, 2011
0 comments

Matt Yglesias has a post on the difficulties with getting Egypt's economy going post-revolution:

To give a broad overview of Egypt's problems, the countries of the developing world are now falling into roughly three groups. First, you have India and China who are driving global economic growth and whose rising middle classes and need for production inputs are increasing global demand for all kinds of primary commodities. Second, you have countries -- including much of Africa and Latin America -- who are growing rapidly by exporting primary commodities at new higher prices. Third, you have countries that aren't commodity exporters and that are growing slower than China/India so average people's incomes can't keep up with rising commodity prices. ...

The self-sufficiency stuff indicates that Freedom and Justice has correctly identified Egypt's main problem as increasingly unfavorable terms of trade in a resource-constrained world. But is self-sufficiency a realistic strategy? It might be if Egypt's food gap is caused by decades of corrupt mismanagement leading to devastatingly low agricultural yields. But on a per hectare basis, Egypt's cereal farming is already extraordinarily productive.

Egypt's problem, obviously, is that the country is mostly a giant desert. Giant desert + long narrow strip of incredibly fertile land = cradle of civilization, but it's not a great long-term growth strategy.
This reminded me to write a post that I've been intending to put down for awhile, and that concerns the dilemma facing small open economies that import a lot of basic necessities. Put simply, it runs like this: there remains no viable development model that does not involve somewhat-open engagement with the global economy. This is a new phenomenon in global economic history. In prior periods you could expand growth by expanding your empire. Post-WWII, overt imperialism of the sort that dominated geopolitics before became impossible. Developing countries, many of which were former colonies, believed that their terms of trade were disadvantageous from the perspective of development, so they tried policies that protected local producers from the global market. This generally failed pretty much everywhere it was tried, and the countries that shifted from import-substituting industrialization towards export-led industrialization performed very well in the last half of the twentieth century.

But these countries generally had political systems that rewarded development. Many of them were democratic, or if they were autocratic the rulers were at least dedicated to development and felt that their political futures were tied to increased economic growth. Kleptocratic autocracies, on the other hand, actually had incentives to not develop. Instead, political survival was dependent on maintaining elite support, which was more easily done by distributing rents. So these countries didn't develop, and their terms of trade didn't improve, even if their economies were relatively open.

What happens when you are a small open economy? You are susceptible to movements in global asset prices. What drives global asset prices? A number of things, but one of them is movements in the global monetary system. What institution has the greatest effect on movements in the global monetary system? The U.S. Federal Reserve. So if you are a small open economy, what the Fed does has an impact on your real standards of living. What has the Fed been doing?


Here's a timeline of Fed actions during the crisis. That fist tick up is related to the Fed's first round of quantitative easing, which began in January, 2009. The second round of quantitative easing was announced on November 3, 2010, but had been expected for some time (from at least October 1, when NY Fed President Dudley called for QE2). Commodity prices spiked again, and the Arab Spring began literally a few months after.

In other words, there's a fairly strong case to be made that nominal GDP (NGDP) targeting -- backed by large purchases of financial assets by the Fed -- of the sort favored by Scott Sumner and other "market monetarists" (or whatever they're being called) has the potential to export instability to the rest of the world. This isn't just economic instability; it can lead to political instability. In Libya, it could have led to mass slaughter or even genocide and eventually necessitated U.S./NATO military intervention. Thinking in these terms offers a different perspective than other accounts of the role of the Fed, but also of the revolutions in the Middle East and North Africa. Here are just a few important potential implications:

1. This can help us explain why the Arab Spring happened when it did. Mubarak, Ghadafi, and other Arab autocrats had been in power for decades... why did the revolutions all happen at the same time?  Why now? Many have focused on path dependence and contagion effects, but there's another answer: there was a huge external shock to their political economies, which originated with Fed actions.

2. This should give us some pause when advocating for policies that will boost U.S. demand in the short run. The out-sized influence of the U.S. on the global economy, particularly in the realm of the monetary system, means that any decision we make will have far-reaching ripple effects. We could find ourselves in an environment where the political dynamics in the U.S. provide incentives for policymakers to goose the U.S. economy, which then in turn sends other parts of the world reeling. The Federal Reserve should keep this in mind, as should pundits and others who call for rapid extreme easing until NGDP growth returns to trend. To a large extent, the U.S. Fed controls the global monetary system, particularly for small, open, developing, resource-dependent economies. It can use that power for good or ill. It needs to be aware of the effects of its actions.

3. Academics and pundits must stop thinking in a closed-economy context when we live in an open-economy world. We can't only consider the impact of policy choices within the U.S., since what happens in the U.S. drives what happens everywhere else.

(Note: I was first made away of this line of thinking by another IPE scholar, who has been working on a more rigorous analysis. If I hear any more about that I'll pass it along.)

International Political Economy at the University of North Carolina: December 2011
 

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