Tree Don't Care What A Little Bird Sings

I have not read much of Robert Fogel's work, not much at all, but I may need to read more of it. A Fine Theorem, one of the more under-appreciated blogs, has a summary of Fogel's Without Consent or Contract. Here's part of it:

... the paradox rests on the widely held assumption that technological efficiency is inherently good. It is this beguiling assumption that is false and, when applied to [American] slavery, insidious.”  

Roughly, it was political change alone, not economic change, which could have led to the end of slavery in America. The plantation system was, in fact, a fairly efficient system in the economic sense, and was not in danger of petering out on its own accord.

Here's the rest.

There are multiple views of the politics of technology. (Technology is, at its core, information aggregation.) One says that technology is liberating. Another says that technology is enslaving. Another says that technology is fueled by the state for purposes of control. (Oddly, skeptics of markets often make the first point of that point without understanding that the second point is the corollary.) Technology can destabilize the political equilibrium (but does that only apply if it goes in one direction? I doubt it). It's worth googling a bit for the views of Farrell, Drezner, and Lynch on this. It's worth noting that modern authoritarian regimes try to get to the technological frontier as rapidly as possible but they tend to have a tough time managing it. Francis Spufford's Red Plenty is on sale at Amazon right now, if you don't mind probably giving some of your metadata to the NSA.

Sarah Jaffe (on Twitter) asked for a political economy of the surveillance state. (Here's a short take, not very good.) I haven't got the time or background knowledge to build a real model, but if I was going to I'd start with Tilly and Scott and Weber at the foundation and ask what purpose this really serves. Knowledge is power, is it not? Power is needed for protection (in the Tillian sense), is it not? After that I'd go to Orwell like everyone already is, but not the dystopian cliches. Remember in 1984 that Winston Smith was pretty much the only one in society bothered by Big Brother. (Probably not, if you've read your Timur Kuran, but as far as Smith could tell he nearly enough was.) Everybody else just got on with it. The proles sang their songs and read their magazines. Sure, Julia was a bit inconvenienced by the whole thing, but it's not like she really had principles.

Now think about Havel. Now think about samizdat. Is information so easily controllable? Can the state not oppress on the basis of allegation, innuendo, or missing data? Can the citizenry not resist simply by living? Does the state need all information to "keep the locals in line" or just a vague threat -- the vaguer the better? Corey Robin addresses this and gives a precis of his book on the politics of fear. Stalin didn't have Bukharin's metadata... just the ability to credibly say "we know where your kids are". That hasn't changed. Yglesias is right: the biggest thing to fear from the surveillance state isn't the state, per se. But that's a micro story, and micro stories can dictate macro policies.

The U.S. public is not concerned about this. To the extent they are it's for partisan reasons, not out of principle. Note that this is not new. Note that, so far, it appears that these programs are legal at least in broad terms. Intellectuals are more concerned that the median pollee, as they should be, since they are much more likely to be targeted than a randomly-selected person. (If I was Glenn Greenwald I'd go back to snail mail and pay phones for a good long while.) But so? Democratic politics does not guarantee puppies and roses. As we debate whether or not this is constitutional we should remember that James Buchanon's insights do not only apply to economic policy. We should also remember that politicians and celebrities have been subject to heavier levels of scrutiny than this for as long as there has been human society.

Data, even metadata, can be used for ill. (Or good, as the case may be, since the 21st century version of Paul Revere is probably someone Healy wouldn't meet for a beer at Ye Olde Tavern. Possibly this isn't what Healy's driving at.) But let's not get carried away. The U.S. government is sophisticated in many ways, but this program has only $20mn in funding. Let's say they spend $5mn of that on high-powered computers (that's probably less than what the supercomputer I ran a bunch of my dissertation on cost), and the rest on twenty-somethings making $200k/year each (as Snowden apparently did). That's 75 guys trying to make sense of the 2.5 quintillion bytes of data created each day. Good luck with that. (No I don't believe only $20mn was funneled into this. Not for a moment do I believe that. But I'm not sure how much $20bn could really do absent some good old fashioned police work.)

So after you've read the Spufford (or even before) you might want to read some of the discussion at Crooked Timber on the book. See especially this wonderclass by Shalizi which has as much to say about social science theory and methods as it does about historical political systems or the contemporary political economy of the surveillance state or novels. The key question is Shalizi's first one: what is being optimized?

Then recall that Hayek's slippery slope is a logical fallacy to which the historical record is not kind. Should we be less concerned? Probably depends on how concerned you were in the first place... anonymity is a myth.

Remember too that the government oppresses and kills and makes terrible decisions when it doesn't have good intelligence. Given that, is the expected utility of (American or other) society better or worse with PRISM or without it? Apparently this program stopped one or more attacks at the London Olympics. What would the cost of those attacks have been? Was preventing them worth $20mn dollars plus some false positives? (The TSA spends $6.5 billion a year and probably gets almost nothing for it.) Could PRISM have stopped Nidal Hasan had it been better-implemented? If it could have, would it be worth it? We are quite literally behind the veil of ignorance at the moment (just a bit less in the wake of Snowden's leaks), but if we take engaged citzenry to be a desirable normative end in itself we need to put our Bayesian caps on now and start updating our priors.

What tail event has a greater probability: that this program is abused in such a way that it devastates liberal society, or that it prevents a significant attack the fallout from which would devastate the same society?

In the end the biggest repercussions of NSA spying might be felt in the US-EU trade negotiations.

Nevertheless, I oppose PRISM and related programs very strongly. I do so because I am not risk-averse.

I believe this is the most Cowen-esque thing I've ever written. I also believe that every link in this post is worth clicking on.

There. Is. No. Technocracy. Dammit.

Felix Salmon is one of my favorite journalists, but he routinely makes a common error: forgetting that there is such a thing as politics. Take this reflection on Tim Geithner in which Salmon wonders what made the former Treasury Secretary "change his mind" on how to deal with financial crises:

[T]he most obvious case in which Geithner has done a complete U-turn from his former views is that of Indonesia. The great Australian financial journalist Peter Hartcher explained this very well back in 2009, when Geithner took over as Treasury secretary. He quoted former Australian president Paul Keating explaining in a nutshell exactly what Geithner did wrong: “Tim Geithner was the Treasury line officer who wrote the IMF program for Indonesia in 1997-98, which was to apply current account solutions to a capital account crisis.” With hindsight, Geithner did the exact opposite of what he is now prescribing in the event of a crisis... 

Indonesia in 1998 had a problem not dissimilar to what we saw in the US 20 years later: a sudden credit crunch afflicting a country whose government finances were fundamentally sound. Geithner’s solution, now, is for the government to “be very aggressive” spending money, and for the central bank to provide its own monetary support, all in the service of “compensating for the huge collapse in private sector demand”. But that’s not what he thought in 1998, when he forced the Indonesian government to cut spending and raise interest rates — precipitating a recession much larger than anything the US saw during the financial crisis.

Now that Geithner is going to write a book, I very much hope he goes as far back as Indonesia, and covers his two-year tenure at the IMF as well, rather than glossing over those episodes on the way to the juicy stuff about the more recent crisis. For one thing, it will be fascinating to see when and how his mind changed on such issues. And for another thing, it’s conceivable that the book might shed light on the how this consummate career government technocrat thinks — and thereby shed light on much of the system of global governance.

This type of commentary bothers me because it is so common (which is why I keep harping on it). Isn't it possible, just possible, that an American public official might respond to a crisis in the United States differently than to a crisis in Indonesia for political reasons? Isn't it possible, just possible, that the reason why the IMF pushed Asian (and Latin American) countries into austerity in exchange for emergency finance is because the IMF's creditors cared more about getting their money back than about finding the most optimal solution to the problem? Isn't it possible, just possible, that an American central banker or Treasury Secretary might care more about American interests (and interest groups) than those of, say, Thailand? Of course those things are possible. So why doesn't Salmon mention them as a possibility?

There is quite a lot of political economy research on the IMF. None of it concludes that it is an impartial technocratic institution. It is involved in power politics, generally in ways which benefit US interests. It lends in a way that benefits the American financial sector. It trades lax conditionality for UN votes on the Security Council and in the General Assembly. It adjusts conditionality requirements based on the recipient's geopolitical importance, and enforces conditionality more or less strictly based on a country's ties to major powers. This is but a small sampling of the literature demonstrating that the IMF is a political, and politicized, institution. It acts in the interests of the major stakeholders in the major powers, especially the United States (which is the only country which possesses an effective veto on IMF funding decisions). The IMF is not on a relentless pursuit for the Most Optimal Policy as determined by the economists' imagined technocratic Benevolent Social Planner. (Needless to say, the US Treasury Department and Federal Reserve are even more political.)

In other words, when parsing Geithner's career we do not need to make an assumption that he has been on a quest to find technocratic nirvana. We don't have to assume that he's had a Road to Damascus moment which caused him to change his mind on key issues. All we have to note is that an American policymaker, when faced with very different crises in very different countries with very different levels of geopolitical importance reacted... very differently. That makes sense! That is what we should expect from an interested government official.

Does Social Science Deserve Public Funding?

John Sides notes that the Congressional Republicans have resumed their attack on federal funding of social science. Here's Eric Cantor, as quoted by Sides:

There is an appropriate and necessary role for the federal government to ensure funding for basic medical research. Doing all we can to facilitate medical breakthroughs for people … should be a priority. We can and must do better. 

This includes cutting unnecessary red tape in order to speed up the availability of life saving drugs and treatments and reprioritizing existing federal research spending. Funds currently spent by the government on social science – including on politics of all things – would be better spent helping find cures to diseases.

Cantor's argument is not that social science has no merit; it is that other policy goals should have priority. This is possibly wrong, but it is not unreasonable on its face. When development organizations start programs in less developed countries they do not fund social science. They fund health care, infrastructure, and basic education. This suggests that publicly-funded social science is, to some extent at least, a luxury good. The US government obviously does not face the same budget constraint as say Liberia, but at some margin there is a tradeoff between funding program A and funding program B. If 'A' is medical research and 'B' is social science research, it might make sense to prioritize the medical research.

Many people believe that the US is not spending nearly enough on infrastructure, health care for all, education, alternative energy programs, public transportation systems, and biomedical research. Or foreign aid, for that matter. Indeed, social scientists frequently make these claims. Cantor has laid down a challenge: can the social sciences demonstrate that their work is a better investment than research into new medical procedures, alternative energy sources, infrastructure upgrades, etc.? Can the social sciences demonstrate that money spent on their programs is worth more to society than whatever the next-best option is? More technically, Cantor is asking us to think about the relative opportunity costs given actual budget constraints.

This is an opportunity for the social sciences to demonstrate their value by making a clear, coherent argument. Simply pointing to research on topics of possible public interest (as Sides does) is not enough... it must be accompanied by an argument that that research is more deserving of public funding than something else. So far I have not seen such an argument made. I have seen social scientists act like any other interest group: they want public spending on programs that benefit them because those programs benefit them. There's nothing wrong with that, but it's a bit distasteful to equate common rent-seeking behavior with a broad public interest. If the social sciences deserve public funding they ought to be able to make the case on its merits. In a way, Cantor is challenging us to think like civically-minded social scientists.

Sides concludes his post:

The broader point is that Cantor’s goal, curing disease and saving lives, can be better accomplished by including social and political science alongside the “hard” sciences and medicine.

Maybe that's true (I'm not being sarcastic here), but it is indisputable that we cannot cure diseases without medicine. However, we can administer medicine without studies showing how we have previously administered medicine, however useful those might be. (If that wasn't the case we social scientists would have no cases to study!) If the efficiency gains and complementarity effects from combining research in the social and physical sciences are sufficiently high that they out-weigh the costs, then we ought to be able to demonstrate that fact using the tools of social science. In other words, it is incumbent upon social scientists -- not congressional representatives -- to demonstrate their value to society. The question is whether we can do it.

UPDATE: John Sides has responded with a good post. I don't disagree with much of; maybe not any of it. But also see my comment.

James Buchanan, RIP

I met him only once, briefly, and it was this past summer. He was clearly diminished, but still remarkably sharp for a man in his 90s.

Buchanan's influence will be felt by those who study constitutional economics, law and economics, and theories of logrolling. My sense is that outside of those areas his (direct) influence has slipped in recent decades, although that impression may be incorrect. In any case, he helped resurrect political economy as a field of study distinct from welfare economics. I do a very different sort of political economy from him, and yet I am in his debt. Early neoliberal institutionalists in IPE built some of their work off of his foundation, see e.g. this 1982 article by Keohane which laid the groundwork for After Hegemony, and which cites Buchanan alongside Coase.

Here is his Wikipedia page. Here is his Google Scholar page. Here is his 1986 Nobel Memorial Prize lecture, which concludes with the question which motivated Buchanan's entire career:

How can we live together in peace, prosperity, and harmony, while retaining our liberties as autonomous individuals who can, and must, create our own values?

On Keynes, Marx, Krugman, Cowen, and the Possibility of Utopia Via Inequality

At the end of a good post on the shift of income shares earned by capital (more) and labor (less) in the US over the past few decades, Krugman writes:

I think we’d better start paying attention to those implications.

What implications?

[I]t makes nonsense of just about all the conventional wisdom on reducing inequality. Better education won’t do much to reduce inequality if the big rewards simply go to those with the most assets. Creating an “opportunity society”, or whatever it is the likes of Paul Ryan etc. are selling this week, won’t do much if the most important asset you can have in life is, well, lots of assets inherited from your parents. And so on.  

I think our eyes have been averted from the capital/labor dimension of inequality, for several reasons. It didn’t seem crucial back in the 1990s, and not enough people (me included!) have looked up to notice that things have changed. It has echoes of old-fashioned Marxism — which shouldn’t be a reason to ignore facts, but too often is. And it has really uncomfortable implications.

As it happens, I've been writing about this for quite some time. It was the focal point of my criticism of Tyler Cowen's "Great Stagnation" hypothesis (e.g. 1, 2, 3, and others), which I said was a "Great Redistribution". Basically the question I'd like to answer is why mean and median incomes have diverged, as pictured in the graph above. A "Great Stagnation" hypothesis seeks only to explain the flattening of median income growth. But we haven't had a Great Stagnation, since mean income growth has continued, at least until the Great Recession.

A Great Redistribution view, on the other hand, says that the structure of the global economy has changed over the past 40 years in ways that benefit (US) capital and hurt most of (US) labor. Specifically, the rise of a low-skill labor force in the former global South has competed away wage gains from low-skill American workers, while the rise of a medium-skill industrialized labor force in places like the NICs has competed away wage gains from medium-skill American workers. Additionally, the rise of mechanized labor (via robotics, which prompted Krugman's post) shifts income from labor to capital. Take a look at this chart:

Wages are converging globally, and since the US had disproportionately high wages this is hurting American labor in relative terms. At the same time, the global market has expanded dramatically. This increases the return to high-skill American labor as well as the owners of capital, who can now sell their production to much larger markets. This is particularly the case for goods and services which are reproducible at essentially zero marginal cost: think intellectual property and entertainment. Since the "high skill labor" and "owners of capital" groups are not mutually exclusive, this shows up in the data as both a) increasing wage inequality, and b) increasing returns to capital.

This is the simplest story in the world... basically just stating comparative advantage, at a mix of sectoral and factoral levels. The fact that it's so novel -- even to someone with a Nobel Prize in international macroeconomics! -- is a point of evidence that our intellectual class is way too focused on explaining everything locally. The Great Redistribution view has plenty of implications for political economy at global and local levels, but it is essentially a rejection of many public choice arguments, which tend to emphasize capture of political institutions by bankers or other oligarchs as the fundamental driving force in recent trends in the American economy.

I'm not sure what Krugman means by "uncomfortable implications". It could mean that the fact that the economy is working the way the way it's supposed to is an inconvenient truth for those who think that our political economy is being wrecked by those who prefer public choice explanations. But I doubt Krugman means that. It could mean that the "Golden Age" of American labor that Krugman loves so much -- the 1950s-1960s -- was a historical anomaly, the result of specific contingent circumstances that are not likely to be replicated ever again (and would be tragic if they were, given that that arose because of two devastating world wars and a Great Depression). But I doubt Krugman means that either. It could mean that the technocratic neoliberal vision is a fraud, and that the politics of distribution is likely to dominate capitalist political economies for the foreseeable future.

In any case, as an example of this Krugman talks about "re-shoring", the process of bringing manufacturing production back to the United States. Krugman suggests that this will have no major effect on employment or the income accruing to labor, because much of this production is done using robots. I think he's right that the direct effects on labor and wages will not be much. The indirect effect could be much higher, however. Why? Because in order to have robots build things, you first have to have factories. Humans have to build those. And you have to have roads to transport the goods. Humans have to build those too. And you have to have shops where the goods can be sold. Humans have to work in those shops. The desire for human labor that is complementary to robot labor can support wage gains for the median worker. That may not be enough to overwhelm the relative redistribution from the median worker to the top 10%, but it can help the absolute numbers.

American labor can benefit in another way: by receiving more non-cash compensation. The trend in the US is to provide more years of subsidized non-work at the beginning and end of life -- longer periods of education, longer retirements as lifespans increase -- and more non-cash benefits -- subsidized health care and education -- in a somewhat egalitarian way. These programs are overwhelmingly funded by the top 10% of wage earners, who are the high-skilled workers and the owners of capital*. To the extent that goods are increasingly created by non-human labor they free up people to do other things, some of which will not be market work. We'll call that "unemployment" or "underemployment" but if we generate sufficient national income to guarantee minimum standards of living at a level that ensures human dignity it will function as quasi-early retirement.

At the same time, quality of life continues to increase rapidly as the marginal cost of entertainment, education, and other goods approaches zero as a result of advances in information technology. This gain is felt by the median member of society as much as the richest person in society, and is more valuable for those with more available time. In terms of maximizing valuable leisure and minimizing alienating labor the typical citizen might be doing better, maybe even much better, than she otherwise would even while the data continue to show that she is doing much worse.

If this is an equilibrium it will have some negative consequences, for sure. Among them will be a reduction in social mobility and an increasingly bitter political economy. But Keynes dreamed of a world in which the gains from capitalism were distributed in a way that allowed people to work less, and some people are still dreaming of it. Marx too: his criticism of capitalism was not just that it generated inequality, but that it created alienation as labor became routinized. Marx didn't care about social mobility... he cared about human dignity. So maybe the left should welcome our new robot overlords (and their capitalist owners) for bringing the vision of Keynes and Marx closer to reality. Instead of slaving away in factories we can all post kittens to Tumblr and write stimulating blog posts. Yeah, maybe it looks like inequality, but it could end up being Utopia.

*The US tax code is already pretty progressive, and is likely to get much more progressive over the coming years, beginning with whatever deal comes out of the fiscal cliff negotiations. At the same time, the US benefit system is one of the least progressive, but I expect this to change over the coming decades for political economy reasons. Ultimately it will be up to the democratic system to manage these structural shifts.

In Which Daron Acemoglu and James Robinson Explain Why I Am Getting My PhD In Political Science

In our last post we noted how Lord Lawson of Blaby used our arguments in Why Nations Fail to bolster his claim that Britain should not be committing itself to spend 0.7% of GDP on development aid. In his speech he noted: 

A useful analysis, which I commend to the House, is to be found in a penetrating new study, Why Nations Fail, by a couple of economists, Acemoglu and Robinson…

A couple of economists? Actually, James Robinson likes to refer to himself as a “recovering economist”… 

Why? Because to paraphrase Bill Clinton’s famous adage: “It’s the politics, stupid” — at least when it comes to understanding economic development.

I wouldn't limit it to just economic development. I would argue that the same applies to almost every sub-branch of social life. This is why decided to pursue post-graduate study in political science rather than economics, which was my undergraduate major. Fine, whatever, that's what I did and why I did it. No one cares. But Acemoglu is one of the most prominent young(ish) economists in the game, winner of the 2005 John Bates Clark Medal. And he's saying that the academic discipline of economics isn't up to snuff.

That ain't nothing.

The quote above and more can be found here.

Update on FinReg Politics

Awhile back Thomas and I wrote a chapter for a Research Handbook summarizing positive theory in political economy on global financial regulation. (The book is here; an ungated draft version of our chapter is here.) As we were writing many governments were revising their regulatory standards in response to the global financial crisis, and the international standards created by the Basel Committee were undergoing revision as well. We were pleased that most of our speculations -- which came directly from a variety of researchers in the IPE literature -- were borne out by later developments. It was one of the few validations of IPE work that emerged from the crisis. But things can change, and the politics of financial regulation doesn't stay still for long.

One of the key arguments that we made was that the revisions to the Basel accords were highly likely to benefit banks in the US. Indeed, the U.S. government left capital regulation out of the Dodd-Frank Act almost entirely, choosing the international forum. Previous IPE research suggests that this is done in order to advantage domestic US firms, which should only be expected since all regulations involve redistribution, and thus creates both winners and losers. It's seemed pretty obvious that the winners would be US firms, and the losers would be firms in Continental Europe and Japan. (I've blogged about this before.) In the chapter Thomas and I wrote we explained how this was just a continuation of a dynamic going back to the creation of the first Basel accord in the mid-1980s.

Fast-forward a few years and the same dynamics appear to be in force:

THE European Banking Authority (EBA) released its second report monitoring compliance with Basel III regulations on September 27. The big finding is that the aggregate European banking sector needs about 338 billion euros of additional equity capital to comply with the rules. While firms have several more years to adjust their balance sheets and raise funds, this seems like a tall order, especially given what has happened to bank share prices [wkw: which have declined dramatically since 2008].

In the US, which are generally better-capitalized than their European and Japanese competitors, the new international rules are likely to harm small banks more than big banks, as the new standards increasing the complexity involved in compliance. Perhaps this is why large US banks have remained relatively quiet about their new Basel obligations, unlike many of the provisions in Dodd-Frank, while smaller banks have screamed bloody murder. The increase in complexity rewards large firms with the technical capacity to navigate the system. The new Basel demands for more capital hurt firms with less capital, and for whom it is more expensive to acquire it. On both dimensions, large US banks are in a better position than their smaller domestic rivals or competitors in other jurisdictions.

On these points it is interesting to read Felix Salmon's take on Sheila Bair's new book (which I've not read), in which we find:

Tim Geithner involved himself quite deeply in Basel III negotiations. Bair can’t stand Geithner, and ascribes malign intent to everything he does. Geithner asks questions about Basel III without explicitly saying what his own opinion is? “It wasn’t clear whether Tim was trying to build consensus among the U.S. regulators or trying to stir the pot.” Geithner agrees to push for higher capital standards — exactly what Bair wanted all along? Well, that’s just his way of trying to marginalize her:

Bair sees the entire episode as a power play by Geithner. She argues he was trying to blow up the meeting between international regulators so that the issue would be kicked higher to the Group of 20 finance ministers who were set to meet in November. If the G-20 took over negotiations, Geithner would be leading the U.S., not Bernanke. The FDIC would have little say in the final number.

I'm more sensitive to the idea that Geithner's involvement was a power play than Salmon, although more likely Bair was less Geithner's target than Bernanke. And I doubt that Geithner ever wanted to leave the Fed out of the process -- that would be absurd and it didn't happen -- rather than ensure that he remained actively involved in the process. Geithner is routinely accused of pushing for policies that benefit the US banking sector, both in his time at Treasury and before when he was at the US Fed. I think many of the more moralistic of these criticisms are a bit much -- after all, shouldn't a healthy banking sector should be a goal for regulators? -- but the general drift seems to fit the data fairly well. There's no doubt that things would look a bit different if Bair, or Elizabeth Warren, was in charge.  And this fits in with the general tenor of the story I'm trying to tell: US policymakers have the well-being of US firms in mind when they go into international negotiations. Or, as Salmon puts it:

[I]t’s entirely natural that Geithner, who moved straight to Treasury from the presidency of the New York Fed, would take an interest in Basel III: after all, the New York Fed generally provided most of the frontline negotiators hammering out details far from the view of principals like Bair. And, it’s worth noting, the New York Fed was actually very aggressive in the Basel negotiations — much more aggressive, actually, than the higher-level negotiators from Washington. That was the culture Geithner came from, and if he was more sympathetic to Citi and BofA than Bair was, he was also well aware that the tougher the capital-adequacy standards, the better the competitive position of US banks in general, vis-a-vis their woefully undercapitalized European counterparts.

In this particular case this is good from the perspective of those hoping for a stricter regulatory state, since the US (along with the UK and Switzerland) were the ones pushing for tighter capital and liquidity requirements, while the Germans, French, and Japanese resisted. Needless to say the Americans won on most points, with the major concession being a longer phase-in period to give European banks a chance to play catch-up. Many major US banks are already in compliance.

This narrative complicates usual regulatory capture stories. For example, if US firms push US regulatory authorities to impose stricter regulations in order to lock in an advantaged market position, should those who favor the regulatory state approve? Well, that's a tricky one isn't it. But this tends to happen following regulatory innovations: incumbents are advantaged, while new entrants and possible competitors are disadvantaged. And indeed, the Too Big To Fail banks have only gotten bigger since the crisis.

This is something that a political economy approach can, and does, help us understand.

Romney! Obama! Same Effing Difference (?)

Foreword: I have promised a fair few posts on other topics, but I caught the bug for this one and felt like getting it out first. More stuff on finance and politics TK, when I can find the time.

In 2000, in a fit of pique, I briefly became politically active. Disgusted by the cynical triangulations of the Clinton administration, and turned off by Dubya's anti-intellectual populism (and young enough to believe that both were something other than typical), I marched in a few rallies in support of opening up American politics to alternative parties. One of them became a touch violent -- and I was nearly pepper-sprayed by the police, and was nearly impaled by them as well... unfortunately for this story I narrowly escaped all harm -- and it was a great deal of fun.

One of the chants of the day was "Bush! Gore! Same fucking difference!" This was put only slightly less crassly by Ralph Nader, then Green Party candidate for president, as "The only difference between Republicans and Democrats is the speed with which they get on their knees when corporations come calling." Even in my piquedness I cringed at that one, although not as much as I did when my fellow protestors, in violation of multiple laws and menacing in numbers, began bellowing "This is what democracy looks like! That is what a police state looks like!" while gesturing to the men and women in blue who were doing nothing even remotely police-state-ish, but who did intend to maintain rule of law in protection of the actual majority of the population, which we did not represent. The cops did just that, with very little excessive force and that little bit in direct response to intentionally provoked duress. My fellow members of the mob had little sense of irony, apparently. They seldom do. It was more than just a bit off-putting.

(That reminds me to again refer to Milos Forman's surprisingly good essay on how people who lazily make reference to authoritarianism without real knowledge of what actual authoritarian regimes do and have done do a disservice not only to their own reputations but also to wider cultural memory.)

That was when I was a lowly journalism student at a community college. I had never heard of Duverger's law. I had never heard of the median voter theorem even, much less directional models or any further complication. Because things didn't make a ton of sense to me, in my ignorance and at that moment, I thought very much that the forces at work in politics must be sinister. Adbusters made quite a lot of sense, at the time. The WTO was sort of threatening, really, what with its internationalism and its governments and their suits. Who was controlling all of this? Weren't corporations going to profit from all of this? And wasn't that ipso facto a terrible outcome? I'd never heard of comparative advantage, all I know was that people -- people who looked like me -- were pissed right off. Plus we had cool people on our side. Fugazi sang (see above) "Never mind what they're selling... it's what you're buying." All politics is local, man. It starts at home. Far out.

When I was a child I spake as a child, I understood as a child, I reasoned as a child. When I became a man I put away childish things. I'll still consider myself part of the "left", but it's a "left" that mostly only exists in my mind. It's a "left" that believes that the redeemable parts of Marx reveal him as one of the first public choice thinkers; so he's of the "right" too, in his way, in my mind. It's a left that believes that had Marx witnessed the 20th century -- not even the bits of it done in his name -- his writings might have taken a different tone. It's a left that is dedicated to the idea that the best hope for an internationalist emancipatory movement is found in secular capital social democracy. I.e., it's a left that thinks that the Gotha program had something like the right idea after all. It's certainly not a left that is embodied in any actually-existing internationalist political movement of which I'm aware. So I'm not so politically active these days. I'm content to sort of shrug, think that the American "right" and "left" both embody a certain bastardized bit of truth, and take the long view that things in 21st century America are probably gonna end up far better than they generally have in the course of human history.

But. But! What about that "Same fucking difference!"? Well we hear every election that "this election is the most important election since" like 1932, or 1864, or 1776, or something. Every go round we hear it and we're hearing it again. But if Nader was right in 2000, if the only real choice we have is marginal rather than categorical, then we could either agree with my younger self that things are pretty sinister at the moment, or we could take the more restrained view that politics stays fairly close to the median as a matter of necessity. So which is it? Is there a difference between Romney and Obama worth getting up for? Is this election a clash of the mediocre, or will it decide the eternal course of the Republic?

Steven Landsburg provides one answer. He notes that Ezra Klein has published the following picture, purportedly showing the vast differences between the platforms of Obama and Romney on the issue of income taxation:

Leave aside for now the tacky Excel-template graphic... this message has been approved by Krugman and many others across the web. And it looks like a pretty big difference! Except:

What we actually have is an election in which both candidates are proposing massive redistributions from the top downward, one slightly less so than the other. You’d never know this from looking at Klein’s chart because it illustrates changes in rates, whereas what actually matters is the rates themselves. It makes no sense to ask whether any particular group ought to be paying more or less without reference to how much they’re already paying.

Indeed, this is a classic example of what I once called the “Grandfather Fallacy” — by focusing on changes instead of absolutes, Klein’s chart conceals any existing inequities and hence treats them as “grandfathered in”.

Maybe you could quibble with Landburg's use of the word "massive", but he does a quick-and-dirty correction of Klein's graph by plugging in the relevant pre-existing points, and comes up with this (tacky Stata-template) graphic:

Pretty big difference! In the story the graphs are telling, I mean. Not so much in the candidates' plans. Which will be subject to further moderation in both cases, meaning that they are highly likely to move closer together rather than further apart.

Now there's no reason to not consider both changes and levels. I get that both can be meaningful, especially symbolically. But while symbols are important the baseline reality is, unquestionably, even more important. Symbolism is often ephemera, and even if ephemera is often the stuff of politics those of who us who have put childish things behind us might wish to do better. The baseline reality suggests that there really isn't a qualitative difference between the two candidates, at least as it pertains to income taxation. And now that the GOP has made it a huge part of their platform to defend socialized health care at all costs, and that Romney is in favor of keeping the majority of PPACA intact too, I'm not super-clear on how they qualitatively differ on health care reform either. Maybe they'd differ greatly on foreign policy (paging Drezner!), but I can't for the life of me discern what Obama's foreign policy actually is -- "pivot to Asia" and "use drones to blow up whomever we damn well please" notwithstanding -- and Romney stubbornly refuses to even broach the subject*.

The point is that these differences are marginal, not fundamental. The argument is whether that is a good thing or not. And I really don't know... I think the fundamental conservative point -- that stability is ceteris paribus preferable to instability -- is not appreciated nearly enough by the left. At the same time I believe that the fundamental liberal point -- that we can always do better than we have done, and really should try to -- is not appreciated nearly enough by the right.

So score another one for the structuralists I guess. And score one more for the proximity models I guess. And give one more to the marginalists. And get cynical if that's your bag, or sit back and let it all wash all over you and think about how much worse it used to be. But please let's keep the argument running a bit longer. I'm not finished with it just yet.


*The lack of actual foreign policies from either the right or left is a topic for another day. My current thinking is that a) the right adopted the Manichean/Messianic view of the neocons -- most of whom were not Republicans in any other sense -- because it fit in with their Manichean view of foreign policy since World War II; b) Democrats found it tough to oppose because many of the neocons came from their ranks, and also because it was politically popular and because they had no other frame to adopt. Now that the neocons are out of sorts, no one has anything. I think HR Clinton's State -- via Slaughter -- is grasping towards something, but they aren't there yet and Obama hasn't latched onto it.

What We Have Here Is a Failure to Regulate

If you follow the same blogs as me you will have noticed an ongoing debate about workplace regulation. I'm not going to link to all the posts -- which by now number in the dozens -- but the key players have been the Bleeding Heart Libertarians, Crooked Timber, Marginal Revolution, Matt Yglesias, and Modeled Behavior. Two of those blogs are written by economists, one libertarian and the other... well I'm not quite sure how to categorize Modeled Behavior; one blog that is decidedly of the academic left, although from various factions of it; one blog of the academic non-economist right; while Yglesias seems to take his positions somewhat a la carte these days.

Perhaps predictably, given the roster, these groups are talking about different things. Moreover, they are talking about different things in different ways. As it happens I've spent a decent amount of time reading, thinking, and writing about regulation so maybe I can help clarify.

When economists think about regulation, they are coming from at least one of two schools of thought: those emphasizing the welfare-enhancing potential of regulation, and those emphasizing the welfare-destroying potential of regulation. Let's call the first school the "Utilitarians". Let's call the second second school "Public Choice". The first tradition has its roots in Smith, Hume, and (JS) Mill, but really takes off with Vilfredo Pareto, Arthur Pigou, and other 20th century economists. The second tradition gets a lot from Rousseau and Marx, but in its contemporary form has been best expressed by folks like Stigler and Peltzman.

The Utilitarians believe that regulation can be used to enhance social welfare by correcting market externalities. This is a situation in which the cost of a market actor's actions are not borne by her, but are passed on to someone else. (Alex Tabarrok made reference to this idea specifically at one point.) In this case, society has moved off of the Pareto frontier; total utility is below potential. Regulation is a tool by which we can move the equilibrium back up to its optimum.

A classic example concerns a firm that pollutes a river as a byproduct of its manufacturing; those who live downstream are the ones who suffer the most from the pollution, but they receive no profit from the production. Arthur Pigou suggested one mechanism for dealing with this -- taxing it at a sufficiently high rate as to bring private and social costs back in line, and redistributing the proceeds -- but regulating (i.e. limiting or outright prohibiting) the activity will often serve the same purpose.

The Public Choicers acknowledge that in this specific set of cases regulation can be welfare enhancing for society as a whole. But they posit another set of cases in which it will not be. That is because regulations, being restrictions, have a tendency to reward market incumbents and punish new entrants. The net result is an uncompetitive market prone to inefficiencies and other bad things.

Suppose the firm in the previous example acquires a market advantage by polluting. Once it has driven all of its competitors out of business, it then acquiesces to regulation restricting its activities. But all other firms must also adhere to this regulation. Because the incumbent firm is already capturing economies of scale and has a dominant market share, it will be very difficult for new entrants to be successful. The dominant firm may even initiate the regulation to prevent, e.g., a new firm from coming in, moving further upstream, and polluting there. The resulting lack of competition is also Pareto suboptimal. So the Public Choicers argue that eliminating the regulation -- and with it the concomitant barriers to entry -- can actually enhance aggregate societal welfare by fostering new competition, thus moving society back up towards the Pareto optimum*.

Both of these stories can be true in certain cases. It seems to me that Matt Yglesias and the Marginal Revolutionaries have been trying to tease out which is more true in the real world, in which cases, and whether the best thing to do is to increase regulation or decrease it. To do this they do the only thing they can do: refer to stylized models, simple intellectual exercises (would you trade being searched for contraband in exchange for an extra dollar an hour?), and what empirical evidence exists.

When the academic left thinks about regulation they are not thinking about to reach Pareto frontiers. They are not using stylized models**, as they reject the core assumptions of those models***. They are skeptical of econometric studies which, as Henry Farrell rightly notes, are susceptible to selection bias and questionable causality. In general, they have little use for the positive theories of regulation. What they care about are normative properties of outcomes as they exist in the actual world.

Instead of thinking about how to maximize Pareto optimality, the left is thinking about how power inequalities condition outcomes. There are two ways to translate this back into the economists' language: the first is to say "I care every bit as much about where along the Pareto frontier we fall as the fact that we're on it... the distribution of the pie is as important as the size of it"; the second is to say "I don't give a good goddamn if we're on the Pareto fronter at all... I want to improve the lot of labor, and particularly the poorest and weakest among the laborers".

Both of these reject the positive political theories of the economists. Or, actually, they (implicitly) accept them as intermediate steps in a necessary chain, but not as the culmination. If what matters to you is where along the Pareto frontier the actual distribution of utility between capital and labor lies, then you (implicitly) accept the positive Utilitarian theory of regulation as being welfare-enhancing in aggregate; you just think there's one more step to be taken which can be justified on normative grounds. If what matters to you is to improve the lot of labor full stop, then you accept the positive Public Choice account of regulation as being inherently redistributionary, adding a normative preference for redistributing from capital to labor.

So now we have four end points:

1. Utilitarians: The point of regulation should be to maximize social utility, so the biggest concern is reaching the Pareto frontier. This means regulating in the case of market failure but not otherwise, and the instances of actual market failure -- defined as deviation from the Pareto frontier -- are pretty rare. (The Bleeding Heart Libertarians' position)

2. Public Choice: Most of the time regulation will maximize private utility, not social utility; at minimum that will often be an unintended consequence. So the biggest concern is to limit regulation in order to reach the Pareto fronter. (The Marginal Revolutionaries's position)

3. Social Democracy: The point of regulation should be to maximize social utility as a preliminary step towards shifting the ex post distribution of aggregate utility along the Pareto frontier more towards labor. (The Matt Yglesias position)

4. Marxist/Post-Marxist: The point of regulation should be to maximize the well-being of labor, not capital, so who cares where the Pareto frontier is, even assuming I believe such a thing exists? (The Crooked Timber position, at least among some of them)

Despite what those involved in this argument might have you believe, these are all coherent theoretical positions. But as each of them have noted of the others at one point or another, they have all been somewhat detached from empirical reality. For example, are workplace regulations trying to correct a market externality? This question has been danced around but not really answered. For positions #1-3 the answer to this matters quite a lot. For position #4 not so much. Nor do any of them really get at the implications of power, although the CTers have come closest. Power matters quite a lot for #4 and somewhat for #2, but not at all for #1 and only a bit (and in different ways) for #3. 


There is a lot more to be said on these points, but this is long enough so I'll have to save it for another post. 

*This doesn't actually deal with the pollution problem of course.

**I'm not actually sure about this. I believe they have some model(s) in mind -- they must -- but they haven't clearly articulated what it is. In response to a Twitter query, Henry Farrell listed as some influences Jack Knight (a Tar Heel), Sam Bowles, and "no-bullshit Marxism which happens to work". Fair enough, although I'd prefer a clearer exposition on what that looks like in reference to this discussion. Chris Bertram, one of Farrell's co-bloggers at CT, has previously espoused (at least elements of) bullshit Marxism which does not happen to work, so perhaps that's his model. I imagine the left are coming at this from a variety of perspectives, which is fine.

***At least they think they do. In some cases I think they believe these assumptions are more severe than they actually are, so they're really rejecting a straw man. E.g., Farrell's repeated reference to "perfect competition", but labor models have moved well beyond perfect competition without markedly changing many of the relevant results. (Both Alex Tabarrok and Tyler Cowen have noted this, too, I believe.) Anyway, at least some of the left's interlocutors seems to be working from the even simpler, and even more unrealistic, model of monopsony. This obviously requires major assumptions too. At times the way they describe labor markets is in quasi-feudal terms; I doubt even Marx would have truck with that.

Wisdom From Milos Forman on Political Regimes

I've always been a casual fan of Milos Forman's films, and I had a vague sense of his personal history. I knew that he grew up in occupied Czechoslovakia and fled after the Prague Spring was crushed by Soviet tanks. (I didn't know until today that, per Wikipedia, his father died at Buchenwald and his mother at Auschwitz.) I've recently become more interested in his early work, particularly the comedies he made in the 1960s as part of the Czech New Wave, which I'd not seen before. So he was already on my mind when I saw that he'd published an op-ed in the NY Times. I was first surprised that he'd written such a thing. I was then surprised by how good it was.

Forman makes one simple political point, one simple literary point, and one simple musical point. The simplicity of each does not detract from their potency.

The political point is that people who actually lived under actual totalitarian Marxist regimes find it absurd when those terms are used to describe the social democracy lite initiatives proposed by Obama. That's because what defined life under state communism was not the particular policies those regimes enacted, but the capricious and unquestionable exercises of power those regimes expressed.

Forman tells one story in which a man who helps a poor, haggard stranger out of a storm is sent to a work camp. Why? Because the stranger had complained about the ruling regime, the Good Samaritan had not cast him out for it, and the stranger was actually an undercover agent working to entrap the unsuspecting. This type of thing, while anecdotal, is significant. It illustrates that the political regime was seeking to use the good works of its own citizens against them. It was trying to bastardize feelings of community and philanthropy. It was trying to abolish all civic virtues and replace them with unquestioning adherence to the state, and denunciation of all else. It was, above all else, designed to instill fear and trepidation. And the communist Czech government was one of the kinder, gentler Soviet bloc regimes!

This is related to the literary point. When Forman was asked to direct the film adaptation of One Flew Over the Cuckoo's Nest some of his friends advised against it, saying that tinkering with a beloved American cultural artifact was a risky business for a recent immigrant. Forman responded that for him, and others like him, One Flew was a global cultural artifact which portrayed the arbitrariness of power corrupted. Just because Kesey wrote it in one context does not mean it was no applicable to others. Forman though he was the perfect man for the job.

The musical point follows from this passage:

I’m not sure Americans today appreciate quite how predatory socialism was. It was not — as Mr. Obama’s detractors suggest — merely a government so centralized and bloated that it hobbled private enterprise: it was a spoils system that killed off everything, all in the name of “social justice.”

Forman's argument here is twofold: first, that state socialism (in its pernicious form) is not recognizable a set of particular policies, but is rather a method of control; second is that achieving perfect social justice is impossible, and the process of striving for it is corrupting. Instead, we should work towards social harmony, wherein different instruments are allowed to be played so long as they stay within common rhythm.

It's a bit trite, but as simple analogies go it's not so horrible. It recalls JS Mill's admonition for a marketplace of ideas, the republican virtues of a government of rules rather than men, and the enlightenment principle of decentralized authority. These are the principles that were cast aside in the socialist regimes of the 20th century. These principles are not under serious threat from Obama, or any recent American politician.

Money in American Politics

In my previous post I chided Krugman and Wells for concluding that something is rotten in America without being able to articulate what that is. In comments it was brought up that the role of money in American politics is surely part of it*. In a sense this is ipso facto true if your starting assumption is that commerce and politics should somehow not be intertwined. But the question, as I understand it, is "What is wrong now?" not "What is wrong in general?" That is, is money in American politics a bigger problem now than before? Often people assume that this must be the case, especially post-Citizens United (even though most of what is wrong now happened before that decision)**.

I'm not very old but I've heard this claim made repeatedly, in good times and bad, ever since I became politically aware. Even a quick glance through the historical record indicates that these concerns seem to be universal to time and place. That alone makes me suspect that it is not a good answer to Krugman and Wells' question, which seems to be much more about this particular moment in the American political economy. But maybe things have been getting progressively worse over the past quarter century or so. I'm willing to be persuaded of that, but when taking a comparative and temporal perspective I would like the following to be the starting points:

1. The Founding Fathers of the country were generally the richest people in society, and America's original charters both recognize and institutionalize this fact. The War of Independence was fought, largely, for reasons of commerce. Nostalgia for the past is inevitable, but it is often not accurate. (Note that I suspect this applies even more to the political right than left.) The point is simply that, like poverty, money in politics has always been with us.

2. The two great progressive eras in recent American history were initiated by Roosevelts and Kennedys... not exactly plebes, and they had no qualms with injecting money into American politics and for their own personal benefit too. I.e., the link between money and important outcomes is ambiguous.

3. There is almost surely less money in American politics as a percentage of GDP, or at least no more, than there was 100 years ago (caveat: this is pre-Citizens United).

4. There is almost surely less corruption in American politics, or at least no more, than there has been throughout its history including periods of populist reform. It is not true that there is more corruption in the US than in other advanced democracies, many of which have different electoral systems and/or campaign finance laws (ibid). At least some (imperfect) studies show that corruption is not related to campaign spending restrictions. Even the concept of corruption via economic interests expressed politically is relatively recent. 

5. The literature shows, over and over, that campaign contributions flow to winners. The literature does not show, very often or consistently, that this money actually affects the election itself. There are plausible causal mechanisms on both sides. Also note that some findings show that limiting campaign contributions benefits incumbents, who already have name recognition and institutionalized support. Recent experimental evidence from Germany supports these findings. From the perspective of making American politics more dynamic and responsive to the citizenry, this is not a point in favor of limiting campaign contributions.

6. At least in the short run, the interests of capital and labor are often aligned in an open economy. A recent example of this involves the American auto industry in 2008-9, where corporate and union interests coalesced in favor of a bailout. Recent trade politics between China and the US also reflects this dynamic. To the extent that we view money in politics as pernicious because it exacerbates class tensions, we may need to reconceptualize the contours of the political space.

7. The US is not an outlier (even among advanced democracies) in terms of broad-based trends in growth, unemployment, inequality, pressures on the federal budget, increased polarization, the growth of finance, public sector bailouts of firms, or other metrics. This should cause us to look to global dynamics -- which will affect all countries -- rather than just local dynamics -- which are idiosyncratic -- for explanation. Not many people do that.

8. When duly elected officials lower taxes on wealthy people, that is not corruption. More generally, when some outcome happens that you don't like that doesn't mean that the system is screwed. Unless you are the median voter***, and none of the loudest reformers on the right or left are anywhere close to her, you will disappointed by a large percentage of policies enacted in a democratic society. That doesn't mean something is wrong... that means something is right. Internalize this point, please.

In summary, what I think we're really concerned about is how interests are aggregated into policy. Money is one channel by which influence might spread, but it's not the only one. In general when we talk about "things going wrong" I think we mean that some groups have captured the state and are securing rents from it. There are plenty of examples of this in American politics, but I don't think we are in a unique historical moment where these problems are so much worse than they have been historically. I'm open to counter-argument here, but it must be rigorous. No more of this "well look at how much they spent on the last election! Obviously things are messed up". No. It isn't obvious. 


If we're to accurately diagnose what's wrong and figure out how to fix it we must define our terms carefully, examine the present era in light of previous eras and comparative contexts, and understand that people are not evil or corrupt just because they may have different preferences from us over things like the optimal top marginal income tax bracket. 

*Other common suggestions, not completely unrelated, are inequality and the power of finance in the political system. They are worthy of their own posts, which I hope to give them in the coming days.

**Leaving aside that the ACLU supports Citizens United on grounds of principle.

***"Median voter" here can be thought of as short-hand or a first approximation of the general dynamic of minimum winning coalitions, not as an iron-clad law of democratic politics.

Who, Exactly, Is Getting Away With What, Exactly? And Why?

In an recent article in the NY Review of Books, Paul Krugman and Robin Wells review three recent books that attempt to diagnose just how American political economy got so screwed up after 2008*. Noam Scheiber blames Obama's choices of economic advisors, and in particular the reliance on acolytes of the Rubin-Summers faction of Clinton administration vets who have a predilection towards getting into bed with Wall Street. Next comes Thomas Frank, demonstrating yet again that he understands nothing about American politics or political history (and in particular the politics and political history of the American right wing). Frank claims to have observed "something unique in the history of American social movements: a mass conversion to free-market theory as a response to hard times" that is buttressed by hermitically-sealed stupidity. If this is indeed a first then what exactly was "morning in America" all about? And how to explain the rise of right-wing parties throughout the industrialized (and industrializing) world since 2008, much less the landslide victory of Obama in the 2008 election? Thomas Edsal's thesis -- which Krugman and Wells reject as incorrect on its face -- is that America does not have enough resources to accommodate conflicting social goals, which has led to in uptick in partisanship.

So we have three theories: Scheiber's leadership failure cum rent-capture critique, Frank's vast right-wing conspiracy cum ignorance critique, and Edsall's scarcity leads to nasty politics critique. While showing signs of sympathy for all three, particularly the first two, Krugman and Wells end up with their own conclusion:

But ultimately the deep problem isn’t about personalities or individual leadership, it’s about the nation as a whole. Something has gone very wrong with America, not just its economy, but its ability to function as a democratic nation. And it’s hard to see when or how that wrongness will get fixed.

Let's leave (mostly) aside that this political narrative is opposite in emphasis of the tale Krugman was telling a year ago (cf) -- then it was about personalities and leadership -- and note the defeated tone. While some of Krugman's friends believe that the only way the wrongness will get fixed is through the destruction of the Republican Party (eg), that isn't going to happen so there must be some other way out of the malaise. The problem is that Krugman and Wells seem to have few answers on that score. I believe that is because they don't have a clear conception of politics.

Each of these three concluding sentences contains a distinct phrase of dissatisfaction. The first asserts that there is a "deep problem" in American politics; the second identifies that problem as the lack of an "ability to function"; the third summarizes these first two components as culminating in "wrongness". These are vague, even non-descript, but let's try to parse each of them.

Given the context of this essay within their other writings, the "deep problem" would seem to be persistently high unemployment and growing inequality. How do I know that Krugman and Wells think this is the problem? Mostly from the context of their other writings, but in this essay the refer to parallels between today and the 1930s, a period of high unemployment that followed a rise in inequality and significant financial crisis. The cause of these problems would seemingly be both ideational -- capture of elites in government (Congress, the Fed) and the commentariat, as well as much of the public, by right-wing laissez-faire orthodoxy -- and material -- capture of the government  (the Obama administration, the Fed) by Wall Street. Both of these phenomena have been discussed in the political economy literature, of which Krugman and Wells are completely unfamiliar**.  

The next sentence indicates that this problem is not limited to economic outcomes: there is also a political problem, the "(in)ability to function as a democratic nation". It is not at all clear what he means by this. I think he means that democratic nations are supposed to always and everywhere and at all times generate egalitarian outcomes, and pursue policies that maximize some deduced social welfare function that just so happens to map onto Krugman's ideological preferences more or less perfectly. Other than vague intimations that bankers control the country through their puppets in the Obama administration, it's not clear why Krugman thinks that the U.S. doesn't function as a democracy. Because it hasn't generated a particular set of outcomes in a given time and place? What a priori reason do we have to think that this should happen? Why should we think that the U.S.'s version of democracy is somehow superior to other democracies that have similarly depressed economies, e.g. Europe?

The fact is that "democracy" is a catch-all word that describes a host of political institutions which are similar only in that they aggregate the preferences of their citizens through some type of electoral process which is guided (and constrained) by previously established law. "Democracy" is decidedly not
a description of a set of particular outcomes favored by the technocratic center-left, a group of which Krugman is a member. It is even less a description of a political system dedicated to pursuing an Old Keynesian version of technocracy. Given that, it is not completely clear to me that the U.S. has lost its ability to function; conflicting interests, partisanship, gamesmanship, interest group lobbying, rent capture, and vituperative campaigns are all par for this course, not evidence that things have gone horribly awry.

Which leads us to the very end. This "wrongness" -- essentially the existence of distributive interest group politics -- is only a "wrongness" if you expect particular (and exceptional) moments of national unity (such as the bipartisan passage of the Social Security Act that Krugman and Wells reference at the top of the piece) to be the norm. But they are not the norm, and we should not expect them to be. Democratic politics is generally messy, generally contentious, and generally fought along lines demarcated by interests and ideology. Any particular individual -- and in fact all particular individuals -- will be upset with roughly 50% of the political decisions made. This is just how it works. There is no sense in bemoaning this, as it is a fact of life. It is not a "coup", it is not a systemic collapse of everything we hold dear.

It's not clear to me why the NY Review of Books would ask non-political economists to write about political economy. Had they not they not done so, they might have been able to publish an article with a better ending then "We don't like this but we don't know how to fix it."

*By "screwed up" the authors seem to all mean something along the lines of "President Obama only getting to fulfill most of his campaign promises". These being provision of universal health care, no tax increases on those making under $250k/year, an aggressively militaristic anti-terrorism policy, re-regulation of the financial sector at both the domestic and international levels, the repeal of DADT, and increased investment in green technologies. Or by "screwed up" maybe they mean the continuing existence of an opposition party, or the fact that Obama was always insufficiently left. Anyway, Krugman and Wells just take it for granted that something is screwed up, and the impression they leave of the books they review is that the other authors do the same thing. I haven't read any of those books so I can't be sure whether that's a fair characterization or not.


**I can be quite sure of this, having read them both extensively over the years. The closest thing to a political economist to whom Krugman gives credence is Larry Bartels, an American politics scholar who has studied some politics of inequality.  

Does Political Science Deserve Public Funds?

If you pay any attention at all to the political science blogosphere you know that the House of Representatives recently decided to prohibit the National Science Foundation from directing $14mn roughly -- 0.2% of its budget -- to political science research. This has caused much consternation among (some) political scientists, as well as indignant blog posts from political scientists and e-mails from APSA asking us to fill in form letters and send them to our Congresspeople.

What it has not done, generally, is come up with any sort of explanation for this event that is informed by political science, nor any sort of strategy for mobilization that would ensure outcomes that benefit the discipline.

This I find ironic. Faced with an banal existential threat to its existence, political science has responded by a) acting as if social science methods do not exist, and b) acting as if it knows nothing at all about political mobilization, organization, competition, institutions, or much of anything else relevant to altering outcomes in the political sphere. The response from academics has been to whine, get defensive, and generally miss the point (which is almost surely not about whether political science is cool or interesting or even important).

In fact it's worse than simple ineptitude: rather than unifying around some strategy that will secure existing funding, the discipline has turned on itself*.

In a sense I think this goes back to broader schisms in the discipline**. Particularly in IR the past decade-plus has seen a lot of internecine battles over what is best practice for academics. Everything from "what we should study" to "how we should study it" has been debated, quite vituperatively, in journals, blogs, conference panels, graduate student seminars, letters to editors, and bitch-sessions at the tavern. The period from Perestroika to TRIPs has moved us a bit from knee-jerk anti-positivism towards "let a thousand flowers bloom", but there is another problem: the NSF.

Actual funding from the NSF is pretty paltry; getting those funds neither makes nor break political science as a discipline, and almost any NSF-funded project could be funded in other ways***. But getting an NSF grant is prestigious: it improves your application and tenure packets; it can lead to a reduction in teaching load thus increasing research output; it can help you get a full professorship or endowed chair; it boosts your status. Right now the NSF does not fund all types of political science research equally. It privileges certain types of projects, and in particular those smell that smell especially "science-y": studies that build and/or analyze large data sets. As it happens most of my research uses this kind of data set, and I certainly wish there were more of them in the world, but not everybody in political science does. In fact, most of us don't.

According to the most recent TRIPs, a majority of IR scholars consider themselves to be something other than positivists (Q. 26) and only 15% of us employ quantitative methodologies as our primary research method (Q. 28), although another 22% sometimes use them as secondary methods (Q. 29). Obviously international relations is not all of political science, and I'm sure that a greater proportion of Americanists use stats. But (I would expect) fewer comparativists do, and almost no political theorists do. To the extent that NSF funding is biased in favor of quant studies, it is biased against the majority of the discipline. Given that hiring and promotion decisions (and general prestige) are influenced by ability to attract grants from places like the NSF, this is no small thing.

This is probably why Jacqueline Stevens wants to see funding either abolished or distributed via a lottery system which would not privilege some types of work over others ex ante. To me that makes little sense, but I can see why some would prefer either outcome to the status quo ante.

Regardless of where you come down on this -- and I don't really care that much either way -- it's hard not to notice that political science has not covered itself in glory. It seemingly has no theory of politics that can help folks understand why this is happening or how to change it. Its best response to this challenge is classic rent-seeking -- we deserve this money because we do cool stuff -- but without any ability to effectively seek rents. That, in and of itself, might be reason enough to discontinue funding.

*Links to much other discussion can be found at that one. I'm too lazy right now to hyperlink them all myself.

**I'm not the first to point this out. Henry Farrell did as well, in one of the dozens of posts political scientists have dedicated to this bill.

***Phil Arena has one such proposal here, although I'm not too sure how serious he is about it. I find the fact that political scientists are not willing to fund their own research through their professional associations to be another indication that it probably doesn't deserve all that much funding. Some of his commenters suggest that public funding of political science is necessary because it generates public goods which will not be realized without government intervention. To that I say a) show me the evidence****, and b) public goods can be supplied without government intervention, particularly if there are motivated groups who can easily identify the location of those goods and organize to capture them. APSA is already organized, and presumably in a better position to find these public goods than Congress or even the NSF.

****Or even the logic. Most political science research, including NSF-funded research, is published by journals with subscription feeds that are prohibitively for individuals or even most libraries. Therefore the work is most definitely not "non-excludable"... it is excluded! So it is not a public good. But even if it were it would only be a public good in the most facile sense of "the creation and dissemination of knowledge is good" which merely begs the question: maybe, but wouldn't that money be better used in ways that spread knowledge in different ways? E.g., funding public libraries, giving laptops to low-income people, etc.

Poking Macroeconomists with a Stick

In one small part of a longer discussion Scott Sumner says something interesting:

Macroeconomics is the study of policy failure. Once an issue goes away the field loses interest.

Leave aside for now whether or not that is strictly true, or whether it was inadvertent. When I read the first of those sentences I immediately thought "then why not study why the policies fail, dammit!" After a bit of reflection I've realized that macroeconomists think that's what they're doing. They have models, to which they are wedded ideologically and/or reputationally, which are internally coherent but externally invalid.* When they try to explain why they are invalid they claim that policymakers aren't doing what the models tell them they should do. That's what Sumner means by "policy failure". And they explain why policymakers aren't doing what the models tell them they should do by either demonizing them, calling them ignorant, or claiming that they are members of cults believing in confidence fairies, bond vigilantes, the hive mind of the Borg, or some discredited or otherwise objectionable ideology.

The assumption here is that policymakers are, or should be, utilitarian Philosopher Kings whose goal is to maximize output and employment while minimizing inflation. But maybe, just maybe, that assumption is false. If we get rid of it then we don't have to appeal to superstition or metaethics to explain the behavior of policymakers. Instead we can treat policymakers as being interested in gaining or retaining office, and that the best way to do that is not necessarily to bring unemployment down to its natural rate as quickly as possible.

In other words, we can treat macroeconomic outcomes not as "policy success" or "policy failure", but as things that benefit some groups of people and harm others. From the viewpoint of a policymaker a policy success is one in which the policymaker retains office, and a policy failure is one in which she does not. To remain in office she must appease some number of people (what we often call a "minimum winning coalition") and that's all. In advanced democracies that coalition is largely comprised of relatively affluent people who own some type of equity whose value is more sensitive to inflation than whether the marginal unemployed worker gets her job back. So when policymakers set policy to win over that person it isn't a "failure"... it's the whole purpose.

This is what Steve Waldman was driving at in his "choosing depressions" posts. This is the dynamic that I blog about in almost every post. This is what I was writing about in a prior post, "The Problem with Macroeconomics Is the Macroeconomists". If the world doesn't work the way that macroeconomists think it should, then maybe that's because macroeconomists don't understand how the world works.

That doesn't mean that macroeconomists, or anyone else, can't have their own preferences. Krugman's blog and associated book is titled Conscience of a Liberal, not Explaining How the World Works. But that's quite a different thing from saying that "macroeconomics is the study of policy failure". To acknowledge that different groups have different preferences over outcomes is to acknowledge that the definition of "policy failure" is a not a constant but a variable, and macroeconomics has nothing to say about that.

That's why we need political economists.

*Of course they will all protest that their pet model is not externally invalid, only everyone else's is. However no macro models have performed very well in this crisis. No macro models can explain the global nature of this crisis, why countries with similar characteristics have had vastly divergent outcomes, etc. The best argument that most macroeconomists can put forward in support of their preferred model isn't "it worked" but "it hasn't been sufficiently tried".