Category: Political Science
Kamil Kovar on the German debt brake (from my email)
I was wondering if you would consider writing a post about the German debt brake in light of recent developments? Personally, I am not a huge fan of discussions about fiscal policy (or even worse, austerity…), as I feel they are mostly Rorschach test without much deep thinking. But I did find the recent developments intriguing because they challenge my priors so I am wondering what whether your thinking has changed as well.
My prior was that some form of constitutional debt break is a reasonable mechanism to deal with the pro-debt bias resulting from democratic political process. Of course, some of the recent German experience has challenged that. For example, debt break legislation lead to a lot of “bad” legislating, which was exposed by the court recently. Similarly, the debt break is leading Germany to cut spending and increase taxes relative to what the government would want; given the weakness in German economy this does not seem like optimal fiscal policy (but might be – monetary policy by choice restrictive, and many have called on fiscal to be too). And more broadly, there is a fair argument to be made that it has constrained government investment during last decade, which was an optimal time to do government investment given the negative interest rates.
Part of this I think is a question of imperfect design/implementation. The deficit threshold of -0.35% is higher than I would imagine. Absence of any relationship to current interest rates or effect on future debt levels ala CBO analysis is probably not what finance theory would suggest. And the cyclical adjustment seems suspicious: my understanding is that currently the cyclical adjustment allows for 0.1% of GDP of extra deficit, corresponding to 1% output gap and 1/10 elasticity, see here.[1] But I suspect imperfect design/implementation will always be a feature of these kind of legalistic rules, so should not be waved away.
At the same time, I find lot of the commentary rather subpar. I have in mind for example arguments in this article. While I can see that investment would likely be higher last decade in absence of debt break, saying that debt break results in “Germany that doesn’t invest and massively falls behind in economic terms” is just shocking, as it implies that investment can be only done through higher deficits. Moreover, arguing that debt break has to be abolished so that Germany can invest to deal with geopolitics and green transition is simply ignoring that Germany already found a legally-sound solution to such kind of problems when it constitutionally created its 100 billion euro defense spending fund. Together with the wise use of debt break suspensions during last 4 years this shows that there is sufficient flexibility built into this, despite what the commentators would suggest (“but in practice it’s too inflexible”), as long as there is consensus on such actions. But maybe this points towards the actual problem: maybe in current society building political consensus has become too hard, so that mechanisms which rely too much on such consensus are doomed to create more problems than their benefit. The US debt ceiling comes to mind. Similarly, I think CDU secretly agrees with some of the governments desires, but will not act on them either because it wishes for the government to collapse or is afraid of voters’ reaction.
Very curious what is your thinking and how it has changed.
Kamil
P.S.: Relatedly, I often see left-of-center economists citing IMF research that austerity does not yield decrease in government debts relative to GDP. While I understand the value of such research, I am not sure what are the people suggesting. If austerity cannot lower debt to GDP, what can? I don’t think that most economists would suggest that large scale government investment is going to lower debt to GDP. So it the conclusion that we can never lower debt to GDP?
Kamil expands on these points in a blog post, concluding:
So maybe this is the main critique of the constitutional debt break: In the older world it might have been an good tool, but given the general unravelling of political process around the world, it adds too much of a constraint leading to worse outcomes. It simply is not fit for the current times. It might not be. As for me, I am currently in state of “not sure”.
What should I ask Jonathan Haidt?
Yes, I will be doing another Conversation with him. Here is my previous Conversation with him, almost eight years ago. As many of you will know, Jonathan has a new book coming out, namely
Why France is underrated
That is the topic of my latest Bloomberg column, here is one bit:
Since the West European economic boom ended in the 1970s, the French civil service has been at best a mixed blessing. French administrators have gotten a lot done, reflecting their impeccable education and internal culture. But they have also helped to make the French economy overly static and too reliant on bureaucracy. A lazier, less activist civil service might have been better.
Fast forward to 2023. War and conflict are now more common on the global scene, a trend that shows no signs of abating. Populist governments are on the rise, and China and Russia are active and restless. None of those problems is easy to solve, and they all require greater involvement from the public sector. Nations with high-quality leadership and civil-service traditions will stand a better chance of navigating the turmoil.
So the bureaucracy that was once a hindrance to France may now turn out to be a comparative advantage. And at a time when governance seems to be deteriorating around the world, Macron continues to have a reputation as a relatively responsible leader.
This year has shown how this advantage plays out. Post-pandemic France has been a bit of a mix, with soaring energy prices, inflation, rising interest rates, continuation of the Ukraine war, labor strikes and protests, and a variety of European migration crises. Yet France avoided a credit downgrade and the French economy continued to create more jobs. Performance has hardly been perfect and the risk of recession remains, but France has done better than might have been expected 18 months ago.
I also consider the relatively successful French start-up scene, including in AI.
Salta (and Jujuy) notes
The food is excellent. Don’t worry about choosing the right restaurant, just try to eat the simple things. Corn products. Beans. Baked goods such as empanadas. Don’t waste your time on the steak. The food stalls in the Mercado Municipal are a good place to start, and many items there cost fifty cents to a dollar. The “sopa de mani” (peanut soup) is especially good, and almost identical to what you find in Bolivia.
The overall vibe in Salta reminds me of both northern Mexico and the older parts of the American Southwest. And the adjacent parts of Bolivia. It is hot, the cities are surrounded by beautiful scenery, and it still all feels rather wild. Salta is also much safer than Buenos Aires, and you don’t see many beggars here. In B.A. they are now asking for food rather than money.
There’s not much to do in Salta, as the central sights in town are the two mummified remains of young Incan girls in the archaeological museum. They are memorable, as it feels like they are staring right back at you.
Spending time here will cure you of utopianism, and also of pessimism. Whatever issues you might think are really important, most people here really don’t care about them or even know about them.
American brands at the retail level are not to be seen. Nor will you run across Chinese or Indian merchants. Perhaps a Syrian or Lebanese is to be found, but not in any great numbers.
Tyrone is accompanying me, and I asked him what he thinks. As you might expect, he had only stupid rudeness in response. Tyrone said that northern Argentina is the true essence of the Argentinean nation, and that everyone interested in Argentina should visit here. In fact, having visited North Macedonia, he wishes to rename the country South Bolivia — were they not once part of the same Viceroyalty? Is it not enough to share the same soup? Do they not have broadly the same accent, devoid of all that B.A. slurring? Was not the country born here in the north? That is where the decisive battle for national independence was fought and won. Do we not all agree with theories of deep roots? It is not just who moves to your nation, but it is about how and where your nation was founded. And for Argentina that is in the north, and with violence and corruption and economic decline. Tyrone even wishes to hand over the rest of Patagonia to the Chileans, so that Argentina may better recognize its true self.
In the twisted view of Tyrone, the creation of the modernist city of Brasilia was a big success. The real failure, hermetically hidden by some charming Parisian and Barcelona-style architecture, was the attempted modernist outpost of Buenos Aires, an immature and underdeveloped excrudescence from the real nation of chocro, horse saddles and the quebrada. It tricked a few Johnny-come-lately migrants during the early 20th century, and neglected to tell them they still would be ruled by the ideas and the norms of the north.
Imagine thinking that you could govern a nation with high modernism and Freudian psychoanalysis — what folly! And now, Tyrone tells us, we have the Milei revolution, attempting to replace one Viennese modernism — that of Freud — with the Viennese modernist revolution of Mises. Good luck with that one, Tyrone says. What kind of fool would think that the future of South America would be determined by a war across different Viennese modernisms? Those mummified corpses still will rule the day, whether or not the feds balance the budget in the short term. Desiccated ever-young girls are in perpetual deficit, no matter how the daily fiscal accounts may read.
I had to stop Tyrone right then and there, as he was explaining why the current hyperinflation probably was a good thing, as the only path to true dollarization and at least one symbolic unification with North America. Tyrone was shouting that such symbolic unification nonetheless was impossible, and thus the corpses had brought in Milei to restore fiscal sanity and prevent dollarization and thus protect the true Incan and Andean nation.
Such thoughts are not allowed on Marginal Revolution, and so I am now trying to persuade Tyrone to visit Iguassu, in the hope that I can induce him to take a quick swim in those falls…
I hope the rest of you will visit northern Argentina nonetheless, and put all that nonsense aside. The empanadas await you.
Podcast with Henry Oliver on John Stuart Mill
42 minutes long, Henry and I are both big Mill fans. And here is Henry’s forthcoming and very good book
What should UAP disclosure policy be?
That is the subject of my latest Bloomberg column. Here is the opener:
There is currently legislation before Congress that, if passed, could be one of the most important laws in US history. The Unidentified Anomalous Phenomena Disclosure Act of 2023, which calls for transparency in matters related to UFOs, is sponsored by Senate Majority Leader Charles Schumer and has considerable bipartisan support, although it may fail due to Republican opposition.
However skeptical you or I might be, there are many allegations from within the federal government that the government is hiding alien crafts and bodies, and that the military is seeking to reverse-engineer alien technologies. There are also more plausible claims that there are flying objects that defy explanation.
And:
…if you think all this talk of aliens is nonsense, isn’t the best response some sunlight to show nothing weird is going on?
That is the strongest argument for the bill: if all the recent UAP chatter reflects neither an alien presence nor threats from hostile foreign powers. In that case, drawing back the curtain would discourage reasonable observers from pursuing the topic further. A modest benefit would result.
What about hostile foreign powers as an explanation for the UAPs?:
In that case, additional transparency could be harmful. The US government conducts a variety of intelligence and military operations, and Congress does not insist that they all be made public. There is no transparency for CIA missions, or for US cyberattacks, or for many other aspects of US foreign policy.
In that scenario the case against the bill is relatively strong. And what about good ol’ alien beings and spacecraft?
In that case, is the best policy really what transparency advocates call “managed disclosure”? They had envisioned a panel of responsible experts managing the flow of information, bit by bit.
One question is whether such knowledge might be better kept secret, or known only to the small number of elites who manage to put all of the pieces together. Whether a broad social panic would result from revealing an alien presence on earth is hard to say — but it is also hard to see the practical upside. The best argument for disclosure is simply that the public has a right to know, and that such a knowledge of the reality of the humankind’s place in the universe is intrinsically valuable.
A second question concerns the inexorable logic of disclosure. Practically speaking, the US has a long tradition of whistleblowers and truth-tellers. If there is actual hard evidence of alien visitation, it is going to leak out, with or without the UAP Disclosure Act of 2023. Just look at the Edward Snowden case, where an American risked imprisonment and exile to reveal secrets that were far less important than what could be at stake here.
If the current legislation does not pass, or if a much weaker version moves forward, some people may take that as their cue to step forward and spill the beans — with direct proof rather than hearsay.
So in that “most interesting” case a transparency bill may not matter for long. That means I am not crushed that the disclosure provisions of the bill have been so watered down. In the case where those provisions really matter, a) it may be better if we don’t know, and b) we will find out sooner or later anyway. Aliens and UAPs aside, the appropriate degree of transparency is one of the most difficult questions in politics.
What is the political orientation of GROK?
The story is complicated, in any case it is not what you might think. It is often not so different from ChatGPT, albeit with many caveats and qualifications, including about the tests themselves. From David Rozado:
I think it is clear that Grok’s answers to questions with political connotations tend to often be left of center.
Model this…
Strategic CEO Activism in Polarized Markets
CEOs are increasingly making public statements on contentious social issues. In this paper, we examine what motivates CEOs to engage in social activism. We show that CEO social activism is a strategic choice and not necessarily an expression of the CEO’s own political views. Republican-donor CEOs are three-times more likely to make social statements with a liberal-slant. They are also more likely to make social statements when their firm’s operating environment is politically polarized, and when their employees are Democrat-leaning. Such statements are associated with a 3% increase in consumer visits to a firm’s stores in Democrat counties without significantly reducing them in Republican counties. CEO activism is also associated with a 0.12% gain in firm value, increased quarterly sales turnover, and a reduced likelihood of shareholder activism on social issues. Our results suggest that corporate actions that appear to be stakeholder-driven can be motivated by economic concerns.
That is on SSRN by Shubhashis Gangopadhyay and Swarnodeep HomRoy, here is the final published version for JFQA. Via the excellent Kevin Lewis.
Differential fertility makes society more conservative on family values
“Family values” conservatives in the United States have more children and more siblings than their compatriots. These patterns reflect the tendency of the more religious and less educated to have larger families and more conservative views on the family. Among Protestants, denominational differences play a role, with fundamentalist groups exhibiting larger families, less education, and greater conservatism. The causal pathways are unclear, but the patterns reshape society: Traditional-family conservatism is more prevalent than it would have been if each person had the same population share as his or her parents. This demographic phenomenon raises opposition to same-sex marriage and abortion by 3 to 4 percentage points. It accounts for 7.9 million of the nation’s 54.8 million opponents to same-sex marriage.
That is a new paper by Tom S. Vogl and Jeremy Freese, from brandonrox.
Immigration Backlash
In a new paper Ernesto Tiburcio (on the job market) and Kara Ross Camarena study the effect of illegal immigration from Mexico on economic, political and cultural change in the United States. Studying illegal immigration can be difficult because the US doesn’t have great ways of tracking illegal immigrants. Tiburcio and Camerena, however, make excellent use of a high-quality dataset of “consular IDs” from the Mexican government. Consular IDs are identification cards issued by the Mexican government to its citizens living in the United States, regardless of US immigration status. Consular IDs are used especially, however, by illegal immigrants because they can’t easily get US IDs whereas legal migrants have passports, visas, work authorizations and so forth. Tiburcio and Camarena are able to track nearly 8 million migrants over more than a decade.
Our main results point to a conservative response in voting and policy. Recent inflows of unauthorized migrants increase the vote share for the Republican Party in federal elections, reduce local public spending, and shift it away from education towards law-and-order. A mean inflow of migrants (0.4 percent of the county population) boosts the Republican party vote share in midterm House elections by 3.9 percentage points. Our results are larger but qualitatively similar to other scholars’ findings of political reactions to migration inflows in other settings (Dinas et al., 2019; Dustmann et al., 2019; Harmon, 2018; Mayda et al., 2022a). The impacts on public spending are consistent with the Republican agenda. A smaller government and a focus on law-and-order are two of the key tenets of conservatism in the US. A mean inflow of migrants reduces total direct spending (per capita) by 2% and education spending (per child), the largest budget item at the local level, by 3%. The same flow increases relative spending on police and on the administration of justice by 0.23 and 0.15 percentage points, respectively. These impacts on relative spending suggest that the decrease in total expenditure does not simply reflect a reduction in tax revenues but also a conservative change in spending priorities.
The main reason for this, however, appears not to be economic losses such as job losses or wages declines–these are mostly zero or small with some exceptions for highly specific industries such as construction. Rather it’s more about the salience of in and out groups:
We study individuals’ universalist values to capture preferences for redistribution and openness to the out-group. Universalist values imply that one is concerned equally with the welfare of all individuals, whether they are known or not. By contrast, people with more communal values assign a greater weight to the welfare of ingroup members relative to out-group members. We find that counties become less universalist in response to the arrival of new unauthorized migrants. A mean flow of unauthorized migrants shifts counties 0.06 standardized units toward less universalist, i.e., more communal (Panel B, Column 5, std coeff: -0.16). This result is the most direct indication that some of the shift to the political right occurs because migrants trigger anti-out-group bias and preferences for less redistribution. Although this evidence is based on a smaller subset of counties, the impact is large. The change toward more communal values is consistent with theories that hinge on out-group bias. Ethnic heterogeneity breaks down trust, makes coordination more difficult, and reduces people’s interest in universal redistribution (Alesina et al., 1999).
These results are consistent with the larger literature that finds “Across the developed world today, support for welfare, redistribution, and government provision of public goods is inversely correlated with the share of the population that is foreign-born and diverse.” (Nowrasteh and Forreseter 2020). Similarly, one explanation for the smaller US welfare state is that white-black salience reduces people’s interest in universal redistribution.
Contra Milton Friedman, it is possible to have open borders and a significant welfare state but it may be true that the demand for a welfare state declines with immigration, especially when the immigrants are saliently different.
World War II R&D and the Takeoff of the US Innovation System
That is the article subtitle, the title is “America, Jump-Started:,” and the authors of this new AER piece are Daniel P. Gross and Bhaven N. Sampat. Here is the abstract:
During World War II, the US government’s Office of Scientific Research and Development (OSRD) supported one of the largest public investments in applied R&D in US history. Using data on all OSRD-funded invention, we show this shock had a formative impact on the US innovation system, catalyzing technology clusters across the country, with accompanying increases in high-tech entrepreneurship and employment. These effects persist until at least the 1970s and appear to be driven by agglomerative forces and endogenous growth. In addition to creating technology clusters, wartime R&D permanently changed the trajectory of overall US innovation in the direction of OSRD-funded technologies.
This is very important work, and among other things it may help explain the productivity slowdown starting in the early 1970s (that is my speculation, not from the authors). Recommended, for all those who follow these topics.
Here are earlier, less gated copies.
Markets in everything those new service sector jobs
The video, posted by the 39-year-old Tampa resident under her stage name Roxie Rae, is one of dozens on Clips4Sale, an adult-video-sharing website where content creators cater to all types of sexual fetishes, including one that is rarely discussed outside of niche kink circles: political humiliation. There are people who get turned on by the idea of having their political views mocked, usually (but not always) by members of the opposing political group. Liberals desire being dominated by conservatives and called pejoratives that imply they are weak and unintelligent, while conservatives want to be mocked for supporting former president Donald Trump, among other perceived transgressions, according to those who participate in this subculture.
Here is the full Washington Post article by Hallie Lieberman.
My excellent Conversation with John Gray
I had been wanting to do this one for a while, and now it exists. Here is the audio and transcript, here is the episode summary:
Tyler and John sat down to discuss his latest book, including who he thinks will carry on his work, what young people should learn if liberalism is dead, whether modern physics allows for true atheism, what in Eastern Orthodoxy attracts him, the benefits of pessimism, what philanthropic cause he’d invest a billion dollars in, under what circumstances he’d sacrifice his life, what he makes of UFOs, the current renaissance in film and books, whether Monty Python is still funny, how Herman Melville influenced him, who first spotted his talent, his most unusual work habit, what he’ll do next, and more.
Excerpt:
COWEN: Do you think that being pessimistic gives you pleasure? Or what’s the return in it from a purely pragmatic point of view?
GRAY: You are well prepared for events. You don’t expect —
COWEN: It’s a preemption, right? You become addicted to preempting bad news with pessimism.
GRAY: No, no. When something comes along which contradicts my expectations, I’m pleasantly surprised. I get pleasant surprises. Whereas, if you are an adamant optimist, you must be in torment every time you turn the news on because the same old follies, the same old crimes, the same old atrocities, the same old hatreds just repeat themselves over and over again. I’m not surprised by that at all. That’s like the weather. It’s like living in a science fiction environment in which it rains nearly all of the time, but from time to time it stops and there’s beautiful sunlight.
If you think that basically there is beautiful sunlight all the time, but you’re just living in a small patch of it, most of your life will be spent in frustration. If you think the other way around, as I do, your life will be peppered, speckled with moments in which what you expect doesn’t happen, but something better happens.
COWEN: Why can’t one just build things and be resiliently optimistic in a pragmatic, cautionary sense, and take comfort in the fact that you would rather have the problems of the world today than, say, the problems of the world in the year 1000? It’s not absolute optimism where you attach to the mood qua mood, but you simply want to do things and draw a positive energy from that, and it’s self-reinforcing. Why isn’t that a better view than what you’re calling pessimism?
And:
COWEN: Under what circumstances would you be willing to sacrifice your life? Or for what?
GRAY: Not for humanity, that’s for sure.
Recommended, interesting throughout. John is one of the smartest and best read thinkers and writers. He even has an answer ready for why he isn’t short the market. And don’t forget John’s new book — I read all of them — New Leviathans: Thoughts After Liberalism.
*Everyday Freedom*, by Philip K. Howard
This is very much a book that needed to be written. Here is one short excerpt:
Powerlessness has become a defining feature of modern society. Americans at all levels of responsibility feel powerless to do what they think is needed. The culture wars, sociologist James Davison Hunter explains, stem from institutional impotence: A “growing majority of Americans believe that their government cannot be trusted, that its leaders . . . are incompetent and self-interested, and that as citizens, they personally have little power to influence the . . .institutions or circumstances that shape their lives.”
Feeling fragile, and buffeted by forces beyond our control, many Americans retreat to online groups defined by identity and by distrust of the other side as “a threat to [our] existence.” It’s hard to identify what’s wrong amid the clamor and conflict in modern society. But a clue can be found in remembering what makes us proud. America is where people roll up our sleeves and get it done.
The ability to do things in our own ways activates the values for which America is well-known: self-reliance, pragmatism, and loyalty to the greater good—what Alexis de Tocqueville called “self-interest, rightly understood.” For most of American history, the power and imperative to own your actions and solutions—the concept of individual responsibility—was implicit in the idea of freedom.
Americans didn’t abandon our belief in individual responsibility. It was taken away from us by post 1960s legal framework that, with the best of intentions, made people squirm through the eye of a legal needle before taking responsibility. Individual responsibility to a broader group, for example, was dislodged by a new concept of individual rights focused on what’s best for one person or constituency. The can-do culture became the can’t do culture.
At every level of responsibility, Americans have lost the authority to do what they think is sensible. The teacher in the classroom, the principal in a school, the nurse in the hospital, the official in Washington, the parent on the field trip, the head of the local charity or church . . . all have their hands tied by real or feared legal constraints.
And yes he does propose concrete solutions, most of all at the level of the law. The whole thing is only 84 pp., and this is one of the books that comes closest to diagnosing what is wrong with our country. The subtitle is Designing the Framework for a Flourishing Society.
Africa fact of the day
Map of successful military coups in Africa since 2020. And there appears to be an attempted one underway in Sierra Leone.
– Bloomberg pic.twitter.com/CBaGOtHikl
— Nick Hedley (@nickhedley) November 28, 2023