Everybody Get Down

As long as its weekend video time...



Back story.

Videos for the Weekend: Recent TED Talks

Two recent TED talks of interest to IPE folks. First, Bruce Bueno de Mesquita explains how he can predict the world using game theory. Second, Alex Tabarrok shows why he is known as one of the most optimistic believers in global capitalism still standing. I often think that both of these guys are excessively exuberant, and I suspect that there is some showmanship going on under the guise of social science, yet they are both fairly influential and should be taken seriously.

The Pros of Counter-Cyclicality

It gives you much-needed flexibility in the bad times. Dani Rodrik passes along a nice anecdote from Chile:

Until the current crisis hit, Chile's economy was booming, fueled in part by high world prices for copper, its leading export. The government's coffers were flush with cash. (Chile's main copper company is state-owned, which may be a surprise to those who think Chile runs on a free-market model!) Students demanded more money for education, civil servants higher salaries, and politicians clamored for more spending on all kinds of social programs.

Being fully aware of Latin America's commodity boom-and-bust-cycles and recognizing that high copper prices were temporary, Velasco stood his ground and decided to do what any good macroeconomist would do: smooth intertemporal consumption by saving most of the copper surplus. He ran up the largest fiscal surpluses Chile has seen in modern times.

This didn't make Velasco very popular. Last November, public sector workers marched in downtown Santiago, burning an effigy of Velasco.

But by the time the financial crisis hit Chile, Velasco (and the Central Bank governor Jose de Gregorio, another fine macroeconomist) had accumulated a war chest equal to a stupendous 30% of GDP.

The surpluses accumulated during the good years has given the Chilean government unusual latitude in responding to the crisis. As a result, the economy is doing much better than its peers. As Bloomberg reports, "the country’s economy is expected to grow 0.1 percent in 2009, as the region contracts 1.5 percent, according to the International Monetary Fund."

And does good economics pay off politically? Eventually, yes. Five months after being burned in effigy, Velasco is currently President Bachelet's most popular minister.

It is often difficult for politicians in democratic countries to enact sound policy and stay in office long enough to fully implement it. It is much more politically expedient to spend the surpluses from the boom periods, as most of the world has done. Unfortunately, when the bad times come, there is no surplus to fall back on. Many countries could learn from Chile, especially those that are heavily-dependent on commodity exports to fuel the economy.

Obama on Economic Policy

Very good interview with President Obama on economic policy, conducted the NY Times' David Leonhardt. They cover a broad range of topics, from financial regulation to health care. Obama demonstrates a lot of knowledge of the relevant issues, and acknowledges that his preferred policies involve trade-offs that many will not like. He seemed a touch defensive when questioned about Geithner and Summers, and especially about the influence of Robert Rubin on his administration. He doesn't bash trade or immigration (in fact, he doesn't really mention them at all), which is encouraging.

Worth reading, no matter your personal partisanship, to gain an understanding of the way Obama is approaching these issues.

Who's Your Boss?

The Economist has a nice article on the variance in politicians' professions across countries. The U.S., unsurprisingly, has more lawyers than any other country, and a remarkable lack of diplomats, civil service professionals, economists, and academics. And is it surprising that the Chinese government boasts of so many engineers (among them, President Hu Jintao)? Or that the military is so well represented in S. Korea but not India?

What would a model of the political economy of the professions of national leaders look like? Is it a function of national history or present circumstance? Does the composition of the leadership speak to ideational national values, or materialistic desires? How does this composition change over time? How does one's profession affect levels of partisanship?

I wonder how this picture would look with a larger sample of countries and the inclusion of religious leaders.



(ht: Blattman)

Obama Does No Harm

On the day I voted for Obama, I expressed concern at his campaign rhetoric on trade, and openly hoped he was lying to score political points. Today, I am happy to report my wish has seemingly been granted: President Obama has taken back his word, and I couldn't be happier:

The administration has no present plans to reopen negotiations on the North American Free Trade Agreement to add labor and environmental protections, as President Obama vowed to do during his campaign, the top trade official said on Monday.

“The president has said we will look at all of our options, but I think they can be addressed without having to reopen the agreement,” said the official, Ronald Kirk, the United States trade representative. It was perhaps the clearest indication yet of the administration’s thinking on whether to reopen the core agreement to add labor and environmental rules.

There is even some indication that Obama will be willing complete the free trade agreements with Columbia and Panama, which were started by the Bush administration.

How much positive effect will these actions have? Likely very little. But the concern was always primarily negative: politicians can often do much harm even when they intend to do good. Dodging such bullets is cause for celebration.

To my knowledge, it is not common for elected officials to take the Hippocratic Oath, but perhaps it should be.

(ht: Mankiw)

The Academy Strikes Back

From Duck of Minerva, this sums up my feelings on Joseph Nye's recent op-ed on the irrelevance of academics to policy-makers:

Mexico gets $47b IMF Credit Line

From the IMF:

The IMF approved a credit line for Mexico of $47 billion in the first use of a new instrument designed to bolster strong performing economies against fallout from the current global economic crisis.

The Mexican authorities have stated they intend to treat the one-year arrangement as precautionary and do not intend to draw on the line. The Executive Board approved the arrangement under the IMF’s new Flexible Credit Line (FCL), which was created in the context of a major overhaul of the Fund’s lending framework on March 24, 2009.

The FCL is particularly useful for crisis prevention purposes as it provides the flexibility to draw on the credit line at any time. Disbursements are not phased nor conditioned on compliance with policy targets as in traditional IMF-supported programs. This flexible access is justified by the very strong track records of countries that qualify for the FCL, which gives confidence that their economic policies will remain strong.

Even if the Mexican government does not "intend" to draw on the credit line, the development is still really interesting. Word on the street is that Poland is next, with other developing-but-not-yet-developed countries mulling the possibility of asking the IMF for precautionary credit lines in the near future. 

Trillion Dollar Graffiti

Via Blattman, The Zimbabwean has started an eye-catching street propaganda campaign:





(Images from the newspaper's flickr stream)

Links and Asides and more Game Theory

-- DeLong on E.M. Forster, the Bank Panic of 1825 (in England), and the origins of the modern central banking system.

-- Ron Paul says we should send mercenaries and bountyhunters after the Somali pirates. I am in favor of this plan, as long as it is televised. (ht: Dittmeier)

-- Blog Wars: Thoma vs. Shadab on financial regulation; Cowen vs. DeLong on stimulus.

-- Eichengreen and O'Rourke look at falling world output and fire up the 'D'-word.

-- Joseph Nye says I'm irrelevant.

-- Kling on financial regulation as a chess game, from the new (and interesting) site dedicated to financial regulation, FinReg21. I find Kling's arguments to be pretty persuasive, and worry that the end result of this crisis is a slew of new regulations that don't actually increase systemic stability, but do incur deadweight losses. Somebody should build a game-theoretic model of regulation (if one is out there, please let me know).

-- Speaking of game theory, Tim Harford's Logic of Life Youtube series (which accompanies the book of same name) explains racial segregation using the chessboard framework of Thomas Schelling. If you want to think of an IPE application, consider attitudes towards immigration, or resource scarcity in ethnically-diverse countries. There are many others.