Category: Political Science
Insider Trading is Legal for Congressional Insiders
Bloomberg: Your senator learns that a much- maligned weapons system now has enough votes for funding. Before the news gets to a reporter, he buys shares in the arms manufacturer for a quick, handsome profit.
What’s wrong with this picture? Nothing, according to the law…
U.S. senators, representatives and congressional staffers routinely attend high level, closed briefings or engage in conversations where secrets are disclosed that might send shares climbing or slumping if widely known.
That access lets them buy low and sell high based on material, non-public information, and they can do it without concern that their remarkable prescience will alert federal investigators of possible wrong doing.
Insider trading in Congress is not new. In 2004, I wrote about a study showing that the portfolios of US Senators "outperformed the market by an average of 12 per cent a year in the five years to 1998."
Hat tip: The Browser.
The culture that is Washington
Business is the most common academic major in the nation, representing one-fifth of all college degrees. And business ranks second among academic majors in the Washington area, but it's a distant second, representing 11 percent of the college-educated population.
Literature and languages rank third. Liberal arts and history rank fourth.
The data show "that D.C. is less business-focused than the country as a whole," said William Frey, a demographer at the Brookings Institution.
The full story is here.
*The Gold Standard at the Turn of the Twentieth Century*
The author is Steven Bryan, a historian, and the subtitle is Rising Powers, Global Money, and the Age of Empire. This book offers a great deal of previous unpresented information on the operation of the gold standard in Japan, Russia, Turkey, and Argentina, based on original rather than secondary sources. Here is a summary paragraph at the end of the book:
The connection between nineteenth-century great power politics, empire building, and militarism and the gold standard was obscured after World War I in the rush to reinstate the form of the gold standard while ignoring its substance and the varied rationales and motivations that had supported it. Despite the rose-colored hues of nostalgia that flourished after the war, the gold standard did not exist in some magical land separate from the rest of the late nineteenth-century world. For better or worse, the gold standard was as much a part of the age of empire as it was of the age of industry.
Here is the book's home page. Here is the p.99 test applied to the book.
Markets in everything
"The Republic of China (Taiwan)" has delivered to the municipality of Suchitoto, El Salvador two hundred packages of food, four wheelchairs, and a selection of musical instruments. The accompanying ceremony was attended both by the Chinese ambassador and the mayor of Suchitoto. Similar donations have been made to Santa Ana y Mejicanos and there are plans for visiting other locations as well.
*Washington: A Life*, by Ron Chernow
When the news from Boston reached Mount Vernon around New Year's Day, Washington deplored the methods of the tea party, even if he loathed the tax on tea. It was the next step in a fast-unfolding drama that would fully radicalize him. The administration of the bluff, portly Lord North had decided that Boston should pay for the destroyed tea and that Parliament should assert its supremacy, cracking down on harebrained schemes of independence now beginning to ferment in the colonies…the tea party convinced many British sympathizers that colonial protestors had become a violent rabble who had to pay a steep price for their inexcusable crimes.
I read only a few hundred pages of this book. The level of quality is high, but I find Alexander Hamilton's life much more interesting. This book does have an especially good discussion of Washington's contradictory attitudes and behavior toward his slaves.
Which is the country most likely to elect a Palestinian President?
El Salvador, here is some evidence, namely they already have done so and in the 2004 election both candidates were of Palestinian background. Belize has had a half-Palestinian President, so that would be an alternative pick, and the country has a fair number of Palestinians in politics and business.
The Charter 08 document
It helped Liu Xiaobo win a Nobel Peace Prize. Here is one good paragraph of many:
Protection of Private Property. We should establish and protect the right to private property and promote an economic system of free and fair markets. We should do away with government monopolies in commerce and industry and guarantee the freedom to start new enterprises. We should establish a Committee on State-Owned Property, reporting to the national legislature, that will monitor the transfer of state-owned enterprises to private ownership in a fair, competitive, and orderly manner. We should institute a land reform that promotes private ownership of land, guarantees the right to buy and sell land, and allows the true value of private property to be adequately reflected in the market.
Hat tip goes to Matt Yglesias.
Rereading *The Road to Serfdom*
Given all the recent fuss, I picked it up again and found:
1. It was more boring and less analytic on matters of public choice than I had been expecting.
2. Although some of Hayek's major predictions have been proven wrong, they are more defensible than I had been expecting.
3. The most important sentence in the book is "This book, written in my spare time from 1940 to 1943…" In those years, how many decent democracies were in the world? How clear was it that the Western powers, even if they won the war, would dismantle wartime economic planning? How many other peoples' predictions from those years have panned out? At that time, Hayek's worries were perfectly justified.
4. If current trends do turn out very badly, this is not the best guide for understanding exactly why.
It's fine to downgrade the book, relative to some of the claims made on its behalf, but the book doesn't give us reason to downgrade Hayek.
Canada’s budget triumph
From a new paper by David Henderson:
A federal government runs a large deficit. Deficits are so large that the ratio of federal debt to Gross Domestic Product (GDP) approaches 70 percent. A constituency of voters have gotten used to large federal spending programs. Does that sound like the United States? Well, yes. But it also describes Canada in 1993. Yet, just 16 years later, Canada’s federal debt had fallen from 67 percent to only 29 percent of GDP. Moreover, in every year between 1997 and 2008, Canada’s federal government had a budget surplus. In one fiscal year, 2000–2001, its surplus was a whopping 1.8 percent of GDP. If the U.S. government had such a surplus today, that would amount to a cool $263 billion rather than the current deficit of more than $1.5 trillion.
Will America come to envy Japan’s lost decade?
That's Ezra's question, read this too. Moving away from traditional macro, I would add two points:
1. Japan has seen numerous quality improvements over the last twenty years, and Japanese consumers are renowned for valuing quality. The CPI mismeasurement problem may be greater for Japan and real Japanese living standards perhaps have risen a bit more rapidly than the numbers indicate.
2. Japanese politics is less competitive and Japanese rent-seeking is less competitive than in the United States. Sustained near-zero growth in the United States would mean that interest groups tear apart the social fabric and grab too lustily at the social surplus. Whether we like it or not, we are "built to grow" and we use the fruits of that growth to buy off interest groups as we go along. Japan in contrast has greater capacity to stifle these grabs for new redistributions because their politics is more of an insider's game.
Imagine a future world history where, fifty years from now, we look back and decide that Japan was the one country that made a semi-success of near-zero growth. Which means we are now watching a Golden Age there of sorts. I'm not betting on that, but if you're looking for strange scenarios that's my suggestion for the day.
Trolley Problem Biases
In one variant of the trolley problem a trolley is rapidly bearing down on the innocent five who can be saved but only by pushing a single fat man onto the tracks. Do you push the fat man or not? The question throws into stark relief the moral theories of consequentialism and deontology.
Now suppose the fat man is named Tyrone. Does that change your answer? What if the fat man is named Chip?
In The Motivated Use of Moral Principles (pdf) the authors show that self-identified liberals are more reluctant to sacrifice Tyrone than Chip despite prior agreement that race is irrelevant to moral questions of this kind. Even more interesting when first presented with the Tyrone story liberals subsequently become less consequentialist even regarding Chip. But when first presented with the Chip story they maintain consequentialism for Tyrone.
On different questions, such as how consequentialist to be in military situations, self-identified conservatives swing back and forth in similar ways depending on whether Americans are attacking or being attacked.
Unfortunately, the authors don't present their statistical results in as clear a form as I would have liked (percentage changes would have been nice) so it's a little unclear how large the effect is. Nevertheless, although the conclusion isn't surprising it's interesting to see these results even in as clean a context as one could ever hope for:
Rather than being moral rationalists who reason from general principle to specific judgment, it appears as if people have a “moral toolbox” available to them where they selectively draw upon arguments that help them build support for their moral intuitions. While the present studies do not imply that general principles never play a direct, a priori role in moral judgment, they do suggest that moral judgments can be influenced by social desires or motivations, and that moral principles can be rationalizations for other causes of the judgment.
Hat tip Psychology Today.
Department of Unintended Consequences
Here's Stanley Fish:
Commentators who explain smugly that O’Donnell’s position on masturbation (that it is a selfish, solitary act) is contradicted by her Ayn Rand-like attack on collectivism, or who wax self-righteous about Paladino’s comparing Sheldon Silver to Hitler and promising to wield a baseball bat in Albany, or who laugh at Sharron Angle for being in favor of Scientology (she denies it) and against fluoridation and the Department of Education, are doing these candidates a huge favor. They are saying, in effect, these people are stupid, they’re jokes; and the implication (sometimes explicitly stated) is that anyone who takes them the least bit seriously doesn’t get the joke and is stupid, too.
Sometimes I think of the political blogosphere as a huge commons. An individual blogger can gain in readership or influence by attacking or ridiculing some enemy, but at the cost of making that enemy stronger in the world as a whole.
I also believe that every time the words "stimulus" or "fiscal policy" are blogged it helps the electoral prospects of the Republican Party, no matter what the content of the blog post.
Will social networks boost good political change?
Malcolm Gladwell says not so much:
Shirky considers this [web-based] model of activism an upgrade. But it is simply a form of organizing which favors the weak-tie connections that give us access to information over the strong-tie connections that help us persevere in the face of danger. It shifts our energies from organizations that promote strategic and disciplined activity and toward those which promote resilience and adaptability. It makes it easier for activists to express themselves, and harder for that expression to have any impact. The instruments of social media are well suited to making the existing social order more efficient. They are not a natural enemy of the status quo. If you are of the opinion that all the world needs is a little buffing around the edges, this should not trouble you. But if you think that there are still lunch counters out there that need integrating it ought to give you pause.
The point is well-taken but still activism of some kinds should go up. Loose ties favor campaigns to get out the vote and sign petitions; those developments can bring about many positive changes. Most unsettled issues in American politics today would not be well-served by organizing less cooperative confrontations, even if you perceive a great injustice. I believe that "making the existing social order" more efficient, to use Gladwell's phrase, is positively correlated with many desirable reforms, as are the qualities of "resilience" and "adaptability." If we look at the recent experience in Iran, web mobilization seems to have encouraged — not discouraged — people from risking their lives for a cause. Is the web doing much to help the worst African dictators or the totalitarians in North Korea? Not so many data are in, but so far I score this one for Shirky.
Adam Smith is usually smarter than you think
In passing, Jacob T. Levy effectively scores the point and fills us in:
Adam Smith, generally thought of as the first systematic analyst of the market economy, was in my view the first major analyst of the modern state who saw it more or less completely: its permanent system of taxation and debt, its permanent expenditures on public works, its standing army, its bureaucratic structure, its colonial and imperial ventures, its complicated relationship with economic growth and prosperity, and in general the inevitability of a system of “police” or policy. This is not wholly distinct from his work as an analyst of the market; standing armies and professional bureaucracies are aspects of the division of labor, and the wealth of nations is a key determinant of their ability to fulfill their state projects. But it is partly distinct.
The Shape of Things to Come and Not to Come
Here is a very good post from Matt Yglesias, who gets to keep his name on the Yglesias Award. I am reluctant to pull any bit out of context (do read the whole thing), but here is one excerpt:
Get 40 Senators together to filibuster everything and that’s what you get. And when you add in state and local government, that’s a pretty healthy big government agenda right there, especially when you consider that states are shouldering a health slice of the Medicaid bill. Realistically, does anyone think we’re going to increase the overall size of the government faste than that? I sure don’t.
…So the future of American politics is necessarily going to be about things like making the tax code more efficient, finding areas of government spending to cut relative to projection, and thinking of policy measures that will help people that don’t involve spending more money.
I've arrived at somewhat similar conclusions, though from a different direction. Here is an alternative version of What is Not to Come:
1. Obamacare won't be repealed or declared unconstitutional, nor will Republican candidates be running against it six years from now. Trying to repeal parts of it would likely backfire and destroy the private insurance industry, given that the process would be ruled by public choice considerations rather than rational technocracy. We still would end up with a larger public sector role in our health care institutions.
2. I don't view "$200 billion a year to redistribute what is for this purpose a largely fixed supply resource" as an especially good investment, but it won't bring this country to its knees. The policy won't do much for fiscal responsibility.
3. Social Security won't much change, keeping in mind that the number of elderly voters is growing larger every day. Given all their elderly white voters, the Republicans are already "the party of Medicare." The Democrats have become "the party of Medicaid." That locks three major programs into place, more or less. I don't hear serious talk of major cuts in defense spending.
4. Taxes won't be raised much (do the Dems seem to have great love for reversing the Bush tax cuts?), spending won't be cut enough (the recent Republican document is extremely weak), and within twenty years we will have a sovereign debt crisis in the United States, as one day a Treasury auction won't go well. I'll predict, but not favor, the emergency passage of a VAT, a' la TARP, which will restore fiscal stability but lower the long-term rate of growth. When that time comes, the VAT will indeed be necessary, though ex ante I would opt for less social protection and a higher rate of economic growth.
5. The most important changes will come from aging, how other nations in the world fare especially China and India, the rate of technological progress, and foreign policy events which are exogenous from the point of view of economic policy. Overall it will be more interesting to follow other nations than the United States. Get ready for this and pick a few countries.
6. We should try to take back many of our vanquished civil liberties. Such a fight may or may not succeed, but at least fiscal considerations won't rule out this counterblow for liberty.
7. On issues such as drug legalization and gay rights, I see a more cyclic than melioristic pattern. We will see marginal improvements but we won't enter a new age of reason, in either the public sector or the private sector. The Netherlands is backing away from its very liberal social policies, including on drugs, and the cause of gay rights could as easily fall back as progress. I believe that many people are broadly programmed to be prejudiced in this area.
8. We will tweak financial regulation, but whether this is for better or worse, the link between reforms and final outcomes will continue to be opaque, to say the least.
9. More and more laws will be frozen in place. This already seems to be the case with immigration policy. More and more expenditures will be frozen into place. Politics will become more symbolic, and in some ways more disgusting, in response to the absence of real issues to argue over.
10. Climate change will remain an important yet insoluble issue. Even major legislation (which seems unlikely) would not change this much, not for a long time at least.
11. People will write profound books and papers on how and why "status quo bias" has strengthened, and then one day some new technological development will change everything. It's an open question whether this will happen before or after the sovereign debt crisis.
12. In the meantime, the United States will experience an ongoing "late" period of cultural blossoming, driven by the proliferation and democratization of new electronic media.
That's all for now!