Political Science

From his Facebook page:

So Greece said no to a plan that was no longer on the table. Paul Krugman and Jeffrey Sachs celebrate the decision. They hope to get a debt write-down for Greece. I honestly do not understand their position. To me, the Greek debt is pretty much irrelevant. The country is not paying a single euro in interest on its debt in net terms. It has been running primary deficits ( a shortage of revenues over spending excluding interest payments). Its debt is high but the interest rate is super-low, courtesy of European taxpayers.

If Greece writes down its debts, its banks will be bankrupted. The ECB will not be able to bail them out and the banking freeze will continue, accelerating the economic collapse. I don’t see how the banks can be bailed out in a week and I don’t see how the economy can avoid the catastrophe. Sachs in Project Syndicate says that Greece has the right to remain in the euro. I don’t know what that means in practical terms. The Greeks may be as euphoric with this “victory” as Europeans were in the summer of 1914.

By the way, here is Thomas Piketty on Germany.

One of the most striking aspects of the Greek situation is just how much the Greek government has lost the public relations battle.  They have lost it among the social democracies, and they have lost it most of all with the other small countries in Europe.  They retain some sympathy in the American government, but we are not willing to put any money on the table and basically we want the European Union to clean up the problems for us.

If you look at the progressive economists, Stiglitz, Krugman, Piketty and Sachs all recommend a “no” vote on the referendum.  Though they would not frame it this way, they are advocating a kind of extra austerity for the purposes of a greater long-run good; Greece’s primary surplus vanished some time ago, so signaling a break with Europe will only make matters tougher.  You could call this “properly mood affiliated austerity,” cloaked by strange presumptions about bargaining, namely the view that a “no” vote will induce a more favorable offer.  It seems, with their on the ground understanding, most Greek economists are strongly in the “yes” camp.

The progressives do have some good points and I absolutely favor significant debt relief for Greece.  That said, the Greek government has handled the last few months so badly it really is incumbent on them to show they will do better.  I don’t see many signs in that direction, quite the contrary, and any reasonable democratic government will ask for Greek institutional progress before putting up much more in the way of money.  The entire handling of Greferendum should alert the progressives that they have been egging on the wrong horse; the heroic Hugo Dixon nails it.

I take the progressive “clustering out on a limb” here as a sign that, for better or worse, progressivism as an ideology has reached and indeed gone beyond its high water mark.  The progressives are siding with a corrupt, clientist state, which won’t cut its defense spending down to Nato norms, against some admittedly imperfect social democracies, thereby sustaining the meme of powerful aggressor vs. victim, Arnold Kling telephone.

Interfluidity has an interesting but quite wrong post on how to think about Greece.  International relations simply could not be run on the principles he advocates, most of all in conjunction with democratic nation states.  His weakest point becomes evident when he writes:

Among creditors, a big catchphrase now is “moral hazard”. We cannot be too kind to Greece, we cannot forgive their debt with few string attached, because what kind of precedent would that set? If bad borrowers, other sovereigns, got the idea that they can overborrow without consequence, if Spanish and Portuguese populists perceive perhaps a better deal is on offer, they might demand that. They might continue to borrow and expect forgiveness, and where would it end except for the bankruptcy of the good Europeans who actually produce and save?

The nerve. The fucking nerve. Lenders, having been made nearly whole on their ill-conceived, profit-motivated punts, now fear that if anybody is nice to somebody who doesn’t deserve it, where will it end? I’d resort to that cliché about chutspa, the kid who murders his parents then seeks leniency ‘cuz he’s an orphan. But it’s really too cute for the occasion.

That’s a non-answer, with anger filling in for the required substance as to why Germany and others should allow this.  “Your government is making things much worse.  If you want to borrow so much more from us, you have to play by the rules and also stop spitting in our face and calling us Nazis and terrorists while negotiating” is more relevant — and yes relevant is the right word here — than any point he makes.

A political program has to be something that voters could at least potentially believe, and international negotiations therefore cannot stray too far from common-sense morality, including when it comes to creditor-debtor relations.  That is the point which today’s progressive economists are running away from as fast as is humanly possible.  And for all the Buchanan-esque and public choice points about “rules of the game” this one about common sense morality unfortunately has ended up as the most important.

Look at this way: if you lost a public relations battle to Germany, you are probably doing something very badly wrong.

The Greek story is being framed as a battle between the Greeks and the Germans and thus between spending and austerity. But this frame can’t make sense of the fact that, win or lose, large numbers of Greeks will vote for austerity on Sunday.

To understand what’s really going on, listen to this remarkable interview between NPR’s Robin Young and Nikolalos Voglis, a restaurant owner in Athens. The interview begins with a discussion of the crisis. No one has cash or credit and Voglis’s restaurant is basically shuttered. Young then asks Voglis how he will vote on Sunday and he replies, “Definitely, Yes.” Young is surprised, she tries to clarify, you will vote, “even for more austerity?” “That’s right,” he replies.

Following the conventional frame, Young finds this difficult to understand and she pushes back against Voglis with all the conventional arguments. She quotes Paul Krugman saying that the problem isn’t really Greece’s doing, that the IMF and EU are being too tough on Greece, that Greece has done a lot of cutting already and so on. Voglis responds:

We are on the right track but unfortunately the job wasn’t completed. We are a country in the European Community which has the biggest public sector in Europe. And all of us in the private sector spend millions to support the situation. So the only way that Greece can become a true Western country…is to make these reforms.

…Look the main problem in this country is the public sector. There is no other problem. Entrepreneurs here are very, very competitive. We have to let this thing, this monster that we call the public sector, it has to go, it has to finish. This is the main issue.

Many Greeks are sick and tired of the bloated public sector and its corruption, inefficiency and waste. In this frame, the Greek story is not fundamentally about Greeks versus Germans it’s about the Greek people versus their government–the Germans have simply been the vehicle that has brought the Greeks to their kairotic moment.  The Greeks want normalcy, as the Poles did after communism. If the Yes vote wins on Sunday it will be the Greeks voting not just against the current administration but against the entire state apparatus.

When Greece’s finance minister, Yanis Varoufakis, in an early round of negotiations in Brussels, complained that Greek pensions could not be cut any further, he was reminded bluntly by his colleague from Lithuania that pensioners there have survived on far less. Lithuania, according to the most recent figures issued by Eurostat, the European statistics agency, spends 472 euros, about $598, per capita on pensions, less than a third of the 1,625 euros spent by Greece. Bulgaria spends just 257 euros. This data refers to 2012 and Greek pensions have since been cut, but they still remain higher than those in Bulgaria, Lithuania, Latvia, Croatia and nearly all other states in eastern, central and southeastern Europe.

There is more from Andrew Higgins in the NYT here.

Joseph Stiglitz writes:

It is hard to advise Greeks how to vote on July 5. Neither alternative – approval or rejection of the troika’s terms – will be easy, and both carry huge risks. A yes vote would mean depression almost without end. Perhaps a depleted country – one that has sold off all of its assets, and whose bright young people have emigrated – might finally get debt forgiveness; perhaps, having shriveled into a middle-income economy, Greece might finally be able to get assistance from the World Bank. All of this might happen in the next decade, or perhaps in the decade after that.

By contrast, a no vote would at least open the possibility that Greece, with its strong democratic tradition, might grasp its destiny in its own hands. Greeks might gain the opportunity to shape a future that, though perhaps not as prosperous as the past, is far more hopeful than the unconscionable torture of the present.

I know how I would vote.

That is the new IEA book from Nima Sanandaji, freely available here (pdf), introduction by Tom G. Palmer.  Here is one short bit:

The descendants of Scandinavian migrants in the US combine the high living standards of the US with the high levels of equality of Scandinavian countries. Median incomes of Scandinavian descendants are 20 per cent higher than average US incomes. It is true that poverty rates in Scandinavian countries are lower than in the US. However, the poverty rate among descendants of Nordic immigrants in the US today is half the average poverty rate of Americans – this has been a consistent finding for decades. In fact, Scandinavian Americans have lower poverty rates than Scandinavian citizens who have not emigrated. This suggests that pre-existing cultural norms are responsible for the low levels of poverty among Scandinavians rather than Nordic welfare states.

The book has many other points of interest.

Hugo Dixon has a good analysis:

My instant reaction to Alexis Tsipras’ decision to call a referendum on whether to accept creditors’ terms on Jul 5

1 Tsipras is effectively calling for Greece to quit the euro. Even if that’s not the question, that’s what it will amount to.

2 All sides have mishandled negotiation but Tsipras has mishandled it particularly badly.

3 Tsipras didn’t even complete the talks and wring out the last concessions. There was one more day to go.

4 Greece obviously won’t be able to pay the IMF on Tuesday.

5 Greece won’t be able to get extension of bailout which runs out on Tuesday, as referendum is following Sunday. Ie bailout expires.

6 ECB highly likely to stop emergency liquidity to banks. if capital controls not imposed on Monday, there will probably be bank run.

I would put it this way: when you call for a referendum in this kind of setting, you suffer all the costs of having to take a stance, and yet give up all of the potential benefits of control.

There are already reports of long lines at Greek ATMs.  What’s the chance the Greferendum even ends up happening?  As I’ve said before, the only thing worse than the Very Serious People are the Not Very Serious People.

This is exciting and very positive news.  Most of all, it is a breakthrough for those people who can now marry, or exercise the choice not to marry.  There are two other aspects of the decision which I like.  First, it keeps current the idea that the United States still is a world leader when it comes to liberty.  Second, it encourages the idea that there are significant freedoms still to be won.

Which freedom will be next?  Here is my earlier piece on Andrew Sullivan as the most influential public intellectual in recent times.  Andrew even wrote a new post for the occasion.

Lawmakers are stymied over how to pay for road and bridge repairs without raising taxes or fees, which Mr. [Scott] Walker has ruled out. The governor’s fellow Republicans rejected his proposal to borrow $1.3 billion for the roadwork, arguing that adding to the state’s debt is irresponsible.

In other words, Walker also has yet to come up with a state-level fiscal policy which consistently melds spending and taxing decisions; Trip Gabriel at NYT has more to say.  As I argued earlier, these approaches to fiscal policy at the state level are not in every instance perfectly thought out.  Just to be clear, this is not just a Republican vice: the Democrats have run the finances of states such as Illinois in a manner which is not entirely enviable.

What depresses us is how little attention has been paid to one major area of Greek government spending that seems ripe for the ax: defense spending.  Greece spends a whopping 2.2% of GDP on defense, more than any NATO member-state save the United States and France.  Bringing Greece into line with the NATO average would alone achieve ¾ of what the IMF is demanding through pension cuts.

There is more here from Benn Steil and Dinah Walker.  And here is further discussion of the issue.

Oddly, we probably owe the confederate flag removal to polarization. Could never get done when both sides competed for rural whites.

That is from @SeanTrende.

China fact of the day

by on June 23, 2015 at 1:08 pm in Books, History, Political Science | Permalink

Qing Dynasty measured some 14.7 million square kilometers in 1790…The two biggest countries in western Europe were under 0.7 million in the late eighteenth century.

That is from Philip T. Hoffman’s new and interesting Why Did Europe Conquer the World?, here is the book’s home page.  Hoffman does note, however, that if we count empires the Spanish empire was during that time larger than China.

Stein Ringen reviews The China Model, here is Gideon Rachmann.  He writes:

Daniel Bell, a Canadian political philosopher who has taught at Tsinghua University in Beijing for many years, is deeply influenced by this Chinese tradition. In his new book, he has set himself the ambitious task of making the case that Chinese-style meritocracy is, in important respects, a better system of governance than western liberal democracy.

I’ve been seeing a lot of emotional reactions to this book, here are a few points:

1. The United States probably should have less democracy along some margins, if only fewer referenda in California and no state and local elections of judges, dog catchers, and the like.  If a writer cites “democracy” as obviously and always good for all choices, that writer isn’t thinking clearly.

2. More generally, the Western nations are relying on democracy less, as evidenced by the growing roles for central banks and also the European Union.  That may or may not be desirable, but it’s worth considering our own trends before putting the high hat on.

2. The key to long-term living standards is stability of growth, just look at Denmark.  There was never a heralded “Danish economic miracle,” but the country still has finished close to the top in terms of human welfare.  Whether ostensibly meritocratic non-democratic systems can deliver such outcomes remains very much up for grabs, and Bell’s book hasn’t convinced me any that they can.

3. Arguably a country’s best chance of achieving meritocracy is to have many smart individuals who are culturally central.  No system of government is going to overcome the lack of that.

4. Most humans in history seem to have favored meritocratic rule over democracy, and before the 19th century democracy was rare, even in the limited form of male-dominated or property owner-dominated republics.  It is possible that the current advantage of democracy is rooted in technology, or some other time-specific factor, which ultimately may prove temporary.  That said, I still observe plenty of democracies producing relatively well-run countries, so I don’t see significant evidence that a turning point against democracy has been reached.

5. To consider comparisons which hold a greater number of factors constant, I haven’t seen many (any?) serious people argue that Taiwan or South Korea would have done better to resist their processes of democratization.

Here you can buy The China Model: Political Meritocracy and the Limits of Democracy.


by on June 17, 2015 at 1:57 am in Current Affairs, Economics, History, Law, Political Science | Permalink

“If this [TPP] collapses, Pacific Rim countries will be aghast,” said Shunpei Takemori, a professor at Keio University in Japan, the largest economy in the would-be trade zone after the United States. “China is pushing, and if the U.S. just stands aside, it would be a tragedy.”


“If you don’t do this deal, what are your levers of power?” Singapore’s foreign minister, K. Shanmugam, said in Washington on Monday. “The choice is a very stark one: Do you want to be part of the region, or do you want to be out of the region?”

He argued that “trade is strategy” and that without economic leverage, the United States was left with only military clout in Asia “and that’s not the lever you want to use.”

“It’s absolutely vital to get it done,” he added, referring to the bill’s passage.

The full article is here.  I find the willingness of progressiveness to toss this bill into the wind, for the purposes of indulging the usual memes, to be one of the most depressing features of American political life in years.

You will find an alternative perspective from David Henderson here: “If the U.S. government is a “less reliable ally,” that could be a good thing.”  I don’t think they feel that way in Singapore, South Korea, or Taiwan.

By the way, the fourth edition of Doug Irwin’s trade book is coming out.

MR commentator Patrick L. has a go at it:

OK I’ll bite.

In nominal terms, between 2002 and 2012 state receipts grew 50%. Inflation in this period was 28%, and probably significantly lower for Kansas, while population growth has only been about 10% since 2000. Even the “low” 2014 receipts are $1.5 billion more in revenue from when Sebelius first took office and the government started rapidly growing. In the past 15 years expenditures have grown over 50%, exceeding $6 billion today. The shortfall is $300 million, or about 5%. While the growth of the Kansas government in the past 15 years is smaller than other governments in the country, it still explains the shortfall. We can justify this increase by saying that education and health are rising faster than everything else, but that is not a revenue problem. Tax rates have to rise because education and health costs are growing faster than our economies. That says nothing at all about the optimum size of taxation for state governments with regard to growth, jobs, or even revenue. The tax and spending levels Brownback choose would have been adequate ten, maybe even five years ago. With a bit of luck, he could have ignored the shortfall because of variance, which for receipts can be a few hundred million a year.

Republicans should be wise enough to not depend on luck, and they should be wiser predicting how trend lines go. Cutting the size of government was never a serious option.

I haven’t looked at the votes in depth, but it looks like a classic case of urban // rural split that typically troubles the state’s politics. Just under half the state’s population lives around Kansas City or Wichita, which are both five times than the next largest city. These places have as many votes as the rest of Kansas combined, but their needs are radically different.

Rural Kansas has two unique problems. First, there’s the problem of population collapse, which all farm states are seeing. What few children are born move out when they come of age and new people are not moving in. Fixed costs like “We need at least one school building” or “We need at least one teacher per grade” start to add up for small towns of 1000 or less. Those are the obvious problems, not to mention any number of federal or state concerns dealing with food, medical, or disability services that have to be met. As a matter of geography, 98% of the state is rural, and I think I heard 25% of the state is in towns less than 2500 – with over 400 municipal governments servicing less than 1000 people it’s probably the highest per capita in the country (This is FIVE times the national average).

This is a non-trivial growing problem related to scale government services that has been an issue of intense legal debate in the state. Wichita School District’s scale is such it can use its buses to deliver free or low cost lunches to children in the summer. Small cities don’t have buses. Is that fair? How should taxes be structured to compensate? The only political viable solution to this problem has been to spend more money. If all the small towns could magically consolidate into a super smallville, taxes would (back of the envelope) be 10-15% lower.

Government services to low population areas are subsidized by high population areas, and it costs much more to deliver the same services to small towns. The US Postal Service paid for delivery to small towns across the country by charging monopolistic prices on first class letter mail in cities (Which cost almost nothing to deliver). NPR’s national budget mostly goes to setup stations in small towns. The small towns in Kansas are both relatively and in many cases actually getting smaller, older, and poorer. They are costing more and delivering less.

The other problem is that some rural areas are *growing*, but they’re growing because of immigration attracted to the agriculture and food packaging industries. Which is not the same as growing from a resource boom which can be taxed heavily to compensate. Liberal, KS is the largest per capita immigrant community in the United States. While this influx of people is necessary for the health of these places, the new population has more expensive demands on government services and pays less in taxes. Some of these small towns are the same ones that a decade ago were collapsing. Services and infrastructure might have been allowed to lapse or removed, and now rapidly needs to be replaced. That’s expensive! In the long run this problem might replace the first problem, but for now it’s the worst of both worlds.

The economy of the small cities is based largely around food production, which mostly can’t move, and food packaging, which probably can’t for logistical reasons. These places are poorer, getting relatively poorer per capita, and demanding more in services both directly (immigration / aging) and through scale issues. Their populations are either getting very old or very Hispanic, or both.

In contrast, Kansas City is a stable metropolis whose economy depends on manufacturing is built around a national centralized hub for trains. It also has some finance and telecom sprinkled in, though those guys can probably go anywhere. Wichita, is a moderately growing city based around aircraft manufacturing. When state taxes can’t provide enough government services, local taxes for these areas easily rise to compensate. Their economic concerns are how to stop businesses from going across the border to Omaha, Oklahoma City, Tulsa, Springfield, or Kansas City, Mo – places which are functionally identical and just as close. Given their dependence on manufacturing, they also have to consider movement across international borders to China and Mexico. Their demography is much closer to the national averages rather than the extremes. They are large enough that they can take advantage of scaling for government services, without being so large that there is decreasing actual returns. I don’t have figures, but I’d guess income rates in the urban areas to be between 150 and 200% those of the rural areas, which are themselves typically around 2/3rds the national average. This is an industry effect, a farmer in Kansas City and an aeronautical engineer in Greensburg, KS would not make much money. The cities are richer, but they’re richer because they have industries that are becoming increasingly easier to move.

On a political level, normally cities become more liberal, and poorer as you go deeper into the city – a leftover of 19th century industrialization competing against 20th century transportation. Deep urban cores produce these deep blue constituencies that act as checks on conservative suburban rings. In some states this manifests itself as a coalition between the poor rural areas and the poor urban areas against richer suburban areas allowing normal American class politics to balance itself. Cities produce political equilibrium: The richer and denser it becomes, the more liberal, which pushes more money and voters to suburbia, diluting the power. In short, declining rural power (D) and rising urban power (D) offset each other, but rising urban power (D) enhances suburban power (R), and so at a state level you get a balance.

The problem is that the inner core of Kansas City is in Missouri, so Kansas only gets the rich (Republican) suburban ring and a tiny blue part. Typical democratic concerns like maintaining a progressive tax structure can’t really find a foundation. While Wichita also has an urban core that does provide a Democratic representation, the city isn’t constrained geographically by anything (No ocean, mountain, lake, and transportation goes around, not through, the city) means concentration, an ingredient for populist politics, is lessened. The city spreads, and the poor can easily move up the class structure by moving further and further out. Wichita has half the population density of Syracuse and two thirds that of Madison, two close sized metropolitan areas. I haven’t done a county level comparison, but I suspect that Sedgwick has half the density of the ‘average American county with half a million people’ in it. There are other places in America like that, but guess how they vote.

Nor are either cities big university cities, like Madison or Boston. The two big universities in the state are in the small towns of Lawrence and Manhattan, which are quite separate from the rest of the state. Urban centers are places of “Commanding Heights” industries, like health and education that can’t easily move, but Wichita and Kansas City are based around manufacturing.

The political outcomes are not that surprising at all. There is nothing ‘the matter with Kansas’. The power structure easily shifts between slim majorities formed from predominately suburban populations who are wealthier, and whose jobs are most likely to move, and slim majorities formed from the small urban cores and rural parts of the state.

There’s no possible political coalition that you could form that would pass a constitutional amendment allowing a floating balanced budget over a 10 year period. Nor are the populist pressure strong enough to push against regressive taxation. You have ‘fiscal hawks’ in the rural areas who never vote for cuts, and suburban conservatives who never vote for taxes. When the storm gets too bad, they vote a nice moderate democrat in to raise taxes and crack down hard on whatever (Non manufacturing / agricultural) big business they can put pressure on. Obviously something that can’t move easily like Health Insurance.

In summery, this really is an issue of Urban vs Rural politics. Unlike other cities, the kind of industries around Kansas City and Wichita can move. The jobs in the rural areas can’t. The rural areas require more per capita government services, and the urban areas have more money. They both have half the vote. Solve for equilibrium.

== As for the deal:

It’s mostly a .4% sales tax increase, which is less than some of the more fanciful projects done by local governments in the past 15 years, which have included sports arenas, loans to movie theaters, and waterfront improvement. A half cent increase in sales tax does move the state into the top 10 for the country, but the overall tax burden is still quite low. The real problem is that city/county sales taxes are a function of distance from Wichita, and the inverse of population. The smaller your city, and the farther you are from Wichita, the more the county depends on sales taxes. In places like Junction City, this could put the sales tax close to 10%! The real disparity is going to be at the border towns: After the change there will be a .7% difference between KC, KS and KC, MO, though I bet the Missouri side will raise taxes to compensate. After the increase, there’s a 1.5% difference between Pittsburg, KS and Joplin, MO – big enough that I could see some people consider driving for purchases more than $300 (Biweekly grocery shopping for a large family?), especially if retailers on the Missouri side are not dumb. As a general rule, the money and the shopping is on the Kansas side of the border, so stuff isn’t going to transition immediately, but I expect some Laffer curve effects here for local governments, and I would hope they’ll respond by dropping taxes to compensate.

This is probably WHY such a deal was able to pass. Most of the damage goes on the poor and rural parts of Kansas, which is where most of the balance budget hawks are. The rich living near Kansas City will have the easiest time dodging the increase and avoid it more often. A regressive tax, but an efficient one.

As for the other parts of the deal, $90 million in itemized deductions are being removed. I don’t actually think this will amount to much, since there aren’t many itemized state deductions left. What remains are things like adoption, historical preservation, or disabled access. I don’t see much money coming in this way, and the state will almost certainly reverse itself the first chance it gets (As it did the last time it got rid of the adoption credit).