Category: Political Science
Some simple public choice observations about the periphery
1. Their governments have been obsessed with protecting insider interests for decades.
2. They use “make work” jobs as macroeconomic automatic stabilizers. A “pro growth” plan would eliminate these jobs, but of course in the short run and possibly medium run too, that would lower the rate of growth for Keynesian reasons. They are stuck.
3. There does not exist any coherent, workable, political incentive-compatible plan whereby these governments borrow more, spend more, and “invest for growth.”
4. There does not exist any coherent plan whereby Germany invests in the periphery at a level which will boost growth.
5. Their governments are in various stages of “clinging to power,” and that makes true pro-growth policies, and tackling major interest groups, more difficult.
6. As Angus has pointed out, “they’re tired of austerity” really means something more like “they want a greater backstop from the Germans.” Of course they do.
7. A boost to AD will not bring them back to where they were five years ago or anything close. Their competitiveness has been revealed to be weaker, their institutions have been revealed to be weaker, EU institutions have been revealed to be weaker, their financial systems have been revealed to be weaker, and there is the possibility of macroeconomic multiple equilibria with no flip switch to get back to where they were. AD is obviously a problem, but the notion that this is a nearly exclusively AD-based phenomenon is an idea which is held by many academics and bloggers but hardly anyone in those countries themselves.
8. Probably he was joking, but in this post Paul Krugman seems to suggest that France needs higher taxes.
In Europe, now what?
That is today’s NYT symposium, here is my short piece — “Democracy is having its say” — and links to the pieces of others. My opening sentence is this:
Today, very few countries in the euro zone are capable of making credible commitments or binding agreements with the others.
I am still predicting that it will end badly. It already has ended badly, in fact. And the “better than expected” scenario is not easy to see, much less bring about.
Scott Sumner, public choice, and Karl Polanyi all meet up
Through Interfluidity, where else? Here is one bit:
Consider NGDP targeting. Under this policy rule, Treasury securities would become risk assets, whose real return would be geared to the health of the economy. (NGDP path targeting implies that shortfalls in real growth must be matched by increases in inflation.) Treasuries become low-beta index funds, diversified claims on the real production. Nominal yields would be more stable, but the real value of a future payment becomes as uncertain and volatile as the business cycle.
Read the whole thing. In American politics, old people usually get their way. In Western Europe, those governments have been obsessed with protecting insider interests for decades and they are not suddenly swept up with an enthusiasm for free market economics. The problem isn’t “the Austerians”; do you really think that Pete Boettke is in charge?
*The Occupy Handbook*
I have an essay in that book co-authored with Veronique de Rugy. Other contributors include Paul Krugman, Robin Wells, Michael Lewis, David Graeber, Peter Diamond, Emmanuel Saez, Ariel Dorfman, Barbara Ehrenreich, Jeff Sachs, and Nouriel Roubini, among others.
Our essay is an…outlier…in the volume. Here is one bit:
Wall Street has contributed to some very real problems, but the core issues for poor Americans are often health care, education, and the cost of renting an apartment of buying a house. The best way to improve living standards and increase options for future success is to move toward greater competition and accountability in each of those areas, areas that usually have little to do with the financial sector per se.
Our goal is to propose an alternative vision for what OWS should focus on. You can buy the book here.
The wisdom of David Brooks
As Tyler Cowen reports in a fantastic article in The American Interest called “What Export-Oriented America Means,” American exports are surging.
Here is much more, read the whole thing. Here is one more bit:
A rift is opening up. The first, globalized sector is producing a lot of the productivity gains, but it is not producing a lot of the jobs. The second more protected sector is producing more jobs, but not as many productivity gains. The hypercompetitive globalized economy generates enormous profits, while the second, less tradable economy is where more Americans actually live.
How are left-wing and right-wing blogs different?
Via Kevin Lewis, here is Aaron Shaw and Yochai Benkler:
American Behavioral Scientist, April 2012, Pages 459-487
Abstract:
In this article, the authors compare the practices of discursive production among top U.S. political blogs on the left and right during summer 2008. An examination of the top 155 political blogs reveals significant cross-ideological variations along several dimensions. Notably, the authors find evidence of an association between ideological affiliation and the technologies, institutions, and practices of participation. Blogs on the left adopt different, and more participatory, technical platforms, comprise significantly fewer sole-authored sites, include user blogs, maintain more fluid boundaries between secondary and primary content, include longer narrative and discussion posts, and (among the top half of the blogs in the sample) more often use blogs as platforms for mobilization. The findings suggest that the attenuation of the news producer-consumer dichotomy is more pronounced on the left wing of the political blogosphere than on the right. The practices of the left are more consistent with the prediction that the networked public sphere offers new pathways for discursive participation by a wider array of individuals, whereas the practices of the right suggest that a small group of elites may retain more exclusive agenda-setting authority online. The cross-ideological divergence in the findings illustrates that the Internet can be adopted equally to undermine or to replicate the traditional distinction between the production and consumption of political information. The authors conclude that these findings have significant implications for the study of prosumption and for the mechanisms by which the networked public sphere may or may not alter democratic participation relative to the mass mediated public sphere.
Do most economists welcome ideological openness?
Daniel Klein has a new paper, with Davis, Figgins, and Hedengren:
A sample of 299 U.S. economics professors responded to our 2010 survey, which asked: “Suppose you are reading or listening to an economist, and he discloses his own ideological proclivities. Which best represents your attitude toward his doing so:” The results surprised us. Sixty-three percent of respondents chose “I welcome it,” twenty percent chose “I am indifferent,” and only ten percent chose “I dislike it.” Most economists, it appears, welcome ideological openness, and only a small minority dislikes it. Follow-up questions asked reasons why the respondent liked (or disliked) it. These results suggest that economists – or, at least those inclined to complete a survey – are quite inclined toward natural discourse.
I suppose this is good news for the future of the economics blogosphere. Or do economists just say that they welcome this openness, without really meaning it?
Why I think the Mexican government is winning the drug war
Mexico is still growing, and quite robustly, even after the drug lords have given it their best shot. The currency is up over nine percent this year.
If Mexico keeps on getting richer, and the drug lords keep on killing each other, eventually Mexico will win. Think rates of return, or think of government revenue as rising over time. I’m not saying the drug problem will ever disappear there.
Murder rates have stabilized or fallen in some key northern cities, including Juarez. Sending in the army seems to yield returns, in light of scared and corrupt local police forces.
Both the American recovery and the slowdown in China, combined with higher Chinese wages, will help Mexico and thus help the government against the drug gangs.
I fully admit this is speculation on my part, but it is my view.
Who would be a better president of the World Bank?
I see so many tweets and posts on this question. None of you know, I suspect. A few questions:
1. It is widely recognized that the Bank’s board “interferes” in WB activities too much, often meeting two times a week and also pushing through contracts which should be stopped or reexamined. Who can best stand up to that board when necessary? Can that be done at all, while keeping the contract-addicted major economic powers still interested in the Bank?
2. The WB is financially fairly dependent on China, which for whatever reason prefers to borrow from the Bank rather than use its reserves to finance projects. What should a president do if China starts seeing itself as “graduating” from this relationship? Or what if China falls apart economically? Will the World Bank end up like the UN, losing some of its talent and being hat in hand, asking for funds?
3. Let’s say the BRICS continue with their plan to set up a separate lending facility, as endorsed recently by Zoellick. How should a president keep the BRICS interested in the World Bank? Should the new lending facility be fought, co-opted, subsidized, or whatever? Competition or collusion?
4. The U.S. President tries to pressure the WB to create projects in Afghanistan or Iraq which the Bank doesn’t really want to do. Stand up to the President, fold, or meet him halfway? How should project demands involving the West Bank be finessed?
Maybe, maybe, maybe — if you knew the major candidates well — you could have some sense who would perform better at those tasks. And at about fifty others. Maybe. Maybe not.
It is hard to predict how any particular candidate would do. We do know who is likely to get the job. We don’t know what it is like to have a non-American facing those kinds of problems.
Addendum: Chris Blattman comments.
Inflation fear and privileged service sector jobs
The greater the number of protected service sector jobs in an economy, the more likely those citizens will oppose inflation. Inflation brings the potential to lower real wages, possibly for good. How many insiders, if they had to renegotiate their current deals, would do just as well?
Get the picture?
This is a neglected cost of protected service sector jobs, namely that the economy’s central bank will face strong political pressures not to inflate even when a looser monetary policy would be welfare-improving.
Western Europe most of all. If you see that the young people in an economy aren’t doing nearly as well as the privileged insiders, you should suspect that the privileged insiders fear renegotiation and thus fear inflation.
Inflation is easier to sustain in rapidly growing economies where people are moving up various ladders quickly.
Perhaps we have lost the ability and the political economy to support inflation when needed.
A future without ACA?
I think that path would look something like this: With health-care reform either repealed or overturned, both Democrats and Republicans shy away from proposing any big changes to the health-care system for the next decade or so. But with continued increases in the cost of health insurance and a steady erosion in employer-based coverage, Democrats begin dipping their toes in the water with a strategy based around incremental expansions of Medicare, Medicaid, and the Children’s Health Insurance Program. They move these policies through budget reconciliation, where they can be passed with 51 votes in the Senate, and, over time, this leads to more and more Americans being covered through public insurance. Eventually, we end up with something close to a single-payer system, as a majority of Americans — and particularly a majority of Americans who have significant health risks — are covered by the government.
One question is whether having both Medicaid and Medicare (and other programs) function as a “single payer” system, but that is arguably semantics. In any case the American system is likely to remain fragmented. I am also not sure if this process would take a decade, as sometimes a single election cycle can feel like an eternity. In any case, I see that as likely a superior outcome to the current ACA track. I have never thought that a mandate is workable in a fragmented system with employer-based care and high health care costs and high income inequality.
I also would not be surprised to see Romney, if elected, and if ACA is struck down, resurrect some version of the McCain health care plan with tax credits, maybe some more federalism, and less of a Medicaid extension than was in ACA. I don’t know if that would pass but I suppose I think not. I also don’t see much hope for a much-needed “supply-side” competitiveness plan.
*Being Global*
The authors are Angel Cabrera and Gregory Unruh, and the subtitle is How to Think, Act, and Lead in a Transformed World. Cabrera is the incoming president of GMU, as of this summer, so of course I am keen to read this book, which arrived in my pile today.
You can follow Cabrera on Twitter here, among other topics he covers leadership, globalization, and also the Spanish economy.
“Foreign” Aid
Astute piece in the NYTimes by Steven Lee Myers on military aid to Egypt Florida.
An intense debate within the Obama administration over resuming military assistance to Egypt, which in the end was approved Friday by Secretary of State Hillary Rodham Clinton, turned in part on a question that had nothing to do with democratic progress in Egypt but rather with American jobs at home.
…“In large part, there are U.S. jobs that are reliant on the U.S.-Egypt strong military-to-military relationship,” a senior State Department official said, speaking on condition of anonymity under rules set by the department.
…“Lockheed Martin values the relationship established between our company and the Egyptian customer since the first F-16s were delivered in the early 1980s,” said Laura F. Siebert, a spokeswoman for the company, which is based in Fort Worth.
…The M1A1 components are built in factories in Alabama, Florida, Michigan, Ohio and Pennsylvania, several of them battleground states in an election that has largely focused on jobs. Because the United States Army plans to stop buying new tanks by 2014, continued production relies on foreign contracts, often paid for by American taxpayers as military assistance.
Will Arab Spring lead to democracy?
A new BPEA paper by Eric Chaney (pdf) suggests maybe not:
Will the Arab Spring lead to long-lasting democratic change? To explore this question I examine the determinants of the Arab world’s democratic defi cit in 2010. I find that the percent of a country’s landmass that was conquered by Arab armies following the death of the prophet Muhammad statistically accounts for this defi cit. Using history as a guide, I hypothesize that this pattern reflects the long-run influence of control structures developed under Islamic empires in the pre-modern era and and that the available evidence is consistent with this interpretation. I also investigate the determinants of the recent uprisings. When taken in unison, the results cast doubt on claims that the Arab-Israeli conflict or Arab/Muslim culture are systematic obstacles to democratic change in the region and point instead to the legacy of the region’s historical institutional framework.
Here is a good sentence:
…the fact that the Arab world’s democratic defi cit is shared by 10 non-Arab countries that were conquered by Arab armies casts doubt on the importance of the role of Arab culture in perpetuating the democratic defi cit.
And this:
Once one accounts for the 28 countries conquered by Arab armies, the evolution of democracy in the remaining 15
Muslim-majority countries since 1960 largely mirrors that of the rest of the developing world.
The Ryan budget proposal
Ezra Klein offers some points of clarification:
Perhaps the simplest way to understand what’s going on in Paul Ryan’s budget, and whether it’s plausible, is to look at page 13 of the Congressional Budget Office’s summary of the Ryan plan (pdf). That’s where the CBO lists Ryan’s assumptions about how future budgets would differ under his proposal and under an alternative, high-deficit scenario. That lets us see where, exactly, Ryan’s presumed savings are. And they’re not, for the most part, in Medicare.
In 2030, spending on Medicare is .75 percent of GDP lower than in the alternative fiscal scenario. In fact, Ryan and the Obama administration have proposed the same rate of growth for Medicare: GDP + 0.5 percent.
It’s Medicaid and other health spending, which includes the Affordable Care Act, where Ryan really brings down the hammer: That category falls by 1.25 percent of GDP. So Ryan’s cuts to health care for the poor are almost twice the size of his cuts to health care for the old.
And then there’s the “everything else” category, which includes defense spending, infrastructure, education and training, farm subsidies, income supports, veteran’s benefits, retraining, basic research, the federal workforce and much, much more. And this category of spending falls by 2.5 percent of GDP.
Putting normative issues aside, I am predicting that something like this is what will happen, and it won’t require major Republican victories. In short, those are the most vulnerable interest groups.