Hegemony and the Middle East

John Quiggin has continued his IR/foreign policy commentary, and I continue to generally disagree with his take, but I think I can finally pinpoint why. Take this:

The approach taken by the Administration [in Yemen] has been broadly consistent with that adopted in relation to Mubarak in Egypt. The Administration initially supported Mubarak’s proposal to stay in power and implement reforms, then shifted to the idea of replacing Mubarak with someone like … who could be trusted to pursue the same policies. When that became untenable, the Administration supported a transitional military government with elections to follow, and this outcome looks sustainable at present. [Maybe not. -wkw] However, there’s no guarantee that the government produced by elections will be as pliable as Mubarak’s, particularly in relation to Israel.

These developments don’t fit well with claims about continued US hegemony, at least if hegemony is supposed to entail a capacity to control outcomes. Obviously, the US is not a negligible player, and its change of side will probably hasten Saleh’s departure. On the other hand, the US changed sides only when it became clear it would be on the losing side otherwise. So, its position might affect the timing and consequences of Saleh’s fall, but it wasn’t decisive in bringing it about.

Given the content of this post, as well as previous entries, Quiggin seems to equate hegemony with something approaching omnipotence. E.g., the U.S. is no longer a hegemon because it can't pacify Iraq, or can't drive Airbus out of the market, or reacts to world developments rather than charting its own course and forcing everyone else to go along without a fuss.

The problem with this is that Quiggin has continuously phrased his argument as "U.S. decline has already occurred" or "U.S. is now just another state" or "U.S. has lost its hegemony". He believes that the U.S. used to be a hegemon, but now is not. But I can't think of the period in which the U.S. had unlimited capacity to do whatever it wanted without regard for anyone else. The types of examples he's given as evidence of the limits of current U.S. power -- trouble controlling local populations, regional satellite governments refusing to do D.C.'s every bidding, U.S. corporations facing strong competition globally -- have fairly clear analogues throughout post-WWII history. The U.S. had trouble pacifying Korea and Vietnam, couldn't keep the lid on Iran, was never able to cast aside Castro. Several of the U.S.'s major industries in the 1950s -- such as United Fruit -- lost dominance by the 1970s. The major industries of the 1960s -- the rust belt industries -- lost market share by the 1980s. So when was this time when the U.S. got everything it wanted, just how it liked it?

I think Quiggin may be overestimating just what "hegemony" really implies. It is not absolute power. Some theorists of hegemony refer to a "preponderence of power" that is exercised (largely) through indirect means (to distinguish from empire). Kindleberger referred to a hegemon's ability to stabilize the international system, not dominate it. In any case, it is a continuous rather than dichotomous measure. Quiggin has argued that hegemony, in the American case, requires authoritarianism in the periphery as a means of control. This is the very nearly the opposite of what most recent theorists of hegemony contend. Instead, the "American order" is predicated on the diffusion of liberal norms -- broadly defined, but generally including relatively open, but mixed, economies and representative governments -- throughout the international system, buttressed by a collection of multilateral institutions and a strong U.S. military with a global reach.* In other words, it's a hegemony of consensus rather than brute force, but force can be used if the consensus breaks down.** To the extent that this consensus-based system reinforces the values that the United States prefers, it isn't pushing things too far to attribute its persistence to U.S. hegemony. Indeed, much of what the U.S. wanted (and got) since WWII is not directly unobservable. I.e., the U.S. rehabilitated Japan and Germany and re-integrated them into the international system without much controversy. There have been no major power wars since 1945, and before you say "that's because of nuke deterrence" remember who it was that was doing the deterring. As always, counterfactuals are hard, but mainstream IR theorists from most ideological traditions tend to agree that the U.S. has had a stabilizing influence on the international system. Therefore, if you go with Kindleberger's definition -- hegemon as stabilizer -- rather than Quiggin's -- hegemon as dominator -- you end up with different interpretations of both the motivations and results of the U.S.'s behavior.

Of course there have been moments where the U.S. has had to choose between values: either open markets, or representative government. In many of the cases, i.e. where it has had no large interests, the U.S. has not directly intervened. In other cases, particularly at the height of the Cold War, it's chosen markets over democracy. The type of action that the U.S. has taken to reinforce open markets has ranged from force intervention (the removal of Mossaddegh in favor of Pahlavi, and Allende for Pinochet) to diplomacy (China) depending on the situation. Since the 1980s there's been something of a reversal: the U.S. has preferred accommodation to force when promoting market openness, and has used force to push political reform. Interventions into Somalia, the Balkans, and Afghanistan were clearly not for material reasons, and I think the case that the Iraq invasion was motivated primarily by economic interests is remarkably weak. This shift, I'd argue, is a response to the collapse of the Soviet alternative, which effectively removed the primary rationale for realpolitik in the promotion of American economic values, which left the liberal political values as what needed spreading.

Quiggin hones in on what may be the exception: the Middle East and N. Africa. It's true that American policy there is closer to its Cold War pattern of supporting authoritarians so long as they're willing to keep markets open and not exacerbate security dilemmas. For example, American policy towards Egypt has long been conditioned by Suez Canal politics, as well as Egypt's stance towards Israel. But there has been another component for at least a few decades: try to use American support as a moderating influence on regimes. In Libya, that meant buying off Gaddafi's nuclear program. In Pakistan, that's meant trying to prevent a full-on military/ISI takeover, and dismantling AQ Khan's proliferation network. In numerous countries it's meant limiting belligerence directed at Israel. We might question how successful all of these have been, but in each case there's both a logic to the U.S.'s behavior and most likely some tangible gains from them.

Which leads me to Quiggin's conclusion:

Now let’s do what game theorists call backward induction. The crisis in the Arab world has shown that, when push comes to shove in the form of a popular revolt, the US state will have no choice but to leave friendly dictators to their fate. But, if that’s the case then a rationally self-interested US state would not commit significant (military, financial or political-credibility) resources to backing those dictators in the first place, since the benefits are likely to prove transitory. So, even if the current wave of revolts peter out leaving some of the autocracies in place, it would make good sense for the US state to disengage from them.

This only works if Quiggin is correct that the maintenance of authoritarian regimes is the ultimate U.S. goal. But, as should be clear, I see no reason to think that's the case. It seems to me that the U.S.'s $2bn/year or so of aid to Egypt was worth it, as it lessened security dilemmas between Israel and Egypt and gave the U.S. some leverage over the Egyptian military when it was not clear whether they'd support Mubarak or the protestors.*** Similarly, U.S. aid to Libya convinced Gaddafi to abandon his nuclear program; can you imagine the situation there now if Gaddafi had been able to weaponize nuclear material? Saudi Arabia has similarly learned to live with Israel because it gets rich off of the U.S. In other words, there are a range of intermediate interests besides "preserve authoritarianism" that might make U.S. engagement with authoritarian regimes rational. That does not mean that the U.S. prefers those regimes in all cases (although it might in some); instead it means that hegemony always comes with constraints, so some interests are given priority over others.

*Once again, I'd refer Quiggin to Ikenberry's After Victory.

**There's a long line of thought related to this -- from Gramsci to McCloskey outside of IR, and including Ruggie and Gilpin and many others within IR -- and Quiggin himself seems to endorse a variant of it in his "Fukuyama, F*** Yeah!" post.

***How much leverage is not clear. I suspect we'll learn much more about this in the coming years. But surely the answer is "more than Obama would've had if the military didn't rely on the U.S. government for ~ 25% of its funding".

Politics as Reality TV

One of my good friends (and grad school colleagues) asks Tyler Cowen a question:

By email, from Joshua Miller:

Do you think there is an audience for a public policy game show? The idea would be to ask contestants to solve policy problems instead of asking them to navigate obstacle courses or eat spiders.

Much of my research is on deliberative democracy and civic engagement, but though Obama used that rhetoric in his campaign there haven’t been any major policy moves to increase civic engagement. So I wondered:

What would the world look like if people talked as much about financial regulatory reform as they do about American Idol?
If you have any comments, I’d appreciate them. I don’t imagine this as some sort of televised town hall meeting; rather, I envision judging contestants’ policy choices according to realistic projections of their impact.

Cowen responds by pointing to Alex Tabarrok's years-old post discussing a hypothetical game show -- "So You Think You Can Be President?" -- that would be structured in ways similar to those Josh proposes. Well, I can play that game too. We've discussed similar things, e.g. here and here.

More seriously, this taps into a larger running conversation that Josh and I have had over the years. He argues that deliberative democracy is a Very Good Thing, and has focused a lot of his research on how to create space in the public sphere for more of it. I argue that unicorns are also Very Good Things, and are about as realistic as a robust deliberative democracy in the sense that he'd like to see. For most people politics is much more like sports (or American Idol) than an ideal academy: it's about winners and losers, backstories and narratives. It's not about a high-minded struggle with the contradictions inherent in political and economic systems and trying to build consensus according to some sort of egalitarian principles.

In short, I think a reality show (or actual society) in which people debated financial regulatory reform would be roughly as vapid and empty of serious discussion in popular culture as the real world is. Rather than elevating society towards the heavens, it would quickly descend into name-calling and reputation-smearing. If you think of cable "news" networks as a microcosm of how this would work in practice, you'll see what I mean.

UPDATE: Welp, just talked to my friend Joshua Miller, and he didn't write that e-mail to Cowen. Eerie, because it reads like him, and both Josh Millers seem to be researching similar things. Anyway, the rest of the post stands.

Mysteries of the Universe

Matt Taibbi asks a good question:

Why, I wondered, would the Federal Reserve be giving Muammar Qaddafi $26 billion in near-zero interest loans?

I have no idea.

New Research

All NBER working papers, except the last one which is from the SanFran Fed. Excerpts are abstracts.

First (Ryan Avent discusses this here. We've discussed similar things a lot, see e.g. here.):

When Fast Growing Economies Slow Down: International Evidence and Implications for China
Barry Eichengreen, Donghyun Park, Kwanho Shin
NBER Working Paper No. 16919
Issued in March 2011
Using international data starting in 1957, we construct a sample of cases where fast-growing economies slow down. The evidence suggests that rapidly growing economies slow down significantly, in the sense that the growth rate downshifts by at least 2 percentage points, when their per capita incomes reach around $17,000 US in year-2005 constant international prices, a level that China should achieve by or soon after 2015. Among our more provocative findings is that growth slowdowns are more likely in countries that maintain undervalued real exchange rates.

Second (Which is somewhat-related to some of my research, which I'll post soon):

Monetary Policy as Financial-Stability Regulation
Jeremy C. Stein
NBER Working Paper No. 16883
Issued in March 2011
This paper develops a model that speaks to the goals and methods of financial-stability policies. There are three main points. First, from a normative perspective, the model defines the fundamental market failure to be addressed, namely that unregulated private money creation can lead to an externality in which intermediaries issue too much short-term debt and leave the system excessively vulnerable to costly financial crises. Second, it shows how in a simple economy where commercial banks are the only lenders, conventional monetary-policy tools such as open-market operations can be used to regulate this externality, while in more advanced economies it may be helpful to supplement monetary policy with other measures. Third, from a positive perspective, the model provides an account of how monetary policy can influence bank lending and real activity, even in a world where prices adjust frictionlessly and there are other transactions media besides bank-created money that are outside the control of the central bank.

Third (Which has implications for a discussion I had with some IPE folks recently):

Are Large-Scale Asset Purchases Fueling the Rise in Commodity Prices?
By Reuven Glick and Sylvain Leduc
Prices of commodities including metals, energy, and food have been rising at double-digit rates in recent months. Some critics argue that Federal Reserve purchases of long-term assets are fueling this rise by maintaining an excessively expansionary monetary stance. However, daily data indicate that Federal Reserve announcements of large-scale asset purchases tended to lower commodity prices even as long-term interest rates and the value of the dollar declined.

Budget Politics

As threat of a government shut down looms and key players fight over the FY 2012 budget too, one might wonder, "have we have been here before?" We have indeed been here before, at least three times since 1965. The chart above highlights the path of the federal budget deficit as a share of GDP under the Johnson administration, the Reagan administration, and the George W. Bush administration. Each administration presided over a fairly large deterioration of the budget. Each deficit was generated by one of the three largest tax cuts in the American postwar era. Interestingly, tax cuts were followed quickly (within 18 months ) in each instance by a sharp increase in military spending (details and documentation here if you are interested). The combination pushed the budget into deficit.

Also interesting is how long it takes the budget to return to the status quo ante. Johnson and Bush took six years; Reagan took seven. Thus, if history is any guide, one shouldn't expect quick adjustment back to balance now.

Of greater importance is the politics of adjustment. Without exception, delayed fiscal adjustment was not a consequence of the failure to agree that adjustment was necessary. Instead, in each instance, the White House, the Senate, and the House leadership all agreed on the need for fiscal adjustment. However, they disagreed about how to adjust. One wanted to adjust by raising taxes and/or cutting military spending; one wanted to keep tax rates and military spending stable and cut non-discretionary spending. The resulting war of attrition delayed adjustment.

One might suggest that current events are the contemporary manifestation of a recurring pattern in postwar American politics. We cut taxes, we increase military spending, and then we fight about how to get back toward balance. Eventually, we get back to balance. And then we repeat the process again.

The most worrying element in all of this is consideration of the factors that ultimately spark agreement. In two of the three prior episodes, rather major episodes of financial instability sparked agreement on adjustment. A gold crisis in early 1968 (Time magazine called the crisis "the Greatest Gold Rush in History") broke the deadlock between the Johnson administration and Wilbur Mills. Black Monday of October 1987 (the single largest one-day "correction" in history) broke the deadlock between the Reagan administration and Congress. Let's hope that this time the players reach agreement before they trigger a major sell off.

Private Information

The Daily Show - Define and Conquer
Tags: Daily Show Full Episodes,Political Humor & Satire Blog,The Daily Show on Facebook

Suppose the U.S. wanted Gaddafi to step down. Does the U.S.'s inability to characterize its intentions towards, and commitment to, Libya make that more or less likely?

Just asking.

Bernanke: The World's Central Banker

Back in October I argued that the reason the Fed was not engaging in massive monetary stimulus, as folks like Scott Sumner were stressing, is not because they didn't think it would work but because they were worried that it would; following the crisis the Fed became the world's central banker, not just the U.S.'s:

I have no reason to think this is true, but perhaps Bernanke is influenced by another scholar of the Depression - Charles Kindleberger. Kindleberger argued that the Great Depression became a cataclysmic international event because of the unwillingness of the U.S. and inability of the U.K. to supply public goods to stabilize the international system. Those public goods include maintenance of a system of stable exchange rates and open markets ...

In other words, perhaps Bernanke is acting as the world's central banker. If Bernanke believes that a U.S.-led currency war would have adverse consequences for the global economy, then perhaps he is willing to prolong the U.S. recovery in order to prevent a large global downturn. Such a deterioration of the global economy would also affect the negatively affect the U.S. of course. So while, ceteris paribus, a dollar devaluation would help the U.S., ceteris is not paribus. A U.S. devaluation would prompt a series of actions in Frankfurt, Tokyo, and Beijing. The resulting exchange rate instability would spook financial markets and hamper trade. Cries for protectionism would grow louder, and the net effect would be sharply negative.

Faced with that scenario, perhaps Bernanke has opted instead to try to stabilize markets and defuse an explosive global political economy by allowing other countries to beggar the U.S. some in the short run. Again, I don't know if this is the case, but it seems more persuasive to me than "Bernanke doesn't understand the monetarist lessons from the Depression".

Then in December I noted that the Fed was operating as the world's lender of last resort, and concluded "This provides further evidence that the Fed's behavior cannot be understood out of a global context." Well, now we get even more information about the extreme actions the Fed took to stabilize the global financial system:

The biggest borrowers from the 97-year-old discount window as the program reached its crisis-era peak were foreign banks, accounting for at least 70 percent of the $110.7 billion borrowed during the week in October 2008 when use of the program surged to a record.

There is a lot of detail in the report, which summarizes some 90,000 pages of documents released under FOIA request, but notable foreign firms that received funding include Societe Generale, Dexia SA, Bank of Scotland, Norinchukin Bank, Bank of China, Deutsche Bank AG, Arab Banking Corp., and others. These are some of the world's largest financial institutions, and the Fed's support for them likely prevented the crisis from being much, much worse. So, of course, Ron Paul is apoplectic:

“The American people are going to be outraged when they understand what has been going on,” U.S. Representative Ron Paul, a Texas Republican who is chairman of the House subcommittee that oversees the Fed, said in a Bloomberg Television interview.

“What in the world are we doing thinking we can pass out tens of billions of dollars to banks that are overseas?” said Paul, who has advocated abolishing the Fed. “We have problems here at home with people not being able to pay their mortgages, and they’re losing their homes.”

The American people likely will be outraged, because people like Ron Paul won't stop misinforming them until they are. What the Fed was thinking as it passed out tens of billions was that the if the global economy collapsed that would have pretty profound negative implications for the American people, including those with mortgages to pay. (Anyway who does Paul think he's kidding? He wouldn't support a Fed program to refinance mortgages. Hell, he's a liquidationist. If he were honest, he'd be applauding people losing their homes, as a necessary step in the purge.) Meanwhile, if the Fed acted quickly it could not only halt the downward spiral but do so with very little risk. And, in fact, "all the discount window loans made during the worst financial crisis since the 1930s have been repaid with interest."

Note that the ECB has done some similar stuff, but only on a regional level. That, in a nutshell, is the difference between the role of the two central banks in the global economy.

If I'm interpreting him right, then Bernanke's actions have been terribly misunderstood. And probably underrated.

Theories of International Politics and Cylons

Charli Carpenter obtained ISA immortality for delivering this speech, with accompanying video and while dressed as Battlestar Galactica's Six (with blond wig and red dress), at Drezner's zombie panel. It was a very fun panel; better than I expected. Carpenter tells the story here.

Emergence

Sometimes I really like David Brooks.

Public life would be vastly improved if people relied more on the concept of emergence...

We often try to understand problems by taking apart and studying their constituent parts. But emergent problems can’t be understood this way. Emergent systems are ones in which many different elements interact. The pattern of interaction then produces a new element that is greater than the sum of the parts, which then exercises a top-down influence on the constituent elements.

Culture is an emergent system. A group of people establishes a pattern of interaction. And once that culture exists, it influences how the individuals in it behave. An economy is an emergent system. So is political polarization, rising health care costs and a bad marriage.

Emergent systems are bottom-up and top-down simultaneously. They have to be studied differently, as wholes and as nested networks of relationships. We still try to address problems like poverty and Islamic extremism by trying to tease out individual causes. We might make more headway if we thought emergently.

Indeed. Why doesn't the logic of emergence play a more central role in social science thinking? I wonder this especially about the social science of international politics which, arguably, are fundamentally a product of a complex adaptive system.

Winter's Officially Over