Sunday, February 28, 2010

The Non-End of Influence

. Sunday, February 28, 2010

Thought I'd toss out this video of Stephen Cohen talking about his book (with Brad DeLong) The End of Influence. The discussion frustrated me, because both discussants kept talking about how important politics was in shaping economic outcomes without ever mentioning how it was important, why it was important, what politics had to do with outcomes, how political incentives shaped history, or really anything substantive about politics. It's difficult to pull out any one wrong thing in it to pick on, mostly because the discussion is too vague to pin down any clear, consistent argument beyond "being in debt is a bad thing for America", but also because there are half-truths and "yeah, but..." moments throughout. And also because it's an hour long and basically everything said in it is incomplete, wrong, or begs a question that it doesn't answer.

For example: the title of the book is The End of Influence, and yet nowhere in the interview does Cohen explain how America has lost its influence or even defend the notion that it has. At the very end he actually says the opposite: that despite the financial crisis nothing much seems to be changing at all. Earlier, he argues that China is unable to use its massive dollar holdings to exert much influence, because that would require domestic political tradeoffs that they are not prepared to make. Umm... if you're giving an interview to promote a book with a provocative title, shouldn't you defend the thesis instead of arguing against it? At least a little bit?

I don't have time these days to actually, you know, read the book (oh summer, come quickly), but if the sentiments expressed by Cohen in this interview (and in the FP book excerpt) are the same as those in the book then I'm with Drezner: I wish they'd talked to some actual political scientists, rather than just pay lip-service to their existence.

(ht: DeLong)

International Relations


No offense to our Northern neighbors, but this is our time.


Saturday, February 27, 2010

Politics isn't the Dispassionate Quest for Truth

. Saturday, February 27, 2010

Jamie Whyte proposes a "politics should be like a graduate seminar" model of democracy that strikes me as quite curious. The quote that motivates my thoughts is the following:

But how can a bad policy be good politics? What defect in the electoral system can explain this? The most popular explanation these days is the malign influence of “special interests”. Perhaps there is something in this. But a more fundamental defect is always overlooked, presumably because it is mistaken for a virtue of modern democracies. The reason so many bad policies are good politics is that so many people vote: about 62 percent of adults at the last general election, both in Great Britain and in the United States. The best way to get more sensible policies would be to reduce the number of voters to less than 0.01 percent of the population.

The logic of Whyte's call for fewer voters rests on the assumption that ignorance is the primary obstacle to good policy. Consequently, if we raise the probability that each voter is decisive (by having 12 voters), each voter will acquire the knowledge needed to make informed choices. More informed voters select candidates who make better policy.

I believe this reflects a fundamental misunderstanding of politics. Politics isn't about efficiency (the dispassionate search for the optimal policy); it's about distribution. Once one recognizes that politics fundamentally is about who gets what, bad policy ceases to puzzle and ignorance becomes irrelevant. The classical case against democracy isn't that the masses are stupid. The classical case is that an empowered and relatively impoverished majority will redistribute from the relatively wealthy minority. The real puzzle of modern democracy, I would suggest, isn't that it produces bad policy; it is the extent to which massive redistribution of wealth hasn't happened.

The number of people who vote, therefore, is irrelevant because people vote their interest. And one needn't be well informed about the finer points of Ricardo-Viner to know whether trade helps or hurts you. Selecting 12 representative individuals doesn't change this. These 12 voters might better select the candidate most likely to produce their desired distributive outcome. They will not engage in a joint effort to maximize social welfare.

Friday, February 26, 2010

Hell Freezes Over

. Friday, February 26, 2010

William Easterly and Jeffrey Sachs have finally found common ground... on Twitter. Easterly blogs the (so far one-sided) exchange and reactions:

(anon): Just noticed that @bill_easterly is following @jeffdsachs but not vice versa / Hilarious

@bill_easterly: This hurts :>) RT Just noticed that @bill_easterly is following @jeffdsachs but not vice versa

@jeffdsachs: Hello friends, thank you for the warm welcome.

@jeffdsachs: RT @EndOfPoverty: mobile phones and internet in Africa means changes to life in fields, in clinics,…

@bill_easterly: I agree w u on mobile potential RT @jeffdsachs mobile phones in Africa means changes to life in fields, in clinics,…

(anon): Pigs just flew!! RT @bill_easterly: Agree w u on mobile potential RT @jeffdsachs mobiles in Africa means changes to,…

(anon): WHAT? My entire belief system just corroded to nothing RT @bill_easterly I agree w u on mobile potential RT @jeffdsachs

(anon): Hell just froze over! RT @bill_easterly:I agree w/ u on mobile potential RT @jeffdsachs mobile phones in Africa (cont)

(anon): Ahem, @jeffdsachs where are you? The whole developmentgeek twittersphere is waiting for you to reply to @bill_easterly

OK let’s remain calm. It’s only been one hour, and Professor Sachs may have a less compulsive/healthier relationship with his iPhone/Crackberry than some of the rest of us.

*&^$#@%*()^% I just burnt the cookies, gotta go.

(Historic moment bolded by me.) I love the intertubes so much.

For background on the debates between the two, see here.

Thursday, February 25, 2010

Economics of the Somali Pirate Business Model

. Thursday, February 25, 2010

This semester, I'm teaching four recitation sections of POLI 150: Intro to International Relations here at UNC (which is being taught by Dr. Oatley with Sarah and Will as fellow TA's). In each recitation I always like to spend the first five to ten minutes of class talking about current news and events in international politics and try to connect the theories and frameworks that we are teaching our students to the real world so they see that what they're learning actually does have value and provides explanatory power over topics outside of the classroom.

For my Wednesday afternoon recitation, after whatever pressing new events (this week it was the coup in Niger, the Winter Olympics, Greek sovereign default, and the Dalai Lama meeting) that they bring up have been explored, somehow the conversation always turns to pirates, how Somali piracy works, how and why countries respond to pirate attacks, etc. It's a great topic to discuss anarchy, collective action problems, bargaining, state vs. non-state actors and informal networks and markets. It seems like my obsession with pirates is starting to rub off on my students as each week they're bringing up new interesting questions and finding really awesome articles like the one I'm linking to below.

I was going to go into detail about this article, but instead I'm just going to completely outsource this post to Wired Magazine who provide an absolutely fantastic analysis of the incentives, costs and benefits facing not only Somali pirates but "shippers, insurers, private security contractors and numerous national navies" operating off the coast of Somalia. This is just an absolute must-read. Here is the opening:
The rough fishermen of the so-called Somali coast guard are unrepentant criminals, yes, but they're more than that. They're innovators. Where earlier sea bandits were satisfied to make off with a dinghy full of booty, pirates who prowl northeast Africa's Gulf of Aden hold captured ships for ransom. This strategy has been fabulously successful: The typical payoff today is 100 times what it was in 2005, and the number of attacks has skyrocketed.
Like any business, Somali piracy can be explained in purely economic terms. It flourishes by exploiting the incentives that drive international maritime trade. The other parties involved — shippers, insurers, private security contractors, and numerous national navies — stand to gain more (or at least lose less) by tolerating it than by putting up a serious fight. As for the pirates, their escalating demands are a method of price discovery, a way of gauging how much the market will bear.
The risk-and-reward calculations for the various players arise at key points of tension: at the outset of a shipment, when a vessel comes under attack, during ransom negotiations, and when a deal is struck. As long as national navies don't roll in with guns blazing, the region's peculiar economics ensure that most everyone gets a cut.
All of which makes daring rescues, like the liberation in April of the Maersk Alabama's captain, the exception rather than the rule. Such derring-do may become more frequent as public pressure builds to deep-six the brigands. However, the story of the Stolt Valor, captured on September 15, 2008, is more typical. Here's how it played out, along with the cold, hard numbers that have put the Somali pirate business model at the center of a growth industry.
Some very interesting tidbits:
An ordinary Somali earns about $600 a year, but even the lowliest freebooter can make nearly 17 times that — $10,000 — in a single hijacking. Never mind the risk; it's less dangerous than living in war-torn Mogadishu.
The insurance business is a gamble. Insurers know that some ships will be hijacked, forcing the companies to dispense multimillion-dollar settlements. However, they know the chance of this happening is minuscule, which by the calculations of their industry makes it worth issuing policies. In 2008, only 0.2 percent of ships sailing Somali waters were successfully hijacked.
(The hat tip goes to Paula, one of my students in class who found and emailed me the article).

Who Wants to Elect a President?


The other day I drank a few glasses of red wine and worried about time inconsistency problems inherent in democracies. Today, Jamie Whyte (guest-blogging at Steven Landsburg's digs) suggests replacing democracy with a "jury system" of appointing leaders. The thought's not without merit, but it immediately made me think of a lesser (i.e. one that isn't centered around baseball or golf) Kevin Costner movie. That's not good.

A few years ago Marginal Revolution proposed electing presidents via reality show. Could it really be any worse?

Tragedy of the Day


From Easterly and Freschi:

Multiple critics have protested ever since the US government, hoping to force President Andry Rajoelina’s questionable government to hold elections, first threatened to remove preferential trading rights for Madagascar.

The Malagasy textile industry was a clear success story of the US African Growth and Opportunity Act (AGOA), which removed US quotas and duties from thousands of products from eligible African countries. Madagascar’s exports tripled in the first three years of the program, and the textile sector, which made up 60 percent of Malagasy exports, accounted directly for 50,000 jobs and indirectly at least 100,000 more.

The US pulled the plug on AGOA at the end of December and import duties of up to 34 percent were reintroduced. ...

Among the effects we are NOT seeing: signs of increased interest in arriving at a power-sharing agreement or instating democratic governance on the part of Rajoelina’s government.

Ineffective sanctions, effective job destruction. An unaccountable branch of the US government hurts poor people far away who have no voice in US politics. Deeply saddened…we don’t know what more to say.


I wonder what pro-democracy/anti-trade "public citizens" think of this? A month ago they loved it, on the grounds that it would improve the state of Madagascar's democracy. So far that doesn't seem to be happening. Maybe it's too soon to tell, but I predicted this then, and issued a challenge playing off of Aid Watch's motto... all I ask is that democracy-promotion actually promote democracy.

Let's move beyond knee-jerk "trade = good/bad" ideology and get to facts: what are the reasonable odds that this policy is successful in promoting democracy in Madascar? Economic growth? Anything good? I think those odds are very slim, and so far the evidence bears that out. And if you don't get your Platonic ideal of unencumbered democracy, these sanctions are just needlessly impoverishing some of the world's poorest people.

Pardon me, but I don't see how advocating for horrible outcomes is acting like a responsible global citizen.

Update on 4% Inflation Target


As noted last week, IMF economists have suggested monetary authorities consider raising the inflation target from 2 to 4 percent. Unsurprisingly, the ECB is not so keen.

“I can only reject the idea of raising inflation rates permanently,” ECB Executive Board member Juergen Stark said in a speech in Seoul today. Bundesbank President Axel Weber wrote...that the Washington-based lender is “playing with fire..Weber, a contender to succeed ECB President Jean-Claude Trichet next year, said...that faster inflation causes “more damage than good” and warned the IMF’s discussion threatens to undermine the credibility of central banks. [ECB] Executive Board member Lorenzo Bini Smaghi yesterday said the proposal ...[was] “backward looking.” Cypriot central banker Athanasios Orphanides ...called the proposition “counter-productive” ... as it may weaken the “hard-fought achievement” of anchoring inflation expectations.
Bernanke is more circumspect:
"Asked about the study by U.S. lawmakers yesterday, Federal Reserve Chairman Ben S. Bernanke said while he understood “the argument and it’s not without its appeal” it carries “certain risks.” “If the Federal Reserve says we’re going to raise inflation to 4 percent, how do we know that later it won’t go to 5 or 6 or 7 percent?”

A Little Light Game Theory (Greek Sovereign Debt Edition)


A few days ago I saw Jeffrey Friedman extend his "Basel thesis" -- in which the risk-weighting scheme in the Basel Accords created the incentive structure that led to the subprime financial crisis -- to Greece's debt crisis:

So why did the bursting of the asset bubble in housing cause a banking crisis, freezing interbank lending and then bank lending into the "real" economy?

Because, according to the Basel thesis, Basel I bank-capital regulations, enhanced in 2001 in the United States by the Recourse Rule, encouraged banks worldwide and especially in the United States to leverage into asset-backed securities, including mortgage-backed securities, that were either government guaranteed (by Fan or Fred) or were privately issued but had an AA or AAA rating. How did the Basel rules encourage this? By giving such securities a 20 percent risk weight.

Translation: An AAA-rated mortgage backed security worth $100 required only $2 in bank capital at the 8 percent Basel rate for adequately capitalized banks. $100 x .08 x .20 (the 20 percent risk weight assigned to asset-backed securities by the Recourse Rule) = $2. By contrast, a commercial loan of $100 required $8 of bank capital, because Basel gave such loans a 100 percent risk weight. $100 x 8 percent x 1.00 = $8. Similarly, a $100 whole mortgage retained by the bank required $4 of capital, because the Basel risk weight for unsecuritized mortgages was 50 percent. With these risk weightings, securitized mortgage-backed debt offered significant capital relief.

Today's FT brings the news that "European financial institutions have $235 billion worth of claims on Greek debt, most of which is thought to be in government bonds." Why do they hold so much Greek government debt? Because the only category of bank asset treated more kindly by the Basel rules than asset-backed securities is government debt, which has a zero risk weight. I.e., no bank capital need be used to buy a government bond.

So today I was interested to read that some major banks are fanning the flames engulfing Greece:

Bets by some of the same banks that helped Greece shroud its mounting debts may actually now be pushing the nation closer to the brink of financial ruin. ...

As Greece’s financial condition has worsened, undermining the euro, the role of Goldman Sachs and other major banks in masking the true extent of the country’s problems has drawn criticism from European leaders. But even before that issue became apparent, a little-known company backed by Goldman, JP Morgan Chase and about a dozen other banks had created an index that enabled market players to bet on whether Greece and other European nations would go bust.

Last September, the company, the Markit Group of London, introduced the iTraxx SovX Western Europe index, which is based on such swaps and let traders gamble on Greece shortly before the crisis. Such derivatives have assumed an outsize role in Europe’s debt crisis, as traders focus on their daily gyrations. ...

A result, some traders say, is a vicious circle. As banks and others rush into these swaps, the cost of insuring Greece’s debt rises. Alarmed by that bearish signal, bond investors then shun Greek bonds, making it harder for the country to borrow. That, in turn, adds to the anxiety — and the whole thing starts over again.

How can we square this circle? If Friedman is right, then banks are highly leveraged in the sovereign debt of Greece (and other countries). Basel rules required a 0% right weight for any OECD sovereign debt, but not all sovereign debt paid the same yield. Some states, like Greece, are relatively more risky than others, like the U.S., but they all had the same risk weight. So banks looking for a bigger profit would plow funds into the riskier countries at a higher interest rate because yields were higher.

Why, then, would many of the same banks now do their best to increase the risk of a Greek default? If that happens, and Friedman is correct that many banks are leveraged to the hilt on Greek debt, then they lose a lot of money. They can't be trading on moral hazard, since if they believed that Greece will eventually be bailed out and their debts made whole they wouldn't waste money purchasing insurance (a.k.a. credit default swaps). So what's going on?

One explanation is that a need for hedging has created the equivalent of a bank run in CDS markets, and this is creating a self-fulfilling prophecy. Another is that this represents a classic Prisoner's Dilemma: in aggregate all banks would be better off if none of them bid up the prices of CDS on Greek debt and thus relaxed the credit constraints on Greece, but each individual bank is incentivized to defect and insure themselves against potential default. Banks in competition against each other cannot credibly commit to cooperate, so (Defect, Defect) is a dominant strategy for all banks exposed to Greek debt. This creates a run, which manifests itself in CDS markets, and leads to a sub-optimal outcome for all involved.

If this is the appropriate model, then there would seemingly be a role for outside players to influence the game. Germany, or the ECB, or the IMF, or even the US could step in and provide financing for Greece to roll over their debt, meet counterparty obligations, and loosen the constraints that Greece faces in credit markets. But this simply raises another Prisoner's Dilemma: how could a third party guarantor be sure that Greece will not defect from that agreement and continue in its fiscal profligacy? Again, the dominant strategy seems to be (Defect, Defect) unless Greece can somehow credibly commit to austerity in order to meet its obligations. Unfortunately, it doesn't appear that they can.

Maybe the EMU should play a Grim Trigger strategy: they'll provide financing for Greece in exchange for austerity. If Greece defects, then the EMU boots Greece out of the monetary union and they're on their own. That threat might be significant enough to escape the Prisoner's Dilemma if it's perceived as being credible.

Or maybe not. It's a mess. As Carlo Bastasin says over at Baseline Scenario: "You cannot imagine really solving the Greek imbalance without – at least somewhat – correcting the German imbalance." Germany does not want to correct its imbalance. So Greece is probably screwed.

(edited for correct attribution, 8:41)

UPDATE: Felix Salmon sees this as a simple hedge. He's probably right.

Wednesday, February 24, 2010

It's the Economy, Stupid. Or Is It Politics?

. Wednesday, February 24, 2010

Jim Stimson, UNC prof and political science legend, has made his name by showing (with his co-authors) that the state of the economy predicts election outcomes with alarming accuracy. It seems too simple to be true: incumbents do well when the economy does well, and challengers do well when the economy does poorly. All the horse-race stuff that newspaper and cable tv fill space with is mostly ephemeral. Nevertheless, this single economic variable seems to explain quite a lot of democratic politics. According to Stimson, in other words, political outcomes are best explained by economic outcomes.

The recent lengthy New Yorker profile of Paul Krugman has illustrated something interesting. He thinks the opposite:

In writing his first popular book, “The Age of Diminished Expectations,” he became preoccupied by the way that inequality had vastly increased in the Reagan years. (Interestingly for an economist, Krugman believes that the political often determines the economic, rather than the other way around; he believes that the increase in inequality in the U.S. since the sixties is a product less of economic factors—the development of technology, say, leading to the greater importance of skills and education—than of political decisions about taxation and unions.

On the surface the two are not mutually exclusive; an economy could grow in aggregate even if the gains mostly accrue to the top of the income distribution. Depending on how you read the data, this seems to be exactly what has happened in the U.S. But Stimson's story is about political attitudes and behavior. If people do not view their economic station as improving, then they should vote against the incumbent party. This doesn't track Krugman's logic at all, since he views economic changes in the past 25 years as being more and more skewed against the median voter.

I've got no particular dog in this fight, although I think Stimson is right, but I just find it interesting that a revered political scientist views economic variables as the most important determinants of politics while a revered economist views political variables as the most important determinants of economics.

I'd love to get the two of them in the same room and see what comes out.

Inconsistent Thoughts on Time-Inconsistency Problems


Since the financial crisis, many have argued that we need to restructure the incentives that bankers face by extending their time horizons. See, e.g., this post by Brad DeLong. In its best manifestation it's not a principle-agent argument, but rather the opposite: shareholders incentivize management to maximize short run profit at the expense of long run stability. Bankers respond to those incentives by maximizing short run profit, sacrificing long run stability in the process if necessary, and reap large rewards for doing so. All fine and good, except this creates systemic risk, which is a negative social externality. If taxpayers are going to give the banking sector an implicit explicit bailout guarantee, then we should be able to legislate the way that banks behave -- including how bankers are compensated -- in order to bring private interests in the banking sector more in line with the public interests of society to not have to pay for their mistakes. This, in effect, means limiting the input of shareholders and management.

The wisdom of this is not apparent to me, since the "public interest" in the run up to the recent crisis seemed to be extending credit to everyone everywhere, which is why policy and practice shifted in that direction, but right now I'm more interested in extending the logic to other contexts to see where it leads. Let's assume that the public is purely interested in maximizing long run stability over short run profits. Is this a laudable goal?

The same logic could be used to argue against democracy. Democratic leaders also must balance short run incentives against long run interests. After all, if a politician loses an election it doesn't matter what her long run policy preferences are, since she won't be in office to enact them. Political scientists don't agree about much, especially across subfields, but I imagine that we could get a large majority to agree that politicians privilege short run constraints over long run outcomes, especially in democracies. So we often see spikes in government spending before elections, even if this causes fiscal problems in the longer run. Greece We often see leaders fail to slash inflation near elections, despite the adverse consequences of inflation on long run economic health, because the resulting economic decline will hurt their re-election chances. Episodes of trade protectionism often follow a similar logic, where long run inefficiencies are entrenched because of short run political incentives. I know that Dr. Oatley is developing an argument along these lines with regards to American macroeconomic policy; he can elaborate if he likes.

Yet I rarely hear calls to limit or abandon democracy. True, we often pay lip-service to checks and balances, but generally not for the reasons I've described. (And even that is subject to preference; witness the "Abolish the Senate" movement.) This begs a question: Why would we demand something of the private sector that we wouldn't even consider for the public sector? Is there an implicit positive model of politics that explains the separation? Or a normative model of justice? I'm having difficulty seeing it. To me it looks more like cognitive dissonance.

Some have called for CEO compensation to be dependent on the performance of a firm over the medium run. Suppose we did the same with laws? Any significant change in policy must first be subject to a 5-10 year review process. If it hasn't been revoked in that period, then it becomes law. Obviously we'd have to exempt some policy areas, like natural security, from such a long lag. But the debate over energy policy or health care policy would look a lot different if lawmakers weren't subject to immediate pressures that track the election cycle.

This is probably a really bad idea, and I'm not actually endorsing it. (For evidence of how bad it is, here's Thomas Friedman endorsing its logical extreme: technocratic authoritarianism.) But I am thinking about it. After all, we try to depoliticize some aspects of social management, like monetary policy, for precisely this reason.

The point is to think more seriously about why we want to shift incentives along time horizons in some situations but not others. What is the justification for treating some issue areas differently from others?

Tuesday, February 23, 2010

US Navy and Pirates!

. Tuesday, February 23, 2010

In my never-ending quest to make this blog the go-to place for piracy news, I bring you the most recent details of the US Navy and multinational task force kicking some pirate ass:

Eight suspected pirates were apprehended after a counter-piracy task force foiled an attack on a vessel in the Gulf of Aden, authorities said Monday. The suspects were taken aboard a U.S. Navy destroyer, the USS Farragut, U.S. 5th Fleet spokesman Lt. Cmdr. Corey Barker told CNN. The 5th Fleet is part of multinational Combined Task Force 151, aimed at combating piracy in the Gulf of Aden and nearby waters. The eight were apprehended by coalition warships, the task force said in a news release issued Monday.

The Tanzanian-flagged MV Barakaale 1 came under attack in the gulf and alerted other vessels in the region by radio. An SH-60B Seahawk helicopter, from the Farragut, was dispatched to the vessel, the release said. "During the pirate attack ... the crew adopted defensive maneuvers" that resulted in a suspect falling overboard while trying to board the vessel, the task force said. The suspect was rescued by the suspected pirates' skiff and again tried unsuccessfully to board the Barakaale.

The arrival of the helicopter prompted the suspects to flee, and the copter -- after repeated warnings to the skiff -- fired warning shots across its bow and the skiff stopped, the release said. A team from the USS Farragut boarded the vessel and apprehended the eight suspects, it said. Although the number of piracy attempts in the region has increased over the past year, the task force said Monday, the number of successful attacks have been reduced by 40 percent.
Now that's what I'm talking about. Send in the Navy, shoot some warning shots into the water and get 'em to surrender. Eight pirates down, 876543567890 still to go. This will keep working in the short run, but as I've said before, the only way to dramatically decrease the number of attacks is to fix the problems in Somalia. Establishing a legitimate, functioning government that controls its borders and has a monopoly over the use of force is the only long run solution to this problem. Patrolling the waters and decreasing the success of attack will only help at the margins. But the lack of determination to actually fix the source of the problem provides the rest of us with entertaining pirate stories a couple times a week.

African Coups and Colonels


Over at FP Passport, Joshua Keating asks a really interesting question to fellow blogger Elizabeth Dickinson : "Why does it seem like African coups are always led by middle-ranking military officers?" He asked the question in light of the most recent African coup (the third coup in the last two years on the continent) in Niger led by Col. Salou Djibo, a "little known commander of a platoon based near the capital."

Elizabeth offers some pretty interesting insights as to why relatively obscure colonels are leadings coups rather than generals that have resources and clout:
At least in the countries I know in West Africa, this makes perfect sense. Generals are often close to the leadership; their appointments are usually somewhat political and come with the benefit of a bit of patronage and a lot of pomp and circumstance. I met Generals in Nigeria who led more comfortable lifestyles than some Lagos bankers. They're educated, often cosmopolitan, and know that they have more to lose through a coup than by simply staying put. They have no reason to upset the status quo. And at least in countries where there is a history of coups, politicians are also equally wary of annoying their military upper ranks for a similar reason.
An extension of this is that the chief executives in these countries are simply buying off the loyalty of the top military brass in order to ensure that they don't try to take power. So it's not just a function of military generals being satisfied, but that the government in power is buying off their satisfaction. By allowing them to live "more comfortable lifestyles than some Lagos bankers" they are able to ensure that the generals are comfortable enough to not want to overthrow the executive. However, when these payoffs are no longer sufficient, we should observe military coups coming from top military generals (which may explain differences in coup leaders between African and Latin American countries). Because the generals are relatively happy with the status quo, they will not seek to change the power structure as a change in power will probably hurt their privileged positions in society.
So why not the little guys? Well, because they could never do it. The usual ranking soldier is underpaid, if paid at all. They're often undertrained, and couldn't mobilize the resources or strategy to get the job done. (Having said this, the little guys do often go along with a coup once it's happening ... nothing like the sense that your paycheck or next meal is moving to make you want to follow it.)
Little guys calculate the probability of success of the military coup as well as the increase in position and prosperity of a successful new coup regime vis-a-vis their current position. If they can reasonably expect a nice bump in position or pay assuming that they expect the coup to work, they will typically go along with the coup. Their expected utility functions are relatively easily to calculate.
So the middle guy is the one left. They're paid better than some, but not good enough for most. Like the coup leader in Niger, they've often had foreign training. They control strategic components of the miltiary -- in Guinea's case, the petrol procurement, and in Niger's case, a platoon in the capital. They know enough people to mobilize the ranks, but they are not as politically tainted. They're well connected but not appointees; they've often just risen through the ranks.
These middle guys have the largest expected payoff if the coup works. They will not only observe a nice jump in military clout, but will also be awarded a pretty big financial reward (this is assuming that the coup works and that there isn't a backlash to the coup leaders once the military junta returns control of the country to civilian leadership). She also argues that because of the skimming off the top structure of pay in most West African militaries, these middle rank officers are managing forces and doing serious work,
but they're not getting paid. They have a taste of power but not enough fiscal incentives not to rock the boat. Lo and behold, you get a coup. A well trained, well connected, underpaid, and generally disgruntled middle man is your suspect -- guilty as charged.
These military colonels face a pretty simple cost-benefit analysis, wait for a nice opening, gauge the probability of success and go through with the coup if they're dealt a good hand. Dickinson provides a nice logical explanation for why coups are typically led by military colonels rather than generals. Although not in West Africa, this may be the reason why Libya's leader for the last forty years, Colonel Gaddafi hasn't promoted himself to general and still refers to himself as colonel. He's trying to signal that he's still a lowly military officer in the hopes that another colonel won't throw him out of power.

Quote of the Day


Something to think about as you build your equations for statistical analysis:

"If you control for lung cancer, smoking doesn't kill you."

Via Layna Mosley who credits it to a discussant on one of her ISA panels.

Monday, February 22, 2010

Envy, Altruism, and Trade Policy

. Monday, February 22, 2010

KPC points to a NBER working paper by Lu, Scheve, and Slaughter on the politics of trade policy (ungated pdf here). The abstract:

One important puzzle in international political economy is why lower-earning and less-skilled intensive industries tend to receive relatively high levels of trade protection. This pattern of protection holds even in low-income countries in which less-skilled labor is likely to be the relatively abundant factor of production and therefore would be expected in many standard political-economy frameworks to receive relatively low, not high, levels of protection. We propose and model one possible explanation: that individual aversion to inequality—both envy and altruism—lead to systematic differences in support for trade protection across industries, with sectors employing lower-earning workers more intensively being relatively preferred recipients for trade protection. We conduct original survey experiments in China and the United States and provide strong evidence that individual policy opinions about sector-specific trade protection depend on the earnings of workers in the sector. We also present structural estimates of the influence of envy and altruism on sector-specific trade policy preferences. Our estimates indicate that both envy and altruism influence support for trade protection in the United States and that altruism influences policy opinions in China.

This is an original thesis and utilizes some nifty methodology, and I have no doubt that it will be published in a top journal. It continues what appears to be a growing trend of analyzing social attitudes as determinants of public policy. See also this article from last year on sociotropic attitudes by Mansfield and Mutz. But I have some concerns. (I've only skimmed the paper, not dissected it thoroughly, so these thoughts should be taken as provisional.)

Here is the causal mechanism the authors propose:

1. Policy preferences of citizens are motivated by egalitarian feelings of envy and altruism.

2. These feelings manifest themselves as support for trade protectionism.

But #2 does not necessarily follow from #1. It could just as easily be something like:

1. Policy preferences of citizens are motivated by egalitarian feelings of envy and altruism.

2. These feelings manifest themselves as support for trade openness -- thus capturing the social gains from trade -- coupled with a robust social safety net financed by progressive taxation -- thus compensating the losers and narrowing relative inequalities.

Or, to stick with the logic of collective action that is commonly applied in trade analysis, we might expect trade protection for labor because:

1. If it is the abundant factor of production (and would therefore benefit from an open trading system) then it will have difficulty mobilizing a coalition to effectively lobby for openness. The smaller anti-trade coalition may feel envious or not, but it's basically irrelevant.

2. If it is the scare factor (and would therefore be hurt by an open trading system) then it will be able effectively lobby for closure. The larger anti-trade coalition may fell altruistic or not, but it's basically irrelevant.

In other words, attitudes may correlate with behaviors, but that doesn't necessarily imply that one motivates the other. At least, it doesn't erase basic interest-based motivations in previous trade models. They try to get at this with interview data, but there are always reasons to be skeptical of self-reported motivations.

I'll try to give it a more thorough examination when I have more time, but for now I don't see anything in the Lu/Scheve/Slaughter analysis that eliminates alternative explanations. This is a problem, since we have lots of previous literature that supports more traditional views.

[Edited slightly for clarity at 6:30pm]

Sunday, February 21, 2010

Transparency and Missing Data

. Sunday, February 21, 2010

Will may be done blogging about ISA, but I have one more post I'd like to get in. One of the most interesting session I went to (both in terms of academic as well as entertainment value) included a presentation by Peter Rosendorff and Jim Vreeland. R&V try to find a causal mechanism for a widely held assumption that democracies are more transparent than autocracies. Their argument is that governments facing reelection have incentives to reveal information about unemployment and inflation because doing so broadcasts economic success in good times and at least makes voters believe their government is honest in bad economic times. Governments not facing reelection don't have this same incentive.

Of particular interest is how they code their dependent variable, "transparency." They go to the World Development Indicators database and count the number of missing data points; missing data indicates opacity. This is a very clever way to get at a notoriously difficult concept to measure, but the project raises a few questions that I, along with others, posed in the Q&A:

1) Once countries start reporting they rarely stop. So, it may be that "bad-ass" (to borrow from other Rosendorff work and from Vreeland's concise explanation of it) dictators just refuse to report their data. But it also might be that leaders find ways to fudge the numbers (and if you think that the WDI has a good vetting process, look at their economic indicators for Greece over the past few years). That, combined with other reasons why states don't report (mainly issues of capacity) and the path-dependent nature of the decision to report, makes me wonder if we can really use missing data as a proxy for "transparency."

2) The much larger issue here stems from the authors conclusions in which they argue that their use of missing data indicates that political scientists should use multiple imputation to correct for biases created by missing data. But, this depends on your dependent variable. Actually, if their empirics hold up, this means in many situations we will have non-ignorable missingness and multiple imputation won't be able to help us. More specifically, if the probability of data (being used as an IV) being missing depends on the dependent variable, then multiple imputation will systematically bias created values. So, the moral is, multiple imputation can work in some situations but not in others.

Overall, though, a very entertaining and intellectually interesting project and presentation. Here's a link to Vreeland's blog as well.

One Last ISA Post


For those who were interested in the content of my talk beyond what Alex wrote, Robert Farley of LGM live-tweeted the roundtable. Apparently, here's what I said:

Winecoff: who am I?

Winecoff: nobody who has any authority should ever listen to what I say.

Winecoff: blogging opened important avenues for my academic work.

Winecoff: dr. Farley is twisting my words.

Winecoff: not doing this (blogging) for relevance, but rather as a generator of academic knowledge.

Winecoff: being invited to this panel is going on my CV.

Winecoff: re-emphasizes notion of blog as academic notebook.

Winecoff: more specifically, an interactive notebook.

Winecoff: you too can be a blogger, in just 30 minutes a day

Most of that is pretty much right. I am putting this on my CV, and I'm leaving it until I've got something better to put there. That could take awhile.

I should have added that I would be happy for any of the panel members to write me letters of recommendation when I go on the job market in a few years.

P.S. Since it somehow wasn't clear to everybody, Farley's tweets were in good humor and were taken as such.

Fact of the Day


I didn't know this:

In 1913, a year before the outbreak of World War I, Europe was slightly more populated than China.

From yet another article predicting the decline of the West.

Saturday, February 20, 2010


. Saturday, February 20, 2010

Will mentioned something about marketing and blog readership. Well, one mention of our little shop by Dan Drezner in his FP blog and voila:
Welcome all; I guess we need to give you a reason to come back.



I'm not attending the final day of ISA because I'm sick and exhausted. Here what I found interesting:

1. Social scientists who use the Chinn/Ito KAOPEN measure of capital account openness need to at least consider using a different measure. David Steinberg and Sebastian Karcher argue pretty forcefully that it doesn't measure what it intends to measure, and that it is especially poor for political scientists. I'd share the paper, but I can't find an online version. If I do, I'll share it.

2. There were a lot of panels, roundtables, and general discussion about the financial crisis and what it means, what the international response should be, etc. These were generally horrible. In one roundtable, poor Benjamin Cohen actually had to defend the assumption that states are the appropriate unit of analysis in discussing international reforms from some unreconstructed Marxists who wanted to end capitalism and the state system as a response to the financial crisis. Cohen also rightly argued that the fundamental cause of the crisis was the macroeconomic imbalances that led to the global savings glut. Unfortunately, he was unable to offer a solution better than expanding the IMF's surveillance capacity to "name and shame" states that run persistent imbalances. Perhaps I'm daft, but I don't think the problem is that China hasn't been named and shamed enough for currency manipulation and favoring domestic industries in tradable sectors

3. On another panel, someone suggested that we should expect Canada to lead the way toward intl financial regulatory reform since the US/EU had lost legitimacy. Even if that were true (maybe) or possible (nope), the speaker acknowledged up-front that he had no idea why Canada's financial system was so much stronger, but that it was probably the "culture". Well, that solves that; now let's just get every major financial center to adopt Canada's culture and the world will be fixed. At least until the Great Tim Horton's Collapse of 2015. (It's coming...)

4. Someone (who I think was Rorden Wilkinson) mentioned something that nobody seemed to want to hear: including "normative concerns" in our discussions on how we can reform the international financial system doesn't actually mean what people usually think it means. What it really means is shutting off access to credit to poor people, thus making them poorer. This is the very thing that the CRA and the mortgage-interest deduction sought to counteract.

He used a great analogy, where he described Graceland as a relatively modest home by 21st century Anglo-American standards. This is because of the extension of credit to poorer people, and that only occurred because of the dreaded "financial innovation". If we make finance more "vanilla", as many want, what we're really doing is cutting off the poor.

Some people may be fine with that on paternalistic grounds, or for cost/benefit reasons, but the audience clearly was not. They thought "distributional concerns" meant "kill the bankers" not "reduce the number of opportunities available to the poor". Maybe Wilkinson isn't right about all of that, but it's certainly something to think about.

5. True story: at one point, James Vreeland left a happy hour gathering, then re-appeared about 10 minutes later with Mardi Gras beads around his neck. No one knows how or where he got them.

6. The blogging roundtable. It was fun, and thanks to the other panelists and audience members for letting me on. Thanks to Alex for reproducing most of the highpoints here; to Drezner and LGM for links (still nothing from Walt -- those in attendance will know what I mean -- but it's not as if that's surprising); and to Stephanie Carvin and Peter Feaver for questions. A few thoughts post-mortem:

a. It wasn't explicitly said, but should have been, that there is more than one type of blogosphere. There's even more than one type of academic blogosphere. So when Nye and Walt argued against snark, it's because they view blogging as somewhat analogous to op-ed writing in places like the NY Times. When Carpenter, Drezner, and Farley defend it, it's because they've all been blogging every day for many years, and view it is a completely different medium than op-ed writing in MSM outlets. I agree with the latter, but that's probably because I've been conditioned to expect different things from blogs than from other media. The idea that one of my posts should be read similarly to a NY Times op-ed is ludicrous to me.

But that's not the only difference. It's also a question of intent. Walt clearly wants to have a big role in the public debate along a fairly narrow dimension (his posts are almost exclusively on Israel, Af-Pak, Iraq, or Iran), and that is a big motivation for why and what he's writing. Nye also seems concerned primarily with how blogs fit into the D.C. policy echo chamber. As I mentioned at the panel that is not my motivation for blogging at all, and my guess is that that is only marginally why Farley, Carpenter, and Drezner blog.

b. I feel like I missed an opportunity to stress how small our community is. The roundtable participants (and questioners like Feaver and Carvin) aren't the *only* IR bloggers in the world, but we probably represented a fair quorum, and almost all of the heavy-hitters (which doesn't include IPE@UNC; I think Drezner was alone on the panel in noticing our blog before the event, and I highly doubt that's going to change much.). It's a fairly small community overall; in IPE it's even smaller. If we're concerned about the lack of influence the profession has on public discourse and policymaking, then we should create our own media by using the tools available to us. Blogging is one of those. This is why the debate is being driven by economists and talking heads rather than political scientists; it's about marketing, not expertise. This is related to point 'a.' above insofar as blogs should seek to be entertaining and well-written rather than just formal and proper.

The point is that Ezra Klein is not influential because he's in the Washington Post; he's in the Washington Post because he's influential. Same with the FP bloggers. If we, as a discipline, want a higher profile, one way to get it is to cultivate our own garden. I, for one, think that we in IR -- esp. IPE, natch -- have a lot of value to add to the discourse. Not just for policymakers, but also for our students, the broader public, and each other. The blogosphere is valuable only insofar as it is useful as a learning tool; precisely who learns from it (policymakers, journalists, undergrad students) is somewhat less important.

(Although, I do agree with Walt: most academics probably don't have anything interesting to say to a broad audience. That's probably okay, but it's dumb to then turn around and complain that nobody is listening.)

Overall, I was very happy with the blogging roundtable. It was well-attended and a lot of fun. I don't think it was productive in any real sense but that's fine. The implicit assumption of the roundtable -- that blogs are a good and useful medium -- was never questioned at all. I found that odd. I'd like to think it's because everyone agrees that blogging is awesome and cool, but it's probably more that there was a bunch of self-selection in the crowd.

(Edited slightly for clarity at 9:15 pm)

Why do governments buy companies when they could just steal them?


The WSJ reports Venezuela is negotiating to purchase a majority stake in French company Casino Guichard-Perrachon SA's local subsidiary, Cativen. Casino offered to sell a few weeks after Venezuela seized Casino's local grocery chain. So, the obvious (but ignored by the WSJ) question is why would Venezuela pay for a company it can seize?

Of course, international institutions could pay a role. Several multinationals are currently pursuing international arbitration to dispute what they deem unfair payouts, and Venezuela needs new FDI. Negotiating a buyout may be a way for Venezuela to reestablish a pro-investment reputation (though, given Chavez's domestic agenda, investors probably need a bit more than news of a fair buyout to make them more willing to invest in the country). But, if Venezuela is trying to reestablish its reputation, it probably wouldn't have seized Casino's grocery chain in the first place.

Perhaps there's a domestic interest group story at work here. I wouldn't be surprised if influential constituents of Chavez's have some sort of stake in a negotiated buyout.

The recent Venezuelan example highlights a failure of IPE scholarship in explaining political determinants of FDI and investment expropriation. Most of this literature (my MA thesis-in-progress included) focuses on institutional solutions to incomplete contracting problems associated with foreign investing. But, this framework for analysis often forgets that domestic constituents often have real interests in protecting the investments of certain foreign firms. The Casino-Venezuela case is particularly interesting because Venezuela has consistently refused to be constrained by international investment treaties in recent years. Yet, at least some firms can get some sort of compensation for expropriation even in an environment devoid of institutional constraints.

Institutions often matter, but there's another layer to the story.

Friday, February 19, 2010

New Stata Data Repository

. Friday, February 19, 2010

From Alex Tabarrok at MR:

Even when every dataset is nicely formatted and documented it can be time consuming to merge two or more datasets when, for example, they use different identifiers for countries.

Giulia Catini, Ugo Panizza and Carol Saade have started a Macro Data 4 Stata repository which collects and creates common identifiers for the Penn World Tables, Barro and Lee's Educational data, the World Bank's Development Indicators and about 20 other datasets commonly used in macroeconomics. Any dataset in the repository can be merged with any other with just a couple of standard commands.

Check it out and please do add your own data!
This seems like it's going to be a great tool for data searching and merging from a wide range of datasets. The repository is being built using STATA 10 and 11 so if you don't have a realtively recent version of the software, you'll have to track one down.

Delayed Live-Blogging of the IR and Blogging Panel


Sorry IPEers; the interwebs at the Hilton Riverside are quite terrible and I can’t get it up and running in the ballroom. So I’m going to take notes during the roundtable (just as if I was live-blogging the panel itself) and I’ll post everything once the roundtable is over and I can make it back to the lobby.

And Drezner is up first. Introduces the panelists: himself, Nye, Walt, Carpenter, Farley and of course, Will! Room is pretty full; I’d say about 100 people in attendance which is by far the largest panel I’ve seen at the ISA meetings thus far.

Drezner: Blogs have risen in prominence over the past five years and have been leaking their way into policy circles and informing debates. Also, the rise of blogging institutionalization within foreign policy magazines and other general interest publications.

Blogging is also increasing in prominence within the academy and that the first IR bloggers are now getting tenure, opening the door for changes within the discipline and a new acceptance of blogging.

With new technologies like Twitter, FB and YouTube, blogging has become much more accepted and a bit arcane.

Drezner just brought up the ability to link debates across the blogosphere and bring in differing specializations, viewpoints and ideas. It creates a quick and easy forum for bloggers to discuss new issues.

The rise of full-time bloggers and how academics with limited time compete for readers with these institutionalized bloggers like Andrew Sullivan and Glen Greenwald.

There is also a major identity issue for bloggers: do you want to be seen as a serious scholar or as a blogger/scholar? Is there a difference? Does blogging inform and make your scholarship better?

Walt is up: He’s discussing how and why he first got into blogging. Dr. Walt blogs at Foreign Policy Magazine Online along with Dan Drezner. Walt sees blogging as a direct route to policymakers, direct political discourse and a way to actually inform the debate. It is a way to reach a large audience on a daily basis with academic tidbits in a way that the world never had before the 2000’s.

The blogosphere has become a counterweight to the MSM and governments have lost some of their ability to control information and spin the direction of news stories. With readership growing at high quality blogs, blogs are really starting to have an impact on political discourse.

Walt argues that writing scholarly work is quite different from writing on a blog. Writing on a blog requires a different mental approach. He’s arguing that academia needs to incentivize blogging as a way to disseminate information to the masses and as a way to ensure that the questions we are asking are interesting and can potentially impact the real world. He also brings up the potential for conflicts of interest and disclose any ties to topics that they discuss on their blog. This would ensure credibility to the blogospshere, especially in the absence of rules and norms to direct the behavior of bloggers.

Farley is up next: Farley blogs over at Lawyers, Guns and Money à Farley’s talk is going to center around blogging as an unemployed academic and then as a junior faculty member on the tenure clock. He argues that if blogging informs policy and scholarly debates, we should allow junior faculty to engage in the debate and put out their analyses and views and not just reserve the right for senior, tenured faculty members. Farley asks a really interesting question: Is there a distinction between blogging in a “political science department” and a more policy-oriented political science department? With Farley and Drezner at policy-oriented institutions, they may have more leeway from their departments to get out in the blogosphere and make an impact.

Farley also discussed the rifts that may emanate from being a blogger and patrolling the comments sections of blogs. It takes time to go through and fight back with commenters and other bloggers and is that really a good use for our time as academics?

He also wonders whether bloggers will be relevant five years from now and whether they may be replaced by some other social media in the years to come. It has become quite difficult to break through into the blogosphere, especially if you weren’t part of the first two waves of blogs.

Charli Carpenter is up next: Charli blogs at the Duck of Minerva and Lawyers, Guns and Money. Charli and Dan wrote an article that is under review on blogging and IR. I’ll find an ungated version of the paper and post it up. Charli brings up an interesting question: does the stature of the blogger matter and should we only be reading those well known blogs or should we be reading blogs that have high quality posts, regardless of whether the author has a fancy title and the CV to back up his online musings? She brought this up in the context of a blog on Somali Piracy that was written by an undergrad doing a study abroad research program and whether her blog should link to that blog in the blogroll, even though the author was a mere undergraduate.

Charli brought up Joe Nye’s op-ed in the WaPo on the irrelevance of academia and the need to re-connect IR scholars and policymakers. Dan wrote a response titled “Academia Strikes Back” and the debate raged on in the blogopshere for a pretty good amount of time.

She ended her talk with a question: Are blogs healthy and useful?

And Will is up next: He is going to focus his talk on the invisible college of the blogosphere and the intellectual community that blogs have created. He argues that he isn’t blogging to necessarily inform the debate and the policy community but rather to tie in academic theories of International Relations to practice and reality. He finds it a useful tool to judge and think through topics that he otherwise wouldn’t have time for. He also sees blogging as a way to write a little bit everyday which helps his academic writing.

Blogging also increases mentorship within the academy, especially if senior faculty take part in blogs with junior faculty and grad students. It also informs the students that we teach every day. Blogging is an extra tool within the classroom to connect students with theory and reality and has the potential to be very useful and informative.

He also argues that blog posts allow scholars to write a couple of paragraphs and get working ideas out there into the digital world and get immediate comments and criticisms and engage in a direct discussion with fellow bloggers. Will just threw out a couple of shout outs to Drew Conway over at ZIA and Emmanuel at IPE Zone! He also argues that blogging actually doesn’t take much time. Since we’re all reading all of the time anyway, it doesn’t take much time to write two to three paragraphs and post it up.

Joe Nye is up now: He blogs occasionally at the Huffington Post and reads blogs a couple of times a week. But he says that blogs have limitations and that although he reads blogs occasionally, he’d rather spend his time reading peer-review articles. What he loves about the blogosphere is the iteration after writing a post. You don’t really get that from writing an op-ed or an academic article. You may get a couple of emails, but an actual online real time discourse doesn’t really happen with an old school op-ed piece.

Nye argues that scholars should be spending their time on policy debates and blogging. But he is worried about the “cost of standards” in that blogs aren’t edited, don’t have fact-checkers and are hard to cite in a serious manner. Should we keep our blog writing separate from our scholarly writing?

It’s question and answer time!

Peter Feaver from Duke asks a question about norms and comments and also about how blogs can impact tenure decisions as well as any future political appointments and the possible need to refrain from putting your viewpoints on the web b/c they may damage future possibilities.

Stephanie Carvin who came to ISA from the UK and blogs at the DoM asked about how departmental blogging dynamics work. In the UK, they are encouraged to blog and they have a departmental blog where all of the academics write together. The dynamics are different in the UK from the US.

Nye calls for a certain amount of civility in the blogosphere and the need for decorum and a need to hold back from too much “snarkiness” in blog posts and discussions.

Drezner pushes back on the role of snarkiness and wit in blog posts and argues that both of those things are good, make our writing better and more interesting and draws readers. He also argued back on the senate confirmation process and the effect of blogging on future political careers. He finds that as a problem of the confirmation process and not of blogging. He said that the profession needs more humor and snark.

Farley agrees that snark, wit and humor are good things. He said that he uses a class blog when he teaches and he has his students adopt pseudonyms when they post on the blog so that they have the freedom to put up their views without it coming back to bite them in the rear in the future.

And Charli just played a funny Star Wars themed video on blogging. If I can get my hands on it (hopefully Charli can post it on YouTube), I’ll post it up. Charli also agrees that snarkness is a great tool to use, but there is a fine line between snark and stupidity and offensiveness. We need to stay on the right side of the line and also be respectful to fellow bloggers and commenters.

All of the panelists agree that we shouldn’t be engaging stupid comments. We should just ignore them and only engage those that are smart and relevant.

Drezner closes with the observation that not all blogs and bloggers need to adopt the same set of norms. The aims of blogs differ and imposing a unifying set of norms may actually detract from quality and the goals of their own blogs. Blogging provides a forum that people otherwise would not have and imposing a system of norms on all bloggers may block the entry of new bloggers into the blogosphere.

Walt closes on the need for academia to accept blogging. It should not be required, but it should definitely be accepted within political science departments and scholars should not be punished for blogging.

UPDATE - 1:56PM --> Here is the video that Dr. Carpenter played:

Game Day


Good Morning IPE! The International Studies Association Convention has been quite interesting and fun thus far. It is far larger than I ever could have imagined. There are between 15 and 30 panels going on at any given time, which actually has made it a bit frustrating when there are multiple panels that you're interested in and can't be in four places at once.

This morning, I'll be at the "Financial Crisis: Regulatory Issues in its Genesis" panel at 8:30 with some interesting looking presentations. I'll also try to bounce over to the "Revisiting the Links between Terrorism and Regime Type" panel which is also at 8:30.

It's game day for Will as he'll be sitting on a roundtable on Blogging and International Relations at 10:30am with some heavy hitters: Dan Drezner, Stephen Walt, Joseph Nye, Charli Carpenter and Robert Farley. I have internet right now and I'm hoping it continues into the ballroom where the roundtable will be taking place. If it does, I'll live-blog the discussion and bring you some of the interesting tidbits for those that couldn't make it to New Orleans.

I'll update at lunch time on some of the interesting after panels and other things I've come across while in New Orleans.

Where Dat?


So, as I feared, internet access at ISA has been somewhat spotty. As has been my attention. Who knew that New Orleans was full of wonderful restaurants, interesting culture, and nightclubs where one can order a proper drink and actually get it? Needless to say, there have been a few distractions.

In between the oysters and sazeracs I have managed to attend quite a few panels, most of which have had something to do with the financial crisis. I will have more to say on these later; I've been pretty disappointed by what I've heard so far. But now I need to finalize my remarks for the roundtable I'm on tomorrow, on how blogging affects theory and practice in IR. Stephen Walt is also on the roundtable, although he had the audacity not to name-check me in his post. C'mon, man: show some love for the little guy.

Anyway, it should be interesting. I believe that Alex will be live-blogging the roundtable on blogging, so as to be appropriately meta, so stay tuned for the blow-by-blow, or at least the post-mortem. (Anyone need odds on whether Drezner brings up Salma Hayek? I'm putting it at 3-1.)

More comment about the conference and other things should be forthcoming.

Tuesday, February 16, 2010

Damn Greeks (or Why Germany Never Wanted EMU in the First Place)

. Tuesday, February 16, 2010

With Apologies to Emmanuel. But this is the point of your no comment policy, right?

Otmar Issing explains why the EU cannot afford to give Greece a helping hand: "Participation in Emu brings huge advantages. The benefits of joining a stable economic area are greatest for countries that were unable to deliver such conditions before. Thanks to the euro, Greece has enjoyed long-term interest rates at a record low. But instead of delivering on its commitment at the time of entry to reduce public debt levels, the country has wasted potential savings in a spending frenzy. The crisis with which it is now confronted is not the result of an “external shock” such as an earthquake, but the result of bad policies pursued over many years. Bailing out Greece would reward such behaviour and create moral hazard of a dimension hardly seen before.

Damn Greeks. When I wrote my book on EU monetary politics, I argued that serious conflict of this sort was the inevitable consequence of EMU. Or maybe I took that out of the conclusion because everybody thought I was nuts. I did publish a paper that no one has ever read which nicely explains why German monetary authorities hated EMU as well as how they tried very hard to prevent it or at least limit membership to the right countries. It is the only game theoretic model I have ever published. Turns out it is spectacularly correct.

The IMF Doesn't Like Inflation Any More than the Finance Ministers Who Run It


Some IPE bloggers seem to be reading a lot into a recently-released IMF Staff Position Note. In this note, IMF chief economist Oliver Blanchard and his co-authors consider the lessons we might draw from the recent crisis about the pre-crisis consensus on macroeconomic policy. One lesson he suggests is that a slightly higher inflation target (4 rather than 2 percent) might make it easier to cut rates in the face of large negative shocks. Let me quote the relevant section at length:

The crisis has shown that large adverse shocks can and do happen. In this crisis, they came from the financial sector, but they could come from elsewhere in the future—the effects of a pandemic on tourism and trade or the effects of a major terrorist attack on a large economic center. Should policymakers therefore aim for a higher target inflation rate in normal times, in order to increase the room for monetary policy to react to such shocks? To be concrete, are the net costs of inflation much higher at, say, 4 percent than at 2 percent, the current target range? Is it more difficult to anchor expectations at 4 percent than at 2 percent?
Achieving low inflation through central bank independence has been a historic accomplishment, especially in several emerging markets. Thus, answering this question implies carefully revisiting the list of benefits and costs of inflation (page 11).
Maybe I am missing subtlety (subtlety has never been my strong suit), but I don't see how one gets from these paragraphs to Erik Voeten's assertion that the IMF's "Chief Economist calls for countries to raise their inflation target to 4 percent."

Nor do I see how James Vreeland (welcome to the blogosphere, James) can assert that Blanchard has called for monetary authorities to raise their inflation target and cite (I can only infer approvingly) the Financial Times' claim that this "represents a dramatic shift away from the standard policy advice of the IMF." (Though I highly recommend the rest of Vreeland's post on the evolution of IMF conditionality).

Nor, even if this interpretation is correct, do I see why this is hypocritical. What I see is exactly what one hopes to see. Reflective people drawing lessons from major historical events. Lord Keynes' ideas for the IMF emerged from his reflections on the lessons of the Great Depression. In that context, it made sense to prioritize the fight against deflation. Central bankers embraced a two-percent inflation target based on lessons of the Great Inflation. In this context, it made sense to prioritize the fight against inflation. The world throws new challenges at us, and we reflect and adapt. And then the world throws new challenges at us. Shouldn't we welcome indications that policymakers are reflecting and possibly adapting?



Today and tomorrow the entire IPE@UNC crew will be traveling to New Orleans for the annual meetings of the International Studies Association. Yeah, that's right: we're holding our annual meeting in New Orleans the same week as Mardi Gras. Tuesday is Fat, the conference starts on Wednesday. That's how we roll.

Anyway, blogging may be light over the coming days, or it may be heavy. Depends on how things go, and whether there is wireless internet in the conference rooms. Hopefully we'll have some interesting new papers to discuss in this space.

If any readers are there, yours truly will be on a roundtable on Friday discussing the potential for blogging to influence policy, theory, and scholarship. Yeah, yeah, sounds self-important and boring. But even if you wouldn't come to hear me speak, maybe you'd come for the other roundtable participants: Dan Drezner, Joseph Nye, Stephen Walt, Charli Carpenter, and Robert Farley. As you can tell, nobody will be there to hear me, but I'll be there nonetheless, trying to not to embarrass myself in the ten minutes I have to speak.

So say hi if you're in NOLA this week. And if you can't be, watch this space; we'll try to blog some of the most interesting stuff as we have time and internet access.

Don't Make Governance Political


Dani Rodrik is skeptical about international financial governance:

Global coordination, like global governance, sounds good. But the practical reality is that it cannot deliver the tough regulations, closely tailored to domestic economic and political requirements, which financial markets badly need in the aftermath of the worst financial upheaval the world economy has experienced since the Great Depression.

In a world of divided political sovereignty and diverse national preferences, the push for international harmonization is a recipe for weak and ineffective rules. That is one reason why international bankers love international coordination.

I completely agree: we won't get strict, meaningful international standards any time soon. Moreover, that's probably a very good thing: one-size-fits-all policies seldom work very well, as Rodrik is quick to point out in other contexts, and as he reiterates here:

Democratic accountability would also result in regulatory diversity – different countries doing their own thing – and that is not a bad thing, either. If the US wants to place size limits and tighter capital requirements on banks, it should be free to do so. If Europe wants to devise its own rules for credit-rating agencies and hedge funds, it should simply go ahead.

Fine as far as it goes, although I don't see what "democratic accountability" has to do with it. Does Rodrik really think that voters are dwelling over the minutae of regulatory reform? Of course not. Regulatory policy isn't about catering to the public mandate; it's about satisfying broad public interests and narrow private interests. The logic of collective action essentially dictates that regulatory policy will cater to the interests of the banking sector.

The scary thing is, relative to a world where regulatory policy is truly democratized, that is probably a good thing. International governance would surely be weak, but it might actually be appropriate. Highly-politicized regulatory policy, on the other hand, would surely be disastrous just as highly-politicized monetary policy is disastrous.

Sunday, February 14, 2010

The New Cold War

. Sunday, February 14, 2010

Russia is laughing at us:

Even in Russia, the recent blizzards that have hit Washington have been noticed. Though not always sympathetically. Were Congress and other powerful institutions really closed, not to mention the schools? Did panicked residents actually strip stores of food, making the bare shelves resemble something from the Soviet era?

All because of the snow?

Russia, mindful that it trails the United States in many measures, tends to leap at any chance to promote its supremacy, and when it comes to wintry hardiness, there is, of course, no contest.

This is one cold war that Russia wins.

In their reports sent home, Russian journalists in Washington seemed to have a hard time suppressing their grins. Mikhail Solodovnikov of Russian state television did his segment wandering outside the Capitol without a hat, as if to demonstrate how positively temperate the place was. (It is practically against the law in Moscow to venture outside hatless in February.)

Of course, a big part of the freak-out in the States is the fact that these are rare events so our infrastructure isn't made for it. In the NC Triangle, even a couple of inches of snow is debilitating because we have few snow plows and don't salt the roads. Similarly, D.C. can handle a couple of inches but not a couple of feet. The fact that Moscow deals with this sort of thing all the time makes it much easier for them to deal with. Or does it?

In truth, while Russians have more experience with winter, they are not necessarily much better at cleaning up after it. First-time visitors to Moscow can be surprised at how the snow and ice are often allowed to linger.

The reasons vary. One is that local officials here are less responsive to public complaints than their American counterparts. So Russians complain less, publicly. That makes it hard to imagine a scandal like the one that engulfed Mayor John Lindsay of New York in 1969 over complaints of a failure to plow streets in Queens.

Russians, accustomed from Soviet times to having the government take care of things, do not always feel responsible for shoveling sidewalks. The country, for better or worse, does not have a very litigious culture, so people do not fear slip-and-fall lawsuits.

In general, Russians approach winter as they do many hardships, with an it-is-what-it-is fortitude.

Ah, I see: Russians are laughing at us because we'd rather stay home and warm rather than wreck our cars and break our necks trying to navigate treacherous roadways and city streets. We also expect our government to provide public goods, hold them accountable when they don't, and aren't masochistic.

I guess I can live with that.

Saturday, February 13, 2010

Quote of the Day

. Saturday, February 13, 2010

I respectfully submit that the bankers--like the regulators--simply did not realize that this was the first-ever significant nationwide housing bubble. And they did not realize how fragile the bubble was, due to subprime lending. Meanwhile, the Basel regulators encouraged them to leverage into the bubble by buying AA- or AAA-rated MBS. That is the crisis in three easy sentences.

From Jeffrey Friedman. More here, including four more great sentences:

The crisis has ideological ramifications. So economists of libertarian bent want to blame it on TBTF. Those of leftist bent want to blame it on bankers greedy for bonuses. Is it so difficult to imagine, though, that both the regulators and the bankers, being human, were ignorant of what was to come?

I really do think that most people underestimate the role of ignorance in the crisis. It's a bit unsatisfying, because we like blaming enemies for bad events, but that doesn't mean it isn't true.

Vreeland on the "Bad Ass" Theory of Dictators and Human Rights Agreements


Henry Farrell passes along the welcome news that James Vreeland has a blog, which is now in my daily rotation. The first substantive post discusses Rosendorff and Hollyer's "bad ass" theory of why dictators sign on to human rights agreements that they know they will violate:

So, if a dictator enters into the CAT, he better be darn sure that he will never fall from power. And this is precisely the point. He is sending a signal to his domestic audience that he intends on doing whatever is necessary to hold on to power, and he's quite confident in his ability to survive in office. Only the strongest resolve dictators will take such a step. Soft dictators can't rist faking it - if they sign the CAT and lose their grip on power, they're libel to end up in the slammer. So the signal the tough dictators send is unambiguous, and might even serve to quite opposition, who realize that resistance is futile.

A non-gated pdf of the article he's discussing is here, and Eric Voeten discussed it here. The upshot is that signing on to international agreements like the Convention Against Torture (CAT) incurs costs for leaders, which sends a credible signal to domestic audiences that they aren't going anywhere.

I agree with everyone that this is an interesting, creative theory. My first reaction to hearing about the theory was this: if the logic is right, then the domestic audience should recognize the signal as credible and thus we should see dissident movements, and thus the torture intended to combat them, dry up. In fact, the authors do find such an effect: torture continues in signing states, but seems to decrease after signing the CAT. They also find that dictators who sign the CAT stay in power longer than those who don't.

I haven't had time to fully digest the model, but I like what I've seen so far.

International Political Economy at the University of North Carolina: February 2010




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