Category: Political Science

How much did the housing shock drive political polarization?

From Henry van Straehlen, a job market candidate from Northwestern:

This paper studies the effect of economic conditions on political polarization using micro-data on house prices, mortgages, and individual political contributions. I argue that shocks to housing wealth — the largest asset for most households in the U.S. — lead to political polarization. Using the housing market bust of 2007-2011 as an empirical laboratory, I show that negative shocks to housing wealth increase political polarization. The richness of the data enables me to use individual heterogeneity in housing location and timing of home purchase to disentangle changes in personal wealth from other factors that might be at play in determining political polarization. The effect of housing shocks on polarization is stronger during the crisis, and cannot be attributed to reverse causality or changing neighborhood composition. Survey evidence comparing homeowners and renters shows that only homeowners polarize in response to house price shocks, while renters do not — suggesting that house price shocks are not merely a proxy for other economic shocks. Furthermore, extreme politicians benefit electorally from negative house price shocks to their contributor network, whereas moderate politicians are hurt by negative house price shocks. Financial crises destabilize politics, which then can feed back into the crisis. These results provide insight into the difficulty of adopting structural economic reforms following financial crises.

Work in progress by Henry argues: “I show that when the common ownership between two firms increases through mutual fund acquisition of their stock, the firms converge in political donation behavior and lobbying activity.”

Twentieth-century cousin marriage rates explain more than 50 percent of variation in democracy across countries today.

That is the last sentence of the abstract in this job market paper, from Jonathan F. Schulz:

Political institutions vary widely around the world, yet the origin of this variation is not well understood. This study tests the hypothesis that the Catholic Church’s medieval marriage policies dissolved extended kin networks and thereby fostered inclusive institutions. In a difference-in-difference setting, I demonstrate that exposure to the Church predicts the formation of inclusive, self-governed commune cities before the year 1500CE. Moreover, within medieval Christian Europe,stricter regional and temporal cousin marriage prohibitions are likewise positively associated with communes. Strengthening this finding, I show that longer Church exposure predicts lower cousin marriage rates; in turn, lower cousin marriage rates predict higher civicness and more inclusive institutions today. These associations hold at the regional, ethnicity and country level. Twentieth-century cousin marriage rates explain more than 50 percent of variation in democracy across countries today.

Here is Jonathan’s (co-authored) working paper on “The origins of WEIRD psychology.

Propaganda, Nation Building and Identity in Rwanda

The lead title is “Erasing Ethnicity,” the authors are Arthur Blouin and Sharun W. Mukand, and the paper is forthcoming in the Journal of Political Economy:

This paper examines whether propaganda broadcast over radio helped to change inter-ethnic attitudes in post-genocide Rwanda. We exploit variation in exposure to the government’s radio propaganda due to the mountainous topography of Rwanda. Results of lab-in-the-field experiments show that individuals exposed to government propaganda have lower salience of ethnicity, increased inter-ethnic trust and show more willingness to interact face-to-face with members of another ethnic group. Our results suggest that the observed improvement in inter-ethnic behavior is not cosmetic, and reflects a deeper change in inter-ethnic attitudes. The findings provide some of the first quantitative evidence that the salience of ethnic identity can be manipulated by governments.

Propaganda works.

Words of wisdom from Vitalik Buterin

Both reasoning from behavioral-economic first principles, and my personal experience, people are at their most evil out of fear, not greed. Growth means there is less fear going around.

That is from Vitalik Buterin, reviewing Stubborn Attachments on TwitterAnd this:

I have a different take on “growth is good for harmony” (52-53). Arrow’s theorem doesn’t become more or less true if a conflict is between, say (+5, +1) vs (+1, +5) or (+2, -2) vs (-2, +2). Rather, the reason why the latter is more disharmonious is loss aversion.


Redistributing money to the rich (p88) is risky because the rich are not necessarily aligned with general population. Caring for old people (p91) is valuable not just for the sake of present individuals, but also as a commitment to future old people who are present-day workers.

Here is my earlier Conversation with Vitalik Buterin.  And here is Garett Jones’s tweet storm on the book.

Underargued claims, installment #1437

From Tim Wu, in a recent NYT Op-Ed, he presents a polemic against “monopoly”:

Postwar observers like Senator Harley M. Kilgore of West Virginia argued that the German economic structure, which was dominated by monopolies and cartels, was essential to Hitler’s consolidation of power. Germany at the time, Mr. Kilgore explained, “built up a great series of industrial monopolies in steel, rubber, coal and other materials. The monopolies soon got control of Germany, brought Hitler to power and forced virtually the whole world into war.”

To suggest that any one cause accounted for the rise of fascism goes too far, for the Great Depression, anti-Semitism, the fear of communism and weak political institutions were also to blame. But as writers like Diarmuid Jeffreys and Daniel Crane have detailed, extreme economic concentration does create conditions ripe for dictatorship.

The first ten words are already a give-away, as is the beginning of the second cited paragraph.  For contrast, this is from Thomas Childers, well-known historian of Nazi Germany:

In his biography of Henry Kissinger, historian Niall Ferguson notes that “old man Thyssen” — that is, German steel magnate Fritz Thyssen — “bankrolled Hitler.” Businessmen such as Thyssen using their financial assets to assist the Nazis was “the mechanism by which Hitler was funded to come to power,” according to John Loftus, a former U.S. attorney who prosecuted Nazi war criminals.

But the Nazis were neither “financed” nor “bankrolled” by big corporate donors. During its rise to power, the Nazi Party did receive some money from corporate sources — including Thyssen and, briefly, industrialist Ernst von Borsig — but business leaders mostly remained at arm’s length. After all, Nazi economic policy was slippery: pro-business ideas swathed in socialist language. The party’s program, the Twenty-Five Points, called for the nationalization of corporations and trusts, revenue sharing, and the end of “interest slavery.”

And Wu’s two other cited sources?  Both focus mainly on IG Farben.  Diarmuid Jeffreys is “an award-winning journalist and television producer with thirty years’ experience in the media industry.”  He does have a book on IG Farben and the making of the German war machine, but it does not demonstrate how economic concentration brings totalitarian regimes to power, instead focusing on how IG Farben profited from Nazi war aims and helped build the Holocaust.  Earlier in the 1930s, IG Farben had in fact resisted Nazification. though the company did jump on board once it saw Nazification as inevitable.

Here is the Daniel Crane essay on antitrust and democracy.  Try this excerpt: “… it does not necessarily follow that Farben’s monopolistic position in the German chemical industry is causally related to the rise of fascism—or that monopoly enabled Nazism. Two matters should give us pause before making such an inference.”  Read p.14 to see what follows, but here is one tiny bit: “Though gigantic, Farben remained smaller than three American industrial concerns—General Motors, U.S. Steel, and Standard Oil. Nor was Farben’s wartime market power exceptional.”  On the other side of the ledger, Crane does note that fascistic governments, once in power, find it easier to take over and co-opt more highly concentrated industries, Farben being an example of that.  So there is an argument here, but mainly one data point and also some very serious qualifiers.

Does that all justify the sentence “But as writers like Diarmuid Jeffreys and Daniel Crane have detailed, extreme economic concentration does create conditions ripe for dictatorship.”?  “Ripe” is such a tricky, non-causal word.

I would instead stress that war, civil war, scapegoating, and deflation create the conditions “ripe for dictatorship.”  You might want to toss Russia and China into the regression equation, or how about Cuba and North Korea and Albania and Pol Pot’s Cambodia?  How would the coefficient on industrial concentration end up looking?  I’d like to know.

When big business is the target, and tech in particular, the standards of proof for Op-Eds seem to decline.  Somehow, because we all know that the big tech companies are bad, or jeopardizing democracy, it is OK to make weakly argued claims.

The philosophy and practicality of Emergent Ventures

Let’s start with some possible institutional failures in mainstream philanthropy.  Many foundations have large staffs, and so a proposal must go through several layers of approval before it can receive support or even reach the desk of the final decision-maker.  Too many vetoes are possible, which means relatively conservative, consensus-oriented proposals emerge at the end of the process.  Furthermore, each layer of approval is enmeshed in an agency game, further cementing the conservatism.  It is not usually career-enhancing to advance a risky or controversial proposal to one’s superiors.

There is yet another bias: the high fixed costs of processing any request discriminate against very small proposals, which either are not worthwhile to approve or they are never submitted in the first place.

Finally, foundations often become captured by their staffs.  The leaders become fond of their staffs, try to keep them in the jobs, regard the staff members as a big part of their audience, and adopt the perspectives of their staffs, more so as time passes.  That encourages conservatism all the more, because the foundation leaders do not want their staffs to go away, and so they act to preserve financial and reputational capital.

To restate those biases:

  1. Too much conservatism
  2. Too few very small grants
  3. Too much influence for staff

So how might those biases be remedied?

Why not experiment with only a single layer of no?

Have a single individual say yes or no on each proposal — final word, voila!  Of course that individual can use referees and conferees as he or she sees fit.

The single judge could be an expert in some of the relevant subject areas of the proposals (that is sometimes the case in foundations, but even then the expertise of the foundation evaluators can decay).

This arrangement also can promise donors 100% transmission of their money to recipients, or close to that.  If someone gives $1 million to the fund, the award winners receive the full $1 million.  This is rare in non-profits.  (In the case of Emergent Ventures there are unbudgeted time costs for me and my assistant, who prints out the proposals, and the paper costs of the printing get charged to general operating expenses at Mercatus.  Still, a $1 million grant at the margin leads to $1 million in actual awards.  I am not paid to do this.)

The solo evaluator — if he or she has the right skills of temperament and judgment — can take risks with the proposals, unencumbered by the need to cover fixed costs and keep “the foundation” up and running.  Think of it as a “pop-up foundation,” akin to a pop-up restaurant, and you know who is the chef in the kitchen.  It is analogous to a Singaporean food stall, namely with low fixed costs, small staff, and the chef’s ability to impose his or her own vision on the food.

Once a fixed sum of money is given away, and the mission of the project (beneficial social change) has been furthered, “the foundation” goes away.  No one is laid off.  Rather than crying over a vanquished institutional empire and laid off friends/co-workers, the solo evaluator in fact has a chance to get back to personally profitable work.  It was “lean and mean” all along, except it wasn’t mean.

The risk-taking in grant decisions is consistent with the incentives of the evaluator, consistent with the level of staffing (zero), and consistent with the means of the evaluator.  A solo evaluator, no matter how talented, does not have the resources to make and tie down multiple demands for complex deliverables.  Rather, a solo evaluator is likely to think (or not) — “hmm…there is some potential in this one.”  The wise solo evaluator is likely to look for projects that have real upside through realizing the autonomous visions of their self-starting creators, rather than projects that appear bureaucratically perfect.

And how about the incentives of the solo evaluator?  Well, a fixed amount of time is being given up, so what is the point in making safe, consensus selections with the awards?  The solo evaluator, in addition to pursuing the mission of the fund, will tend to seek out grants that will boost his or her reputation as a finder of talent.  You might worry that an evaluator, even if fully honest will self-deceive somewhat, and use some of these grants to promote his or her own interests.  I would say donate your money to an evaluator who you are happy to see rise in status.

In other words, the basic vision of Emergent Ventures, the incentives, and its means are all pretty consistent.

The solo evaluator also has the power to make very small grants, simply by issuing a decision in their favor at very low fixed cost.  Alchian and Allen theorem!  That helps remedy the bias against small grants in the broader foundation world.

The single evaluator of course is going to make some mistakes, but so do foundations.  And the costs of these evaluator mistakes have to be weighed against the other upsides of this method.

In my view, at least two percent of philanthropy should be run this way, and right now in the foundation world it is about zero percent.  So I am trying to change this at the margin.

How does this idea scale?  What if it worked really well?  How would we do more of it?

Well, it is not practical for this solo evaluator to handle a larger and larger portfolio of grant requests.  Even if he or she were so inclined, that would bring us back to the problems of institutionalized foundations.  The ideal scaling is that other, competing “chefs” set up their own pop-up foundations.  Imagine a philanthropic world where, next year, you could give a million dollars to the Steven Pinker pop-up, to the Jhumpa Lahiri pop-up, to the Jordan Peterson intellectual venture fund, and so on.  Three years later, you would have an entirely different choice, say intellectual venture funds from Ezra Klein, David Brooks, and Skip Gates, among others.  The evaluators either could donate some of their time, as I am doing, or charge a fee for performing this service.  You also could imagine a major foundation carving off a separate section of their activities, and running this experiment on their own, with an evaluator of their choosing.

In a subsequent post, I will discuss how this model relates to the classical age of patronage running through the Renaissance, into the 18th century, and often into the 20th century as well, often through the medium of individual giving.  I also will consider how this relates to classic venture capital and the relevant economics behind “deal flow.”

In the meantime, I am repeating the list of the first cohort of Emergent Ventures winners.  That link also directs you to relevant background if Emergent Ventures is new to you.

Is the carbon tax idea dead?

That is the topic of my latest Bloomberg column, here is one bit:

And one striking result from Tuesday’s election is that voters in Washington state, a Democratic stronghold, soundly rejected a proposed carbon tax by a margin of 56 to 44 percent. This raises the prospect that the carbon tax may be dead as a policy for the time being, including at the state level. As my Bloomberg Opinion colleague Liam Denning writes: “We can debate the magnitude of the vaunted blue wave, but there was definitely no green wave.”

Like many economists, I have long supported the idea of a carbon tax, and still do. Government has to tax something. So why not tax those activities which generate social costs, in this case through disruptive climate change? It is a very intuitive argument that has persuaded many economists on both sides of the political spectrum.

But a carbon tax is just not a popular idea with American voters, of either party. It is hard to argue that the Republican Party or the conservative movement has a stranglehold over the politics of Washington state.

Furthermore, this defeat isn’t just a one-off. 2009’s American Clean Energy and Security Act — a cap-and-trade bill in Congress similar to a carbon tax in its essentials though not all of its exact mechanisms — failed even when Democrats controlled Congress and the presidency. The momentum in Canada, typically considered more left-wing than the U.S., also is running against carbon taxes. In 2014, Australia voted to repeal its carbon-pricing law. Washington state itself rejected an earlier carbon-tax proposal, coupled with a cut in the state sales tax, in 2016.

The broader data are striking. According to a World Bank estimate, 23 countries have carbon taxes of some kind, while 176 have targets or support for renewable energy alternatives. It’s hard to avoid the conclusion that the carbon tax just isn’t a big political winner.

There is much more at the link.

Acquisition Talk: A daily blog on the theory and practice of weapons system acquisition

That is a new blog by Eric Lofgren, an Emergent Ventures recipient.  Here is an excerpt from one post:

The story was from 1938. It sounds astounding to modern ears. Congress did not earmark money for special projects. Pitcairn was a bit of a political entrepreneur by convincing his representative to get a project funded that funneled money back to his own district.

Back then, the Army and Navy were funded according to organization and object. Project earmarking only started becoming routine with the implementation of the program budget in 1949 (and really not until the rise of the PPBS in 1961).

I often say that the budget should be the most important aspect of defense reform, not the acquisition or requirements processes.

By the way, the French parliament doesn’t earmark defense funding. There’s actually quite a bit to learn from the French experience.

Here is his post on cost disease in weapons acquisition, and more on that here: “It’s clear that defense acquisition costs are growing at least as fast, and probably much faster, than education and healthcare costs. Defense platform unit costs grow nominally from 7-11% per year. Doing some adjustments, DOD production costs probably grow twice the rate of inflation.”

Here is his general post on acquisition reform and the limits of decentralization, maybe the best introduction to his overall point of view.

Forecasting tournaments, epistemic humility and attitude depolarization

People often express political opinions in starkly dichotomous terms, such as “Trump will either trigger a ruinous trade war or save U.S. factory workers from disaster.” This mode of communication promotes polarization into ideological in-groups and out-groups. We explore the power of an emerging methodology, forecasting tournaments, to encourage clashing factions to do something odd: to translate their beliefs into nuanced probability judgments and track accuracy over time and questions. In theory, tournaments advance the goals of “deliberative democracy” by incentivizing people to be flexible belief updaters whose views converge in response to facts, thus depolarizing unnecessarily polarized debates. We examine the hypothesis that, in the process of thinking critically about their beliefs, tournament participants become more moderate in their own political attitudes and those they attribute to the other side. We view tournaments as belonging to a broader class of psychological inductions that increase epistemic humility and that include asking people to explore alternative perspectives, probing the depth of their cause-effect understanding and holding them accountable to audiences with difficult-to-guess views.

That is a new paper from Barbara Mellers, Philip Tetlock, and Hal R. Arkes, via the excellent Kevin Lewis and Michelle Dawson.  One very general implication is that there are mental, writing, and practical exercises that really can improve your habits of thought.

The Mobbing Game

Klaus Abbink and Gönül Dogan have a horrific new paper. Horrific because despite being in a safe, experimental setting the results are all too realistic:

We introduce the experimental mobbing game. Each player in a group has the option to nominate one of the other players or to nominate no one. If the same person is nominated by all other players, he loses his payoff and the mob gains. We conduct three sets of experiments to study the effects of monetary gains, fear of being mobbed, and different types of focality. In the repeated mobbing game, we find that subjects frequently coordinate on selecting a victim, even for modest gains. Higher gains make mobbing more likely. We find no evidence that fear of becoming the victim explains mobbing. Richer and poorer players are equally focal. Pity plays no role in mobbing decisions. Ingroup members – introduced by colours – are less likely to be victims, and both payoff difference and colour difference serve as strong coordination devices. Commonly employed social preference theories do not explain our findings.

In short, the authors give experimental participants an opportunity to nominate a victim and redistribute towards themselves. Willingness to do this is common even in cases where the victims lose a lot and the bullies gain only a little. In some cases, the redistribution increases social welfare but these are also the cases where the bullies get a lot. Overall, it’s pretty clear that motivation is greed rather than increased social welfare but it would have been good to have an experiment that distinguished better the greed and social welfare cases. Importantly, distinguishing one of the players by making them poorer/richer/yellow also increased mobbing of that player.

I loved this footnote:

The labels [M,T, G, P] are also a hidden homage to the inmates Mather, Travers, Greenhill and Pearce, who escaped from a Tasmanian prison camp in a group of eight in 1822, only to get lost in the forest. When food ran out, the four conspired to apply the Custom of the Sea to the others. When no-one else was left, they turned to killing and eating one another, until only Pearce survived. All victims were chosen in decidedly non-random ways. This story is one of the great Australian foundation myths, and it was an inspiration for this study (for a dramatic reconstruction, see Van Diemen’s Land (2009)). We are confident that none of our Northern European subjects made that connection.

Hat tip: Rolf Degen.

Gang update

From El Salvador (WSJ):

Politicians must ask permission of gangs to hold rallies or canvass in many neighborhoods, law-enforcement officials and prosecutors said. In San Salvador, the nation’s capital, gangs control the local distribution of consumer products, experts said, including diapers and Coca-Cola . They extort commuters, call-center employees, and restaurant and store owners. In the rural east, gangs threaten to burn sugar plantations unless farmers pay up.

At what point do we say the government has been replaced?  On the analytics:

“We’ve left behind the era of the cartel and the kingpin,” said Alejandro Hope, a security consultant in Mexico City. “Today, most violence in Latin America is the result of a new system that’s more diverse, harder to control, and much more local.”

In Brazil to the south (NYT):

In Rio de Janeiro state alone, more than 5,197 people have been killed this year — far more than the 3,438 civilians killed in conflict last year in Afghanistan, according to United Nations figures.

One-quarter of those may have been killed by the state, a sign of state weakness not strength.

One approach is to view all this as a problem to be solved, and surely there is something to that attitude.  Another approach, not mutually exclusive, is to view it as a problem that is getting harder to solve.

Are peaceful or violent protests more effective?

Are peaceful or violent protests more effective at achieving policy change? I study the effect of protests during the Civil Rights Era on legislator votes in the US House. Using a fixed-effects specification, my identifying variation is changes within the congressional district over time. I find that peaceful protests made legislators vote more liberally, consistent with the goals of the Civil Rights Movement. By contrast, violent protests backfired and made legislators vote more conservatively. The effect of peaceful protests was limited to civil rights-related votes. The effect of violent protests extended to welfare-related votes. I explore alternative explanations for these results and show that the results are robust to them. Congressional districts where incumbents were replaced responded more strongly. Furthermore, congressional districts with a larger population share of whites responded more strongly. This is consistent with a signaling model of protests where protests transmitted new information to white voters but not to black voters.

That is the abstract of the job market paper of Gábor Nyéki from Duke.

Continuous voting

One interesting characteristic of lottery voting is there is no need that elections be simultaneous, or even take place at known predictable times. Suppose we had an electoral system that looked like this: Every month, 5% of the voting roll is randomly selected to cast a ballot for a representative. There’s no big election day: Any time during their month selected voters can come in and cast their vote. After the balloting period has passed, one ballot is randomly selected, and then a virtual coin is flipped that comes up heads only one time in 24. If the coin comes up heads, the current representative is replaced with the randomly selected ballot. If not, that month’s ballots are thrown away, and the representative’s term continues. Under this system, on average, a representative’s terms would be 24 months, but there would never be a period when a representative is more or less near an election. Whatever persuasion incumbents (or their political parties or PACs or dirty tricksters) want to engage in to see to their reelection, they’d have to do basically all the time. Challengers also could arise at any time, but would want to make their case continually. That would become a very different enterprise than existing elections, which engender an avalanche of marketing in sprints. People who wish to become representatives would want to become prominent and popular within their communities, or become endorsed by popular civic organizations (including but not just political parties), in ways that are sustainable over time. Is this a good idea? One might argue that it would just make elections more expensive to contest, and so increase the influence of money. But lottery voting by its nature is much less susceptible to vote buying. Your ads can win 60% of the vote and you still have a 40% chance of losing.

That is from Steve Randy Waldman.

Why people don’t vote

This New York magazine piece is one of the best articles I’ve read all year.  Here is the account of Laura, age 21 from Florida:

In high school, I didn’t even know our vice-president’s name was Joe Biden. All my high-school classmates were Republicans. They were very vocal about it, especially during the whole Romney-and-Obama election. I realized I didn’t believe everything they were saying. Then I Googled “Republican versus Democrat,” and I like kinda both, kinda not. That’s why I’m an Independent. It wasn’t till the Trump-versus-Hillary election that I realized how important it is to vote. Maybe it had to do with, like, society and all. Everyone I was following was like, “Go out to vote.” I was in college in Massachusetts. I decided that I wasn’t gonna go through that long process for an out-of-state student to register to vote. I had a hectic schedule. I just didn’t have the time and energy. Also I didn’t know how my parents would feel about that whole thing, ’cause my brother does not vote either. So it wasn’t asked if they could help us out with the registration and mailing all the forms to us. My mom is a Republican, my dad is a Democrat, and I did not learn that until the 2016 election, after begging them to tell me at least what their party was.

I realized that I should’ve voted afterward. Ever since that election, I started turning on not just CNN but also Fox News on the iPhone news app. I plan to vote in 2020. I have a goal set to know more about politics by that time.

Here is Anna, age 21 from New York City:

I’m trying to register in my hometown of Austin, Texas. It’s such a tedious process to even get registered in Texas, let alone vote as an absentee. There’s no notification service about the status of my voter registration. There’s a small, outdated website where you can enter your information and check. When I was at the post office to register, this poor girl, clearly also a college student like me, didn’t know what “postmarked” meant and had no idea how to send an important document by mail. Most people my age have zero need to go to the post office and may have never stepped into one before. Honestly, if someone had the forms printed for me and was willing to deal with the post office, I’d be much more inclined to vote.

Strongly recommended, there is much more at the link.  It’s Tim, age 27 from Texas, who has the best and smartest substantive answer.