Political Science

Somehow — I can’t imagine why — this financial matter has fallen down the memory hole as of late.  Here are a few paragraphs from Wikipedia:

In 1978 and 1979, lawyer and First Lady of Arkansas Hillary Rodham engaged in a series of trades of cattle futures contracts. Her initial $1,000 investment had generated nearly $100,000 when she stopped trading after ten months…

Various publications sought to analyze the likelihood of Rodham’s successful results. The editor of the Journal of Futures Markets said in April 1994, “This is like buying ice skates one day and entering the Olympics a day later. She took some extraordinary risks.”[3] USA Today concluded in April 1994 after a four-week study that “Hillary Rodham Clinton had some special treatment while winning a small fortune in commodities.”[9] According to The Washington Post‘s May 1994 analysis, “while Clinton’s account was wildly successful to an outsider, it was small compared to what others were making in the cattle futures market in the 1978–79 period.” However, the Post’s comparison was of absolute profits, not the percentage rate of return.[14] In a Fall 1994 paper for the Journal of Economics and Finance, economists from the University of North Florida and Auburn University investigated the odds of gaining a hundred-fold return in the cattle futures market during the period in question. Using a model that was stated to give the hypothetical investor the benefit of the doubt, they concluded that the odds of such a return happening were at best 1 in 31 trillion.[15]

Financial writer Edward Chancellor noted in 1999 that Clinton made her money by betting “on the short side at a time when cattle prices doubled.”[16] Bloomberg News columnist Caroline Baum and hedge fund manager Victor Niederhoffer published a detailed 1995 analysis in National Review that found typical patterns and behaviors in commodities trading not met and concluded that her explanations for her results were highly implausible.[17] Possibilities were raised that broker actions such as front running of trades, or a long straddle with the winning positions thereof assigned to a favored client, had taken place.[14][17]

That said, I fully grant such matters are not closely correlated with ultimate political performance.  But I am seeing so, so much apologia, selective event citation, and wishful thinking these days…

What is also interesting is that this is another case where — relative to actual legal priorities — one can correctly suggest that an actual prosecution was not warranted.

Please do note I regard it as my first priority to try to understand and also explain the (rather dire) situation we are in, rather than to put maximum thumb weight on the outcome I would most like to see happen.

There should be a whole category of “results that aren’t true as stated but are interesting nonetheless.”  Here is a new paper by Daniel L. Bennett and Boris Nikolaev:

This article examines the relationship between economic freedom and happiness inequality for a large sample of countries. We find that economic freedom is negatively associated with happiness inequality and robust to several alternative measures of happiness inequality, including the standard deviation, mean absolute difference, coefficient of variation, and Gini coefficient. Among the economic freedom areas, legal system and sound money are negatively correlated with happiness inequality. Drawing on the Engerman-Sokoloff hypothesis, we use a measure of factor endowments as an instrument for economic freedom to provide a further robustness test, finding a negative association between economic freedom and happiness inequality.

Two points.  First, the influence of economic freedom often diminishes once you control for the quality of government in a particular locale.  This is perhaps more of an “all good things go together” result than any particular causal story.  Second, many of these results are mediated by the “hard money” component of economic freedom.  But hard money is not economic freedom per se, but rather it may be proxying for some successful cultural attitudes.

For the pointer I thank the excellent Kevin Lewis.  Also via Kevin, here is another published result you shouldn’t quite believe as stated: “…the combination of feeling tired and happy may enhance acceptance of atypical or unusual ideas, which could potentially help creative thought.”

Perhaps less than you might think.  There is a new paper by Mario L. Chacon and Jeff I. Jensen:

We use the Southern secession movement of 1860-1861 to study how elites in democracy enact their preferred policies. Most states used specially convened conventions to determine whether or not to secede from the Union. We argue that although the delegates of these conventions were popularly elected, the electoral rules favored slaveholders. Using an original dataset of representation in each convention, we first demonstrate that slave-intensive districts were systematically overrepresented. Slaveholders were also spatially concentrated and could thereby obtain local pluralities in favor of secession more easily. As a result of these electoral biases, less than 10% of the electorate was sufficient to elect a majority of delegates in four of the six original Confederate states. We also show how delegates representing slave-intensive counties were more likely to support secession. These factors explain the disproportionate influence of slaveholders during the crisis and why secessionists strategically chose conventions over statewide referenda.

Not entirely unlike the first American secession!

For the pointer I thank the excellent Kevin Lewis.

What if Donald Trump actually won the election?  What would happen with trade and the economy?

Here is part one, all nice and pretty with photos, part two will come tomorrow.  Zoellick suggests that if Trump abrogated various trade deals, the legal default would be a return to…Smoot-Hawley!  As former USTR, he should know.  Anyway, here is one part of the dialogue:

Cowen: I expect a somewhat slightly more optimistic scenario. I think a President Trump would give us a reality-TV version of a tariff hike. I don’t necessarily think he wants to experience the pain of tariffs going up, markets crashing and all the political fallout early in his time in office.

Yet he’s promised he would do something and he loves to spar with people and claim he’s being done wrong and rail against elites rather than own problems and solve them. So I think what he would probably do is announce that he had abrogated these treaties, not actually do it. There would be a very high level of uncertainty but I don’t think the laws on the books would necessarily change.

The biggest thing at stake here is uncertainty. Under all of these scenarios, the real impact would be on services, which often rely more on the regulatory system. Uncertainty would result in a higher implicit tax on exports of services to the U.S. than on exports of goods.

Zoellick: I think that’s an extremely optimistic interpretation. Remember, he has the authority to act. He can raise tariffs and create havoc.

I agree on your uncertainty point, but I think you may be a little blithe about the risk to markets. Other countries aren’t just going to stand for the U.S.’s blustering.

This is serious stuff. I worked on German unification. I’ve done a bunch of trade deals. I’ve had some experience internationally. If you act the way Trump talks you’re going to pull down a 70-year-old system that got us out of the Great Depression and helped the U.S. become the strongest economy in the world. This isn’t for fooling around with.

Here is the full, raw text with no formatting.  Eleven full pages, that is for me the best version!  There are many, many points of interest, I really liked this exchange.

This is from the Telegraph obit:

“However, not many, perhaps, were aware that the serial was commissioned with a serious political purpose: to popularise public choice theory. It is because it succeeded spectacularly that Jay received a knighthood in 1988.”

There are numerous interesting points in the obituary, for instance:

In Zimbabwe, Robert Mugabe was said to be a No 1 fan.

For the pointer I thank David Stein.  And here is my earlier Conversation with Margalit Fox, senior obituary writer for The New York Times.

No, that is not enlightenment about life, that is enlightenment about Enlightenment, as in the eighteenth century phenomenon.  P., a loyal MR reader, wrote to me with such a request, noting correctly that “I usually find that broad, ambitious survey books are not the answer.”

That survey would be Peter Gay, recently a bestseller in China by the way, and then Ernst Cassirer, Jonathan Israel, and Roy Porter, but let me outline an alternative program of study.  The goal here is to be practical, engaging, and vivid, not comprehensive or scholarly per se:

Books:

Geoffrey Clive’s short book The Romantic Enlightenment.

James Boswell, Journals, selected excerpts, he was an early blogger by the way, and David Hume, An Enquiry Concerning Human Understanding.  I find that to be one of the wittiest of books.  Plus Hume’s Essays.

Diderot, Rameau’s Nephew, and Rousseau’s Second Discourse.  Condorcet, Essay on the Progress of the Human Mind.  Voltaire I consider overrated.

Swift, Gulliver’s Travels, yes I know it is arguably “anti-Enlightenment,” better yet.  If you insist on another Irishman, Bishop Berkeley is an entertaining writer as well.

Founding documents of the United States, and Ben Franklin, Autobiography.

Kant, Perpetual Peace, “What is Enlightenment?”, and Lessing, Nathan the Wise.

Beccaria, Of Crimes and Punishments.

If you have the time to tackle longer books, start with Smith’s Wealth of Nations and Boswell’s Life of Johnson and then Casanova and Tristram Shandy (there is by the way a splendid book on the postmodern in the Enlightenment but I can no longer remember the cite).  Leave Montesquieu to the Straussians, although the returns are high if you are so inclined.

For history, read up on eighteenth century scientific societies, Robert Darnton on the rise of publishing and the book trade, Habermas on the coffeehouse debate culture and the public sphere, and Brewer and McKendrick on the rise of consumer society in England.  Try Wikipedia for Catherine the Great, Frederick the Great, and other rulers of the time.  There is also Margaret C. Jacob, The Radical Enlightenment, and books on 18th century Freemasonry.  The French Revolution seems to require its own blog post, as does the Industrial Revolution, slavery too, in a pinch resort to the MR search function box on this blog.  Foucault will give you a sense of the dark side of the Enlightenment, his history is unreliable but read him on Discipline and Punishment and on ideology try the rather dense The Order of Things.

That all said, I would start with music and the arts first.

Music:

Haydn, the London symphonies and late piano sonatas and string quartets Op.76.

Mozart, the major operas, including reading through the libretti while listening.  If you can only do one thing on this list…

Gluck, assorted operas, noting he is not nearly the equal of Haydn or Mozart as a composer but he did capture the spirit of Enlightenment.

C.P.E. Bach, the Prussian Sonatas.

Painting:

Study French painting from Chardin through David, picture books will do if you can’t visit the original works.  Focus on Watteau, Boucher, Fragonard, Vigée-Le Brun, Boilly, Hubert Robert, and others, how their works tie into the history of the period and how the styles transformed over time.  Visit Paris, Huntington Gardens, and Tiepolo’s work in the Residenz in Würzburg.  Do a tour of Georgian architecture in England, in a pinch visit the derivative works at Harvard, Yale, and Alexandria, Virginia.  Study Tiepolo more generally, Goya, and also Antonio Canova.

Canova

Movies:

Why not?  I’ll toss up Dangerous Liaisons (Vadim and Malkovich versions), Barry Lyndon, Casanova, Amadeus, A Royal Affair (can’t forget Denmark!), Marie Antoinette, Ridicule, and The Madness of King George.

What did I leave out that is of utmost importance?

That is my latest Bloomberg column, here is one excerpt:

The virtues of business startups have led to many a success story. These enterprises start with clean slates. They embody the focused and often idiosyncratic visions of their founders. The successful ones grow faster than their competitors. Even after they become larger and more bureaucratic, these companies often retain some of the creative spirit of their startup origins.

It is less commonly recognized that some nations, including many of the post-World War II economic miracles, had features of startups. For instance, Singapore started as an independent country in 1965, after it was essentially kicked out of Malaysia and suddenly had to fend for itself. Lee Kuan Yew was the country’s first leader, and he embodied many features of the founder-chief executive: setting the vision and ethos, assuming responsibility for other personnel, influencing the early product lines in manufacturing and serving as a chairman-of-the-board figure in his later years.

Other start-ups nations have been UAE, Israel, Taiwan, Hong Kong, Cayman Islands, Estonia, South Korea, and of course way back when the United States.  You will note that many of these examples are imperfectly democratic in their early years, and they do not in every case grow out of it.  And this:

The world today seems to have lower potential for startup nations. This is in part because international relations are more peaceful and also because most colonial relationships have receded into the more distant past. Those are both positive developments, but the corresponding downside is not always recognized, namely fewer chances for reshuffling the pieces.

This is the close:

To paraphrase John Cleese from Monty Python, the startup nation concept isn’t dead, it’s just resting. Whether in business or in politics, the compelling logic of the startup just isn’t going away.

The best chances for future start-ups may be in Africa, around the borders of Russia, and perhaps someday (not now) Kurdistan.  Do read the whole thing.

This is perhaps the best and most instructive one I have heard:

…Mr Xi’s authority remains hemmed in. True, his position at the highest level looks secure. But among the next layer of the elite, he has surprisingly few backers. Victor Shih of the University of California, San Diego, has tracked the various job-related and personal connections between the 205 full members of the party’s Central Committee, which embodies the broader elite. The body rubber-stamps Mr Xi’s decisions (there have been no recent rumours of open dissent within it). But the president needs enthusiastic support, as well as just a show of hands, to get his policies—such as badly needed economic reforms—implemented. According to Mr Shih, the president’s faction accounts for just 6% of the group.

That is from The Economist.  Along related but not identical lines, here is a good story of the weak control of the Chinese central government:

Through July, claimed capacity reductions were less than half the target for the year (and less than 40% of the target for coal capacity reduction).  Some provinces were reported by the NDRC to have achieved only 10% of their annual targeted cuts.

…This resistance has led to more and more shrill directions from Beijing to act on instructions.  Now Beijing is sending out 10 inspection teams across the country to check on claimed capacity removal and to require follow through on additional closures.  I have one suggestion for them: The only way to ensure a closed plant remains closed is to physically destroy or remove key pieces of equipment.  Otherwise don’t be surprised when it starts back up again.

Don’t forget this:

Many steel mills are the key employer and tax payer in their city. In boom times, they might have provided as much as 30% of the tax revenue for local government.  Workers from the steel mill were at the forefront of buying property in the town, creating a positive cycle of additional demand for housing and steel.  If these workers are now laid off, even with one-time transfers from the center, local government faces an enormous challenge in trying to find new jobs for people who have been in a steel mill all their life.  They can’t all become part-time Uber/Didi drivers. Many government officials see delay as the most logical course of action.

That is from Gordon Orr.

I’ve been hearing plenty of calls for a higher inflation target, perhaps four percent.  I do understand the case for this, and furthermore it is not obvious that the higher rate of inflation would bring significant social costs.

The thing is this: whether rationally or not, the American public hates higher rates of price inflation.  Perhaps they mis-sample or mis-estimate prices, or perhaps the higher prices really do erode their real wages in a way they can’t get back through a new labor market bargain.

So a higher price inflation target would mean that everybody would hate the central bank.  It would not shock me if the first thing they did was to dismantle…the higher price inflation target.

Under nominal gdp targeting, the rate of price inflation would not have to significantly rise until worse times were upon us.  That is precisely when such upward price pressures would be most useful.

In 2015 our iron ore exports alone were four times the value of all of our combined services exports to China. And in services the only things that really count are tourism and education. That’s not going to change for a long, long time.

The alas now gated article, by Greg Sheridan, is of interest more generally and concerns some myths about China and Australia.

Addendum: To read the piece, try here.

No, this is not a repeat of the post from yesterday, there is another twist:

Doctors in Belgium have rejected an imprisoned murderer and rapist’s request for medically assisted suicide, the Justice Ministry said on Tuesday, less than a week before he was due to receive a lethal injection.

…Van Den Bleeken, 51, and in prison for nearly 30 years, had complained of a lack of therapy provided for his condition in Belgium. He argued he had no prospect of release since he could not overcome his violent sexual impulses, and wanted to die in order to end his mental anguish.

Belgium has pioneered the legalization of euthanasia beyond terminal illness to include those suffering unbearable mental pain.

But others have received euthanasia:

Cases which attracted international attention included the euthanasia of two deaf twins who were in the process of losing their sight, and of a transgender person left in torment by an unsuccessful sex change operation.

In February, Belgium became the first country to allow euthanasia for terminally ill children at any age, a move which drew criticism from religious groups both at home and abroad, though application for minors is limited to those about to die.

It is perhaps the wrong mood affiliation to apply the euthanasia process to an actual criminal:

Belgium, like the rest of the European Union, does not have the death penalty.

Here is the full article, and for the pointer I thank A. Le Roy.

The author is Nancy Tomes and the subtitle is How Madison Avenue and Modern Medicine Turned Patients into Consumers.  Here is one excerpt:

While unwilling to pass any kind of national insurance program, the U.S. Congress strove to advance the cause of “medical democracy” by other means.  Instead of guaranteeing a right to medical care, legislators voted to spend public funds on hospital construction and basic medical research as a means to yield more and better treatment.  To make that treatment affordable, the federal government looked to the private sector for help, using tax policy to encourage the growth of employee insurance plans.  In this fashion, postwar political and business leaders hoped to create a free enterprise alternative to “socialized” medicine.

The first step toward expansion came in 1946 when Congress passed the Hill-Burton Act, which funneled federal funds into hospital construction and expansion.  Over the next two decades, Hill-Burton funds would be used on almost 5,000 projects, many of them in rural areas that previously had had no hospitals.  The program proved very popular, giving local communities a new institution to be proud of while creating more “doctors’ workshops” for medical education and private practice.  At the same time, Congress vastly increased funding for medical research, from about $4 million in 1947 to $100 million by 1957.  Postwar political leaders found appealing the idea of tackling cancer, mental illness, and other dread diseases through “a medical research program equal to the Manhattan Project,” as the National Health Education Research Committee urged in 1958.  Taxpayer dollars helped to build up the National Institutes of Health (NIH) in Bethesda, Maryland, as the hub of what a later generation would christen the “medical-industrial complex”: a network of researchers located in American universities and scientific institutes whose careers depended on the generation of medical innovations.

I found this book extremely useful for understanding the evolution of American health care policy and institutions before 1965.

Should you go?  I give the place high marks for food and scenery, but the total population of about 48,700 limits  other benefits.  It is like visiting a smaller, more unspoilt Iceland.  There is a shop in the main city selling Faroese music and many shops selling sweaters.  They will not tell you where the sweaters were knitted.

The natives seem to think Denmark is an excessively competitive, violent, harsh and hurried place.  The norm here is to leave your door unlocked.  It is a “self-governing archipelago,” but part of the Kingdom of Denmark.  In other words, they get a lot of subsidies.

But they are not part of the EU, so they still sell a lot of salmon — their number one export — to Russia.

You see plenty of pregnant women walking around, and (finally) population is growing, the country has begun to attract notice, and the real estate market is beginning to heat up.  But prices remain pretty low, and it would be a great place to buy an additional home, if you do that sort of thing.

In the early 1990s, their central bank did go bankrupt and had to be bailed out by Denmark.  It is a currency board arrangement, and insofar as the eurozone moves in that direction, as it seems to be doing by placing Target2 liabilities on the national central banks, a eurozone central bank could become insolvent too, despite all ECB protestations to the contrary.

Every mode of transport is subsidized in the Faroes, including helicopter rides across the islands.  Often the bus is free, and there is an extensive network of ferries.  I wonder how many population centers there would be otherwise.  There is now the notion that all of the communities on the various islands are one single, large “networked city.”

The Faroes are a “food desert” of sorts, with few decent or affordable fruits or vegetables.  And not many supermarkets of any kind.  Yet the rate of obesity does not seem to be high.  And they have a very high rate of literacy with little in the way of bookstores or public libraries.

The seabirds including puffins are a main attraction, but I enjoyed seeing the mammals too, with pride of place going to the pony:

The domestic animals of the Faroe Islands are a result of 1,200 years of isolated breeding. As a result, many of the islands’ domestic animals are found nowhere else in the world. Faroese domestic breed include Faroe pony, Faroe cow, Faroese sheep, Faroese Goose and Faroese duck.

puffins-mykines-faroe-islands

The country receives a great deal of negative publicity for killing whales, but overall they seem to treat animals better than the United States does.  Fish consumption is very high and there are no factory farms.

If the Faroes had open borders, but no subsidies for migrants, how many people would settle there?

In 1946 they did their own version of Faerexit, from Denmark of course:

The result of the vote was a narrow majority in favour of secession, but the coalition in parliament could not reach agreement on how this outcome should be interpreted and implemented; and because of these irresoluble differences, the coalition fell apart. A parliamentary election was held a few months later, in which the political parties that favoured staying in the Danish kingdom increased their share of the vote and formed a coalition.

Overall I expect this place to change radically in the next twenty years.  It is hard to protect 48,700 people forever.  In part, they are killing those whales to keep you away.

Nice

by on August 17, 2016 at 12:18 pm in Current Affairs, Economics, Political Science | Permalink

Accordingly, raising residential building requirements in high-amenity areas should cause those areas to move gradually to the left.

That is from Jason Sorens at Dartmouth, via the excellent Kevin Lewis.

I can think of a few reasons:

1. Many of the structures in places are perceived as failing, even though in absolute terms they are not obviously doing worse than previous times.

2. There is a rise in nationalist sentiment and a semi-cosmopolitan ethic is starting to lose influence.

3. The chance of violent conflict is rising.

4. Dialogue is becoming more polarized and bigoted, and at some margins stupider.

5. Tales of gruesome torture are being spread by new publishing and communications media.

6. The world may nonetheless end up much better off, but the ride to get there will be rocky iindeed.

I have been reading Carlos M.N. Eire, Reformations: The Early Modern World, 1450-1650.  Yes I know it is 893 pp., but it is actually one of the most readable books I have had in my hands all year.