Tuesday, August 31, 2010

Stay Classy, Iran

. Tuesday, August 31, 2010

Just a short note to offer kudos to Der Spiegel, which pulled no punches in a recent interview with Iranian Foreign Minister Manouchehr Mottaki. I wish the U.S. press displayed similar chutzpah when interviewing public figures. The sheer disingenuousness of the Iranian regime is captured nicely in these two short sentences from Mottaki:

The sanctions have made us immune to the global economic crisis that has hit other countries, including those in Europe. We have become self-sufficient.

This is an utter lie, as both inflation and unemployment are around 20%, and those are only a few of the major problems in the Iranian economy.

Of course when the going gets tough, the tough call first ladies of other governments "prostitutes".

Monday, August 30, 2010

Why Immigration Matters

. Monday, August 30, 2010

Giovanni Peri at the San Francisco Fed has a new economic letter summarizing research he's done on the effects of immigration. Here's the summary:

The effects of immigration on the total output and income of the U.S. economy can be studied by comparing output per worker and employment in states that have had large immigrant inflows with data from states that have few new foreign-born workers. Statistical analysis of state-level data shows that immigrants expand the economy's productive capacity by stimulating investment and promoting specialization. This produces efficiency gains and boosts income per worker. At the same time, evidence is scant that immigrants diminish the employment opportunities of U.S.-born workers.

In other words, allowing more immigration would be good for domestic workers, as well as for immigrant workers and domestic consumers. Sounds like a win-win, no? As Felix Salmon puts it:

Never mind the stimulus vs austerity debate: here’s something that both sides should be able to get behind. It’s a simple legislative fix which increases tax revenues without raising taxes; which increases the demand for housing; which increases the economy’s productive capacity; and which boosts wages for American workers. It’s about as Pareto-optimal as legislation gets. So let’s open the borders, and encourage much more immigration into the US!

Not to mention helping to restore the solvency of entitlement programs, providing aid to poorer countries (via remittances), and improving overall political and economic liberty. So, of course, instead of doing it we're passing repressive laws that may violate international human rights law while refusing to even consider immigration reform until next year at the earliest. This policy is not only unjust, it is stupid. It is cutting off our nose to spite our face, shooting ourselves in the foot, and other fill-in-the-blank cliches about wrong-headed, self-defeating policies.

We should be doing more to encourage people to come and work in this country. It enriches us, them, and those they leave behind. We're losing a remarkable opportunity. It's shameful.

Why German Leaders Aren't Sado-Masochistic Lunatics, or, Why Krugman Is Either Wrong or Irrelevant


All of the debate over Germany has focused on stimulus vs. austerity, which has been recast as an ideological battle of technocratic purity: Keynes vs. not-Keynes. I covered a few of these bases here, and Tyler Cowen quoted and extended them here. Let's try to think of it in another way. Suppose for a second that Krugman and his camp has the economics completely correct. Germany and other leading states should not be even considering fiscal retrenchment at the moment, nor should they be encouraging any of the sort from smaller states like Spain and Ireland. Instead they should be doing the opposite, by engaging in a large ramp-up stimulus program. Let's assume that this is, as Krugman says, simple and basic economics, easily understood by anyone who's passed Econ 101 or taken a cursory look at economic history.

For this to be the case, German policymakers and officials at the IMF and elsewhere (the "Pain Caucus") are so worried about some mystical beings ("Invisible Bond Vigilantes") that they genuflect to gain approval from other mystical beings ("Confidence Fairies"). A few prophetic voices in the wilderness ("The Ancient and Hermetic Order of the Shrill") scream into the void, to no avail. Krugman is obviously a very public figure, so it is unlikely that policymakers are ignorant of his arguments. The only conclusion is that these policymakers are sado-masochists, insane, or both. I believe this is Krugman's default position.

How helpful is it to assume, as a starting point, that leaders are masochistic lunatics? Not very, in my view. There's a lot of political science theory and research dedicated to the idea that politicians are office-seeking, voters are sensitive to the state of the economy, and therefore sado-masochistic lunatics have a very difficult time controlling policy. So even if Krugman is completely correct about the economics, it doesn't really matter. There must be something else going on, so even if correct his analysis would appear to be irrelevant.

At the start of the crisis the Obama administration pushed European governments hard to enact strong stimulus packages to kick-start their economies. The Obama administration worried that if they did not, that much of the American stimulus spending would be "leaky", i.e. would stimulate other countries' export industries, but not domestic industries. They also worried that American exporters would suffer if demand in other countries remained low. Encouraging other countries to enact stimulus, then, was really about encouraging other countries to buy more goods from the U.S. while U.S. consumers bought domestically. The goal was to boost domestic (American) employment.

This ploy is obviously transparent, and Germany responded almost immediately by saying that they felt their "automatic stabilizers" (things like unemployment insurance) were sufficient stimuli. At the same time, Germany was beginning to realize that they were going to have to spend quite a lot of money to rescue Greece and potentially other southern European economies from Quite-Visible Bond Vigilantes. As you'd expect, bailing out profligate countries during a recession was very unpopular domestically, so the pound of flesh the Germans extracted in return was austerity in debtor countries, and tougher new fiscal rules for the E.U. to prevent a similar outcome from recurring. If Germany ran large deficits by engaging in ramp-up stimulus spending, it would under-cut their own Euro-wide debt-reducing initiative, and might push the economic and monetary union to the brink of collapse.

But Germany's automatic stabilizers were real. The result was that Germany largely engaged in neither ramp-up stimulus nor austerity. Ryan Avent has a good post about this, in which he links to this interactive Brookings map showing which countries did how much stimulus. Germany did much more than France, Italy, or the U.K., and their proposed budget cuts for 2010 and 2011 are the lowest in the eurozone. As Avent concludes, "This doesn't mean that stimulus is the key to German success. But Germany is absolutely not an example of strong growth despite austerity."

In other words, Germany has taken a measured approach: let their stabilizers run their course, but don't blow a huge hole in the budget at a time when they are insisting the rest of the E.U. get their fiscal house in order. Let the recovery come from exporting sectors and productivity gains rather than ephemeral short-run consumption. The Germans are balancing short-run political incentives (a fairly quick economic recovery) with longer-run goals (maintain a strong, stable economic and monetary union). Not only is this strategy not masochistic or insane, it is actually pretty savvy. It's also Germany's only hope for securing the long-run health of the economic and monetary union along with the domestic economy. Maybe the Obama administration would like to see more, but that's hardly Germany's problem, is it?

The takeaway here is that even if Krugman is completely right about the economics, he is wrong about the political economy. This makes his analysis irrelevant at best, completely wrong at worst. I guess I'll let him decide which.

Sunday, August 29, 2010


. Sunday, August 29, 2010

From Wilkinson:

If I could have one wish as this important debate continues, it would be that all sides abandon the false dichotomy between market and state, and instead embrace the idea that there is but a single order of human action determined by the interface between human psychology, technology, and the integrated scheme of legal, political, moral, professional, and cultural rules.

Saturday, August 28, 2010

The U.S., Europe, and Economic Freedom

. Saturday, August 28, 2010

Alex Massie on comparative political economy:

Indeed, the Heritage Foundation's Economic Liberty Index suggests that, actually, there's little to no necessary contradiction between social liberalism and economic freedom.

For instance: Heritage hammers Denmark and Sweden for high levels of government spending but both countries are ranked "freer" than the US in matters as non-trivial as business, trade and investment freedoms. Indeed, Sweden and Denmark each score better than the United States in seven of the ten areas measured**. (Britain comes out 5-4 ahead of the US with the property rights fixture ending in a draw. Germany is tied 5-5 with the Americans. Canada, Australia and New Zealand also do better than America.)

This would probably surprise a lot of people in both the U.S. and Europe. The Heritage Foundation is a rock-ribbed conservative think tank, not some squishy-left house, so these results can't really be accused of left-wing bias. The U.S. does rank higher than some of those countries in overall economic freedom, because it wins bigger in some categories than it loses in others, but the point is that different countries prioritize different goals. In fact, different countries have different conceptions of what constitutes freedom in the first place, and this shows up in the rankings. This leads to the scenario we see now: a lot of countries ranked pretty close to each other in overall economic freedom, but with strikingly different formulas to get there.

There's a widely-held belief in the U.S. that Europe is a socialist wasteland, and a myth in Europe that America is a cowboy capitalist casino. But just because this belief is common does not mean it is not wrong. (I once shocked a European when I said that the U.S. financial sector was more heavily regulated before the crisis than the European financial sector; this person refused to believe me and in fact laughed in my face, but it's a true statement.) European economies are not at all monolithic, and cannot be lazily categorized in any one way. Different European societies choose different political and institutional arrangements that emphasize different outcomes, and some of these are to the right of America.

In terms of the marketplace of ideas, this is a very good thing. When different states follow different paths in organizing their domestic economies, it allows us to compare ideas to see which work better than others. It allows us to adopt positive aspects of other systems while avoiding others' mistakes. It gives us the ability to draws the lines where tradeoffs must be made, and decide intelligently how to make those choices. I think Patri Friedman's "seasteading" movement is pretty pie-in-the-sky, but political competition can be as good as any other type of competition, and there's certainly nothing wrong with learning from others' successes and failures.

Friday, August 27, 2010

The Silver Lining in the GDP Cloud

. Friday, August 27, 2010

As an graduate of Econ 101 can tell you, gross domestic product is calculated according to a modest identity:

GDP = Consumption + Investment + Government + Exports - Imports

This measure of a nation's well-being is attractive for its simplicity, but it lacks nuance about the state of an economy. GDP does not measure the distribution of national income, the type of production or consumption, or the circumstances under which production and consumption take place. Today's GDP report illustrates some of this:

Growth in the last quarter was stifled by a 32.4 percent surge in imports, the largest since the first quarter of 1984, dwarfing a 9.1 percent rise in exports. That created a trade deficit, which sliced off 3.37 percentage points from GDP, the largest subtraction since the fourth quarter of 1947.

Via Felix Salmon, who notes:

Obviously, a trade surplus would be better than a trade deficit, especially in terms of generating employment growth domestically rather than abroad. But exports did rise, at quite a healthy clip. They were just eclipsed by this whopping rise in imports — which are a sign that there’s still a lot of demand in the economy.

This is a subject which came up at the Treasury blogger meeting last week: while no one at Treasury is exactly overjoyed at seeing imports rising so much faster than exports, any sign of increased economic activity is being taken as a good sign. Certainly this kind of thing is preferable to seeing the opposite happen, where exports fall and imports fall faster. Even if that would have a better effect on GDP.

So the second quarter GDP revision looks pretty bleak -- 1.6% annualized growth rate, rather than the 2.4% that was originally reported, which itself was down from 3.7% in the first quarter -- and it certainly isn't great. But the rise in exports shows the the U.S. retains some competitiveness, and the rise in imports demonstrates the presence of consumer demand in the face of a weakened dollar.

This is also one piece of evidence that we are not in a paradox of thrift world, nor that the aggregate problem is nominal, not real. That's not proof of anything, but it is one point. It also demonstrates how important trade is for the well-being of the country, even if it has a nil or negative effect on GDP.

For some of these reasons, the French government created the Commission on the Measurement of Economic Performance and Social Progress, which included such luminaries as Joseph Stiglitz and Amartya Sen, to create a different measure. Their report is interesting, although i doubt GDP will be displaced as the most common unit of measure any time soon. GDP's benefit is its simplicity and universality, even if those attributes sacrifice some nuance in the process.

Interests and Issue Salience


I strongly believe that politics is a competition between interest groups. The problem for political scientists is identifying which interests are most salient. Steven Landsburg sums up in a sentence:

If you’re a gay Jewish small business owner, to which brand of parochialism are you now in thrall? Please advise.

Is it possible to develop accurate models of mass trade politics when trade is just not a salient issue for most voters? How about exchange rates, or capital account openness? Is it better in some cases to eschew models of mass politics in favor of models of elite competition? If so, when? These are questions that I wish IPE would spend more time thinking about.

Lies, Damn Lies, and Statistics


I enjoy the repartee I have with IPEZone's Emmanuel. We often disagree, but the back-and-forth is always fun. I must protest, however, to his recent challenge. In an update at the bottom of this post, Emmanuel criticizes me for not being able to use data:

Now Kindred's a good kid, but he is wet behind the ears as he tends to put words in my mouth and gets embarrassed for it. Anyway, I decided to look up the numbers for myself instead of relying on other's charts. Below are the figures for US income for those 25 and up for the years 2000 to 2008 from US Census Bureau tables P-16 and P-18. It doesn't matter whether it's the mean or the median or if you're male or female; real annual income has been falling there since 2000. It doesn't matter either if you're a college graduate or have a higher educational attainment.

I guess the furriner is more familiar with US stats than the American. Also at grad school, you are taught not to compare apples and oranges, but he does so by quoting another data series and naively suggesting differences have something to do with using "mean" and not "median" data.

There's a lot of wrong in just a few sentences there. First things first, I haven't put any words in Emmanuel's mouth; I've quoted him directly. The purpose of his post is to counter the argument that a college education is a wise investment. That's why it is titled "The Knowledge Worker Myth vs Blue Collar Reality", not "A Handful of Skilled Blue Collar Jobs Are Hot Right Now, But College Still a Good Investment Overall". That's why he writes sentences like "So much for the college myth." He is claiming at least one of two things: the college wage premium is collapsing, or the real return to a college education is falling. I am claiming the opposite.

So which of us is right? I am, of course. The data I previously reported shows this quite clearly in a few easy-to-read graphs from BLS data. Emmanuel appears to prefer Census data, but as we will see that doesn't matter. Other than the mean/median distinction, the two sources appear to disagree because the time period Emmanuel selects is misleading. His starting date is the peak of the previous business cycle (2000), while his end date is the trough of the most recent one (2008). Tables P-16 and P-18 go back to 1991, so this must have been a deliberate choice on Emmanuel's part. The series I posted go back at least to 1991 as well. The longer series show an inflation-adjusted increase over the past two decades in the return to college education for both men and women, mean and median. Over the same period, inflation-adjusted median income of high school graduates declined by nearly 10%. (The same figure increased for women... from $16k to $18k.) Male and female college graduates made nearly double what those with only a high school education made across the time series. If you compare peak-to-peak, incomes for college graduates went up from 1999-2007 as well. The spread between the college-educated and those who are not also increased across the series, and those without degrees have seen especially nasty upticks in unemployment in the last two years or so.

I'd produce a nifty graph here but the Census data is a mess, it's late, and I'm tired. Please read the tables for yourself. A quick glance is good enough. Or look at the BLS data, which tells the same story. I'm not the one talking about apples and oranges. Whether you're looking at absolute or relative gains, means or medians, male or female, the pattern is clear: the more educated earn much more than the less educated, that disparity has increased over time, and job security (as well as non-wage benefits and compensation) is also much higher for the well educated. The "Knowledge Worker" is anything but a myth, which is probably why Emmanuel's pet countries like Singapore have emphasized higher educated so much.

The only way Emmanuel can reach any other conclusion is by tweaking starting dates in a pretty egregious way, and changing his argument midstream. As I say: lies, damn lies, and statistics. Whether it's intentional or not is not clear to me, but just as in a previous tangle (see comments), Emmanuel loves to make broad claims and then say "That's not what I meant" when questioned. As before, he meant what he insinuated, and what he insinuated was wrong.

Thursday, August 26, 2010

Does Education Pay?

. Thursday, August 26, 2010

Emmanuel, striving for a "compelling narrative", implies that seeking higher education isn't worth it:

The white collar life was supposed to promise the land of milk and honey.

Certainly, academia has had an interest in propagating this story since it provides fodder for ensuring a steady stream of tuition-paying students in law, commerce, and business. Various American commentators like former Fed Chairman Alan Greenspan have constructed an entire narrative out of "knowledge workers." In recent times, that has meant training to be a software engineer or some other lofty position that makes the most of conceptualizing abstract ideas and similarly high-faluting rhetoric. The truth, though, is much less compelling. Take America (please). Not only are there scores of unemployed college graduates there, but wages of college graduate have been on a downward trend since 2000. So much for the college myth.

As the graph above shows (via David Leonhardt), this is simply not true. (The data presented above contradicts that in the link in Emmanuel's quote, probably because the latter reports a mean while the former reports a median.) The college wage premium has expanded over time, and college graduates now make more than double what high school graduates make. Moreover, as the below chart from the BLS shows, more postgraduate education generates an additional, large, premium along with a pretty significant amount of job security.

The recent unemployment crisis has not changed this trend; it has exacerbated it, as less-educated workers have been hit especially badly:

So when you see breathless articles questioning the wisdom of pursuing higher education, or claiming that you can do nearly as well without it, remember the stats. A compelling narrative is no substitute for a few facts.

Wednesday, August 25, 2010

Income and Concern About Climate Change

. Wednesday, August 25, 2010

Erik Voeten at The Monkey Cage comments on a new paper demonstrating the income elasticity of demand of public morals:

The authors argue that this supports the notion that environmental concerns are a luxury good, in the sense that these concerns seem to rise to the front when economic times are good and recede when times are bad. In political science and sociology we would call this a post-materialist concern. This characterization is quite old (although not entirely uncontroversial) but the use of internet search data is novel and interesting.



From (the recently purged from Cato?) Will Wilkinson:

The average Tea Partier is, like the average voter, a collection of reflexes, prejudices, resentments, and demands that add up to no coherent philosophy at all.

Wilkinson is right to note that this incoherence is not unique to the Tea Party... it is a philosophical incoherence that knows no ideological boundaries. His whole post is short and well worth reading. One potential implication of this line of thinking is that people sacrifice philosophical purity in favor of economic or ethical interests.

On Krugman On Germany


See... this is what people who complain about Krugman are complaining about:

Many people are now holding Germany up as proof that austerity is good.

There are a number of reasons that’s foolish, among them the fact that Germany’s austerity policies have not yet begun — up to this point they’ve actually been quite Keynesian.

But it’s also worth having some perspective on actual German performance to date. ...

Everything you’ve been hearing is about that uptick at the end. But I’m not willing to declare an economy that has yet to recover to the pre-crisis level of GDP an economic miracle.

This analysis is just sloppy. There are at least three very wrong things here:

1. No one is saying Germany is an economic miracle. Some people, like Tyler Cowen, are saying that Germany's experience doesn't track very well with standard economic models and this fact needs to be acknowledged by those who loudly proffer policy advice.

2. No one (that I've seen) is saying that Germany's turn-around is due to austerity. Germany has been insisting on austerity in other eurozone economies like Greece as a condition for the establishment of the emergency stabilization fund. Don't mistake an observation about EU political economy for an argument in favor of one economic paradigm or another.

3. The fact that Germany has "actually been quite Keynesian" and "has yet to recover" is not evidence in support of Keynesianism.

That said, Krugman's recent comparison of the current U.S. situation and the Japanese "lost decade" is pretty compelling, in my view.

Tuesday, August 24, 2010

Orwell Live-Blogs WWII and Trotsky's Death

. Tuesday, August 24, 2010

I believe I've linked to them before, reading George Orwell's diaries during WWII are fascinating. For instance, seventy years ago last week Leon Trotsky was murdered in Mexico City by Stalin's agents, as recounted in this entry. Orwell wonders why elements of the English press were unwilling to connect the dots from Stalin to the ice-pick that took Trotsky's life, which leads to speculation that the need for a UK-USSR alliance in opposition to the Axis was to blame.

The Beaverbrook press, compared with the headlines I saw on other papers, seems to be playing down the suggestion that Trotsky’s murder was carried out by the G.P.U[1]. In fact today’s Evening Standard, with several separate items about Trotsky, didn’t mention this suggestion. No doubt they still have their eye on Russia and want to placate the Russians at all costs, in spite of Low’s cartoons[2]. But under this there may lie a much subtler manoeuvre. The men responsible for the Standard’s present pro-Russian policy are no doubt shrewd enough to know that a Popular Front “line” is not really the way to secure a Russian alliance. But they also know that the mass of leftish opinion in England still takes it for granted that a full anti-fascist policy is the way to line up Russia on our side. To crack up Russia is therefore a way of pushing public opinion leftward. It is curious that I always attribute these devious motives to other people, being anything but cunning myself and finding it hard to use indirect methods even when I see the need for them.

It's impossible to know whether geopolitical considerations actually motivated the English press to omit some items and cover others in the hope of swaying public opinion, but it is interesting to think about possible modern parallels.



In Iraq, a country with about the same population as Venezuela, there were 4,644 civilian deaths from violence in 2009, according to Iraq Body Count; in Venezuela that year, the number of murders climbed above 16,000.

Even Mexico’s infamous drug war has claimed fewer lives.

More here.

Remember the Fall of 2008?


Times were different then. Here's a reminder:

Good news: AIG is paying back $4 billion to the U.S. government.

Bad news: They must pay back over $90 billion more to gain independence from the state.

Sunday, August 22, 2010

The Effect of Lobbying

. Sunday, August 22, 2010

UNC poli-sci professor Frank Baumgartner had his research on lobbying featured in Miller-McCune (then NYTimes, then Monkey Cage):

The real outcome of most lobbying — in fact, its greatest success — is the achievement of nothing, the maintenance of the status quo. “Sixty percent of the time, nothing happens,” says Frank Baumgartner, one author of the book and a political science professor at the University of North Carolina at Chapel Hill. “What we see is gridlock and successful stalemating of proposals, with occasional breakthroughs. We see a pattern of no change, no change and no change — and then some huge reform.”

But those large reforms — such as health care for 32 million uninsured Americans under President Barack Obama, the scheduled phase-out of the estate tax under President George W. Bush, and the normalization of trade relations with China under President Bill Clinton — are far more often linked to a change in who inhabits the White House than to campaign contributions or K Street hires.

The weak link between money and policy change is counterintuitive but understandable, the authors say. The balance of power in Washington already hugely favors the rich. The status quo reflects the considerable advantages the wealthy have managed to secure in the law, down through the generations.

“If they really wanted something, they probably already have it,” Baumgartner says.

Lee Drutman has a somewhat different interpretation:

But, to me, 40 percent is actually an astonishing success rate.

Sure, this may not look like much if your starting assumption is that special interests own Washington, and that all a clever lobbyist needs to do is approach a Congressman with the promise of a campaign check and that poor helpless Congressman will practically be begging to fete that lobbyist with most indefensible corporate giveaway.

But, on the other hand, if you’ve spent any time in Washington, and you know how hard it is to get just about anything done, 40 percent is definite batting champion territory.

And the big point of the study is actually about the difficulty of change: the status quo is really, really sticky in Washington, in good part because on most important issues there are forces mobilized on both sides, and every action on one side provokes an equal but opposite reaction on the other side. Forces fight each other to stalemate for years. But then then, suddenly, there is movement – and whoever has won the war of positioning is likely to win the war of motion.

But the problem is that nobody – not even the cleverest of lobbyists – really knows which ideas and issues are likely to break and when.

The two views are not mutually-exclusive.

Pr(A|B) /= Pr(B|A)


William Easterly on the bias of reverse conditional probabilities:

{People perceive} from media coverage that the probability that IF you are a terrorist, THEN you are a Muslim is high. Unfortunately…{we are confusing} this with the relevant probability, which is the chance that IF you are a Muslim, THEN you are a terrorist (which is extremely low even if the first probability really is high, because terrorists are very rare).

Of course, in the case of the Cordoba House hysteria, the probability that an American Sufi Muslim was a 9/11 attacker is actually zero.

Easterly says that this bias is rampant across issue areas. I can think of many examples off the top of my head.

Tuesday, August 17, 2010

Disaster Politics and Civil Strife

. Tuesday, August 17, 2010

From a new paper by Cullen Hendrix and Idean Solehyan:

This paper examines the relationship between rainfall, water, and socio-political unrest in Africa. In particular, we are interested in how deviations from normal rainfall patterns, and extreme events such as flooding and drought, affect the propensity for individuals and groups to engage in disruptive activities such as demonstrations, riots, strikes, communal conflict, and anti-government violence. In contrast to much of the environmental security literature, we use a much broader definition of conflict that includes, but is not is not limited to, organized rebellion. Using a new database of over 6,000 instances of social conflict in the past 20 years - the Social Conflict in Africa Database (SCAD) - we examine the effect of deviations from normal rainfall patterns on various types of conflict. Our results indicate that rainfall variability has a significant effect on both large-scale and smaller-scale instances of political conflict. We find that rainfall is correlated with civil war and insurgency, although wetter years are more likely to suffer from violent events. Extreme deviations in rainfall - particularly dry and wet years - are associated with all types of political conflict (violent and nonviolent, government-targeted and non/government-targeted), though the relationship is strongest with respect to violent events, which are more responsive to abundant rather than scarce rainfall. By looking at a broader spectrum of social conflict, rather than limiting the analysis to civil war, we demonstrate a robust relationship between environmental shocks and violence.

This is part of a growing body of research on how natural disasters and environmental changes affect politics. A recent article by Alastair Smith and Alejandro Quiroz Flores looked at how democracies perform relative to autocracies in mitigating the effects of disasters, and of course Amartya Sen famously showed that the worst famine in Indian history was a result of poor government response to a drought. (Johann Hari argues that this was at least partially Winston Churchill's fault.) Keep this in mind when reading about the ongoing flooding in Pakistan, the the fires in Russia, and the Chinese mudslides.

On l'affaire Cordoba House


I have learned, over time, to never trust the initial framing of a story, so when I heard "Liberals want to allow the building of a mosque at Ground Zero that preaches in favor of the imposition of sharia law in the U.S." I knew immediately that all or nearly all of the constituent parts of that statement were false before knowing exactly how or why.

It seems a bit late in the game to pile on the Cordoba House affair after Mayor Bloomberg and President Obama and many others have said most of all there is to say. The facts are not in dispute: The "mosque" is not just a mosque, but a community center with a variety of operations; the location is not at Ground Zero, but a few blocks away in the hallowed ground of a former Burlington Coat Factory; the ideology of Imam Abdul Rauf is not radical, but the opposite; the Cordoba group is doing nothing more than exercising their most basic rights as citizens. That Abdul Rauf was an employee of President Bush, and has worked for the FBI as well as the State Department, just ices the cake.

I do not usually write about the topics du jour in the punditry world because they are not usually interesting, and are almost never important. I usually don't watch cable news shows so I am rarely clued in enough to "what's hot" to offer a timely comment anyway. So why should I comment about it now? For two reasons. First is to add my voice who think that the Cordoba controversy is motivated by ethno-religious bias and calculated fear-mongering, and that is no way for politics to be run or for society to operate. I'm keeping a mental list of people who have called for Obama to "refudiate" the center, or for all Muslims everywhere to forego their rights in favor of other peoples' preferences, or who have equated all Islam with suicide-murder. I've kept a mental note of the people who resort to bullying and intimidation for no perceivable reason, other than as a way to ostracize Muslims and then blame them for it. And I'm keeping a separate mental list of those who have done the opposite, who are (mostly) not Muslims and will never set foot in the Cordoba House, but nevertheless feel the need to remain in solidarity with those being demonized and persecuted. And especially with those who believe that this not a conversation that should never be necessary in a pluralistic society. I think that where one falls on this divide is important, I am very proud to be counted among the latter.

Second is to note that the most important fact about the "Ground Zero mosque" controversy is that it is not a controversy at all. There has never been any doubt that neither the city of New York, nor the state of New York, nor the government of the United States would intervene to interrupt the construction of the Cordoba House. This despite the fact that former government officials such as Sarah Palin and Newt Gingrich, who may also be presumptive future government officials, have issued calls for the Cordoba House group to "voluntarily" scrap their plans on the grounds of sensitivity. And despite the fact that prominent pundits like Charles Krauthammer have called for the use of zoning restrictions to prevent construction, and the governor of New York personally offered to help locate another site for Cordoba.

That this is not a matter of policy, that it cannot be, is what separates the U.S. from every other liberal democracy, and it was one of the proudest accomplishments of the Founders.

In the end I completely agree with Ezra Klein that the whole thing is a summer storm that will blow over quickly with no lasting consequences. (Dave Weigel was smart to recall the long-forgotten 2006 "Dubai Ports" dust-up.) But the principle is important, and it's worth taking a step back to note who is in favor of intimidating and disenfranchising minority groups and who is not. I am not. Unlike Peter Beinart, I'm not willing to throw in the towel out of exasperation. We can and should expect better of our elected officials, pundits, and fellow citizens.

Saturday, August 14, 2010

Revisiting the 1982 Global Banking Crisis

. Saturday, August 14, 2010

Somebody in my Google Reader (I think Chris Blattman) pointed to this hour-long 1983 Canadian documentary on the 1982 sovereign debt crisis that threatened the global banking system. It's pretty good. The first half is mostly about the bailout of Dome Petroleum, which affected Canadian banks much more than others. Think auto bailouts in the U.S. for analogue. The last 15-20 minutes are more interesting to me, however. A lot of parallels to the current crisis, including the politics of bailouts, who funds international institutions (and therefore who calls the shots), the need for international coordination but difficulty in reaching it, etc. All common themes on this blog.

Anyway, it's a nice perspective on the last major global banking crisis, while it was ongoing.

The Problem with Turkey


Johann Hari reports on an American journalist jailed in Turkey for reporting on human rights abuses against the Kurds:

The excellent young American journalist Jake Hess - who is a good friend of mine - has just been imprisoned in Turkey in extremely worrying circumstances. Hess has been factually reporting from Southern Turkey for over a year now on way the Kurdish civilian population is being treated.

Here is the article for which Hess was arrested.

This is only the most recent in a disturbing trend in Turkey of silencing dissidents and oppressing minority groups. Dani Rodrik recently wrote about the troublesome trials of former military officers, and questioned whether Turkey can still be referred to as a secular democracy.

Both Hari and Rodrik might be accused of bias -- Hari because of his friendship with Hess, and Rodrik because one of the former military leaders is his father-in-law -- but as these cases increase in frequency and severity hope begins to wane that Turkey will continue to develop into a strong, secular, democracy. Obviously things are not yet decided, but the recent history is grim.

Friday, August 13, 2010

A Spade Is A Spade

. Friday, August 13, 2010

Just after I post a riposte to Charlie Whitaker he goes and writes something else on the same topic. Nothing really new in it. Here's the conclusion, which is the only part of his argument that matters:

There may be a difference between a defence contractor petitioner and a homeless person petitioner that isn’t to do with their relative advantages. Not all vote getting is vote grubbing. To approach government and ask for something isn’t to rent-seek.

Yes. It. Is. Absolutely, it is.

Here, I think, is Whitaker's problem. He presents "government" as some philosopher-king type of institution that has independent resources to distribute to the public according to need. This is completely false, and by "completely" I mean that it is the exact opposite of truth. All government funds come from somewhere and are disbursed somewhere else. In that transaction some benefit while others suffer. The fact that all government expenditure is redistribution in some form or other means that anyone who petitions the government for those funds (or other protections) is, in fact, seeking rents. There may be more or less egregious examples of this of course, and if Whitaker wants to have a normative discussion about which groups ought to benefit and which ought not I'm happy to oblige. But in positive terms, at their root the homeless and the defense contractor are one and the same in the ends, if not their means. (I should note that the term "rent-seeking" does not imply anything about means, only ends.)

Just think about the words themselves. Suppose a homeless group petitions Congress for aid. What might they seek? Very near the top of the list would be housing at subsidized, erm, rents. And who will pay the rent of the homeless? Someone like the defense contractor. Perhaps this is a just result, as Whitakyer claims, but that's beside this point. Whitaker cannot claim that this is not an example of one group using the power of the state to redistribute wealth to themselves from others.

(Or if you prefer it the other way around, the defense contractor may petition Congress for tax breaks on the land needed to build war machinery. It's the same principle.)

This is not so hard to understand.

Politics Everywhere, Even Where It's Supposedly Not Allowed (Reprise)


Variations on a theme, I guess:

All foreign relations have, it seems, now been made subservient to domestic concerns.

That statement was not made (primarily) about the U.S., but rather about China, North Korea, Myanmar, the Philippines, Vietnam, and Taiwan. None of which are paragons of democracy; all of which must maintain tight domestic coalitions to remain in power.

The rest of the op-ed is very interesting, and concerns the U.S. relationship with Southeast and East Asia, Sec. Clinton flexing her muscles, U.S. diplomacy towards South Korea and Indonesia (both of which are of large importance, in my view), and -- if you want to view it that way -- signs of balancing maneuvers to restrict potential regional hegemonies.

Your grain of salt: It was written by Yuriko Koike, an opposition member of the Japanese government, and former Minister of Defense and National Security Advisor. Of course, the current Japanese government is the first in decades to displace the America-friendly Liberal Democratic Party, of which Koike was (presumably) a member. I'm not well-versed enough in Japanese politics to know whether or how much that fact obscures the analysis. Perhaps a reader can enlighten?

Politics Is Not the Dispassionate Quest for Equality


What on earth is Charlie Whitaker going on about?

This is the first time I’ve seen ‘rent-seeking’ defined as ‘the use of political power to redistribute rather than create wealth’. It’s a bad definition, since we naturally tend to think of ‘political power’ as something wielded by the state; this particular definition, then, will lead us to think of ‘rent-seeking’ as primarily an activity of government.

No, we don't naturally tend to think of 'political power' as something wielded by a government-less state. We naturally tend not to think of "the state" as some disembodied, apolitical, technocratic, interest-free institution. Instead, we tend to think of "the state" as an aggregation of competing interests, all of which seek to modify policy in ways that suit their own, erm, interests. How else could we think of it? Please let's all agree that Rousseau's concept of "general will" has no basis in positive theory or empirical evidence.

Besides, what other way has Whitaker ever heard "rent-seeking" defined? I can't even imagine (and I've tried), and he doesn't say.

Whitaker expands in a later post:

Let’s consider some minimal state which is constituted only of its own citizens (as citizens) and which has authority to enforce only that which has been agreed on by citizens. Now let’s consider two statements:

(1) The citizens have grouped together to enact legislation to achieve what each of them considers to be a mutually advantageous settlement.

(2) The citizens have ‘outflanked the market and manipulated public power for private gain’.

You don’t have to widen the scopes of the constituent terms much to get to a point where these two statements are as good as indistinguishable. That is, to say one is to say the other.

This is a true statement, but with a meaning that I don't think Whitaker intends to suggest. The necessary implication is that it is perfectly legitimate for democratic bodies to use the tool of state power to benefit the majority at the expense of others. Let's consider another minimal state which is constituted only of its own citizens (as citizens) and which has authority to enforce only that which has been agreed on by (a majority of) its citizens. I.e., a "democracy". (Perhaps Whitaker has heard of it.) Now let's consider two statements:

(1) The 51% of citizens who would benefit from economically disenfranchising the other 49% have grouped together to enact legislation to achieve what each of them (the 51%) considers to be a mutually advantageous settlement.

(2) The 51% of citizens have 'outflanked the market and manipulated public power for private gain'.

Is this not equivalent to what Whitaker has stated? He doesn't seem to think so. In his example, he seems to think the action taken is legitimate. I doubt he would think the same of my example. Or maybe he would, it's hard to tell. In comments to the latter post he writes:

But what I’m getting at here isn’t so much the design of institutions; it’s the crappiness of a political discourse that lumps homeless people in with defence contractors as ’special interests’ or ‘clients’. ...

I suppose I might agree that the best way to defuse the rhetoric is to say, yes, homeless people are rent-seekers; now let’s talk about what we’ll do for them. Your defence contractors can wait. Then again, I’m tending to think it concedes far too much.

Concedes too much to what? Leaving aside the fact that homeless people and defense contractors are seldom in direct opposition, I very strongly doubt that either of their lobbyists would argue that they do not represent an interest group. To the contrary, they would be happy to do so and explain why their group is more worthy of attention than some other. That is how democracy works, after all. The fact that one group indubitably has more resources than the other doesn't change the fundamental relationship at play.

So what Whitaker is trying to do is to criticize a positive observation about politics -- that it is fundamentally about competing interests -- in favor of a normative view of what politics should be about. His view of the latter can easily be summed up as "politics should favor my preferred interest groups, without having to be so crass as to admit that it does". Why? Because it should, that's why.

Anything else would be "crappy political discourse".

Thursday, August 12, 2010

Democracy and Economic Growth

. Thursday, August 12, 2010

Emmanuel noticed the Dani Rodrik op-ed I quoted the other day, and went off:

It honestly bothers me that I was the first to notice this factual error. On the aforementioned webpage, there are supposedly 134 Facebook shares and 41 retweets, yet nobody bothered to flag this up. What worries me is that few folks are really that familiar with the literature or do not read closely enough.

This subject matter--the relationship between democracy and economic growth--has been researched to the point of becoming a cliche, but overall, econometric analysis yields a null result. There is, statistically speaking, no evidence that democracy has a direct impact on economic growth. None. Nada. Zip. Zilch. A paper that I can suggest for those unfamiliar with this area is Doucouliagos and Olubasoglu's meta-analysis--or an econometric study of studies--that provides a similar conclusion. (There's also a non-gated earlier version.) At best, democracy only has positive "indirect" effects, but it alone doesn't make it significantly more likely that economic growth will occur.

As for the freedom-and-growth shtick, save it for Wolfowitz, Perle, and Feith. To state things correctly, authoritarianism may not necessarily be conducive to economic growth, but neither is democracy. There are many political recipes for economic growth, period.

I should say that I too noticed the part he's talking about, but didn't comment on it for two reasons: first, it wasn't related to the substance of my post; second, that the relationship between democracy and economic performance is controversial. While it may be true that democracy is not "directly" responsible for economic growth as Emmanuel says above, that does not preclude it from having an indirect effect. If growth comes from stable institutions that emphasize things like property rights, free markets, and rule of law. Consider this influential paper by Barro:

Growth and democracy (subjective indexes of political freedom) are analyzed for a panel of about 100 countries from 1960 to 1990. The favorable effects on growth include maintenance of the rule of law, free markets, small government consumption, and high human capital. Once these kinds of variables and the initial level of real per capita GDP are held constant, the overall effect of democracy on growth is weakly negative.

So after controlling for other effects, democracy does not tend to have an independent effect on growth. But where do those other things -- rule of law, free markets, small government consumption, high human capital -- come from? In general, they are strongly associated with democracy. Democracy could be working indirectly through those other variables to have an effect on growth. Perhaps that is why there is little evidence that democracy directly impacts economic growth rates but ample evidence that democracy and levels of economic development are very highly correlated. (In other words, richer countries tend to be the most democratic.)

There are other ways to read this, including dependency theory and other variants of Marxism, but the correlation remains. Perhaps to that end Rodrik amended the wording in his argument (see above link), but left this part in:

[Democracies] provide much greater economic stability, measured by the ups and downs of the business cycle. They are better at adjusting to external economic shocks (such as terms-of-trade declines or sudden stops in capital inflows). They generate more investment in human capital – health and education. And they produce more equitable societies.

If democracies generally produce those kinds of institutions, and those institutions produce economic growth, then is it really right to conclude that there is no relationship between democracy and growth? Probably not. In fact, that is the precise argument of Baum and Lake:

Democracy is more than just another brake or booster for the economy. We argue that there are significant indirect effects of democracy on growth through public health and education. Where economists use life expectancy and education as proxies for human capital, we expect democracy will be an important determinant of the level of public services manifested in these indicators. In addition to whatever direct effect democracy may have on growth, we predict an important indirect effect through public policies that condition the level of human capital in different societies. We conduct statistical investigations into the direct and indirect effects of democracy on growth using a data set consisting of a 30-year panel of 128 countries. We find that democracy has no statistically significant direct effect on growth. Rather, we discover that the effect of democracy is largely indirect through increased life expectancy in poor countries and increased secondary education in nonpoor countries.

This is also the conclusion of the meta-analysis Emmanuel cites above. None of that says that authoritarian governments cannot promote public health, property rights, rule of law, etc. Some authoritarian regimes, like Singapore, have done very well in this regard. China has obviously moved quite far in that direction as well. But if nothing else it appears that democratic regimes have been better able to build and maintain stable growth-promoting institutions over times. As a result, the richest countries in the world are all democratic.

At least that's my take. As I said I before, this stuff is controversial among social scientists. There are multiple ways to read the massive literature. But to claim without caveat that there is no relationship ("None. Nada. Zip. Zilch.") between democracy and economic growth is misleading at best.

What to Think About Debt, Deficits, and Interest Rates


There has been a lot of talk recently about the capacity of states to accumulate debt during recessions. This usually is merely background for an argument over whether states should use more deficit fiscal spending to try to stimulate their economies out of recession, or a sluggish "jobless" recovery. One side of that debate typically argues that if debt grows too large, bond investors will demand a high interest rate premium for continuing to extend credit. If this premium gets too large, the debt burden can become crippling, triggering either a currency crisis or a debt default, each of which has adverse long-run consequences for growth. Even if interest rates on bonds are at acceptable levels right now, things can turn irreversibly on a dime. Therefore, debt should be kept at moderate levels even if that requires short-run "austerity", so that the long-run solvency of states is maintained. Proponents of this view include most European governments, almost the entire Republican party and right-wing punditocracy, and significant chunks of the center-left technocracy (e.g. Robert Rubin).

The other side of the debate often begins by repeating Keynes' famous "In the long-run we're all dead" before saying that if pressures on interest rates rise, then perhaps austerity is an appropriate course of action. In the present case interest rates on debt in many advanced economies, particularly the U.S., are at very low levels. They insist, therefore, that more short-run deficit spending is not only possible, it is advisable and necessary to return economies to their trend growth rates. Refusing to do so in order to prevent a debt spiral is capitulation to "Invisible Bond Vigilantes". In these circumstances, austerity programs are mere shadow-boxing, but with real negative consequences for those affected by the economic downturn. Proponents of this view include Paul Krugman, Brad DeLong, Martin Wolf, elements of left political parties, and others. As someone (perhaps DeLong, tho I can't find it) put it, "Lord, give me fiscal balance, but not yet."

How to evaluate these claims? One way is to consider the internal logic of the arguments. Let's start with a fact: interest rates on sovereign debt in the United States are at very low historic levels, despite the fact that deficits are at near-record levels and debt-to-GDP is increasingly quickly. It is unlikely that investors believe that sovereign default has become less likely over the past few years, so we should conclude that U.S. debt has become safer relative to other assets. This is compatible with the argument made by Felix Salmon that equity markets are likely to remain very volatile in the future, and with the argument made by Brad DeLong that the demand for high-quality assets is currently outstripping supply (because risk appetites are low, and the probability of default on corporate debt and non-U.S. sovereign debt is much higher than that of U.S. debt).

When we think of the interest rate on U.S. debt as a product of its relative relationship to other assets, we can conclude that interest rates will rise when the gap narrows. This can happen in two ways: 1. The value of other assets improves (either because the risk appetite increases, or economic conditions stabilize so other assets become less risky); 2. The value of U.S. debt declines (because the capability to repay weakens). This relationship implies a few things. First, it can be unwise to increase deficits even if the Bond Vigilantes remain Invisible, because almost all debt incurred now will have to be rolled over in the future. Assuming that the value of other assets eventually improves as the global economy stabilizes, demand for U.S. debt relative to other assets will be lower than it is today, so rolling over will require paying a significantly higher interest rate than today's. Paying those rates will dampen economic growth in the future. In this scenario, fiscal stimulus today almost certainly has a negative medium-run multiplier, even if the short-run multiplier is positive. As far as I know, no one has made any detailed argument that the latter is greater than the former. If it isn't, then the U.S. shouldn't take on more debt.

Another way to think about this is to consider the relationship between states and investors in a world where capital is more-or-less mobile across national borders. Not that pundits or economists are aware of it, but there's been some IPE research on this question. One book by Stanford's Michael Tomz, Reputation and International Cooperation, argues that governments have "types" reinforced by patterns of behavior. Some states always pay their debts ("stalwarts"), others pay when times are good but not when they are bad ("fair-weathers"), and others often default ("lemons"). Tomz argues that the interest rates states pay are a function of their reputation, which itself is a function of past behavior. So, a stalwart state that has kept its debt at sustainable levels and always paid it back on time will pay low interest rates. This is clearly the position that the U.S. is presently in, so why not trade a bit on that reputation now, when we need it most? Tomz' research suggests that we can, but not forever. If investors begin to think that the U.S. will be incapable or unwilling to repay on time, interest rates will increase sharply. These are not Invisible Bond Vigilantes; they are Visible, but the U.S.' reputation (unlike, say, Greece's) has so far withstood the scrutiny. Still, the breaking point does exist, even if it's hard to locate, and once the U.S.' reputation takes a hit it will take a very long time to get it back. This makes all future borrowing more expensive, so revert to previous point about multipliers.

Another line of research, by UNC-Chapel Hill's Layna Mosley (my thesis advisor), focuses on what government policies are important to investors. In her book Global Capital and National Governments (article version here), she found that governments have "room to move" when setting policy. That is, that investors focus somewhat narrowly on a few policy choices, and don't care very much about anything else. According to her work, investors care most about three things: inflation rate, current account balance, and government deficits. Of these, inflation rate is by far the most important and deficits the least: on average a 1% decrease in the budget balance is associated with a 0.05% increase in the interest rate. (Although it should be noted that the 2010 U.S. deficit will be larger than any in her sample.) This suggests that the Fed may be correct in pursuing a less-expansionary monetary policy than many have called for (i.e. Sumner, Krugman, others) but that there is still room for the government to pursue fiscal expansion.

So what does all this sum up to? It's not perfectly clear, but my read is that the U.S. likely has the ability to pursue more deficit fiscal expansion, especially if medium-run growth prospects remain weak, but that there are limits. Where those limits are isn't obvious, so trying to find them by playing chicken with Bond Vigilantes is like approaching a cliff while blindfolded: it's unadvisable. The marginal benefit of successfully toeing the line (James Dean in the video above) is fairly small, while the cost of tumbling over is enormous (poor Buzz). And even if the U.S. is not at risk of default, an increase in other asset values could still make the cost of servicing the national debt increase markedly.

That doesn't mean I support austerity for the U.S. While interest rates remain low we are not in a precarious position, so retrenchment would be foolish. But so would speeding toward the cliff with our hands tied.

Wednesday, August 11, 2010

Just Stop It.

. Wednesday, August 11, 2010

Shorter Politico: Reading us makes you dumber.

Actual Politico:

The Colorado results, combined with Tuesday's returns in Connecticut, Georgia and Minnesota and other recent primaries, suggest it may be time to scrutinize a treasured 2010 story line — about an angry electorate, determined to punish insiders and professional pols of all stripes, rushing to embrace ideological insurgents.

Followed immediately by:

It’s not that this narrative is all wrong. But it appears to be significantly more true among Republicans than Democrats.

Nope. The narrative is all wrong. Please, please stop deceiving your readers. Please care enough about your subject to learn a little bit about it.

Via The Monkey Cage, which took out the trash on this "anti-incumbent narrative" months ago.

Tuesday, August 10, 2010

Politics Everywhere, Even Where It's Supposedly Not Allowed

. Tuesday, August 10, 2010

A few days ago Yglesias wrote that China's domestic politics isn't as simple as many outsiders think:

Chinese political institutions aren’t the same as American ones, but what you can see here is that they’re not totally different either. This is not at all dissimilar to the debate playing out over the EPA’s Clean Air Act mandate to regulate greenhouse gas emissions. Public officials, whether in China or West Virginia or Ohio, often see it as their job to defend the interests of local employers and businessmen.

Yesterday, Drezner added that these kinds of misperceptions can have an effect on policy:

It's incumbent upon the American foreign policy community to develop a better appreciation of the domestic politics of other countries. But, damn, it would be good if other countries could get a better working knowledge of the U.S. foreign policy community. It's not like we're all that opaque.

This led Farley to write a post about how the U.S. policy community seems completely uninterested in how politics actually works in other places:

In particularly, I was frustrated by the belief, apparently endemic to the US pundit and strategic class, that authoritarian states don’t operate under domestic constraints, and consequently can do whatever they want. It’s not quite right to say that academy has figured out how to successfully integrate domestic politics into theories of foreign policy behavior, but we’ve certainly worked on the question. The policy community, however, seems almost utterly uninterested in this literature, to the extent that “well, Ahmadinejad/Putin/Chirac/Chavez/Milosevic/Calderon/Netanyahu/Kim could comply with our demands, but his domestic coalition would almost certainly fracture, and it’s tough to expect leaders to do things that will lead to their downfall” becomes a repetitive refrain.

I think that this question is the one that I entered into grad school knowing the least about, or at least that I had the least appreciation for. I've since become persuaded that it is probably the most relevant variable in academic or policy work. I think Farley is absolutely right that the academic community has made greater strides than the policy community in this way. That doesn't mean that anything has been conclusively decided; many of the most discussed/cited works are also the most disdained. But where progress has been made it's been by analyzing how domestic political constraints can cause leaders to act in ways that are, quite frankly, perplexing to outside audiences.

I think that, in IR at least, Yglesias' take is the closest to the median position among academics. Politicians in different countries don't face the exact same structural constraints, but they do face similar ones. Political incentives come from interest groups interacting with structural constraints everywhere. The problem with much policy/punditry advice is that they completely ignore interest groups in other countries, because they have no idea what they are. The botched occupation of Iraq can at least largely be understood in this light. (For a crude example, remember that the coalition forces actually were greeted by liberators in some parts of Iraq, but certainly not everywhere.) Those who argue that China is an unstoppable force that will continue to grow 10% a year because they don't have to deal with messy local politics are wrong and should be ignored. (I'm looking at you, Captain Stache.)

In fact, as Rodrik argues in a well-put op-ed, authoritarian regimes face a very uncertain economic and political future precisely because of their local politics:

Democracies not only out-perform dictatorships when it comes to long-term economic growth, but also outdo them in several other important respects. They provide much greater economic stability, measured by the ups and downs of the business cycle. They are better at adjusting to external economic shocks (such as terms-of-trade declines or sudden stops in capital inflows). They generate more investment in human capital – health and education. And they produce more equitable societies.

Authoritarian regimes, by contrast, ultimately produce economies that are as fragile as their political systems. Their economic potency, when it exists, rests on the strength of individual leaders, or on favorable but temporary circumstances. They cannot aspire to continued economic innovation or to global economic leadership.

At first sight, China seems to be an exception. Since the late 1970’s, following the end of Mao’s disastrous experiments, China has done extremely well, experiencing unparalleled rates of economic growth. Even though it has democratized some of its local decision-making, the Chinese Communist Party maintains a tight grip on national politics and the human-rights picture is marred by frequent abuses.

But China also remains a comparatively poor country. Its future economic progress depends in no small part on whether it manages to open its political system to competition, in much the same way that it has opened up its economy. Without this transformation, the lack of institutionalized mechanisms for voicing and organizing dissent will eventually produce conflicts that will overwhelm the capacity of the regime to suppress. Political stability and economic growth will both suffer.

It's easy to observe the political controversies in the U.S., even if (as Drezner notes) other states don't always do it. It may be a bit harder for us to observe everything that's going on in less-transparent states, but it isn't impossible and it doesn't mean that there isn't any politics. China faces huge local political controversies related to the environment, public health, social welfare, demographics, worker safety and renumeration, immigration, secessionist groups, etc. Pretending that they are a unitary actor is foolish.

I've never felt it was my place to proffer policy advice, even into the seldom-read tubespace that this blog lives in. But the last half-century of American foreign policy reveals, to me, the importance of disaggregating the politics of foreign regimes, of closely examining political structures and constraints in other places, and of crafting nuanced policy that takes those factors into account. This is much harder than blustering, of course, but also much more beneficial.

Saturday, August 7, 2010

Conversations with History: Robert Keohane

. Saturday, August 7, 2010

A long conversation with Robert Keohane, from 2004:

Who Says Money Can't Buy Happiness?


The richest countries in the world are generally the happiest:

The Gallup researchers found evidence of what many have long suspected: money does buy happiness--at least a certain kind of it. In a related report, they studied the reasons why countries with high gross domestic products won out for well-being, and found an association between life satisfaction and income.

But egalitarianism and social cohesion also make people happier:

"The Scandinavian countries do really well," says Jim Harter, a chief scientist at Gallup, which developed the poll. "One theory why is that they have their basic needs taken care of to a higher degree than other countries. When we look at all the data, those basic needs explain the relationship between income and well-being." ...

But there's more to happiness than riches. The Gallup study showed that while income undoubtedly influenced happiness, it did so for a particular kind of well-being--the kind one feels when reflecting on his or her own successes and prospects for the future. Day-to-day happiness is more likely to be associated with how well one's psychological and social needs are being met, and that's harder to achieve with a paycheck.

Take Costa Rica. The sixth-happiest country in the world, and the happiest country in the Americas, it beat out richer countries like the United States. That's because social networks in Costa Rica are tight, allowing individuals to feel happy with their lot, regardless of financial success.

I don't have much to add to this, except to note that these sorts of polls should always be taken with a grain of salt. But this is not the first happiness survey to show these two effects. The trick is figuring out how income growth is related to social cohesion and the welfare state.

Thursday, August 5, 2010

Revealed Preference (?)

. Thursday, August 5, 2010

This post from Adam Bonica at Ideological Cartography is very interesting (and a welcome addition to the grad student poli-sci blogosphere). It shows the partisanship of some major American corporations by analyzing campaign contributions of corporate board members:

The ideological measures include information from all contributions to state and federal candidates as well as contributions to party and ballot committees. Nearly all members of major corporate boards have made political donations in some form of another. Overall, I was able to estimate positions for about 90 percent of board members from their contributions to candidates or party committees between 1992 and 2008.

These results challenge conventional beliefs about the political leanings of corporate leaders. Republicans have long been seen as the party of big business. To whatever extent this label should apply, it probably owes more to the party’s policies than the composition of its support base. Although board members from some sectors exhibit conservative allegiances—notably the oil, gas, and coal industries—most corporate boards are either dispersed across the ideological spectrum, or seem to have aligned with the left, as is the case of many of the growth stories of the new economy.

Click on the image for a larger version. Bonica uses the analysis to challenge conventional wisdom about the Citizens United legal decision that allows corporations to engage in political speech. If corporations are not overwhelmingly conservative/Republican then extending speech rights to corporations is not likely to distort the political process. (In fact, this was the take I took on Citizens United at the time, but only in conversation; I should've written it down.)

This is an interesting way to examine the American political economy, but how about IPE? One of my first thoughts after reading Bonica's post was that this sort of analysis could be used to re-examine models of trade politics. Two traditional models argue that political attitudes toward trade come from either factor endowments (e.g. capital or labor) or sectoral position (i.e. industry). The first, which derives from Stolper and Samuelson's analysis of the basic Heckscher-Ohlin trade model, argues that support for trade will come from the abundant factor of production, and opposition from the scarce factor. In this model, capital and labor generally have opposing views about trade. The second, which stems from work by Ricardo and Viner among others, claims that sectors which benefit from expanded markets will support liberalization, while those that will suffer from increased competition will favor autarky. In this model, capital and labor within the same industry will be united in supporting or opposing trade openness.

Simply looking at the graph above doesn't tell us much, since "liberal" and "conservative" doesn't describe attitudes to trade all that well. It would be more instructive to look at which candidates are getting contributions and what their public attitudes to trade are. Contributions may also reflect things other than trade politics, such as preferential tax treatment or subsidies. For instance, all the oil/gas companies line up with Republicans, which could be because they are more amenable to energy trade, but could also be because Republicans are more likely to oppose climate change legislation. It is interesting to note, however, that nearly all high-tech and skilled-service companies are more liberal than nearly all resource-related companies.

It's a small sample, and no clear explanation for these patterns jumps out at me. But it would be interesting to delve deeper into these data to see what patterns emerge.

(ht: Monkey Cage)

Wednesday, August 4, 2010

The Jean Valjean Effect

. Wednesday, August 4, 2010

Via MR, another data point to add to my "elasticity of public morals" hobby-horse (which I think I'm going to start calling "The Jean Valjean Effect", after the character in "Les Misérables", as above): people become much become less concerned about climate change when unemployment rises.

This paper uses three different sources of data to investigate the association between the business cycle—measured with unemployment rates—and environmental concern. Building on recent research that finds internet search terms to be useful predictors of health epidemics and economic activity, we find that an increase in a state’s unemployment rate decreases Google searches for “global warming” and increases searches for “unemployment,” and that the effect differs according to a state’s political ideology. From national surveys, we find that an increase in a state’s unemployment rate is associated with a decrease in the probability that residents think global warming is happening and reduced support for the U.S to target policies intended to mitigate global warming. Finally, in California, we find that an increase in a county’s unemployment rate is associated with a significant decrease in county residents choosing the environment as the most important policy issue. Beyond providing the first empirical estimates of macroeconomic effects on environmental concern, we discuss the results in terms of the potential impact on environmental policy and understanding the full cost of recessions.

What Could Possibly Go Wrong?


Wyclef Jean is running for president of Haiti:

Jean is expected to announce his bid for the presidency on Thursday from Haiti.

After the Associated Press first reported that an announcement was coming, the singer's brother, Samuel Jean, said the Haitian-American family was going into the process with its eyes open and breath held.

"It's not something that was taken lightly, it's not a joke, it's something very, very serious," the younger Jean said by phone from his consultancy office in Los Angeles. "It is different for us, but we are proud of him and we are going to support him in any way we can." ...

Questions surround Jean's bid as well. He must prove he has resided in Haiti for five consecutive years, own property in the country and have no other citizenship but Haitian.

His brother said that unlike much of the family, Jean has never held a U.S. passport. He added that believe that Jean's residency requirement will be waived because he has been a presidentially appointed Haitian goodwill ambassador since 2007.

Jean would have to deal with voters undecided on how to think about Haitians abroad. Many families are dependent on successful overseas relatives for remittances but often seem them as near foreigners. The singer's American accented Creole and lack of French - for many things still the language of government here - will be constant reminders he did not grow up here.

He will also have to field questions about his Yele Haiti charity, which raised more than $9 million after the quake. The organization was widely criticized for alleged financial irregularities after quake, when scrutiny revealed that it had paid Jean to perform at fundraising events and bought advertising air time from a television station he co-owns, among other suspected improprieties.

Just when you thought things couldn't get worse for Haiti...

Tuesday, August 3, 2010

There Is No Such Thing As Central Bank Independence

. Tuesday, August 3, 2010

Not really. Economics of Contempt is puzzled about this. He should not be:

[W]hat's the point of having the independence they're so jealously guarding if they're not going to actually use it? Politicians are always going to say idiotic things, and populists are always going to claim that the Fed is in bed with the big banks. But if the mere threat of "political interference" is enough to circumscribe Fed policy, then is the Fed really "independent" in the first place?

Central banks are in principal-agent relationships with governments. If governments don't like what they are doing, they can remove authority from central banks. They only sense in which central banks are "independent" is that governments can make commitments not to interfere with them. Which has happened, to greater or lesser extent, in most developed countries. But when politicians are making loud noises about restricting the Fed's authority, auditing its activities, and when the current Fed chairman was barely re-approved just a few months ago, there is no reason for them to think the government has made any such commitment. That's what Dallas Fed president Richard Fisher is talking about here:

[W]e at the Fed must continue to comport ourselves in a manner that exorcises any lingering worries about our willingness to brook any political interference with our commitment to fostering price stability and maximum sustainable employment. We delivered on our duty to restore liquidity to the commercial paper, asset-backed securities, interbank lending and other markets. We then closed out all of our extraordinary liquidity facilities, doing so without costing the taxpayer a dime (imagine that: a government agency that closes programs after they have outlived their usefulness!). We have worked hard to earn the respect of the marketplace and of the nation, and we dare not risk it at a time when there is so much uncertainty elsewhere.

The Fed is a political, and politicized, institution. As it must be. This should not come as a surprise.

Nanny-State Harangue


This doesn't have much of anything to do with IPE[1], but I need to blow off a bit of steam anyway. When Barney Frank is the loudest defender of keeping the government out of my life, conservatism is well and truly dead. Get with it, Mama Grizzlies and Papa Bears, or else it's all over.

In other "What Gives You the Right to $*%# with My Life?" news[2], my tobacconist in Illinois is now legally prohibited from shipping my favorite blend (or any cigarette blend, although pipe blends are somehow okay) to North Carolina. I'm pretty sure this is an Illinois law, even passing that sort of law makes no sense[3].

Fortunately, I found a decent-enough replacement brand at a local shop. Not as good as my preferred blend, but it'll do until I can get back to Illinois and bring some of the good stuff back with me. The irony? This new brand is imported from... wait for it... drum roll please... DENMARK!

So it is now illegal for a North Carolinian to buy tobacco from Illinois, but perfectly fine for a North Carolinian to buy tobacco from Denmark. Of course, once I get it from Denmark I can't smoke it in any privately-owned establishments (e.g. bars) whether the owners like it or not, but that's true in Illinois too.

I'm annoyed.

[1] Actually it does, in more ways than one, but I don't feel like tracing the lines right now. Connect the dots if you like, or maybe I'll return to the theme later. There is a WTO case about this, tho.

[2] Swedish pop singer Robyn has a new single that speaks to this pretty well, but it's probably NSFW (language) so I won't embed it. Link here. The quote is from this Stars song.

[3] Illinois is beyond bankrupt, and willingly forgoing sales taxes in that situation seems really dumb. It could be a NC law, but based on the response of my tobacconist, I don't think so. If I'm wrong, I assume someone will correct me.

UPDATE: It appears to be a federal law. Why?

Turnabout Is Fair Play


I don't want to be accused of reducing this blog to a YouTube channel, and I have several substantive posts in the works, but I recently posted the animated version of David Harvey's critique of capitalism, and so feel compelled to offer this riposte. I don't agree with everything in either of them, but both are entertaining and contain some substance. If you watched and enjoyed the first one, then you should watch the rebuttal. If you didn't, you should watch both.

Monday, August 2, 2010

What Influences Public Opinion

. Monday, August 2, 2010

Jim Stimson, a legend in American political science and one of my professors at UNC-CH, discusses a lifetime of work:

Politics Is (Usually) Not a Coordination Game


Matthew Yglesias sees a bipartisan rationale for overhauling the American political system:

In Canada, their health care system is more equitable and it spends less taxpayer cash per patient. Traditionally, conservatives don’t point to Canada’s health care system as a conservative victory but they do point to Canada’s low taxes which are in part a consequence of its efficient single-payer health care system. So is that a conservative win or a liberal one? Well, it’s both. The main upshot of many features of the US political system that I don’t like is to enhance the influence of interest groups and decrease the influence of ideologues and technocrats. This is basically by design and reflects 18th century state of the art thinking about the dangers of liberal governance being trampled by demagogues. Insofar as the balance we’re currently striking is inappropriate to the conditions of the 21st century United States that’s bad for the right and the left.

This assumes, of course, that politicians are primarily motivated by ideology, and therefore mutually-beneficial common ground is easy to find. Unfortunately for Yglesias, if that were true it would (most likely) have already happened, and he'd have nothing to complain about. His complaint that interest groups are able to successfully lobby policymakers indicates that his assumptions are probably wrong.

But even if the assumptions weren't wrong, his conclusion still would be. Yglesias cites the Canadian health care system as an example of positive-sum policy: both liberals and conservatives can be happy about the outcome. But is that so? Low taxes are not contingent on an efficient single-payer system. After all, taxes could be lower still without any public health care system at all, as I imagine was the case before Canada's universal health care system went into effect. Conversely, the health care system could be even more egalitarian if taxes were higher or more progressive. Any tilt in policy in one direction or the other is generally zero-sum*.

Moreover, even if efficiency gains were created by a new policy, the surplus still has to be distributed somehow. That distribution is by definition zero-sum.

The point is that it's not enough to simply point to some policy outcome and claim it is positive-sum. That judgment must be made relative to some baseline scenario.

*This can get a little bit complicated, but an exception to this rule could occur when there are scale returns at that particular policy margin. But partisans are unlikely to value those scale effects in the same way; e.g. conservatives probably don't want a more efficient public health care sector if the result is a crowding-out of private health providers. Liberals probably don't want a more egalitarian system that leaves all consumers subject to a private monopoly. Etc.

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




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