Saturday, April 28, 2012

Score One for Materialists

. Saturday, April 28, 2012

Via MR:

Ask Americans if they are willing to spend more to buy American-made products, and nearly half say they are often willing to do this. But in the latest Economist/YouGov Poll, the country where a product is made trails price, quality, and even convenience, as an important factor in consumer decision-making. The public gives even less importance to a product’s brand, its impact on the environment, or the political leanings of the company that produces it.

Thursday, April 26, 2012

Bernanke, Not Borg

. Thursday, April 26, 2012

Krugman has a good NYT Magazine article on Bernanke. They have an interesting personal history -- as Chair of the Econ department at Princeton, Bernanke hired Krugman (over some opposition I believe) -- and also an interesting intellectual history -- they were both working on the Japan deflation in the late-1990s, with Krugman concluding that Old Keynesianism was still relevant because of its emphasis on the liquidity trap, while Bernanke concluded that the Bank of Japan was merely timid, not impotent.

In the article Krugman argues that Chairman Bernanke has not followed the advice of Professor Bernanke. He offers three possible explanations for this.

The Bernanke Conundrum — the divergence between what Professor Bernanke advocated and what Chairman Bernanke has actually done — can be reconciled in a few possible ways. Maybe Professor Bernanke was wrong, and there’s nothing more a policy maker in this situation can do. Maybe politics are the impediment, and Chairman Bernanke has been forced to hide his inner professor. Or maybe the onetime academic has been assimilated by the Fed Borg and turned into a conventional central banker.
The Ludlum-esque title is unnecessary, as the addition to the pile of "Krugman's Mystical Creatures" (confidence fairy, bond market vigilantes, etc.), but I believe Krugman's framing is correct and I think the second explanation makes the most sense: Bernanke is politically constrained (see here). So naturally Krugman concludes that Bernanke's been assimilated into the Borg, thus continuing our long-running streak of disagreeing on almost everything.

Today Krugman finds support for the Borg view in these words from Bernanke:
We have, uh, we, the Federal Reserve, have spent 30 years building up credibility for low and stable inflation, which has proved extremely valuable, in that we’ve been able to take strong accommodative actions in the last four or five years to support the economy without leading to a, [indiscernible] expectations or destabilization of inflation. To risk that asset, for, what I think would be quite tentative and, uh, perhaps doubtful gains, on the real side would be an unwise thing to do.
In some ways Krugman's selection of Bernanke's comments are a bit disingenuous -- Bernanke starts by pointing out that the U.S. in 2010-12 is very different from Japan in the late-1990s, particularly since one was suffering from deflation and a recession while the other just has unemployment a few percentage points higher than it would like -- but more problematic is his interpretation of them. When Bernanke starts talking about the "credibility" of the Fed there is no a priori reason to think that he's only talking about credibility with markets. He's also talking about credibility with Congress, and in particular a Congress that is incredibly hawkish on inflation lately* and routinely threatens Bernanke in a number of ways.

The Fed likes its authority. It wants to keep it. It likes it's "independence". Ironically, it will only keep it if it does what Congress wants it to do (i.e. "There is no technocracy" + "There is no central bank independence"... common themes around here). That means not throwing away its credibility for inflation-control in pursuit of dropping the unemployment rate by a point or two. Note that this is also why Bernanke would like to see more fiscal stimulus: that would effectively prevent Bernanke from having to make a difficult choice. But if he's forced to make that choice, he'll the choose the path that doesn't jeopardize his authority.

Note: after I wrote the above, but before publishing it, I came across this excellent post by Greg Ip. Highlights:
This means, judging from the projections, that 13 of the FOMC’s 17 members want to tighten sooner than he does, and none want to tighten later. ...

The second problem is that even if Mr Bernanke’s views prevail while he remains chairman, the odds are that he no longer will be after January, 2014. He is unlikely to be reappointed even if Barack Obama is re-elected (even if wanted the job, a big if, he probably couldn’t be confirmed), and certain not to be if Mitt Romney wins.
But all that's irrelevant. Instead, Bernanke's been captured by the Borg.

*Some of the reasons for that may be found in this excellent post by Steve Randy Waldman. I hope to have more to say about it soon, but for now it's worth reading that one in its entirety. The takeaway is that the coalition of political interests that would be harmed by higher inflation is much larger (and much more politically active) than the coalition that would benefit from it.

Wednesday, April 25, 2012

Not Quite Crony Capitalism?

. Wednesday, April 25, 2012

I haven't read this yet, but Lucas Puente -- a PhD student at Stanford -- has an interesting-looking article in the new PS (I don't see an ungated version). Abstract:

I investigate one mechanism through which financial institutions could have used political influence to receive preferential treatment in the US Department of the Treasury-administered “bailout.” I find that neither proxies of political influence nor other political variables, such as public interest in specific deals, can explain variance in the sale price of warrants (a type of financial asset) Treasury acquired through TARP's Capital Purchase Program. Moreover, I find that the more politically active the firm is, the more likely Treasury is to auction its warrants (thereby receiving fair market value). This conclusion is not consistent with recent studies investigating the role of such variables in the initial administration of TARP and can be interpreted as good news for American taxpayers.
PS summary (bold added):
In the wake of the recent global financial crisis, many have suggested that the US government's administration of the taxpayer-funded rescue of the financial industry offered disproportionate benefits to politically active firms. However, quite the opposite occurred. Puente's research into Treasury's handling of the disposition of warrants (assets similar to stock call options) acquired through the Capital Purchase Program (CPP) shows that, at least in this phase of the "bailout," political variables did not matter. That is, lobbying expenditures, campaign contributions, and connections with Secretary of the Treasury Geithner, among other independent variables, cannot explain variance in the percentage of market value Treasury received for these warrants. Moreover, according to Puente, the more politically active a firm is, the more likely Treasury is to auction its warrants (thereby receiving fair market value). This suggests that Treasury is attempting to counter-act allegations of preferential treatment. Taxpayers should be pleased. By insulating itself from politics and making efforts to maximize the taxpayer return on the warrants, Treasury may have prevented billions of dollars in taxpayer losses.
I personally don't find this very surprising. Nor would I find it surprising if preferential treatment came mainly through less transparent channels, e.g. the Fed. It looks like Puente might be investigating that question in his ongoing research.

Sunday, April 15, 2012

More on IR, Professionalization, Etc.

. Sunday, April 15, 2012

Dan Nexon linked to my response to his post on the horrors of the professionalization of international relations students and called it a cage match, but then was very gracious thereafter (despite misspelling my name twice). Still, I agree with some parts more than others. For example, I love this part:

On the one hand, I hope that one day Kindred will sit on a hiring committee (because I'd like to see him land a job).
Me too! Let's hope he's on a hiring committee next year. But Nexon seemed me to want me to come back strong, so here we go. To his quibble:
But while some of my comments are applicable to all journals, regardless of orientation, others are pretty clearly geared toward the "prestige" journals that occupy a central place in academic certification in the United States.
Sure. The prestige journals don't thrill me with everything they publish either. In fact, I don't think I've ever heard any political scientist ever say "You know what? I really really loved the most recent issue of APSR. I had no problems with it at all. None. It was perfect. Every article was great." I have heard complaints from nearly every possible corner on almost every conceivable level about almost every article published (at least those that are even noticed). The old saying "If you're making everyone unhappy then you must be doing something right" is a sophistry, but in this situation it's pretty hard for the "prestige" journals to escape criticism. They mostly publish the sort of research that is mostly being done. Does that leave less space for less common approaches? Yes, by definition, but what else can they do? There are niche journals for niche paradigms and mainstream journals for mainstream paradigms.

Does that lead to path dependence? I'm sure it does. Again, what else can be done? Path dependence is a favorite causal explanation for social scientists when analyzing other social systems... why should we think we're any different?

Is this healthy for the discipline? I don't know. That's not hand-waving... I actually don't know. Anyway, there's an element of have-my-cake-and-eat-it-too-ism that always bothers me in these discussions. E.g., in comments to Nexon's post, PTJ -- for whom I have a lot of respect -- responded to something I wrote thus:
It may not take a philosophical commitment to understand what a Gaussian distribution is, but it takes a philosophical commitment to consider it relevant. Ditto discourse analysis. Methods are portable; methodologies are not.
This reminds me of the tired old Keohane/Tickner You-Just-Don't-Understand "debate".* It seems somewhat perverse to me to take a position that sums to "I reject everything you do, I reject your epistemology and your ontology, I consider your entire intellectual approach to be invalid (if not oppressive), and oh by the way it's really screwed up that you aren't publishing me in your journals" or maybe "I don't consider what you do to be 'relevant' but it's so not fair that you feel the same way about me".

I am caricaturing but only just. Put another way: If critical theorists were 95% of the APSR I doubt they'd be demanding more neopositivist articles for pluralism's sake. Alternatively, neopositivists aren't demanding equal time in Alternatives. I'm all for letting a thousand flowers bloom, but that doesn't mean I expect them all to flourish equally in all climates. Nor do I know how I could make that happen even if I wanted to.**

I understand that there are things at stake. Jobs, promotions, etc. I don't take that lightly. On the other hand... this is the profession. No profession equally weights every preference or caters to every idiosyncrasy and academia does better than most.*** There are outside demands, there is an externally-imposed incentive structure, etc. The way that those shape grad student behavior was the subject of my previous post. Does that mean that I've not engaged in some types of inquiry that might be fun or interesting for me to pursue? Yes. But what I'm doing now is fun and interesting too, and it's not clear to me that I'd be better off -- intellectually or otherwise -- with fewer institutional/disciplinary constraints.

Back to Nexon:
Of course, most of what we do in graduate school should be about learning methods of inquiry, albeit understood in the broadest terms. The idea that one does this only in designated methods classes, though, is a major part of the problem that I've complained about. As is the apparent bifurcation of "substantive" and "methods of inquiry."And if you didn't get anything useful out of your "substantive" classes because you hadn't yet had your coursework in stochastic modeling... well, something just isn't right there.
I don't think there's much space between us here. I will say that one difference between "methods" classes and "substantive" classes (in my experience) is that methods classes contain students from all subfields of political science as well as other disciplines so a strong applied substantive focus is not feasible. Nor is it necessarily desirable. Similarly, "substantive" classes are taught by -- and attended by -- folks with high varied methodological backgrounds. I think methods classes should be fairly theoretical. UNC is, I think, well above the mean in this regard -- we don't just teach folks how to type 'reg y x' into Stata and then let them loose into the world -- but the point is that a strong methods training isn't bounded by substantive interest.

As some other students have said, it's not that I didn't get anything useful out of my substantive classes in my first year or so... it's just that I got very little. Mostly, it was learning what was out there. Kind of. For that I spent hundreds of hours, and had to go back and re-read everything (related to my research at least) once I had a better sense of what was actually going on in these articles. Not all of that was methods-related but a lot of it was.

And I agree... something just isn't right there. That was my whole point. From what I can tell from other grad students who contacted me after my last post, this isn't an uncommon experience. I'm not sure what can be done about it except for demanding more from undergraduates. Quite a lot of grad students' time is wasted -- in the sense that it is a prerequisite for later productive work but there is a "burn-in" period -- and this might just be one of those things.

*FWIW, I think both sides came off awfully in that exchange, and there's something half-shameful in professional educators not being able to communicate their ideas in such a way as to at least understand each other.

**A commenter on Nexon's post picked up on something I'd hinted at in my previous post: that incentives within the academia are -- to at least some extent -- dictated by the non-academic job market. Call me a dirty neopositivist, but opportunity costs are real.

***All of this is well beyond even "First World Problems". I generally find this kind of navel-gazing to be embarrassingly self-important. Yet here I am.

Saturday, April 14, 2012

Post-American World (Not)

. Saturday, April 14, 2012

Remember all that talk about how the Libya intervention -- sanctioned by the U.N. and carried out by NATO -- was emblematic of the dissipation of U.S. hegemony and the capability of other actors to pick up the slack? "Lead from behind" and all that? I pushed back against that talk at the time (here's one example and here are others), and it now appears that NATO's on my side:
Despite widespread praise in Western capitals for NATO’s leadership of the air campaign in Libya, a confidential NATO assessment paints a sobering portrait of the alliance’s ability to carry out such campaigns without significant support from the United States. 
The report concluded that the allies struggled to share crucial target information, lacked specialized planners and analysts, and overly relied on the United States for reconnaissance and refueling aircraft.

The findings undercut the idea that the intervention was a model operation and that NATO could effectively carry out a more complicated campaign in Syria without relying disproportionately on the United States military. ... 
The report also spotlights an important issue for the alliance that dates to the Balkan wars of the 1990s: that the United States has emerged “by default” as the NATO specialist in providing precision-guided munitions — which made up virtually all of the 7,700 bombs and missiles dropped or fired on Libya — and a vast majority of specialized aircraft that conduct aerial intelligence, surveillance and reconnaissance missions, or I.S.R. in military parlance.

“NATO remains overly reliant on a single ally to provide I.S.R. collection capabilities that are essential to the commander,” the report said.

Wednesday, April 11, 2012

Against Knee-Jerk Attitudes Towards Trade

. Wednesday, April 11, 2012

It's been awhile, but I used to tussle with Public Citizen a some. I kind of stopped paying attention to them, however, as I found their knee-jerk approach to the political economy of trade to be intellectually unsatisfying. It is satisfying, on the other hand, to see someone else knock them down as well as Daniel Ikenson at the shell that used to be Cato does here:

Contrary to the characterization that Wallach and other anti-globalistas have been trying to paint for years, the WTO is not some faceless bureaucracy issuing edicts that run roughshod over national sovereignty and local laws. The WTO has no special power to compel any member state to do anything. Contrary to Wallach’s claim that a WTO “Tribunal” (sounds like a military junta, no?) “ordered” the United States to “dump” a “landmark” anti-smoking law, the WTO Appellate Body merely requested (see above) that the United States bring a specific clause of the law into conformity with U.S. treaty obligations. WTO Panels and the AB only recommend or request. ...
The WTO did not rule that the United States cannot have an anti-smoking law – only that that law was not being applied evenhandedly to domestic as well as foreign companies. By banning clove cigarettes, which have been sourced principally from Indonesia over the years, but not menthol cigarettes, which are produced primarily in the United States, the U.S. law discriminates against producers from another country – namely, Indonesia.
I understand why people are opposed to trade. I understand why people are skeptical of the WTO. Trade creates winners and losers, interest groups (and governments in thrall to them) try to game the system, etc. The WTO was set up largely by powerful states that were seeking to further their interests. I do not, however, understand why people are opposed to trade or skeptical of the WTO as a general principle that leads to opposing trade or the WTO in any and every context. Particularly for folks on the left making reference to WTO rulings like this one, which is clearly good for producers in developing countries. And, if they lead the U.S. to change anti-smoking laws to be more inclusive, may be good from the perspective of public health as well.

In situations like this I often refer to Krugman's old article on comparative advantage. It's far from perfect -- and I imagine he'd disown it these days -- but I really think he has a point. Some people just don't like trade because they don't want to like trade.

Monday, April 9, 2012

Parsing Bernanke

. Monday, April 9, 2012

I've just now been able to read Roger Lowenstein's profile of Ben Bernanke in The Atlantic. There's a lot of good stuff in it, but I want to highlight a few parts:

Rising to his own defense, he told me, “I would argue that everything we have done has been in the interest of the American public and, broadly, of the global economy. A lot of people get that.” (Privately, Bernanke and Timothy Geithner, the treasury secretary, have shared mutual wonder that the financial rescue, which they consider a success, has been so widely panned. Geithner told me that recently, when he informed Bernanke that yet another officeholder had asked for each of their resignations, Bernanke wryly quipped, “Well, that’s a step up from being accused of treason.”) 

A bit later Bernanke references Bagehot and Lowenstein observes that “Bernanke has a sense of history uncommon among public officials”. I should hope so, since in his academic life Bernanke was a scholar of the Great Depression. But this confirms two things that I've long suspected but that have no been confirmed in print until this point: that Bernanke seems himself as the world's central banker, not just the U.S.'s central banker, and that he feels constrained by American politics.

The first is important for a host of reasons, and helps explain many of the less-discussed Fed actions. It's important because Bernanke seems to understand that because the U.S. banking system is central to the global banking system, a disruption here leads to disruptions elsewhere. Financial disruptions everywhere leads to political instability, and political instability can lead to conflict. Bernanke thus took all the actions that the Fed either could not or would not take in the 1930s to make damn well sure that whatever happened this go 'round we wouldn't get that again. Bernanke, i.e., was willing to go to whatever lengths he had to make sure this time was different, at least politically. This means removing the objects of political contention, and that in turn means opening up swap lines with every major central bank in the world. That means direct lending to important foreign firms.* To stabilize a global banking system you have to act like a global central banker. Bernanke did that.

The article actually questions Bernanke's international role:
Nor has he exploited the natural leadership role of the Fed chairman on the world stage, for instance during the crisis in Europe. When Alan Greenspan showed up at international meetings, he got star treatment. Bernanke, says one former White House official, is just “another guy at the table.” 
Greenspan's previous cult of personality notwithstanding, there are very good reasons for Bernanke not to showboat, particularly when he's involved in extending billions – perhaps trillions – in loans to foreign firms. The chairman of the House committee that oversees the Fed famously wants to abolish the institution; Bernanke's re-confirmation vote was the closest in the history of the Fed; the Fed's regulatory authority has come under attack; a former GOP presidential front-runner threatened to lynch him if he showed up in Texas; the Occupy movement seems to believe that Bernanke exists only to serve the banking sector. Etc. Bernanke is very politically constrained right now. To advertise that he is running the global economy – and not entirely for the benefit of the U.S. – would exacerbate those who oppose him. He is also constrained by his own committee. As the article notes, Bernanke has had more votes against his proposals than any Fed chief in 20 years.

Lowenstein claims that the Fed has a “dual mandate” – to promote full employment and low inflation – but in actuality the Fed has a triple mandate: the first two plus regulation of the banking sector. These goals are sometimes in tension, and when they are the Fed must choose which to privilege. This is a highly political decision, and one can certainly understand why Bernanke would feel a need to be protective of himself and his office. Particularly when it's pretty clear that he broke the law or came close to it:
Under the Federal Reserve Act, the Fed is authorized to make loans under “unusual and exigent circumstances” as long as the loans are “secured to the satisfaction of the Federal Reserve banks,” meaning, as long as the Fed does not expect to suffer any losses. A fair argument can be made that in the depths of the crisis, some of the Fed’s emergency loans violated this dictum. 
The political pressures Bernanke is facing comes up again when Lowenstein discusses the debate over whether the Fed should increase it's targeted inflation rate and quotes Mankiw as saying that no central banker would do it because "the political reaction would be too severe".

It's a good article in general, and there's a lot of detail both about the Fed's policies since the crisis and the fallout from them.

*Someone on Twitter snarkily remarked that it was disingenuous of Bernanke to invoke Bagehot because he didn't follow Bagehot's advice to lend freely, but only to solvent firms and only at penalty rates. I obviously can't speak for Bernanke here, but there's no reason to be doctrinaire on this point; the goal is to stabilize the banking sector at any and all costs. If that means relaxing some rules that a journalist made up nearly 150 years ago, well then do it. Now I think this can have some pernicious effects, as some of my research is pretty skeptical of the priorities of central banks with mandates that extend beyond stabilizing the macroeconomy, but crises are crises. Every other concern goes out the window until later.

International Political Economy at the University of North Carolina: April 2012




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