Political Science

Sebastian Galiana and Gustavo Torrens have a new NBER paper on this underappreciated question:

Why did the most prosperous colonies in the British Empire mount a rebellion? Even more puzzling, why didn’t the British agree to have American representation in Parliament and quickly settle the dispute peacefully? At first glance, it would appear that a deal could have been reached to share the costs of the global public goods provided by the Empire in exchange for political power and representation for the colonies. (At least, this was the view of men of the time such as Lord Chapman, Thomas Pownall and Adam Smith.) We argue, however, that the incumbent government in Great Britain, controlled by the landed gentry, feared that allowing Americans to be represented in Parliament would undermine the position of the dominant coalition, strengthen the incipient democratic movement, and intensify social pressures for the reform of a political system based on land ownership. Since American elites could not credibly commit to refuse to form a coalition with the British opposition, the only realistic options were to maintain the original colonial status or fight a full-scale war of independence.

You may recall that Adam Smith wanted to see a continuing empire, but with North America as essentially the more powerful partner, though he did not quite use those words.


The betting market had Trump go up from 16.8 to 19.0, with Pence falling by a fair amount.  Stock market called it a draw.  The peso observation comes from a tweet by Noah Smith.

That is my latest Bloomberg column on what is going on right now, here is an excerpt:

Right now, another collective-action problem may be damning the Republicans to a worse fate yet. If the Trump candidacy has no chance of winning or holding close, Republican turnout may collapse, thereby endangering party control of many lower political offices.

Republican turnout, and thus electoral success, might be helped if all the Republicans simply pretended that the Trump gaffe hadn’t happened. But politicians often look to their own self-interest. After Trump appears unacceptable enough in the eyes of enough relevant voters, political candidates and other party members will seek to distance themselves from him so they can try to rebuild their reputations once Trump is no longer on the ballot. You might say those individuals are finally doing the right thing, but under another reading a lot of them are acting in their personal self-interest yet again, and again to the detriment of the Republican party (though perhaps not the American citizenry).

In other words, the Republicans have been on the wrong side of game-theory logic twice, first in delaying their opposition and then later in enacting it. Those are hardly examples of getting Adam Smith’s “invisible hand” metaphor to work in their favor.

There is much more at the link.  For related analyses, here are remarks from Sam Wang.  Here are tweets from Megan McArdleHere is Paul Gowder, drawing on Timur Kuran.

Haven’t you been wondering that lately?  Tridimas has a paper (link here scroll down) on that question, here is one empirical observation:

During the period 1957-2006, out of a total of 43 integration referenda, 23 were not constitutionally required but were called at the discretion of the incumbent government; 18 of these 23 resulted in a pro-integration vote as the incumbent government had sought. France has held three EU-related non-required referenda, all initiated by the President of the Republic. The UK approved EEC membership in 1975 in a non-required referendum, the only national UK referendum thus far. In 2003, seven of the nine referenda held by the new entrants to approve membership were not required. Again, none of the four referenda held in 2005 by Spain, France, the Netherlands, and Luxembourg to ratify the EU Constitutional Treaty were constitutionally mandated.

And the theory?:

In politics, some issues cause deep intra-party splits between the elected representatives of the same party rather than inter-party divisions among different parties. Constitutional issues, which concern questions of governance and national sovereignty of a state, are a prime example. It is then unlikely that the standard system of parliamentary politics will be able to resolve all those issues. On the contrary, it is more likely that the leader of the party in office will call a referendum to decide them. Ratifying changes to constitutional arrangements in a referendum confers legitimacy to their adoption (or rejection) by taking the decision away from parochial parliamentary majorities and putting it into the hands of the citizenry.

Ah, but there is risk!  Still, it is not crazy to call the referendum, even though you might rationally prefer that the whole issue disappear.

I would add a further point to that model.  Let’s say you think the core issue won’t go away of its own accord, arguably the case with both Brexit and the failed Colombian peace agreement.  The choice is not “referendum vs. no referendum,” but rather “referendum today vs. giving my successors an option on future referenda.”  And since a referendum can strengthen an incumbent, you realize that some future government might call one for self-interested reasons.  In which case you might consider risking disaster now, responding to a kind of collective action problem through time.  You may even fear that one of your successors will be irrational.  And so some moment will feel like an optimal trigger point, though of course that will involve risk and probably more risk than is socially optimal.  But is there not a preferred time to make your leap from the burning building?  The pain of landing on your arm rather than your butt is not per se an argument for nixing the choice altogether.

Alternatively, consider the Italian referendum on reforming the Senate, due in December.  The incumbent government may well lose the vote, but precisely because this is not a fundamental issue I predict they can simply continue in power, noting they didn’t have a strong mandate for change in the first place.

Here is Carlos Closa on when to call referenda.

That is my latest Bloomberg column, here is the introductory section:

The richest Americans are much less likely to have inherited their wealth than their counterparts in many supposedly more egalitarian countries. They’re not remarkably rich in degrees from elite universities. Rich Democrats have more social connections than rich Republicans.

These are some surprising insights from a new study of the very wealthy by Jonathan Wai of Duke University and David Lincoln of Wealth-X, based on data on 18,245 individuals with a net worth of $30 million or more.

The study portrays high-net-worth individuals as a more idiosyncratic and diverse group than reductionist cliches about “the 1 percent” might suggest.

Looking globally, extreme wealth is most closely connected to elite education in South Korea, Chile, and South Africa, and least so in Ukraine and Qatar. The U.S. is near the bottom of the top third of the country rankings for the tightness of this connection. Germany is close to the bottom, reflecting how German paths to riches run through forms of manufacturing and medium-sized business that are not so closely tied to elite higher education.


For all the talk of Sweden and Austria as relatively egalitarian societies, they are also the countries where the greatest proportion of high-net-worth individuals inherited their wealth: 43.8 percent and 49.6 percent, respectively. In the U.S., inherited wealth accounts for only 12.6 percent of the very wealthy individuals in the study’s sample.

There is much more at the link.

The very beginning is a little slow, but I thought Ezra was one of the very best guests.  The topics include the nature and future of media, including virtual reality, the nature of leadership (including Ezra’s own), how running a project shapes your political views, a wee bit on health care, what he thinks are the Obama and Clinton models of the world, Robert Putnam’s research on the costs of diversity, the proper role of shame in society, animal welfare, and of course Ezra’s underrated and overrated, with takes on Bob Dylan, The Matrix, William F. Buckley, Joe Biden, and more.  There is no video but here is the podcast and transcript.  Here is one excerpt:

COWEN: …Now Putman, let me ask you about Putnam, and how Putnam relates to Donald Trump. As you know, Robert Putnam at Harvard, he has some work showing that when ethnic diversity goes up that there’s less trust, less cooperation, less social capital.

If you think of yourself in the role of an editor, so you have an American society, diversity has gone up, and a lot of people have reacted to this I would say rather badly — and I think you would agree with me they’ve reacted rather badly — but there’s still a way in which the issue could be framed that while diversity is actually a problem, we can’t handle diversity.

Putnam almost says as such, and do you think there’s currently a language in the media where you have readers who are themselves diverse, where it’s possible not to just be blaming the bigots, but to actually present the positive view, “Look, people are imperfect. A society can only handle so much diversity, and we need to learn this.” What’s your take on that?

KLEIN: I strongly agree. We do not have a language for demographic anxiety that is not a language that is about racism. And we need one. I really believe this, and I believe it’s been a problem, particularly this year. It is clear, the evidence is clear. Donald Trump is not about “economic anxiety.”

COWEN: A bit, but not mainly, I agree.

KLEIN: That said, I think that the way it’s presented is a choice between economic anxiety and racism. And one I don’t think that’s quite right, and two I don’t think that’s a productive way of having that conversation.

COWEN: Why don’t we have that language? Where did it go, or did we ever have it?


COWEN: You see this with Medicaid. A lot of people don’t sign up. They don’t have addresses. You can’t even get them, whatever.

KLEIN: They don’t like doctors. They’re afraid of doctors.

COWEN: This is me.

KLEIN: You’re afraid of doctors?

COWEN: “Afraid” isn’t the word.

KLEIN: Averse. [laughs]

COWEN: Maybe dislike. Averse. [laughs] They should be afraid of me, perhaps.

Definitely recommended.  The same dialogue, with a different introduction, is included in The Ezra Klein Show podcast.

Why do left wing governments sometimes support policies which harm their constituents? In A Theory of Political Entrenchment Gilles Saint-Paul, Davide Ticchi and Andrea Vindigni offer an answer:

A partially self-interested left-wing party may implement (entrenchment) policies reducing the income of its own constituency, the lower class, in order to consolidate its future political power. Such policies increase the net gain that low-skill agents obtain from income redistribution, which only the Left (but not the Right) can credibly commit to provide, and therefore may help offsetting a potential future aggregate ideological shock averse to the left-wing party.

The basic idea may also be put this way.  A left wing government might not want to pass policies to educate the masses or open markets to small business firms because such policies are likely to be successful and in the process create a class of skilled workers and petty bourgeoisie who will vote against the left-wing party and its policies of income redistribution. By keeping its constituents poor, the left-wing party keeps its constituents beholden because only the left-wing party will support income redistribution.

The left-wing party might even pass policies that the right-wing party wants in order to build its own future power base. The authors give the example of the Democrats under Bill Clinton supporting NAFTA which may have harmed the left-wing constituency of labor. The authors show, moreover, that the effect is likely to be bigger the bigger are political rents and the more stable are political careers. In other words, Bill Clinton passed NAFTA so that Hillary Clinton could run against it. An interesting idea if not wholly convincing.

Jeppe Trolle Linnet, an anthropologist at the University of Southern Denmark, argues that hygge is not the great social leveller it appears. Danes dislike acknowledging class differences, but his research finds that the habits of hygge vary by income and social status. For some, hygge is a bottle of burgundy with soft jazz on the hi-fi; for others it is a can of beer while watching football on telly. Worse, different groups are uncomfortable with others’ interpretations of hygge. Mr Linnet calls it a “vehicle of social control”, involving “a negative stereotyping of social groups who are perceived as unable to create hygge”.

…A recent report on the quality of life for expatriates in 67 countries, compiled by an organisation called InterNations, bears this out. Denmark’s own natives may rank it top for happiness, but the immigrants in the survey ranked it 60th in terms of friendliness, 64th for being made to feel welcome, and 67th for the ease of finding friends. Finishing just ahead of Denmark on the finding-friends measure was Norway, the country from which the Danes imported the word hygge. If cultures are obsessed with the joys of relaxing with old friends, perhaps it is because they find it stressful to make new ones.

That is from The Economist.

Lee Drutman at Vox reports:

If Maine Question 5 passes, Mainers will get to select up to five candidates in order of preference. If there is no majority in the initial tally of voting, and their first choice finishes last in the initial tally, their vote will be transferred to their second choice in the next tally. (In each tally, the last-place finisher gets eliminated). And if there is still no majority, and their second choice ranks last in the second tally, their vote will be transferred to their third choice, and so on, until one candidate has a majority.

Or, put another way: If one candidate wins a majority in the initial tally, there is no runoff. If no candidate wins a majority, candidates are eliminated from the bottom-up, with each eliminated candidate’s supporters going to their next-ranked choice for the following round, until one candidate has more than half of the votes. (For a video explanation of how this works, I recommend this short explainer.)

Versions of the Single Transferable Vote (STV) have been used in Ireland, Northern Ireland, Malta, Tasmania, and NYC City Council from 1937-1947

STV systems tend to make candidates more civil to each other, and less likely to attack each other’s character and ideology.  More generally, it induces politicians to cater more frequently to constituency whims and preferences, at the expense of drawing sharp contrasts across ideologies.  You don’t want the voters from the opposing ideology to rank you very low, so you’ll ease up on the insults and try to appear like a very useful centrist.  The resulting emphasis on constituency service has historically been the case in Ireland (most but not all of the time).  Similar tendencies have been observed in Tasmania and Malta, and the parties evolve to become less ideological.

Traditionally, I have not been a huge fan of STV systems, but this year they sound a bit better than usual.

You can start here on the literature on STV.

The World Bank reckons that over 70% of Thailand’s public expenditure in 2010 benefited Greater Bangkok, home to 17% of the country’s population.

That is from The Economist.

The liberal Brexiters have been a bit quiet in the last few weeks.

That is from Duncan Robinson.  Of course that is a response to Theresa May’s announcement that formal Brexit talks will start this spring (NYT).  If true, that is likely to mean “hard Brexit” with no free trade treaty with the EU, no Norwegian or Swiss status, no nothing, Brexit and nothing but Brexit is Brexit is Brexit is Brexit.  I’m still hoping that a raising of the stakes leads to a different outcome, but at this point I’m not counting on it.

In the meantime, those who suggested Brexit would give the UK the best of both worlds don’t seem to have called this one very well.

The two people (Wolfers and Ozimek) who did the empirical work did a great job, but much of the rest of the exchange from other commentators has missed the point.

If you approach the debate as an emotional referendum on how good or bad Trump (Clinton) would be, you’re probably going to get it wrong.  You will view yesterday’s exchange as being about choosing the Wolfers estimation or the Ozimek one, the latter showing that increases in Trump’s odds didn’t seem to hurt the stock market up through a particular date.  If then you sided with Wolfers, you could keep a very negative view of what Trump would be like, or if you sided with Adam’s investigation you could still wonder to a greater extent.

The better way to think about the exchange is that Adam (and I) raised a puzzle.  Given that economists as a whole don’t like Trump (look at endorsements), why haven’t the regular fluctuations in his odds had more of an impact on the stock market?

Now comes the Justin Wolfers study, showing the stock market went up a lot as Hillary Clinton was winning the debate.  That makes the puzzle bigger not smaller.  It adds to the preexisting prior about what correlations we should find in those earlier data points.  Why for instance didn’t Trump’s fairly rapid pneumonia-inspired, pre-debate rise from 30 to 36 spook the markets in a big way?  Why didn’t Trump’s longer-term rise from near zero to 36 bring a lot of market turmoil?  And since a strong economy should help the incumbent Party, the puzzle is all the stronger; you can’t expect a strong economy to boost both the stock market and Trump’s odds as a confounding third factor.  And note of course that Justin himself, in other contexts including on Twitter, will assign weight to the churning movements in the prediction markets, even if he doesn’t consider them any kind of decisive test.

A few of the options on the table are to say gridlock is stronger than we had thought, prediction markets less reliable, other candidates less reliable, or that Trump cutting taxes on capital relative to HRC will for the stock market outweigh some of the costs of his presidency.  I’m not pushing any one of those, I am suggesting that at least one from this and a broader list ought to be true.

Many many of you have responded to such conundrums with answers starting with but not ending with the concept of noise and low-powered tests.  That is a perfectly fine set of responses but then you must apply the resulting beliefs consistently to all other spheres.  You could say for instance: “So much noise comes along in our economy.  I do prefer Clinton to Trump, but because of all this noise I’m really not so sure Clinton will work out better for the economy.  All of the other intervening economic events is what the prediction market and stock market data were picking up and that is why Adam’s test was imperfect.  My judgments are imperfect too.”

That is an entirely permissible answer, if you really believe it and embrace it.  The error is to segment your belief space.  If you say “Wolfers beats Ozimek because Ozimek doesn’t consider noise enough, therefore I stick with my belief that Trump is really bad for the economy,” well that kind of mistake belongs in a Jonathan Haidt novel.  I find few people are willing to embrace the more consistent statistical preference plus agnosticism, rather they play the game of “statistical noise for thee but not for me.”

Plenty of statistical tests have low power, including, believe it or not, the ones you run with your political intuitions.

Most generally, don’t look to throw out information, or see one study as trumping another, rather seek to use and interpret all of the information available.

By the way, one possible answer that fully reconciles the data of both Wolfers and Ozimek is to suggest stock markets started seeing Trump as “incurably terrible” only during the debate itself.  That is hardly a confirmed hypothesis (we’ll see going forward), but it is another way of recognizing why Wolfers and Ozimek have not produced competing hypotheses, rather two pieces of information for revising a broader Bayesian mosaic.

Wall Street fears a Trump presidency. Stocks may lose 10 to 12 percent of their value if he wins the November election, and there may be a broader economic downturn.

These conclusions arise from close analysis of financial markets during Monday’s presidential debate…

Monday’s presidential debate provided a rough approximation of this experiment. At 9 p.m., before the debate began, the betting markets gave Mr. Trump a 35 percent chance of becoming president. Two hours later, after the debate, we had entered the parallel universe in which economic conditions were the same, but Mr. Trump’s chances had fallen a tad below 30 percent.

During the debate, the overnight futures markets rallied, raising the value of broad stock market gauges like the Standard & Poor’s 500-stock index by two-thirds to three-quarters of a percentage point. This was a consequential move, and because it was driven by the reduced chance of a Trump presidency, it reveals that the market believes that stocks would be worth more if he were to lose the election.

Here is the NYT article.  I noticed exactly this pattern myself, but I wish Justin would consider why this correlation does not hold more broadly in the data across other time periods.  Trump rose from a joke candidate to as high as 36 in the prediction market, without much denting the stock market.  Are we supposed to think improved prosperity drove both developments?

Here are some good remarks from Scott Sumner.

Analyses of the effects of election outcomes on the economy have been hampered by the problem that economic outcomes also influence elections . We sidestep these problems by analyzing movements in economic indicators caused by clearly exogenous changes in expectations about the likely winner during Election Day. Analyzing high frequency financial fluctuations following the release of flawed exit poll data on Election Day 2004, and then during the vote count, we find that markets anticipated higher equity prices, interest rates and oil prices and a stronger dollar under a Bush presidency than under Kerry. A similar Republican-Democrat differential was also observed for the 2000 Bush-Gore contest. Prediction market based analyses of all Presidential elections since 1880 also reveal a similar pattern of partisan impacts, suggesting that electing a Republican President raises equity valuations by 2-3 percent, and that since Reagan, Republican Presidents have tended to raise bond yields.
That is Snowberg, Wolfers, and Zitzewitz (pdf), via Adam Ozimek.  Here is the background context, relating to prediction markets today.

People, I do think there is a uniquely bad figure on the American national scene right now, and I am hoping for that figure to leave the stage very soon.  Nonetheless intellectual honesty and the pursuit of truth require me to communicate the following result to you.  This is from Sweet, Ozimek, and Asher:

More formal econometric analysis confirms the absence of a relationship between the S&P 500 and Trump’s electoral odds.  Regression analysis shows that day-to-day changes in Trump’s odds of winning had a statistically insignificant effect on log differences in the S&P 500.

See pp.21-22.  No, this doesn’t change my mind about the campaign and election, but how many commentators are willing to report this at all?  Try to come to terms with this?  The purpose of writing a blog is to force oneself to deal with the uncomfortable, not to push pat answers on the readers.  I know many of you feel it is your moral duty to stack arguments for or against one of the candidates as high as possible, but I have never myself viewed that as my mission here, no matter what I might be rooting for.

And please note that “stock markets failed to predict [fill in the particular historical event here]” is not a very strong response.  I again repeat the question: how many of you are short the market and long on volatility?

That’s what I thought.