Why Paul Ryan Doesn't Matter

This has nothing to do with ideology. It is equally true if your politics are from the right, left, or middle. Paul Ryan's nomination by the Republican Party as the candidate for Vice President of the United States almost certainly means nothing of any significance. Or, at minimum, it almost certainly means nothing of any significance that we could possibly know right now. You may all read this post as my attempt to get everyone to shut up about this so my e-mail, Facebook, Twitter, RSS, and news browsing are no longer cluttered with trite discussions of Paul Ryan.

Let's start by trying to figure out why it could matter that Paul Ryan is the GOP nominee for vice president versus almost any other plausible person. We know that vice presidential nominees have very little effect on electoral outcomes, so that can't be it. Another possibility is that Ryan's policy preferences are different from Romney's policy preferences: the former is to the right of the latter and, as PM noted in a post that inspired this one, historically there is a roughly 30% chance that a vice president will serve as president due to the president's incapacitation, death, or resignation. If your own policy preferences are to the right of Romney's, you like the fact that Ryan is to the right of Romney. Perhaps he can influence Romney a bit. Or, in the event of Romney's incapacitation, you'd rather have someone from the right ascend to the presidency. Flip all that if your preferences are to the left of Romney's. Since one group is pleased by this possibility and the other chagrined, that must be an important difference, right?

Wrong. I'm sure Ryan and Romney's ideal points are somewhat different. I don't think their ideal points are all that far apart, but let's say they're distinguishable enough that it constitutes a qualitative difference in preferences over outcomes such that we would be able to tell the difference between them in a dictatorship. We still won't be able to in a parliamentary democracy that looks like ours looks. Here's why:

If Ryan is to Romney's right, then a Ryan presidency would be exactly indistinguishable from a Romney presidency under the following condition: the median voter in the House or Senate will be to the left of both of them on every issue of difference between them. This condition is almost certainly met. Differences over outcomes under their respective presidencies could occur only if the status quo ante is in between their ideal points and to the right of the median voter in both the House and Senate. In that case policy could move towards the middle in a Romney presidency and would be stuck in a Ryan presidency.

I hear some of you saying already that the median voter model is too simplistic to capture reality. I would respond in several ways:

1. It's much more complicated than simply noting that their ideal points are different and assuming that that matters;

2. Median voter models work pretty well when the voters possess lots of information and are more-or-less required to participate, as in the legislative process;

3. There is some pivotal voter in the House and Senate capable of constraining Ryan and Romney, and that person is almost certainly to the left of both of them on every significant issue;

4. Point #3 means that a median voter model likely stacks the deck in favor of the argument that any difference between Ryan and Romney is significant when compared to the real world: consider that for this not to be true, under the cloture rule the 60th most-liberal senator -- i.e. the 40th least conservative senator -- would have to be more conservative than Romney. The most recent data suggests that person at present is probably Ben Nelson (D-NE) or Olympia Snowe (RINO-ME), neither of whom are to the right of Romney on any notable issue that I know of.

Of these, #1 is inarguable, #2 is irrelevant if #3 is true, and if #3 is not true, then you should be ambivalent between Romney and Obama (and no one but me seems to be). #4 just drives home #3. So either the difference between Ryan and Romney doesn't matter or the difference between Romney and Obama doesn't matter. Which of those seems more likely to you?

Keep in mind that this only holds for issues in which the legislature plays a major role in setting policy. The president has more unilateral authority over foreign policy than domestic policy, so perhaps there are meaningful differences between Ryan and Romney there. The problem here is twofold: first, foreign policy doesn't map all that well onto a left-right ideological map; second, we don't really know what either Ryan or Romney really think about foreign policy. They might be close together; they might be far apart. Romney might be more hawkish than Ryan. We don't know. Saying that some unknown quantity might be different from some other unknown quantity would be right, but we can't do any comparative analysis on two unknown quantities so we have nothing interesting to say on the topic. Moreover, this would be true of almost anyone Romney could conceivably have picked, so again there's nothing interesting about Ryan per se.

The final argument is that nominating Ryan this election cycle gives him a leg up towards the nomination in future election cycles. Note that since the GOP will nominate someone in future cycles, this changes nothing about points #1-4 above.

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.  

It's A System, Not a Dyad

There's a lot of discussion of China's rise and it's implications for the U.S. Michael Beckley published an article in International Security arguing that China's rise over the past two decades has been dramatically overstated. Phil Arena and Eric Voeten criticize Beckley's thinking -- although not conclusively, I don't think -- while Dan Drezner argues that things is looking up for the U.S., Roubini and Pettis argue that things is looking down for China, Chang (again) says China is gonna collapse, while Liu and Chen think China will democratize. Joffe thinks that the U.S. still has time to act to prevent its slide into "Just Another Country" status, while Subramanian thinks that China has already surpassed the U.S. and Rodrik demurs.

That's a lot of different views being espoused by a lot of different people, most of who are pretty smart, all from the past month or two (and most from the past week!). And while I could quibble with a lot of individual points being made by most of them, I'd like to instead shift the focus a little bit. All of these discussions have either been monadic -- focused on internal aspects of either the U.S. or China -- or dyadic -- the relationship between the two and/or the relative gap between them. While these examinations have their uses, in terms of importance for geopolitics we should think of the systemic as well as the monadic and dyadic.

Similar discussions were being had in the 1980s. Back then it wasn't China's rise that threatened the U.S.'s position, but the advance of Japan and other rapidly-industrializing countries. In response to the prognosticators of the day, Susan Strange wrote a series of articles (e.g. here and here) arguing that many folks were missing the point. In response to those complaining that the U.S. was losing its manufacturing base Strange wrote (second link, p. 5), "Is it more desirable that Americans should wear blue collars and mind the machines or that they should wear white collars and design, direct, and finance the whole operation?" To ask that question is to answer it, but then why has everyone lost their breath over the disclosure that Apple products are assembled in outside of the United States? As Strange noted, what it's important is controlling the information and collecting the profit. In fact, the spread of influence of American corporations outside of the U.S. borders and into other countries actually strengthened American power, according to Strange. Think of it as more fingers in more pies.

Rather than focusing on short-term trends in simple metrics like GDP, Strange was concerned with the "structural power" rather than "relational power". Structural power contained four metrics: the ability to exercise control over others' security; control the system of production and trade; determine the structure of global finance and credit; have the most influence over the global stock of knowledge.

Regarding the first, a forthcoming paper in Conflict Management and Peace Science by Cranmer, Desmarais, and Menninga (all UNC folks) analyzes "Complex Dependencies in the Alliance Network" and confirms what one Chinese official recently said (from memory; can't find the reference now), that China has "only one ally" and it's the one that no one would want: North Korea. The United States, by contrast, has robust ties to nearly every major power in the world and is a central member of NATO, perhaps the strongest defense relationship in the history of the world. (In the Cranmer et al paper, see Figure 4.) In terms of traditional capabilities the U.S. far out-paces everyone else too, but it's the structural relationships that really give the U.S. significant influence.

Regarding production and trade, a recent study looking at networks of corporate ownership found a highly-skewed distribution: 147 firms control nearly 40% of corporations worldwide. Of the top 50 firms in terms of "corporate control", nearly half (24/50) are U.S. firms; exactly one is from China, and it's the last on the list (#50). China is the world's largest exporter, but that is an indication of its dependence on the rest of the world for growth rather than the opposite. And remember that U.S. equities have out-performed China's during the past few years. Is China an important global actor in terms of production and trade? Yes of course. Have they become as embedded into knowledge and production as the U.S.? Not yet.

In terms of the structure of global finance and credit, I have a paper (with Thomas, Sarah, and Andy Pennock) that deals with some of this, currently in the revise and resubmit stage. We've blogged about this before too, so I'll refer you to those rather than re-write the whole thing. (Some other relevant past posts are here.) The gist is that China has surprisingly little presence in the global financial system -- as in, almost none at all -- while the structural position of the U.S. is unparalleled. That's one lesson from Eichengreen's Exorbitant Privilege as well, applied to the monetary/currency systems.

Regarding the fourth of Strange criteria -- control of the global stock of knowledge -- it is true that China has been churning out many more students than the U.S. in STEM majors, and that the quality of Chinese education has improved dramatically, but China remains well behind more developed economies in terms of innovation: Of the 100 most innovative firms in a recent study, 40% are in the U.S.; none are in China. In terms of military technology, the U.S. has a lead of decades on China, and continues to dramatically out-spend China in military R&D. That, coupled with the embeddedness of the U.S. within the global security system, provides a huge structural advantage over China.

I could go on, but this should be enough to give you the gist. It's not enough to just look at recent trends in GDP growth rates and conclude that China will eclipse the U.S. within the next decade. The U.S. has spent decades deeply integrating itself into the global economy, financial system, security apparatus, and knowledge networks. Those positions will likely privilege the U.S. for the foreseeable future. It seems likely that China recognizes this, which is why it hasn't begun challenging the U.S. on any significant dimension yet.

Is US Politics Really More Partisan Than Ever?

Matt Yglesias writes: 

Historically, the United States has been dominated by an ideology of non-partisanship driven by precisely the suspicion that the interests of a party or faction are not those of the country. And for most of America’s history, when parties were largely non-ideological, this made a ton of sense. A non-ideological party, after all, is basically just an interlocking web of patronage networks and party machines. If a Democrat is in the White House, then Tammany Hall gets to reward its supporters by handing out federal jobs in New York City. The machine couldn’t care less what the president thinks about “the issues” (unless the issue is civil service reform) it just wants a president who recognizes his affiliation with the machine.

Karl Smith agrees, and is working on spinning this line of thinking into a broader argument about republican democracy's role in the future of governance.

But I think this is completely wrong. This isn't my area of expertise -- I've tried to enlist one of my grad student colleagues for a guest-post, but he's busy so that can't happen until next week -- but my understanding of the relevant political science literature is that there is a sweet spot during which American politics is less-partisan*. That sweet spot was immediately following WWII, basically the Truman and Eisenhower administrations. Before that the parties were divided by the New Deal and intervention/isolationism in Europe. After that the parties were divided by race and social reform. The current party alignment isn't much different from the early 1970s, when the religious right aligned with the GOP, southern Democrats switched to the GOP, and liberal northern Republicans switched to the Democratic party.

But more fundamentally it's just really hard for me to buy an argument that rests on the assumption that the current political environment is more nasty or divisive than it's ever been. Given the history of political competition and instability in this country -- literally from its moment of inception -- today's political environment doesn't seem out of the norm. In fact, things might be more civil now than at most points in US history.

In any case, US politics has always been about competing interests. Whether those are transformed into ideology more or less now than before is thus not all that interesting of a question to me. It's asking about the window-dressing, not the structure of the building.

*I'm not sure partisanship is the best proxy for "ideological parties", but I think that's what Yglesias and Smith are really driving at anyway.

UPDATE: Michael Flynn has a great post (better than mine) looking at the same dynamics I'm concerned with but focusing on foreign policy. And as Phil Arena points out in comments here, Brendan Nyhan (and others) have covered this ground much better than I can. Here's one good example.

Politics of Default for the Cynical

John Sides Joshua Tucker has a post on whether political science literature would/could predict that the Republicans would intentionally sabotage the economy in order to increase the chances that Obama loses the 2012 election. It's a fine discussion, but I'd like to add a few things related to the whole idea of economic voting, while acknowledging that this is not my area of expertise so it could all be wrong.

1. There's a fundamental assumption embedded in the economic voting literature that representatives are trying to manage the economy well, or at least well enough. When one party fails at that task, voters give another party a turn. In a situation in which the opposite is happening -- in which one party is openly trying to destroy the economy while the other is trying to save it -- the economic voting literature gives no reason to expect voters to reward the saboteurs. It violates the most core assumption of the basic model, which is that voters reward good governance (or at least good outcomes that are attributed to good governance). Tucker kind of gets at this in his last paragraph, but fails to drive home the point.

2. This may depend on how obvious the sabotage strategy is, and the particular frames voters use to interpret it. In this case I think it's pretty obvious. If Congress doesn't raise the debt limit, and the economy collapses, it'll be hard for Republicans to run and hide. McConnell's quote that his #1 task was to defeat Obama in 2012 rather than govern well will be in every Democratic advert. Cantor's short position on US debt will be shouted from the rooftops, and possibly investigated. Limbaugh's quote that he hopes Obama fails would be oft-repeated. Obama can say "I wanted to keep the Social Security checks flowing, I wanted to to not blow up the financial system and increase the costs of servicing our debt, but the GOP Congress wouldn't pass a bill allowing me to do it."

3. As Tucker says, many interest groups in the GOP camp are opposed to a shutdown/default. If the Chamber of Commerce and American Bankers Association as well as every economist in the world tell the GOP leadership that default is a bad idea, and the GOP goes against them anyway, well then that could be explosive.

4. This is where the McConnell gambit comes in. The GOP may decide that kicking the can down the road, with plausible deniability ("we voted against it!"), might be their best strategy. Obama opposes this strategy. Neither Obama nor the GOP is acting like a shutdown/default -- as opposed to signaling and theater -- is in the best interests of the GOP.

5. Tucker cites the Clinton shutdown in 1995 as Tucker's co-blogger John Sides has done before, but I think a few things need to be said about that. For one thing, the economy is in a very different place. For another, while Sides has presented evidence that the shutdown didn't benefit Clinton (see the graph at the link) what I see from that time series is a relatively minor downtick in Clinton's approval that quickly reversed after the shutdown ended, after which his approval continued to grow leading up to the election. To the extent that the Republicans are less concerned about Obama's approval in August, 2011 than November, 2012, Sides' previous analysis doesn't tell us all that much. In 1996 Clinton won re-election easily, while the House GOP lost some seats. That isn't proof of anything, but while the shutdown might not have helped Clinton it doesn't seem to have hurt him either. It certainly doesn't seem to have helped Gingrich or Dole.

Update: I got posts by Tucker and Sides confused. I think they're straightened out now.

Obama, India and the UN Security Council

It was 7am this morning and I still hadn't been able to fall asleep. I turned on the tv and flipped through the cable news channels to see if anything could put me to sleep and stumbled upon Morning Joe who had Council on Foreign Relations President Richard Haas on talking about US foreign policy, international trade and foreign presidential trips. Decent discussion of past foreign trips, some talk on Afghanistan and a debate (not very spirited) on what would change now that the Republicans had taken over the HoR. Haas left and I thought to myself, "perfect, they'll bring on some 'strategists' that will start spewing some totally wrong 'analysis' that'll put me right to sleep in no time."

But the foreign policy morning theme continued. It turned out that President Obama was before the Lok Sabha, the Indian lower house of parliament and was going to give a speech around 7:15am. (So that's why Haas was on and they weren't talking about American politics. Damn! There goes my hope for cable news putting me to sleep.) The President's speech was rolling along like any other US presidential speech to the parliament of a strategic ally: lots and lots of butt-kissing, nice words regarding current and future strategic partnership between the oldest and largest democracies, praise for India's ability to raise so many out of poverty and of Indian business and technological advancement.

But then, out of absolutely nowhere it seemed like, President Obama announced that the United States endorsed a permanent seat for India on the United Nations Security Council. I almost fell off the couch. Not because I don't like the idea. In fact, I think it's a great idea and something that is long overdue (along with permanent seats for Germany, Mexico, Brazil, and South Africa) for a variety of reasons. But for an American president to endorse the expansion of the Security Council and to give a permanent seat to a rising power was unprecedented. But it also makes a heck of a whole lot of sense (nice carrot for future US-Indian cooperation, increases legitimacy of the Security Council by including rising powers and expanding voting members, etc.)

The most appealing and likely plan for UN Security Council reform would expand the council to 24 members, increasing the number of permanent members from 5 to 10 and the number of rotating, non-permanent members from 10 to 14. Some proposals call for the new permanent members to also have veto power while others give them only permanent status and reserve veto power for the original five permanent members. The trickiness in the Obama endorsement this morning was that he said "permanent" member which opens the door to including India and placating its demand for a seat in the forum but not watering down US (and other current permanent member) power by adding more states with veto power. The key is in the veto power and not necessarily in increasing the amount of seats or including new permanent members.

Developing (this is going to take a long time to happen) in a very interesting way...

Structure and Experimentation in the International System

Jeffrey Frankel says that we can learn from policy experiments in smaller countries:

Two decades ago, many people thought that the lesson of the 1980’s was that Japan’s variant of capitalism was the best model, and that other countries around the world should and would follow it. The Japanese model quickly lost its luster in the 1990’s.

A decade ago, many thought that the lesson of the 1990’s was that the United States’ variant of capitalism was the best model, and that other countries should and would follow. The American model lost its attractiveness in the 2000’s.

So, where should countries look now, in 2010, for models of economic success to emulate?

Perhaps they should look to the periphery of the world economy. Many small countries there have experimented with policies and institutions that could usefully be adopted by others. ...

[A] country does not have to be large to serve as a model for others.

Small countries tend to be open to trade. Often, they are open to new ideas – and freer than large countries to experiment. The results of such experiments – even those that fail – include useful lessons for all of us.

Perhaps. But small countries have a big advantage when it comes to experimentation: they are small. If Estonia or Mauritius (two of his examples) try out some new policy, it doesn't affect the global economy at all. If the U.S. even considers trying to adjust the composition of the maturity of its debt (QE2), the global economy goes crazy. If the U.S. pursues typical monetary policy -- holding interest rates low to combat deflation by counteracting a dropping velocity of money -- other major countries freak out about "currency manipulation".

There are structural factors in international politics that give states advantages over others in some areas but not in others. The position of the U.S. as the leading state provides benefits for the U.S., but it also prevents the sort of policy experimentation that has worked so well for Chile. Or China, for that matter. And Chile and China would not be able to experiment if the stability of the system was not maintained by others.

US-Saudi Arms Deal

It looks like my post early this morning about arms sales and economic-political decision making had some pretty fantastic timing. Al-Jazeera and The Guardian are reporting that President Obama is on the verge of authorizing a record $60 billion arms deal with Saudi Arabia in which the US will sell the Saudis "as many as 84 new F-15 fighters, upgrade 70 more, and [...] three types of helicopters - 70 Apaches, 72 Black Hawks and 36 Little Birds" as well as other sophisticated weapons systems.

There are some pretty interesting political questions and angles to this story. The first question: Why? The official explanation being bounced around by both administration officials and analysts is about countering growing Iranian influence in the region. This deal will modernize Saudi defense capabilities and advance short-range offensive capabilities. The administration is trying to use Saudi Arabia to balance Iranian power in the region (not necessarily a new idea). This deal will also deepen and further solidify US-Saudi Arabian cooperation in the Middle East for years to come, as the delivery of the entire package is expected to take roughly a quarter-century.

But why only F-15 aircraft? F-15's are one of the most successful fighter aircraft around (so they're dependable), but they aren't the most advanced nor newest toy on the market. They've been around since the early 1970's. Saudi Arabia has enough resources to splurge on top-caliber fighter aircraft and weapons systems, so money isn't particularly a constraint. Why not the F-22 or the F-35? It looks like Israeli influence played a strong role in preventing the transfer of newer long-distance aircraft with stealth technology to the Saudis as this would decrease Israeli primacy as far as weapons technology in the region. The Israelis also objected to including long-range capabilities on the F-15's that will be delivered as they sought to limit long-range strike capabilities by the Saudis, thus reducing the risk of a future Saudi air strike. Also, the Israelis have put in their own orders for the new stealthy F-35 which is another reason they don't want the US to also sell them to the Saudis.

What does the US get out of all this? Well, the administration will absolutely push the jobs angle pretty hard. During these slow economic times, with mid-term elections coming up in November and a 9.5% unemployment rate, the Obama administration will seek to sell this agreement to the American public by arguing that the deal will create about 75,000 jobs for Americans, although the majority of these jobs will be at companies like Boeing, GE, and Lockheed Martin. These companies don't typically hire construction workers, financial professionals, real estate agents or other employees from hard-hit sectors of the economy. These new jobs will go to highly skilled, college-educated workers, or the types of workers that already have good jobs in a sector with relatively low unemployment rates. Recent graduates in engineering, physics, project management and other aircraft-manufacturing related sectors will also benefit. Yes, there may be indirect employment gains in retail and other sectors as those 75,000 workers in those new jobs spend their salaries, but I wouldn't count on these new jobs to make much of an impact on aggregate demand or unemployment numbers. But that doesn't necessarily matter in the short run. In the eyes of the Obama administration, stronger military ties with Saudi Arabia, countering Iranian influence in the Middle East and the perception that new jobs for Americans are being created is enough of a reason to proceed with the agreement right now.

Arms Sales and Why Economic Decisions are Political

A report regarded as the most detailed evaluation of unclassified global arms transactions data released over the weekend by the Congressional Research Service found that the "Great Recession" has dramatically affected state-to-state arms transactions, with arms sales dropping to $57.5 billion in 2009, a drop of roughly 8.5% from 2008. (It looks like the actual report hasn't yet been released to the public, only to members of Congress, but here is an analysis of US arms sales from the CRS released last December and last September's CRS analysis of conventional arms sales to the developing world).

The United States remained well ahead of all other states with arms sales totaling $22.6 billion which comes out to about a 39% market share, but down from total sales of $38.1 billion in 2008. The report tells us that the largest arms selling states are the most powerful states, as is expected, with Russia, France, UK, Germany, Italy and China trailing the United States. The largest purchasers are middle income countries, with Brazil, Venezuela and Saudi Arabia as the three largest consumers, and Taiwan, the UAE, Iraq, Egypt, Vietnam, India and Kuwait following closely behind.

What effect do these arms sales have on the international arms market? Well, those countries that are purchasing new equipment surely aren't going to destroy their "dated" equipment but rather are going to transfer this old equipment legally or illegally down the income chain to less developed states. In one way, this is a good thing. These poorer countries are able to increase their capacity for self-defense and internal policing and these arms should help consolidate their monopoly on the use of force within their borders at a cheaper price than they otherwise would pay in a market where middle income countries weren't selling their old equipment. The int'l arms market expands, and prices on second-hand arms should decrease. These lower prices should allow states to allocate the savings from arms sales to providing services to their domestic populations.

But, what about the rest of the money that states use to purchase weapons and arms? Is this a productive use of state resources? What effect do these arms transactions have on economic growth, violence and development in these countries? Military/arms purchases tend to be non-productive in terms of direct effects on growth and development; they don't tend to add points to GDP. These purchases could be indirectly growth improving if they increase a state's capacity to ensure peace and stability, thus having a positive effect on investment and production for a variety of reasons (investors face less uncertainty, production and consumption aren't affected by armed conflict, etc.).

Many people argue that these funds should be invested in more efficient and productive sectors such as education, health, and infrastructure instead of on arms purchases and that they don't understand why countries waste money on arms. They argue that developing countries need to maximize growth and help their struggling and poor citizens. So the question is why aren't funds being allocated to their most efficient use? Shouldn't the market reward efficient and productive asset allocation? Why are states leaving percentage points of economic growth on the table and instead investing in arms purchases? Politics.

If there is one thing that this blog tries to make clear it's that politics matters, that politics affects decision-making and that you can't analyze economic transactions unless you bring the politics in. Politicians use arms sales to buy the support of their militaries by providing them with new equipment in order to ensure loyalty. Voters tend not to like it when they perceive their militaries to be ill-equipped, underfunded and not ready to defend their borders or counter an invading force, thus incentivizing politicians to spend on arms. Politicians and states use military spending as a signal to opposing states regarding their military intentions, capabilities and power. Politicians use arms to combat domestic insurgencies, uprisings and other domestic civil unrest. Politicians use arms sales to establish ties with powerful arms-selling states (who also have the world's largest domestic markets and influence in international financial organizations and other IGOs), and they hope that individual arms sales will be coupled with other aid, military ties or inducements in the future. These are all politically-based reasons for why states spend money on arms. Asset allocation in domestic economies is a political act, and that's why we don't always (rarely?) see efficient outcomes.

For Richer or Poorer

Kevin Drum, summarizing research by Larry Bartels:

Using data from voting records in the early 90s, it shows that the responsiveness of senators to the views of the poor and working class is....zero. Or maybe even negative. And that's true for both parties. The middle class does better — again, with both parties — and high earners do better still. In fact, they do spectacularly better among Republican senators. And this disparity has almost certainly gotten even worse over the past two decades.

I haven't read the paper yet, so I don't know what the caveats are. But if this sort of result holds up it calls a lot of political economy models into question. I may comment more if I find time later in the week (I'm studying for comps, so blogging time is limited).

Afghanistan is rich!

The NYTimes is reporting that American geologists have found massive untapped mineral deposits, estimated at upwards of $1 trillion, throughout Afghanistan.

The previously unknown deposits — including huge veins of iron, copper, cobalt, gold and critical industrial metals like lithium — are so big and include so many minerals that are essential to modern industry that Afghanistan could eventually be transformed into one of the most important mining centers in the world, the United States officials believe.

Last year, I highlighted that over half of the world's current lithium reserves are located in Bolivia, a country whose current political leadership isn't particularly high on our list of best friends. The Times is reporting that the geologists initial analysis of one location in Afghanistan's Ghazni province showed the potential for lithium deposits of about the same size as those in Bolivia, which can potentially be a game-changer in and of itself for the Afghan government and the US-led war in Afghanistan. As I noted last year, lithium powers virtually every single battery that we use in our daily lives, from our cell phones and laptops to our iPods and even new battery-powered electric cars.

Two things got me thinking after reading the article: 1) It seems as if the deposits were first discovered by Soviet engineers and geologists after the Soviet invasion of Afghanistan. After the Soviets withdrew from the country, the maps remained behind hidden by Afghan engineers. I find it hard to believe that the Taliban and ensuing Afghan governments had no idea that Soviet engineers had found vast deposits of minerals. But maybe they didn't. If they did, why would they not seek to exploit them?

The second thing is: how will this mineral discovery affect the Afghan government and the future of the Afghan political and economic system? My guess is that there will be heavy competition for mining rights amongst American, Chinese, India, Russian, Brazilian and British firms. (Duh.) But corruption, money laundering, environmental problems, and labor exploitation will absolutely rise. Afghan government corruption is already incredibly rampant and the discovery of vast reserves of minerals will explode that corruption to levels we've never seen. I guess it's a great time to get a job in the Afghan Minerals Service and other government agencies related to Mining and Commerce. This will also almost surely mean that the United States won't be leaving Afghanistan for the next 100 years. We've invested far too much to leave right when a massive pile of dollars emerges from the ground. We have the capital, the infrastructure and the machinery to be able to extract and exploit these resources. Our presence on the ground in Afghanistan should give us a first mover advantage over other governments.

One last thing, there is going to be no way in hell that Hamid Karzai is going to want to leave his post as president of Afghanistan. He rigged the election last year to stay in charge of a super-poor, agrarian, completely destroyed country that is fighting an insurgency. Now that he can potentially control loads and loads of global mineral reserves, huge commercial interest from the world's most important nation-states and reap massive personal financial benefits from his position, only another civil war will be likely to remove him from power. Oh yeah, the probability of a civil war over the next decade just increased to about 99.9%.

Terrorism and TSA Restrictions on Passengers

As I'm sure you all have heard, a 23 year-old Nigerian man (who studied mechanical engineering at University College London and whose father is a former Nigerian bank executive) attempted to detonate an explosive device aboard an international flight during the descent into Detroit's Metropolitan Airport yesterday afternoon. The man claims he acquired the device in Yemen and had orders from Al Qaeda to carry through the attack, and Christmas day seems like a good choice for a day to attack America.

As you also could have guessed, the TSA will surely tighten (and it seems like they already have tightened) security on both international and domestic flights and has already imposed new restrictions on passengers onboard aircraft. These restrictions, as always, are purely reactive. Does the TSA think that anyone is dumb enough to try to copy-cat the attempt by employing the same methods now that the TSA is surely watching?

The restrictions are targeted at

what passengers and crew can do in the air. Although the T.S.A. has not announced it yet, Air Canada appeared to scoop the U.S. government when it posted a statement on its Web site saying that passengers on U.S.-bound flights will not be able to leave their seat in the final hour of the flight, nor will they be able to have anything on their laps: “New rules imposed by the U.S. Transportation Security Administration also limit on-board activities by customers and crew in U.S. airspace that may adversely impact on-board service. Among other things, during the final hour of flight customers must remain seated, will not be allowed to access carry-on baggage, or have personal belongings or other items on their laps.”

I'm sorry but some of these restrictions are just plain stupid. Are you telling me that not letting me read a magazine or work on my laptop for the last hour of a flight will drastically impact national security or put an aircraft at risk? What do they expect passengers to do for that last hour, sit plainly and quietly in their seats bored out of their freaking minds? What will not letting passengers leave their seats for the last hour of the flight accomplish? Will reducing their mobility and confining them to airplane seats that keep getting smaller and smaller make the plane any more secure?

Potential terrorists will simply assemble their devices during the second to last hour of the flight instead of the last hour of the flight and keep the device in their backpacks and detonate them under the seats in front of them instead of on their laps. These restrictions are simply idiotic knee-jerk reactions made by bureaucrats that have simply not thought of the alternative ways in which terrorists will get around these restrictions. The only way to decrease the probability of such an attack is to prevent these materials from getting onboard the planes in the first place. Once the materials are on the plane, terrorists will find a way to detonate them. What are they going to do next: make me take my pants off during the last hour of my flight so that they can see exactly what is going on in my lap?

Don't be stupid; the TSA, or in this case the security personnel in Amsterdam royally screwed up, (and this extends to the intelligence agencies that overlooked the terrorist in this case after his father went to the US Embassy in Nigeria to notify them as well as the bureaucrats that are in charge of deciding what is and what is not allowed on airplanes - i.e. the liquid that the terrorist smuggled onto the plane and used in his device) and they think that imposing harsher restrictions on passenger mobility while on the flight will simply fix their screw-up. Not gonna happen.

Stimulus Spending in Comparative Perspective

The NY Times ran a series of articles on how stimulus funds have been spent in the U.S., E.U., India, and China. Let's have a look:

In the U.S., for all the talk of "rebuilding America's infrastructure" the need to fund "shovel-ready projects" has meant that stimulus funds have gone to some dubious projects, like a sports complex at a community complex in suburban Chicago. Actual new spending on infrastructure has been slow. And if the point was increase employment, it hasn't done that very well either: more money should have gone to state and local governments, and expanded education and job re-training. It's not that stimulus has done no good; it's just that the government hasn't gotten much short-term bang for its buck, nor has it led to long-term reform or structural improvement.

The record in the E.U. is even more spotty. The Stability and Growth Pact prevents local governments from engaging in much fiscal stimulus directly, and the broader E.U. has done very little. Some think that the E.U.'s "automatic stabilizers" are sufficient, while others are not interested in using E.U. funds to prop up individual countries (e.g. Spain). Additionally, many member states had high debts before the crisis, which has limited their abilities to fight it. In short, the crisis has shown -- once again -- that E.U. member states do have to sacrifice some sovereignty to join the union. But this may not be a terrible thing: Ireland's recent passing of the Lisbon Treaty shows that many in Europe have confidence in the union than has not been shaken by the crisis.

India responded to the crisis with aid for rural workers and tax cuts, but they may have overshot: growth is back to 6%/year, but inflation is now a worry. And the rapid response by the government was somewhat unfocused, leaving many questioning why more money wasn't spent on improving India's infrastructure and expanding opportunities for the poor. The recent decline in the dollar has also adversely affected exporters.

China's response to the crisis was swift and large: huge fiscal stimulus, a loosening of monetary policy, and injections of liquidity into the banking system. A good bit of the stimulus is going to infrastructure projects, but China had so many "shovel-ready" projects in the pipeline that some wondered whether this stimulus spending represented new spending or just planned expenditures under a new name. But China has not used the crisis to build up domestic institutions (like a social safety net and access to credit for private small businesses) that would increase domestic consumption and begin reversing the global imbalances that contributed to the crisis in the first place. Perhaps that transition is too much to ask of a short-term stimulus package, but they could have started programs to that end.

In short, a mixed record. And despite all the talk of reform, very few concrete actions have been taken to address the major issues in global or domestic economies. I suppose those will have to wait for the next crisis.

Slaughtering the State Department

Spencer Ackerman sits down with Anne-Marie Slaughter to discuss her efforts (under Sec. Clinton) to reform the State Department, and take some of America's foreign policy back from the Pentagon. Clinton ordered a new planning document for State, the Quadrennial Diplomacy and Development Review (QDDR), and put Slaughter in charge of creating the QDDR (along with Deputy SoS Lew and senior USAID official Michael). What is Slaughter hoping to address?

Asked if the QDDR will result in institutional changes at the State Department and USAID, Slaughter answered simply, “Yes.” While she said she could not yet determine would precisely would change, the QDDR’s working groups are asking a fundamental question: “What do we need?”

Three broad conceptual lines will determine the answer. The first, Slaughter explained, is that U.S. foreign policy is beset with “collective problems” — from terrorism to climate change to pandemic disease — that require joint international action, something all the stakeholders at Slaughter’s International Finance Corporation lunch recognized. ...

Accordingly, the second concept is about how State and USAID work with the military to address “the question of civilian operational capacity to crisis.” The widespread inability of the State Department and USAID — with budgets representing a tiny fraction of the half-trillion-per-year Defense Department — to deploy to conflict zones has expanded the military’s role in stabilization and reconstruction duties broadly understood to be civilian tasks. ...

The final overarching construct the QDDR will address goes back to Slaughter’s International Finance Corporation lunch. Powerful states remain “very, very important” in geopolitics,” she said, but “the landscape of nonstate actors is so dramatically different,” requiring State and USAID to think about how to perform diplomacy and and development work in an international environment where investment banks, multinational alliances, private advocacy groups, religious institutions and other players “have the power that once only states had.”

Slaughter does not yet know how the QDDR will answer to those questions. “I think by framing the questions that way, you’re asking people to look at the capabilities that we need” and then identify existing gaps.

The fact that it's nearly 2010 and the U.S. State Dept. is just now starting to look at nonstate actors as important for global governance should scare the bejeezus out of everyone. Seriously? I know it's the "State" department, but given that nonstate actors can greatly affect states you'd think that these things might've come up before.

Another criticism of State is its sclerotic nature. Institutional decay within the department has made it difficult for State to play a proactive role in American diplomacy (Matt Armstrong's recent piece making this case is referenced in Ackerman's article). Slaughter recognizes the difficulties, but she knows that the QDDR is just a report; follow-up actions are necessary too.

I, for one, am cheering for her. She knows what needs to be done, and everyone knows that America is not well-served by having nearly all of its foreign policy run out of the Pentagon. It's an uphill slog, but Obama seems committed to it, Clinton seems committed to it, and the country needs it. So hopefully something good will come out of the QDDR.

Two Nations Divided by An (Un)Common Arithmetic

Via LGM, when a £billion might not be a £billion.

Concert in Havana

Today, over 500,000 people have gathered in Havana's Revolutionary Plaza for a massive concert featuring Colombian star Juanes and an array of other Latin American and European performers (You can watch the concert live online here). The concert has been promoted as a gathering for peace intended to bring down the hard walls between the governments of the United States and Cuba and to promote dialogue between two countries that have had tense (and at times nonexistent) relations for over 50 years.

The concert has been incredibly controversial on the streets of Miami where Cuban hardliners, primarily members of the older Cuban exile community, have been critical of Juanes and the other performers for going to Cuba, and refuse to even consider any type of rapprochement between the US and Cuba.

The WSJ provides good coverage of today's events:

Billed as a “concert for peace,” the event has produced a war of words in Miami where a majority of Cuban exiles feel the Colombian singer, who lives in the tony Miami suburb of Key Biscayne, will help legitimize the Castro gerontocracy. Some protesters say they will use a small steam roller in Miami’s Little Havana neighborhood to flatten a mountain of Juanes CDs as he takes to the stage in Havana. (Juanes didn’t immediately respond to interview requests.)

According to polls, while a majority of older Cubans, and those who arrived in early waves of immigration from the island are dead set against the concert, younger Cubans, more recent arrivals and those born in the U.S. of Cuban parents are much more prone to say, “Why not?”

Some, more liberal exiles hope the concert may open the way to more people-to-people contacts between the two countries -– a musical version of the “Ping-Pong” diplomacy that led the late President Richard Nixon re-establish ties with China decades ago. The concert has also received the full backing of the U.S. government, which facilitated permits for musicians to travel to Havana. Juanes even discussed the event with Secretary of State Hillary Clinton, who posed afterwards for photographs with the singer.

The fate of the Juanes concert may influence a pending decision by the New York Philharmonic, which is also mulling an invitation to perform in Havana next month.

Since taking office, President Obama has set in motion a slow rapprochement between Cuba and the U.S., lifting restrictions, like the amount of money Cuban Americans can send to relatives and the number of trips they can take to visit relatives on the island. Obama has said the U.S. is ready to act further if Cuba reciprocates, but Cuba has repeatedly said it is disappointed by Obama’s refusal to lift the decades old U.S. trade embargo.

While the Juanes event has caused controversy in Miami, not so in Havana where most people welcome any distraction from their drab lives. Some 36 current and former political prisoners signed a letter urging the Colombian singer to come to Cuba, saying the concert is a chance to advance reconciliation.

Gorki Aguila, leader of Cuba’s leading punk-rock band Porno para Ricardo, says he’s in favor of the concert, although he believes it will be manipulated by the regime. Speaking from Miami, where he is visiting, Aguila said that if Juanez talks about peace, he should also talk about what he sees around him. “He should talk about the reality of the people. There is no freedom of any type, the regimen has imposed its ideology for fifty years, and its time to be done with that,” said Aguila.

The older members of the Cuban exile community have long dominated all political discussion on Cuban issues within the United States, and it's about time the younger generation steps forward and flexes its own political muscle. The younger generations are far less conservative and much more open to engagement with the Cuban government and have come to realize that 50 years of isolation, embargo and idiocy have done absolutely nothing to bring about freedom and greater prosperity on the island.

The younger generation in the US holds the same disdain for Cuba's revolutionary past, but believes a more practical policy of direct people-to-people engagement would bring about a quicker and better solution to "That Infernal Little Cuban Republic" 90 miles off of the American coast. Gorki Aguila summed it up quite well in the quote above, the purpose of the concert and of engagement in general should be to normalize relations, but this should be discussed in the context of human rights violations, repression and outright abuse on the island. The Cuban government should not get a free pass for the hell it has put families and its own citizens through over the past 50 years.

Nevertheless, it's time for direct engagement with the Cuban people and for the United States to put forward a different approach. It's time for the Cuban diaspora to get over its stubbornness and bring Cubans both in the US and Cuba together.

Update (5:41pm): The latest estimates of the crowd now have attendance at 1.15 million people. Even though the government has tried to keep liberal politics and calls for freedom out of the concert, let's just say that some of the performers aren't cooperating. Songs and singers calling for "a time to change","libertad", and "the first step to overcoming fear is to stand up" are being blasted in the plaza.

Sixteen Receive Presidential Medal of Freedom

President Obama awarded the Presidential Medal of Freedom, the highest civilian award in the U.S., today to 16 extraordinary human beings. The medal is designed to recognize individuals who have made "an especially meritorious contribution to the security or national interests of the United States, world peace, cultural or other significant public or private endeavors." This is something that should be getting a hell of a lot more press.

The annual award was created after World War II when President Harry Truman wanted to honor civilian service during the war.

The 16 who [were] honored at a White House ceremony Wednesday afternoon are:

– Nancy Goodman Brinker: The death of her sister from breast cancer prompted Brinker to found Susan G. Komen for the Cure, which has now grown to become the world's leading breast cancer grass-roots organization.

– Pedro José Greer Jr.: Among the many hats Dr. Greer wears, he is the founder of Camillus Health Concern, an agency that provides medical care to more than 10,000 homeless patients every year in Miami, Florida.

– Stephen Hawking: The internationally-recognized theoretical physicist has spent his career making complex scientific concepts accessible to the layman, including penning the best-selling novel, "A Brief History of Time."

– Jack Kemp: The quarterback-turned-politician will be honored posthumously for the years he spent, leading up to his death in May, raising awareness of and encouraging development in underserved communities.

– Sen. Edward Kennedy: During his 46 years as a lawmaker, Kennedy has called health care reform the "cause of his life," championing nearly every health care bill enacted by Congress in the last five decades. However, the ailing Kennedy will miss Wednesday's ceremony due to his ongoing battle with brain cancer, the White House said. His sister Eunice Kennedy Shriver, who died on Tuesday, also received the Medal of Honor in 1984 from President Ronald Reagan.

– Billie Jean King: With her victory over Bobby Riggs in the "Battle of the Sexes" tennis match in 1973, and in the years since, King has champion gender equality not only in sports but in all areas of public life.

– Rev. Joseph Lowery: With Dr. Martin Luther King Jr., the civil rights icon co-founded the Southern Christian Leadership Conference, a leading civil rights organization, and has continued to highlight the cause worldwide, including speaking out forcefully against apartheid in South Africa until its end in 1994.

– Joe Medicine Crow-High Bird: The last living Plains Indian war chief and author of seminal works in Native American history is also the last person alive to have received direct oral testimony from a participant in the Battle of the Little Bighorn: his grandfather, a scout for Gen. George Custer.

– Harvey Milk: The first openly gay person elected into office in a major U.S. city, Milk is revered as a pioneer of the lesbian-gay-bisexual-transgender civil rights movement. He will be honored posthumously as well.

– Sandra Day O'Connor: At a time when women rarely entered the legal profession, O'Connor graduated Stanford Law School third in her class and went on to become the first woman ever to sit on the U.S. Supreme Court.

– Sidney Poitier: The first African-American to win a Best Actor Academy Award, Poitier also broke ground by insisting that the crew in one of his films be at least 50 percent African-American and by starring in the first mainstream movie portraying interracial marriage.

– Chita Rivera: The winner of two Tony Awards, Rivera was also the first Hispanic to receive the Kennedy Center Honor, awarded annually for exemplary lifetime achievement in the performing arts.

– Mary Robinson: Since ending her term as the first female president of Ireland, Robinson has headed Realizing Rights, an initiative that ensures that human rights is not forgotten as nations chart a course toward globalization.

– Janet Davison Rowley: Her work on chromosome abnormalities in human leukemia and lymphoma has led to dramatically improved survival rates for previously incurable cancers.

– Desmond Tutu: An Anglican archbishop and a leading anti-apartheid activist, Tutu is widely regarded as "South Africa's moral conscience" and chaired the country's Truth and Reconciliation Commission when it was created in 1995 to discover and reveal past wrongdoing.

– Muhammad Yunus: A Bangladeshi economist and winner of the 2006 Nobel Peace Prize, Yunus pioneered the use of micro-loans to provide credit to the poor without collateral — a successful model that has been emulated worldwide.

I have the extreme privilege and pleasure of being friends with Dr. Pedro Greer, a Cuban-American gastroenterology and hepatology specialist who is the Assistant Dean of Academic Affairs and Chair of the Department of Humanities, Health and Society at Florida International University School of Medicine in Miami, FL. Dr. Greer founded not-for-profit Camillus Health, which is attached to Camillus House Miami's largest inner city homeless shelter, and provides free medical care to the poor and homeless population in downtown Miami. He has been awarded three Papal medals and was also awarded a MacArthur "genius grant" in 1993. He is a fascinating, brilliant and entertaining man and is always ready to tell whoever is sitting around him a wonderful story. I will never forget a conversation about the state of health care in Cuba I had with him over coffee at a conference at Princeton University a couple of years ago. He truly deserved this award. Congratulations Dr. Greer and all others who received the Presidential Medal of Freedom!

Obama, Cuba and the OAS

Many know of my general disdain for staff editorials published in American newspapers (mostly because the majority of them are useless and poorly written, take up space that could be used by experts to publish their own opinions, and do not list the author). However, I was pleasantly surprised to see this staff op-ed in yesterday's NY Times. Especially these lines:

For 50 years, the Cuban people have suffered under Fidel Castro’s, and now Raúl Castro’s, repressive rule. But Washington’s embargo — a cold war anachronism kept alive by Florida politics — has not lessened that suffering and has given the Castros a far-too-convenient excuse to maintain their iron grip on power.

So we are encouraged to see President Obama’s tentative efforts to ease the embargo and reach out to the Cuban people. At the same time, we are absolutely puzzled and dismayed by this week’s frenzied push by many Latin American countries to readmit Cuba to the Organization of American States.

The more contacts Cubans have with the outside world — and the more they learn about the freedoms just 90 miles away — the more likely they are to question the privations of their one-family rule.

The White House also has offered to negotiate the first direct-mail service in decades and to resume talks with the Cuban government on migration, which were suspended by the Bush administration in 2003 along with most avenues of regular communication. This week, Havana agreed to the talks on migration and mail service as well as to possible cooperation on counterterrorism, drug interdiction and hurricane relief.

This is not a reward for the Castro government. Eliciting Cuba’s cooperation is in this country’s clear interest. We also suspect that if Cuban officials talk to their American counterparts regularly, then they, too, may end up questioning their political allegiances.

It is obvious that the 50 year old embargo has not worked. The op-ed calls for engagement with the Cuban government, an engagement economically, politically and socially that would allow the United States to directly speak to the Cuban people and help establish connections between the two countries. These economic, political and social connections, it is argued, are critical in bringing greater political freedom and economic prosperity to the island. The belief is that engagement and connections will begin to foment internal dissent, and economic prosperity will further that dissent to the point where democratic reforms are possible. (I tend to agree with this position and the belief that integration between these two countries would only be good for political freedom on the island.) There are two models for transition: 1) The Eastern European model of quick and direct transition from authoritarian socialism to democratic capitalism and 2) The Chinese model of creeping economic liberty with the hopes of political liberty as economic liberty increases. I hope that model #1 is the answer, but realize that in reality, we are most likely to see model #2 play out under Raul Castro's Cuban government, unless something unanticipated happens like a coup. 

The op-ed also calls for tearing down a key piece of propaganda that the Cuban government repeatedly uses with its domestic audience as well as sympathetic leaders throughout Latin America and the world. The Cuban government repeatedly argues that the embargo, placed by the dominant and imperialist American government, is the reason that its people are under-nourished and the cause of its slumping economic position, even though Cuba is allowed to trade with the other 191 countries in the world. Removing the embargo would weaken this line of argument.

But, of course there are reasons why the embargo is still in place, and the crux of these reasons lie in the important Cuban-American voting bloc based mostly in South Florida and the greater New York/New Jersey region (where both sitting Cuban-American U.S. Senators, Bob Menendez and Mel Martinez hail from). But, things-are-a-changing here too. As the older, very conservative and pro-embargo Cuban-American population begins to die out, a new, more liberal, anti-embargo, and more pragmatic younger generation of Cuban-Americans is coming to the fore. The movement of the Cuban-American community closer to the political center will be key to the removal of the embargo. 

US Unemployment Rate Higher than Europe's?

It is expected that when the April international unemployment numbers are released, the United States will have a higher jobless rate than Europe. The United States' rate is already on par with European averages, a factoid that would have surprised many just a few months ago. 

For many years, unemployment in the United States was lower than in Western Europe, a fact often cited by people who argued that the flexibility inherent in the American system — it is easier to both hire and fire workers than in many European countries — produced more jobs.

In April, the rate in the United States rose to 8.9 percent. When the European figures are compiled, it seems likely that the American rate will be higher for the first time since Eurostat began compiling the numbers in 1993.

For men, the unemployment rate in the United States surpassed that of the 15 original European Union countries in December. By March, it was 9.5 percent in the United States, compared with just 7.5 percent for women. The figures for men and women in the 15 European countries, however, are close together, at 8.4 percent and 8.5 percent.

How did that happen during a worldwide recession? First, it appears that the safety nets in many Western European economies made it easier for people to keep their jobs as the economy declined. In Germany, programs allow companies to get government help in paying workers, for example, keeping them employed. If the recession becomes severe enough and long enough, of course, it could turn out those programs do not so much avoid the pain as defer it.

In the United States, there has been more movement of workers from depressed areas to places where the employment outlook is brighter. But the housing crisis appears to be hampering such movement because some workers own homes that are worth far less than the amount they owe on their mortgages.

Among the 15 European Union countries, the national unemployment rates range from 2.8 percent in the Netherlands to 17.4 percent in Spain. That is a wider spread than the ones among American states, where the rates range from 4.2 percent in North Dakota to 12.6 percent in Michigan.

So I guess I'll add to the speculation. Another reason may be the extent and quality of European re-training programs and their ability to get workers back into the labor force after shorter adjustment periods. A vast chunk of the increase in American unemployment has come from financials, insurance, housing and retail (as well as unemployed graduate students argh!). Europe may simply have been less exposed to the problems in financials and housing. 

The rigidity of European labor markets also play a role; it is harder to lay off workers in Europe, thus causing a higher level of stickiness in labor markets. As the downturn drags on, we can expect larger increases in European unemployment levels. The United States sheds jobs at a quicker pace (because of relatively less sticky labor markets), with most lay-offs concentrated towards the beginning of a recession. Europe may simply be dragging on the labor market adjustment period with their generous social insurance programs and rigid labor markets. 

So the United States' unemployment rate could rise above Europe's in the short-run, but may be surpassed by Europe's as the downturn continues and as the (predicted) expansion begins. We may simply be observing a wider band for American unemployment rates over time, and a smaller band for the average European rate. 

From "Obscure Journal" Article to Mainstream Policy

Cap and trade has become the "hot" environmental policy of choice as of late. Both those on the right and those on the left increasingly see it as the most efficient and practical way to tackle the issue of global warming using a market-based approach. 

The hard-core environmentalists and champions of global warming on the left would much prefer a strict carbon tax that would levy a tax on emissions of carbon dioxide as a way to cut down on pollutants. The global warming skeptics on the right do not want increases in regulations on businesses and oppose taxing companies on their emissions. They still oppose cap and trade as unnecessary regulation seeking to tackle a mythical problem, but see it as preferable to a strict carbon tax. In other words, if something is going to be implemented, they'd rather see a market based cap and trade, similar to that of the acid rain cap and trade in the early 1990's, rather than higher taxes and regulations. 

A cap and trade program, with its relatively broad appeal, is easier to sell politically and cheaper to administer:

It is almost perfectly designed for the buying and selling of political support through the granting of valuable emissions permits to favor specific industries and even specific Congressional districts. That is precisely what is taking place now in the House Energy and Commerce Committee, which has used such concessions to patch together a Democratic majority to pass a far-reaching bill to regulate carbon emissions through a cap-and-trade plan.

The bill is poised to win committee approval this week, although with virtually no support from Republicans. If there was a single moment when cap and trade crossed the threshold from relatively untested economic concept to prevailing government policy, it came in May 1989 in the West Wing office of C. Boyden Gray, counsel to President George H. W. Bush.

Cap and trade evolved from an academic debate that began in the early 1960s when Ronald H. Coase, then a professor at the University of Chicago Law School, wrote an influential paper, "The Problem of Social Cost,” that examined when government should intervene in cases where a private entity causes public harm.

In 1971, W. David Montgomery, a Harvard graduate student in economics, fleshed out the idea of emissions trading in his doctoral thesis and has spent much of the last three decades trying to figure out how the marketplace can deal with environmental problems that are caused by relatively few actors but have consequences felt globally.

So a cap-and-trade system is poised to make its way through Congress and into legislation. An idea that was hashed out, critiqued and critiqued again in "obscure journals" across a wide variety of disciplines including economics, political science, public health and environmental science, among others, has finally made the long journey from mere idea to "policy" and it only took about 50 years. 

I find it really interesting when policies and proposals have their foundations in academic journal articles written by economists and political scientists (mostly because it gives me hope that I will one day be relevant and may come up with some crazy idea that may actually impact the real world), specifically when proposals and positions are exactly lifted from the literature. The interesting question is: When are policies most likely to get lifted from academic journals? I'm guessing it is during times of crisis, which is when there is an impetus to try new things and actually push through changes in regulatory structures. (Kindred brought this up in a recent paper and discussion.)