Category: Political Science
Three accounts of modern liberalism
I have a review essay on that topic in the latest TLS. Excerpt, on Philip Pilkington:
Pilkington’s sense of numbers, history and magnitude is sometimes off. He writes that “liberalism is forming broken, atomized people who are unable to pass on their genes to a future generation”, apparently oblivious to the fact that fertility rates are falling in many non- liberal countries as well – in Russia, for example – where they are lower than in the US. In China, fertility is lower still. Is the liberal goal really to “replac[e] the family with the state”? That sounds more like the non-liberal visions we find in western thought, running from Plato to the more extreme forms of communism in which children are encouraged to report on the supposed crimes of their parents.
We are told that “deindustrialization eviscerated American industry”, yet US manufacturing output is now barely below its pre-financial crisis peak, and service sector jobs tend to pay more on average today than do manufacturing jobs. Pilkington also promotes strange theories of trade imbalances, as presented by the non-economists Oren Cass and Michael Pettis but rejected by virtually all serious researchers in the area. Their view is that a huge economic restructuring is needed because China and Germany keep running trade surpluses while the US is in perpetual trade deficit. But in reality this arrangement seems as stable as any other macroeconomic state of affairs could be. It is Pilkington’s prerogative to disagree with the consensus, but we are never told why everyone else might be wrong. Overall, there is too much sloppiness here in service of the agenda of carping about liberal societies.
And on Robert Kagan:
An alternative and less neat vision of American history shows how liberalism has often relied on illiberalism, and not just accidentally. Lincoln was a significant abuser of civil rights, including on habeas corpus. The North’s campaigns in the Civil War killed many thousands of innocent civilians, not all of them in the service of legitimate military ends. You can argue that this may have been necessary, but liberal it was not. As for FDR, he tried to pack the Supreme Court and sought a significant expansion of executive power, making his administrations a methodological precursor of Trump. He did fight the Second World War on the side of liberalism, but he did not always use liberal means (eg the firebombing of Tokyo), and indeed a full respect for the laws of warfare might not have secured victory.
Once we see American history as a union of liberal and illiberal forces, we can relax a little about the current situation. Certainly, we are returning to some bad and illiberal behaviours of the past, and it is right to be concerned. Yet this seems to be more a feature of the ebb and flow of American politics than a decisive turn away from liberalism. Illiberalism has been prominent in the mix most of the time, and that is both the good news and the bad.
Interesting throughout, recommended, I believe it is the Sept.1 issue.
A few remarks on Fed independence
Trump has made various sallies against the idea of an independent Fed, including lots of rhetoric, firing Lisa Cook, aiming to have a CEA chair on the Fed board, and more. Probably the list is longer than I realize.
To be clear, I see no upside to these moves and I do not favor them. That said, I am not surprised that markets are not freaking out.
People, the Fed was never that independent to begin with!
Come 2008, the Fed, Treasury, and other parties sat down and worked out a strategy for dealing with the financial crisis. The Fed has a big voice in those decisions, but ultimately has to go along with the general agreement.
Circa, 2020-2021, with the pandemic, the same kind of procedure applied.
You may or may not like the particular decisions that were made (too little inflation the first time, too much inflation the second time), but I don’t think there is a very different way to proceed in those situations.
And given recent budgeting decisions, fiscal dominance may lie in our future in any case. The Fed is not immune from those pressures.
The Fed is most “independent” when the stakes are low and most people are happy with (more or less) two percent inflation. That is also when the independence matters least.
The real problem comes when the quality of governance is low. Then encroaching on central bank independence simply raises the level of stupidity. Some of that is happening right now.
A non-independent central bank can work just fine when the quality of government is sufficiently high. New Zealand has had a non-independent central bank since the Reserve Bank Act of 1989 (before that it had a non-independent central bank in a different and worse way). There is operational independence, but an inflation target is set in conjunction with the government. You may or may not favor this approach, but it has not been a disaster and it helped to lower Kiwi inflation rates significantly and with political cover.
Way back when, Milton Friedman used to argue periodically that Congress should set the rate of price inflation and take responsibility for it. I think that is a bad idea, especially today, but it should cure you of the notion that “independence” is sacrosanct. Every system has some means of accountability built in, and indeed has to.
I know all those scatter plot graphs that correlate central bank independence with lower inflation rates. In my view, if you could insert a true “quality of government” extra variable, the correlation mostly vanishes. Plus I do not trust the measures of independence that are used.
As Gandhi once said — “Central bank independence, it would be a good idea!”
Addendum: I also find it a little strange that many critics of the Trump actions earlier had been calling for higher inflation targets, say three or even four percent. That is maybe not an outright contradiction, but…the Fed isn’t just going to move to that on its own, right? Central bank independence for thee but not for me?
Oct.9th I am speaking for the Pioneer Institute in Boston, on federalism
The polity that is Brazil
Yet perhaps the biggest reason spending is high is that the constitution requires it. The charter mandates an extraordinary 90% of all federal spending. Notably it ties most public pensions to wage growth, and requires health and education spending to rise in line with revenue growth. If Brazil were to end most tax exemptions and undo these two policies, its debt-to-gdp ratio, which is already above 90%, would be almost 20 percentage points lower by 2034 than it would be without any reform, reckons the IMF. To deal with all this, what is really needed is to amend the constitution.
High spending and a tangle of subsidised credit schemes also reduce the effectiveness of monetary policy. That means the central bank must increase rates even higher to control inflation. Brazil’s real interest rate of 10% is among the highest in the world. Such rates cripple investment and drag down growth, while well-connected businessmen can get their hands on artificially cheap rates.
Among those who must pay the full rate is the government itself.
And:
Tax exemptions total 7% of gdp, up from 2% in 2003 (see chart 2). Dozens of sectors receive tax breaks or credit subsidies on the basis that they are national champions, or from “temporary” help that has never ended. Brazil’s courts cost 1.3% of gdp, making them the second-most expensive in the world, with much of that going on cushy pensions and perks. Some $15bn a year, or 78% of the military budget, is spent on pensions and salaries. The United States spends just one-quarter of the defence budget on personnel.
Here is more from The Economist.
*How to be a Public Ambassador for Science*
The subtitle is The Scientist as Public Intellectual, and the author is my very good friend Jim Olds, who works at George Mason University. A very timely topic, here is one excerpt:
I was only about eight weeks into my new job. I’d been sworn in and found myself very much thrown into the pool’s deep end. First, the job was much more than serving as the National Science Foundation’s (NSF) lead for President Obama’s Brain Research through Advancing Innovative Neurotechnologies (BRAIN) project. Second, the learning curve was very steep. There were meetings full of acronyms that meant nothing to me. And these were my meetings — with my direct reports. I had learned the hard way that the Eisenhower Conference Center in the White House complex was made of steel and acted like a Faraday cage: cell phones didn’t work there. Tuesdays started with breakfast at 7:30 a.m. and went straight through for 12 hours with meeting after meeting.
Recommended, most of all informative about the NSF and also neuroscience.
A Model of Populism as a Conspiracy Theory
We model populism as the dissemination of a false “alternative reality,” according to which the intellectual elite conspires against the populist for purely ideological reasons. If enough voters are receptive to it, this alternative reality—by discrediting the elite’s truthful message—reduces political accountability. Elite criticism, because it is more consistent with the alternative reality, strengthens receptive voters’ support for the populist. Alternative realities are endogenously conspiratorial to resist evidence better. Populists, to leverage or strengthen beliefs in the alternative reality, enact harmful policies that may disproportionately harm the non-elite. These results explain previously unexplained facts about populism.
That is from the latest AER, by Adam Szeidl and Ferenc Szucs. In other words, a lot of you are falling for it.
Singapore’s Pay Model Isn’t India’s: Market Wages vs. Civil-Service Rents
In my post How High Government Pay Wastes Talent and Drains Productivity I pointed to evidence that high government compensation in poorer countries creates tremendous waste and drains the private sector of productive talent. A reader asked: What about Singapore?—famous for paying its top officials very well.
Singapore, however, is hardly comparable to India. Its GDP per capita is about 37 times India’s (~$91k vs. $2.4k) and its population is ~1/233rd the size (6m vs. 1.4b). Still, lets take a closer look. 
When I discuss high public pay in places like India, Greece, or Brazil, I don’t mean a few top ministers. I mean millions of railway clerks, office staff, and civil servants. Teachers illustrate the point well, since their work is broadly similar worldwide. As Justin Sandefur shows in the data at right, teacher salaries relative to GDP per capita tend to be highest in the poorest countries—sometimes five times GDP per capita or more.
Sandefur comments:
This may come as a bit of a surprise to many rich-country readers. There’s no doubt that teachers in, say, India earn much less than teachers in Ireland, but relative to context, they tend to be very well paid. Dividing by per capita GDP is a rough and ready way to put salaries in context.
The evidence suggests supply and demand can’t explain this. For example, in countries where teachers are highly paid relative to GDP per capita, they’re also paid far above private-sector wages for the same job. Sandefur presents more evidence on this question and concludes:
…Public school teachers in many developing countries earn civil service salaries that are far higher than market wages. This is what economists traditionally refer to as “rents.”
Singapore does NOT fit this pattern. Its teachers earn on the order of 70–80% of GDP per capita, market wages, not inflated packages. What’s unusual in Singapore is only at the top: a small number (fewer than 500) of elite officials and politicians have salaries pegged to the highest 1,000 Singapore-citizen income earners.
The issue Singapore is tackling is wage compression. In many democracies, collective bargaining combined with fairness, envy and inequality concerns pushes pay up at the bottom and down at the top. Denmark and heavily unionized firms are classic cases. Singapore, meritocratic and unapologetic, instead says its highest-ranking officials should be paid like CEOs.
Unlike India, Italy, Greece or Brazil, Singapore’s policy is not to pay any government workers above market wages but to pay competitive salaries to its entire civil service, even those at the top. Crucially, Singapore does not use mass exams to limit entry–it doesn’t have to because by keeping wages consistent with similar jobs in the private sector it matches supply to demand. As a result, we do not see in Singapore thousands or even millions of over-qualified people applying for a handful of over-paid government jobs, as in this example from Italy (quoted in Geromichalos and Kospentaris):
Italy’s chronic unemployment problem has been thrown into sharp relief after 85,000 people applied for 30 jobs at a bank [. . . ] The work is not glamorous – one duty is feeding cash into machines that can distinguish banknotes that are counterfeit or so worn out that they should no longer be in circulation. The Bank of Italy whittled down the applicants to a “shortlist” of 8,000, all of them first-class graduates with a solid academic record behind them. They will have to sit a gruelling examination in which they will be tested on statistics, mathematics, economics and English [. . . ] The high level of interest was a reflection of the state of the economy but also of the Italian obsession with securing “un posto fisso” – a permanent job.
So far from being a counter-example, Singapore illustrates the lesson: Singapore pays market wages, not rents—thereby avoiding the rent-seeking and talent misallocation that plague countries where civil servants are paid far above their market value.
The history of American corporate nationalization
I wrote this passage some while ago, but never published the underlying project:
The American Constitution is hostile to nationalization at a fundamental level. The Fifth Amendment prohibits government “takings” without just compensation to the owners, and that is sometimes called the “takings clause.” Since the United States did not start off with a large number of state-owned enterprises, there is no simple and legal way for the country to get from here to there. Government nationalization of private companies would prove expensive, most of all to the government itself. More importantly, the strength of American corporate interests has taken away any possible pressures to eliminate or ignore this amendment.
The lack of interest in state-owned enterprises reflects some broader features of the United States, most of all a kind of messiness and pluralism of control. An extreme federalism has bred a large number of regulators at federal, state, and local levels, often with overlapping jurisdictions. Each level of government digs its claws into the regulatory morass, and not always for the better, but this preempts nationalization, which would centralize power and control in one level of government. That is not the American way.
A tradition of strong state-level regulation was built up during the mid- to late 19th century, when the federal government did not have the resources, the reach, or the scope to do much nationalizing. America developed some very large national commercial enterprises, such as the railroads, Bell (a phone company), and Western Union (a communications and wire service), which were quite large and far-ranging before the federal government itself had reached a mature size. At that time local government accounted for about half of all government spending in the country and the federal government had few powers of regulation. It wasn’t quite laissez-faire, but America could not rely on its federal government and this shaped the later evolution of the country. To handle these booming corporate entities, America created more state-level regulation of business than was typical for the other industrializing Western countries. That steered Americans away from nationalization as a means for distributing political benefits or disciplining corporations[1]
This policy decision to rely so much on multiple levels of federalistic regulation comes with a price. American failures in physical infrastructure have been the other side of the coin of American successes in business. A strong rule of law, combined with so many legal checks and balances and blocking points, has carved out a protected space for private American businesses. They can operate with relatively secure property rights. At the same time, those same laws and blocking points make it hard to get a lot of things built when a change in property rights is required, whether government or business or both are doing the building. The law is used to obstruct growth and change, and for NIMBYism — “Not In My Backward,” and more generally for giving any litigation-ready interest group a voice in any decision it cares about. Can you imagine a sentence like this being written about China?: “The [New York and New Jersey] Port Authority sent out letters inviting tribe representatives to join the environmental review project, inviting the Shawnee Tribe of Oklahoma and the Sand Hills Nation of Nebraska.”[2]
In America background patriotism sustains a rule by general national consensus, and so the American government doesn’t need extensive state-owned companies to build or maintain political support through the creation of so many privileged insiders. The American paradox is this: the reliance on the law reflects a relatively strong and legitimate government, but the multiplication of that law renders government ineffective in a lot of practical matters, especially when it comes to the proverbial “getting things done,” a dimension where the Chinese government has been especially strong.
You should note that although the United States has not so many state-owned enterprises, the American government still has ways of expressing its will on business, or as the case may be, favoring one set of businesses over another. In these latter cases it can be said that American business is expressing its will over government through forms of crony capitalism, a concept which is spreading in both America and China.
The United States has evolved a subtle brand of corporatism and industrial policy that is mostly decentralized and also – this is an important point — relatively stable across shifts of political power. America uses its large country privileges to maintain access to world markets and to protect the property rights of its investors, usually without much regard for whether they are Democrats or Republicans. For instance the State Department works hard to maintain open world markets for films and other cultural goods and services. Toward this end America has used trade negotiations, diplomatic leverage, foreign aid, and also explicit arm-twisting, based on its military commitments to protect allied nations in Western Europe and East Asia. America already had successful entertainment producers, it just wanted to make sure they could earn more money abroad, and that is why the American government usually insists on open access for audiovisual products when it negotiates free trade treaties. Yet in these deals there is not much if any explicit favoritism for one movie or television studio over another, or for one political alliance over another. Democrats are disproportionately overrepresented in Hollywood, but Republican administrations protect the interests of the American entertainment sector nonetheless. It’s about the money and the jobs, not about shifting political coalitions. You’ll note that the independence from particular political coalitions gives the American business environment a particular stability and predictability, to its advantage internationally and otherwise.
[1] See Millward (2013, chapter nine, and p.222 on chartering powers).
[2] That is from Howard (2014, p.10).
Contemporary TC again: Let us hope that I was at least partially correct…
Cass Sunstein on classical liberalism
Here’s what I want to emphasize. I like Hayek a lot less ambivalently than I once did, and von Mises, who once seemed to me a crude and irascible precursor of Hayek, now seems to me to be (mostly) a shining star (and sometimes fun, not least because of his crudeness and irascibility). The reason is simple: They were apostles of freedom. They believed in freedom from fear.
Back in the 1980s and 1990s, I did not see that clearly enough, because they seemed to me to be writing against a background that was sharp and visible to them, but that seemed murky and not so relevant to me — the background set by the 1930s and 1940s, for which Hitler and Stalin were defining. (After all, Hayek helped found the Mont Pelerin Society in 1947.)
Back in the 1980s and 1990s, socialist planning certainly did not seem like a good idea, not at all, but liberalism, as I saw it, had other and newer fish to fry. People like Rawls, Charles Larmore, Edna Ullmann-Margalit (in The Emergence of Norms), Jurgen Habermas (a past and present hero), Amartya Sen (also a past and present hero), Jon Elster (in Sour Grapes and Ulysses and the Sirens), and Susan Okin seemed (to me) to point the way.
I liked their forms of liberalism. Hayek and the Mont Pelerins (and Posner and Epstein) seemed to be fighting old battles, and in important ways to be wrong. With respect to authoritarianism and tyranny, and the power of the state, of course they were right; but still, those battles seemed old.
But those battles never were old. In important ways, Hayek and the Mont Pelerins (and Posner and Epstein, and Becker and Stigler) were right. Liberalism is a big tent. It’s much more than good to see them under it. It’s an honor to be there with them.
Here is the whole Substack, recommended. I am very much in accord with his sentiments here, running in both directions, namely both classical and “more modern” liberalism.
My Conversation with David Brooks
Held live at the 92nd St. Y, here is the video, audio, and transcript. Here is the episode summary:
David Brooks returns to the show with a stark diagnosis of American culture. Having evolved from a Democratic socialist to a neoconservative to what he now calls “the rightward edge of the leftward tendency,” Brooks argues that America’s core problems aren’t economic but sociological—rooted in the destruction of our “secure base” of family, community, and moral order that once gave people existential security.
Tyler and David cover why young people are simultaneously the most rejected and most productive generation, smartphones and sex, the persuasiveness of AI vs novels, the loss of audacity, what made William F. Buckley and Milton Friedman great mentors, why academics should embrace the epistemology of the interview, the evolving status of neoconservatism, what Trump gets right, whether only war or mass movements can revive the American psyche, what will end the fertility crisis, the subject of his book, listener questions, and much more.
Excerpt:
COWEN: Now, you mentioned the Tanenhaus book. It’s striking because you appear as a character in the book. I know you haven’t gotten to that part yet, but surely you remember the reality that William F. Buckley was considering making you editor of National Review. What would your life have been like if you had received that offer? Would you have even taken it? What does that alternate universe look like?
BROOKS: The American conservative movement is going from strength to strength. Donald Trump is a failed real estate developer somewhere.
COWEN: [laughs]
BROOKS: I was never an orthodox National Review person, that kind of conservative. I was a neoconservative, which was different. Basically, you can tell what kind of conservative a person is by what year they want to go back to.
I’ve learned, especially from this Tanenhaus biography, that a lot of the old right National Review people wanted to go back to the 19th century. They were pre-New Deal. I never had a problem with the New Deal. I had some problems with some of the policies of the 1960s, and I was an urban kid. I was a New Yorker, and I was a Jew, and the magazine was Catholic. I’ve been told that one of the reasons I didn’t get the job was that reason.
COWEN: Tanenhaus says this.
BROOKS: Oh, does he?
COWEN: Yes.
BROOKS: Buckley was my mentor. We can tell that story, how that happened. I worked at National Review, and then I worked at the Wall Street Journal editorial page. I went from being an old right to being a free market, Wall Street Journal sort of person. I never had the opportunity to think for myself until I left those places and went to a place called the Weekly Standard. Suddenly, I could think for myself. It was funny how long — because I was in my 30s — before I really thought, “What do I believe?” Not how do I argue for the Wall Street Journal position on this, or the National Review position.
When I did that, I found I had two heroes. One was Edmund Burke, whose main idea is epistemological modesty. Change is really complicated, and we should be really cautious about what we think we can know about reality. The second was Alexander Hamilton, who’s a Puerto Rican hip-hop star from Washington Heights. Hamilton’s belief was using government in limited but energetic ways to create a dynamic country where poor boys and girls like him could rise and succeed.
That involves a lot more state intervention than National Review would be comfortable with. So, I became sort of a John McCain Republican. Now, another one of my other heroes is this guy named Isaiah Berlin, and toward the end of his life, Berlin said, “I’m very happy to be on the rightward edge of the leftward tendency.” That’s where I found myself today, as a conservative Democrat. I would not have fit in at National Review because I didn’t really hew to the gospel.
And:
COWEN: If you think about Buckley, where you disagree with him, and I don’t mean on particular issues — I feel I know that — but his method of thought, what is there in his method of thought where you would say, “I, David Brooks, diverge from Buckley in a fundamental way”?
BROOKS: His gift and his curse was that he couldn’t slow down his thinking. I would see him write a column in 20 minutes, and if he wrote it for an hour, it would get no better. He just moved at that speed. It takes me two days to write a column. It takes me 14, 20 hours. That’s one thing.
Second, he grew out of such a different background. His dad, as we know from this book, was an old right America Firster. My parents were Lower East Side New York intellectual progressives. I always felt at home in a diverse America, in a regular working-class America that was light years away from the world he inhabited.
COWEN: Your difference with Milton Friedman, again, not on specific issues such as the New Deal, but conceptually, how is it that you think differently from how Milton did?
BROOKS: Friedman — his great gift — and I think this is a libertarian gift — is that once you get inside their logical system, within their assumptive models, there’s no arguing with them. It all fits together. I don’t believe in assumptive models. I’m much less rational. I think human beings are much less rational than needed. I think they obviously respond to incentives in some ways, but often respond to incentives in no rational way. I’m, again, being more neoconservative than conservative, or more whatever you want to call it, a Humean.
I really do believe that David Hume’s famous sentence that reason is and ought to follow the passions — I believe that’s true, that our passions are wiser than our reasonable mind, and that our emotions, when well trained, are much more supple and much more responsible for the way we think. Again, I may be caricaturing, but the rational school of economics thought, well, you see the world, that simple process of looking, and then weigh costs and benefits about the world, and then you make a decision about the world, I don’t believe that’s the way thinking works.
Self-recommending!
The AI polity that is Albania?
While the rest of Europe bickers over the safety and scope of artificial intelligence, Albania is tapping it to accelerate its EU accession.
It’s even mulling an AI-run ministry.
Prime Minister Edi Rama mentioned AI last month as a tool to stamp out corruption and increase transparency, saying the technology could soon become the most efficient member of the Albanian government.
“One day, we might even have a ministry run entirely by AI,” Rama said at a July press conference while discussing digitalization. “That way, there would be no nepotism or conflicts of interest,” he argued.
Local developers could even work toward creating an AI model to elect as minister, which could lead the country to “be the first to have an entire government with AI ministers and a prime minister,” Rama added.
While no formal steps have been taken and Rama’s job is not yet officially up for grabs, the prime minister said the idea should be seriously considered…
AI is already being used in the administration to manage the thorny matter of public procurement, an area the EU has asked the government to shore up, as well as to analyze tax and customs transactions in real time, identifying irregularities.
Here is the whole Politico story, via Holger.
What do intelligence analysts do?
The people who are really good understand sourcing and how important it is for critical thinking. The education should be focused on helping people recognize and refute bullshit. Step one is the critical thinking necessary to say, “This makes no sense,” or “This is just fluff.” The people who are professionally trained to be really good at understanding the quality and history of a source, and to understand the source’s access to information or lack of, are librarians. We should probably steal shamelessly from librarians. Data journalism, same thing. There are lots of parallel professions where we could be learning more to improve our own performance.
The folks that I’ve seen who crush it, they’re like a dog with a bone. They will not let go. They’ve got a question, they’re going to answer the question if it kills them and everybody else around them. It’s a kamikaze thing. Those people, the tenacious ones who care about sources and have critical thinking skills, or at least tools to help them think critically, seem the highest performers to me. As a rule, they all keep score. It’s part of their process.
That is from Santi Ruiz interviewing Rob Johnston, interesting throughout.
A median voter theory of right-wing populism
From a recent paper:
Populists are often defined as those who claim that they fill “political representation gaps” -differences between the policymaking by established parties and the “popular will.” Research has largely neglected to what extent this claim is correct. I study descriptively whether representation gaps exist and their relationship with populism. To this end, I analyze the responses of citizens and parliamentarians from 27 European countries to identical survey policy questions, which I compile and verify to be indicative of voting in referendums. I find that policymaking represents the economic attitudes of citizens well. However, I document that the average parliamentarian is about 1SD more culturally liberal than the national mean voter. This cultural representation gap is systematic in four ways: i) it arises on nearly all cultural issues, ii) in nearly all countries, iii) nearly all established parties are more culturally liberal than the national mean voter, and iv) all major demographic groups tend to be more conservative than their parliamentarians. Moreover, I find that demographic differences between voters and parliamentarians or lack of political knowledge cannot fully account for representation gaps. Finally, I show that right-wing populists fill the cultural representation gap.
That is by Laurenz Guenther. I am myself (largely) a cultural liberal, so I am not siding with the right-wing populists here. But let us be clear what is going on. The right-wing populists are gaining ground in so many countries because the cultural liberals in various parliaments and congresses are extremely reluctant to meet the preferences of their median voters. On the immigration issue most of all. And then they wish to talk about threats to democracy!
The whole thing is really quite tragic. Whether you are willing to admit this state of affairs to yourself is one of the better measures of self-awareness in our current political environment. tekl.
Optimal Tariffs with Geopolitical Alignment
Here is a new NBER working paper:
As geopolitical tensions intensify, great powers often turn to trade policy to influence international alignment. We examine the optimal design of tariffs in a world where large countries care not only about economic welfare but also about the political allegiance of smaller states. We consider both a unipolar setting, where a single hegemon uses preferential trade agreements to attract partners, and a bipolar world, where two great powers compete for influence. In both scenarios, we derive optimal tariffs that balance terms-of-trade considerations with strategic incentives to encourage political alignment. We find that when geopolitical concerns are active, the optimal tariff exceeds the classic Mill-Bickerdike level. In a bipolar world, optimal tariffs reflect both economic and political rivalry, and may be strategic complements or substitutes. A calibration exercise using U.N. voting patterns, an estimate of the cost of buying votes in the U.N., and military spending suggests that geopolitical motives can significantly amplify protectionist pressures and that the emergence of a second great power can contribute to a retreat from globalization.
The authors are
“In the interests of realism, we also consider models where the government a) seeks to maximize returns from corrupt side-bargains, b) seeks to maximize public treasury revenue beyond an optimal level, for Leviathan-like reasons, and c) considers behavioral postulates for policymakers who have an ungrounded attachment to protectionist ideas. The results then change as follows…”
This is after all 2025, and economics is supposed to have a descriptive component. I will make two other points:
1. The paper’s insight about how and why the rise of China may have contributed to the shinking of the pace of globalization is quite valuable, and as far as I know original.
2. This shows once again how the economics profession produces research at least supposedly defending a degree of protectionism, and how its top (non-libertarian) contributors refuse to acknowledge that. At the same time, those people do not wish to consider public choice arguments of the sort that would overturn those conclusions, because such a public choice perspective would have unwelcome implications across a broader range of issues.
Let’s go the corruption and Leviathan and ideology postulate routes with the analysis, you’ll still end up with a good case against Trump. It’s just that it will force you to reexamine some of your other priors.
My excellent Conversation with Nate Silver
Here is the audio, video, and transcript. Here is part of the episode summary:
Tyler and Nate dive into expected utility theory and random Nash equilibria in poker, whether Silver’s tell-reading abilities transfer to real-world situations like NBA games, why academic writing has disappointed him, his move from atheism to agnosticism, the meta-rationality of risk-taking, electoral systems and their flaws, 2028 presidential candidates, why he thinks superforecasters will continue to outperform AI for the next decade, why more athletes haven’t come out as gay, redesigning the NBA, what mentors he needs now, the cultural and psychological peculiarities of Bay area intellectual communities, why Canada can’t win a Stanley Cup, the politics of immigration in Europe and America, what he’ll work on next, and more.
Excerpt:
COWEN: If you think about the Manifold types in terms of the framework in your book, how they think about risk — is there a common feature that they’re more risk-averse, or that they worry more? Is there a common feature that they like the idea that they hold some kind of secret knowledge that other people do not have? How do you classify them? They’re just high in openness, or what is it?
SILVER: They’re high in openness to experience. I think they’re very high in conscientiousness.
COWEN: Are they? I don’t know.
SILVER: Some of them are. Some of them are, yes.
COWEN: I think of them as high variance in conscientiousness, rather than high in it.
[laughter]
SILVER: The EAs and the rationalists are more high variance, I think. There can be a certain type of gullibility is one problem. I think, obviously, EA took a lot of hits for Sam Bankman-Fried, but if anything, they probably should have taken more reputational damage. That was really bad, and there were a lot of signs of it, including his interviews with you and other people like that. It contrasts with poker players who have similar phenotypes but are much more suspicious and much more street smart.
Also, the Bay Area is weird. I feel like the West Coast is diverging more from the rest of the country.
COWEN: I agree.
SILVER: It’s like a long way away. Just the mannerisms are different. You go to a small thing. You go to a house party in the Bay Area. There may not be very much wine, for example. In New York, if the host isn’t drinking, then it’d be considered sacrilege not to have plenty of booze at a party. Little things like that, little cultural norms. You go to Seattle — it feels like Canada to me almost, and so these things are diverging more.
COWEN: Why is belief in doom correlated with practice of polyamory? And I think it is.
SILVER: If you ask Aella, I guess, she might say, if we’re all going to die or go to whatever singularity there is, we might as well have fun in the meantime. There’s some of that kind of hedonism. Although in general, it’s not a super hedonistic movement.
COWEN: It seems too economistic to me. Even I, the economist — I don’t feel people think that economistically. There’s more likely some psychological predisposition toward both views.
SILVER: I guess you could argue that society would be better organized in a more polyamorous relationship. People do it implicitly in a lot of ways anyway, including in the LGBTQ [laughs] community, which has different attitudes toward it potentially. and if there’s not as much childbearing, that can have an effect, potentially. I think it’s like they are not being constrained by their own society thing that is taken very seriously in that group. There’s enough disconnectedness and aloofness where they’re able to play it out in practice more.
That creeps a little bit into Silicon Valley too, which can be much more whimsical and fanciful than the Wall Street types I know, for example.
Recommended. Here is my 2024 episode with Nate, here is my 2016 episode with him.