Category: Political Science

Sentences to ponder

… in America’s system of gridlock-based government priority is now on buck passing rather than achieving policy goals. Democrats are putting a higher priority on a desire to get Republicans to vote for tax increases than they are on a desire to have taxes be higher. Republicans, conversely, are trying to avoid voting for tax increases rather than trying to prevent tax increases from taking place.

That is from Matt.  I wonder what underlying model of politics this is evidence for.  Could it be that the real rewards from office holding come from one’s interest groups, later on?  But why is the reward so closely tied to measures of loyalty rather than actual results?  Are the external interest groups such poor monitors?  If so, that would help explain why the observed Beckerian political bargains are so inefficient and so subject to polarized bickering.

I agree with this post of Matt’s too, 2008 was worse than we had thought.  Now let’s apply some (finite) backward induction.  How about 2007?  Was that year worse than we thought?  2006 anyone?  I think of 2008 and 2009 as when the crumminess of some of the preceding years was revealed as common knowledge.  The real mistakes of the Commerce Dept. were about the previous years and that is only beginning to sink in.

Philip Tetlock requests your help

He is one of the most important social scientists working today, and he requests that I post this appeal:

Prediction markets can harness the “wisdom of crowds” to solve problems, develop products, and make forecasts. These systems typically treat collective intelligence as a commodity to be mined, not a resource that can be grown and improved. That’s about to change.

Starting in mid-2011, five teams will compete in a U.S.-government-sponsored forecasting tournament. Each team will develop its own tools for harnessing and improving collective intelligence and will be judged on how well its forecasters predict major trends and events around the world over the next four years.

The Good Judgment Team, based in the University of Pennsylvania and the University of California Berkeley, will be one of the five teams competing – and we’d like you to consider joining our team as a forecaster. If you’re willing to experiment with ways to improve your forecasting ability and if being part of cutting-edge scientific research appeals to you, then we want your help.

We can promise you the chance to: (1) learn about yourself (your skill in predicting – and your skill in becoming more accurate over time as you learn from feedback and/or special training exercises); (2) contribute to cutting-edge scientific work on both individual-level factors that promote or inhibit accuracy and group- or team-level factors that contribute to accuracy; and (3) help us distinguish better from worse approaches to generating forecasts of importance to national security, global affairs, and economics.

There is more at the link and they even offer a small honorarium.

Discretionary spending over the next ten years

Drawing on Chris Edwards, Will Wilkinson relays the picture:

Believe it or not, some people are flipping out over this outcome.  Do read Will’s entire post.  And for Tea Partiers out there: is this the best the nuclear option can get you?  I’d say rethink your theory of public opinion.

For those who want it, a rescaled graph is here, it still goes up!

Has there been a shift in the political balance of power?

Brad DeLong writes:

One possibility is that Cantor and Boehner have figured out something that has been inherent in the system since FDR but that few people recognized. Perhaps the President is now the ultimate status quo player in the government: Whatever goes wrong the public takes to be his fault and his responsibility. If anything goes badly wrong his political adversaries pick up the pieces and are strengthened.

In that case, whenever the desires of the president conflict with the desires of the speaker of the House, the president has little leverage. Any speaker who does not fear disaster can roll any president. In this future, any bill that a speaker insists is must-pass gets attached to a debt-ceiling increase, and–unless there are people in the Senate equally willing to risk disaster, which is unlikely because senators are status-quo players too–so becomes law.

It’s like a parliamentary system, with the debt-ceiling votes filling the role of votes of confidence.

An alternative possibility is that Obama abetted the entire deal and in essence worked with the Tea Party to roll the Left.  But let’s say this first hypothesis is correct.  It suggests that the value of holding the Presidency is less than it used to be.  For some policy changes, the value of holding the Presidency may be negative for a political party or political movement (Obama brings along some Democratic votes, for the final deal, that Mitt Romney could not).  Will the Republicans tank the fight for the Presidency?  No, that is hard to imagine.  Will they be more willing to nominate a non-centrist and risk a greater chance of losing the election?  Maybe so.  That could be one legacy of this deal.

Update on the credit rating agency vigilantes

It’s not the default that strikes the most fear in the White House and Congress these days. It’s the downgrade.

…what really haunts the administration is the very real prospect, stoked two weeks ago by Standard & Poor’s, that Barack Obama could go down in history as the president who presided over his country’s loss of its gold-plated, triple-A bond rating.
Financial analysts say such a move would hit Americans with more than $100 billion a year in higher borrowing costs, but it’s not just that. It would be a psychic blow to a nation that already looks over its shoulder at rising economic powers like China and wonders, what’s gone wrong? And it would give the president’s Republican rivals a ready-made line of attack that he’s dragging the country in the wrong direction.

The full story is here.  These vigilantes are real, but they are being scorned, dismissed, and moralized about rather than heeded.

The bottom line is that the nation’s long-run fiscal outlook matters now, even though you’ve had many top economists telling you for years that it does not.  I know all about the stability of Japanese bond rates following their credit downgrade.  In the American case, the mechanisms by which the long run matters can be as simple as Presidents seeking reelection and stubborn, irresponsible Republicans, not to mention spooked global markets latching on to scary focal points.

I see two lessons:

1. Moralizing about Presidents seeking reelection and stubborn, irresponsible Republicans does not remove their analytic impact.

2. The nation’s long-run fiscal outlook matters now.

Every time you see moralizing about #1, don’t let yourself be distracted from the truth of #2.  In fact, the more moralizing you hear about #1, the greater the import of #2.  Lots of moralizing about #1 is a sign that the overall political outlook, from the moralizer, is not robust to the truth and existence of #1.  Read the moralizing, but track the truth.

An Unbalanced Budget Amendment

The main argument against a balanced budget amendment is that it makes it more difficult to engage in Keynesian counter-cyclical fiscal policy. The main argument in favor is that without some legal or moral constraint, the ordinary rules of politics will push costs onto unrepresented and unorganized future taxpayers, as Jim Buchanan argued. In order to transcend these arguments I propose an unbalanced budget amendment.

The unbalanced budget amendment is a requirement that in good times the government must run a budget surplus. The virtues of such a rule are that it allows for counter-cylical fiscal policy during a recession. Indeed, it reduces the cost of counter-cyclical fiscal policy because it guarantees a reserve fund for just such emergencies. The unBBA is thus a type of automatic stabilizer of the kind I have argued for before (e.g. here).

A simple version of the unBBA requires surpluses but more generally the rule would be a surplus or a similarly sized reduction from the previous year’s deficit. The size of the required surplus/deficit reduction would be tied to a function of current and recent GDP growth rates.

Notice that while making counter-cyclical fiscal policy easier the unBBA would tend to create budget balance as surpluses in good times were spent in bad times. Thus over a period of time the unBBA has similar results to a BBA. By requiring surpluses (and thus taxes) to be high(er) in good times,however, rather in bad times the unBBA has a lower cost and a better chance of being passed than the BBA.

Overall, an unbalanced budget amendment seems much preferable to a balanced budget amendment.

Econometric papers on the Israeli-Palestinian conflict

Ending violent international conflicts requires understanding the causal factors that perpetuate them. In the Israeli–Palestinian conflict, Israelis and Palestinians each tend to see themselves as victims, engaging in violence only in response to attacks initiated by a fundamentally and implacably violent foe bent on their destruction. Econometric techniques allow us to empirically test the degree to which violence on each side occurs in response to aggression by the other side. Prior studies using these methods have argued that Israel reacts strongly to attacks by Palestinians, whereas Palestinian violence is random (i.e., not predicted by prior Israeli attacks). Here we replicate prior findings that Israeli killings of Palestinians increase after Palestinian killings of Israelis, but crucially show further that when nonlethal forms of violence are considered, and when a larger dataset is used, Palestinian violence also reveals a pattern of retaliation: (i) the firing of Palestinian rockets increases sharply after Israelis kill Palestinians, and (ii) the probability (although not the number) of killings of Israelis by Palestinians increases after killings of Palestinians by Israel. These findings suggest that Israeli military actions against Palestinians lead to escalation rather than incapacitation. Further, they refute the view that Palestinians are uncontingently violent, showing instead that a significant proportion of Palestinian violence occurs in response to Israeli behavior. Well-established cognitive biases may lead participants on each side of the conflict to underappreciate the degree to which the other side’s violence is retaliatory, and hence to systematically underestimate their own role in perpetuating the conflict.

That link is here.  One of the researchers, Johannes Haufhofer, has a Ph.d. in economics from the University of Zurich and a Ph.d. in neuroscience from Harvard.  His other papers are here.  Here is one of his recent grants, it looks quite interesting.

For the pointer I thank a loyal MR reader.

“Pick Your Poison: Do Politicians Regulate When They Canʼt Spend?”

From Noel Johnson, Matthew Mitchell, and Steven Yamarik:

We investigate whether laws restricting fiscal policies across U.S. states lead politicians to regulate more instead. We first show that partisan policy outcomes do exist across U.S. states, with Republicans cutting taxes and spending and Democrats raising them. We then demonstrate that these partisan policy outcomes are moderated in states with no-carry restrictions on public deficits. Lastly, we test whether unified Republican or Democratic state governments regulate more when constrained by no-carry restrictions. We find no-carry laws restrict partisan fiscal outcomes but tend to lead to more-partisan regulatory outcomes.

The presentation slides are here.  In my view this is one reason of many why a balanced budget amendment is not a workable path toward fiscal conservatism. 

Is a eurobond a possible solution?

I don’t see how, though I understand the arguments in its favor.  I can imagine a German leader saying to her citizens: “We need to pay this one-time clean-up cost, hold your nose and support it.”  (Actually maybe I can’t imagine that, but that’s another story.)  I cannot imagine such a leader saying “From here on in, we’re in the same boat with them.”  The latter seems to be like too much affiliation for anyone’s comfort, and on the back Greek end the associated long-term fiscal restrictions would rankle to say the least.

Imagine that you had an insolvent relation of uncertain future creditworthiness.  You could either make a one-time transfer of $10,000, to help pay off a debt, or co-sign a mortgage.  Wouldn’t the latter be psychologically harder to do, even if it involved a smaller expected subsidy in real terms?

Are we using tax cuts to make up for declining median household income?

DeptofNumbers reports:

I’ve long wondered what median income would look like after taxes were taken into account and if the structure of Lane’s chart might change given the dynamic nature of tax policy. Bruce Bartlett’s recent post on average tax rates for four-person families pointed out the data I needed to make such a comparison. The Tax Policy Center produces annual average tax rates for four-person families at the median income level. Using their historical data I can back out the growth of after-tax median family income since 1980 (just after GDP per capita and median family income start to diverge) and add that data to the chart that Lane produced.

…The results, though not earth shattering, are interesting. Prior to 2000, both real (i.e. inflation adjusted) median family income and real median family income after taxes grew at about the same rate. Real median family income has actually declined since 2000, but when you look at after-tax dollars received by households it’s been relatively flat. In other words, the median family has been able to avoid a more substantial decline in income by paying somewhat less in taxes. [emphasis added by TC]

There are useful graphs at the link.  This of course is one big reason why raising taxes — or even ceasing to cut them — is an unpopular idea with the American electorate.

Government size and economic growth

I thought the new paper by Andreas Bergh and Magnus Henrekson was both useful and wise:

The literature on the relationship between the size of government and economic growth is full of seemingly contradictory findings. This conflict is largely explained by variations in definitions and the countries studied. An alternative approach – of limiting the focus to studies of the relationship in rich countries, measuring government size as total taxes or total expenditure relative to GDP and relying on panel data estimations with variation over time – reveals a more consistent picture. The most recent studies find a significant negative correlation: An increase in government size by 10 percentage points is associated with a 0.5 to 1 percent lower annual growth rate. We discuss efforts to make sense of this correlation, and note several pitfalls involved in giving it a causal interpretation. Against this background, we discuss two explanations of why several countries with high taxes seem able to enjoy above average growth: (i) that countries with higher social trust levels are able to develop larger government sectors without harming the economy, and (ii) that countries with large governments compensate for high taxes and spending by implementing market-friendly policies in other areas. Both explanations are supported by current research.

That is the working paper version, there is a published and gated version in Journal of Economic Surveys.  By the way, here is a new video on economic freedom.