Category: Political Science

California fact of the day

Chug sends a good link to me, on default estimates, here is the bottom line:

The six with rankings more worrisome than California are Venezuela (the worst), followed by Argentina, Pakistan, Greece, Ukraine and the Emirate of Dubai. California ranks ahead of the Republic of Latvia, the Region of Sicily and Iraq.

As sovereign debt crises unfold, you will see increasingly innovative attempts to avoid uttering the simple words: "The government spent too much money here."

See also here for a list of "sovereign tighteners" and "sovereign wideners."

The challenge

David Leonhardt spells it out clearly:

As a rough estimate, the government will need to find spending cuts and tax increases equal to 7 to 10 percent of G.D.P. The longer we wait, the bigger the cuts will need to be (because of the accumulating interest costs).

Seven percent of G.D.P. is about $1 trillion today. In concrete terms, Medicare’s entire budget is about $450 billion. The combined budgets of the Education, Energy, Homeland Security, Justice, Labor, State, Transportation and Veterans Affairs Departments are less than $600 billion.

This is why fixing the budget through spending cuts alone, as Congressional Republicans say they favor, would be so hard.

Here is related commentary.

Thoughts on the British election

1. It's amazing how quickly they form a new government.  We could learn something from this.

2. Spending cuts will be necessary.  (I am curious: what is the U.S. "progressive" take on this question.  Is it admitted that spending cuts are necessary?)

3. Tax increases will be necessary.  (Do U.S. commentators on the right admit this?)

4. Britain should avoid proportional representation.  Classic parliamentary systems are good at making big changes in a hurry, when the major party knows which changes are needed, and that is Britain's current position.  It's no accident that Thatcher and Roger Douglas — both of whom operated under extreme Westminster systems – were two of the major reformers in the late 20th century.  PR gives too much power to minority parties in the ex post electoral bargain and it works best when there is extreme consensus at the social level, combined with the need to bring certain co-optable minorities into that consensus.  Is that the way to think about UK politics today?  I don't see it.  Does any objective observer jump for joy when a "first past the post" election yields a hung Parliament and requires a coalition, as it does now?  No, so why institutionalize this need with PR?

5. Do paragraphs like this make you feel better?: "William Hague, the new foreign secretary, said the coalition would be built on the personal chemistry of Mr Cameron and Mr Clegg, and said that Mr Clegg would not get a veto on government decisions. He told the BBC: “Their ability to resolve this situation bodes very well for all our ability to work together in government.”"  They shouldn't.

Megan McArdle asks

But I still don't see what the rest of the eurozone is getting out of it.

The Greek bailout, that is.  I view it as a bit like the U.S. in Afghanistan.  Whether it will yield anything useful from here on in can be debated for a long time.  But if we pull out precipitously, and the Taliban take over, it will be seen as a big U.S. loss (whether that's worth the cost is not the question of concern here, only that it is a gross cost, whether or not it is a net cost, all things considered).  Since Afghanistan once attacked us (sort of), our entire deterrent would be much less credible.

Going back to Europe, without the bailout no German or French commitment to another European nation, or another European collective project, would be worth very much for a very long time.  Boo hoo you may say, but in the European world that is perceived as a very high cost indeed.  It would mean writing off the major narrative of European collective progress since the end of World War II.

A second factor is that the choice is either bail out Greece or bail out some German banks.  The smaller European nations are more likely to pitch in to pay for part of the former than for part of the latter.  Given the size of German banks relative to German gdp, it's not even clear how much the latter is an option.  The Germans have to try to keep their fingers in the proverbial dike or else all hell breaks loose.  They just can't afford a run on their shadow banking system.

I view the entire bailout announcement, and its scope, as a signaling issue.  The Germans loathe such semi-inflationary commitments and basically they just signaled that their banks are a good deal more precarious than the rest of us would like to believe.

So there you have it.  Europe is stuck and in response to a crisis they basically raised the stakes.  Arguably they had no choice, but they haven't actually eliminated the potential negative outcomes from the gamble.

Politics in Colombia

When you hear the name Antanas Mockus, do you imagine him as the character in some strange fantasy novel?  Well, he is running for President of Colombia and so far he is in the lead:

Responsible is not always the first word that comes to people’s minds here about Mr. Mockus. He became well known in 1993 after dropping his trousers and mooning an auditorium of unruly students, forcing him to resign as rector of the National University.

“Innovative behavior can be useful when you run out of words,” Mr. Mockus said of the uproar that followed, explaining that he viewed the episode within the concept of French philosopher Pierre Bourdieu’s “symbolic violence.”

He leveraged the publicity from that episode to run for mayor of Bogotá, a city then on the verge of chaos. In two terms, Mr. Mockus merged lofty political theory with projects to improve quality of life here and got attention by dressing up, with a hint of self-mockery, in a superhero costume as “Supercitizen.”

Beyond that, he used mimes to mock scofflaw pedestrians, held disarmament days for people to turn in guns and even asked people to pay more in voluntary taxes. To nearly everyone’s surprise, some 63,000 people did.

Here is his self-description:

“I’m battling for the integration of ideas from the left and right,” he said, explaining that he was in favor of higher tax collection and a strong government role in society, while also advocating the closing of inefficient state enterprises, cutting the public payroll and supporting private industry.

The Euro and precommitment

It's not the major problem, but one neglected aspect of the Eurozone crisis is simply that countries such as Greece and Portugal cannot precommit to stay in the Eurozone forever.  So markets start wondering whether or when they will leave.  That makes it harder for them to borrow (markets expect a currency devaluation), which turns up the pressure for them to leave.  It also makes it harder for their financial intermediaries to stand on a permanently sound footing, given that deposit liabilities may not stay denominated in terms of Euros forever.

If Greece and Portugal were out of the Eurozone, few people would speculate on their imminent return, and so that state of affairs is more likely to have consistent (if sometimes bad) expectations.

Once something like this is up for grabs, it is often wiser to bet on the outcome associated with the more universally consistent expectations, whether or not you think that outcome is a good one.

Of course the market is also familiar with this logic, which in turn makes it yet stronger.  It also means that tips and flips of sentiment can enforce runs and speculative attacks very quickly and at not-fully-predicted times.

Scott Sumner reports

I actually looked at all 32 economies with per capita income above $20,000/year (i.e. as rich as Portugal.)  Interestingly, just as Denmark was number one in both markets and civic virtue, the same country placed dead last in both the free markets and civic virtue rankings.  And what is the country with both the lowest level of civic virtue and the least reformed statist economic system among 32 developed countries on four different continents?

You’ve probably guessed it by now . . . Greece.

Read the whole post, which is interesting throughout and more about economic liberalism than about Greece.

When did Greek economic policy turn bad?

Stan Tsirulnikov forwards to me this very interesting paper (JSTOR, gated for many of you).  Here is an excerpt from the summary:

For twenty years up to 1974, Greece enjoyed rapid growth, high investment and low inflation; during the next twenty years, growth and investment collapsed and inflation became high and persistent.

After 1974, debt and deficits rose sharply as well, and later EU transfers helped postpone the necessary fiscal adjustments.  At this same time Greece was becoming more democratic, in part because the previous autocratic arrangements were collapsing.  The figure on p.150, representing the difference between the two periods, is a knockout.  And after 1974, the average rate of gdp growth goes from 7.1 percent to 2.1 percent.

The full reference is "The Two Faces of Janus: Institutions, Policy Regimes and Macroeconomic Performance in Greece," George Alogoskoufis, Economic Policy, Vol. 10, No. 20 (Apr., 1995), pp. 149-192.

Addendum: Here is an ungated copy.

John Gray on Michael Oakeshott

John Gray often misfires, but still he is one of the smartest and most knowledgeable generalists around:

…Oakeshott was not without illusions of his own. He was able to disparage ideology because he believed tradition contained all that was needed for politics; he could not conceive of a situation in which a traditional way of doing politics was no longer possible. Yet that has been the situation in which the Conservative Party has found itself over the past generation. The leader and his cabal of modernisers could hardly expect to undo the more radical modernisation Thatcher had unwittingly imposed on the party. As Cameron will discover, one way or another, an ideologically driven Conservatism is here to stay – even if it means the party once again drifting into limbo.

The full review, which covers British politics and the forthcoming election, is here.  Here is Gray, trying to dismantle A.C. Grayling's rationalism (hat tip The Browser), worth a read.

The culture that is Dutch

Potholes, stray garbage, broken street lamps? Citizens of Eindhoven can now report local issues by iPhone, using the BuitenBeter app that was launched today. After spotting something that needs to be fixed, residents can use the app to take a picture, select an appropriate category and send their complaint directly through to the city council. A combination of GPS and maps lets users pinpoint the exact location of the problem, providing city workers with all the information they need to identify and resolve the problem.

Here is more information, via BrainPicker.  I wonder how well this would work in Rhode Island?

Good luck

It states that all illegal immigrants living in the United States would be required to "come forward to register, be screened, and, if eligible, complete other requirements to earn legal status, including paying taxes."

That's part of the new Democratic immigration plan.  What do they do with the immigrants who aren't liquid enough or solvent enough to pay ten years' back taxes, not to mention those who have no idea what they owe?

Just asking.  Does this plan contain a workable amnesty component at all, or is it just a border and employment clampdown?

There's more detail here, although no answer to my questions.

On Tolerance

“Tolerance” is a feel-good buzzword in our society, but I fear people have forgotten what it means. Many folks are proud of their “tolerance” for gays, working women, Tibetan monks in cute orange outfits, or blacks sitting at the front of the bus. But what they really mean is that they consider such things to be completely appropriate parts of their society, and are not bothered by them in the slightest. That, however, isn’t “tolerance.”

“Tolerance” is where you tolerate things that actually bother you.

Robin Hanson is correct that few people are truly tolerant but peculiarly for Robin he calls for more true-tolerance anyway.  I'm all for more tolerance but Robin's own examples suggests that social change is not much driven by changes in tolerance. 

As I suspect Robin would acknowledge, gay rights have not advanced because of more tolerance per se, i.e. they have not advanced because more people are willing to accept behavior that bothers them.  Advance has occurred because fewer people are bothered by the behavior.  Note, for example, that if the former were the case we would not see more gays and lesbians on television, as we do today.

When we are required to confront things that bother us we sometimes (often?) reduce
cognitive dissonance by changing our preferences so that we are no longer
bothered.  Thus libertarians and other true-tolerants may play a role in encouraging the intolerable to come forward, thereby forcing the intolerant to reduce cognitive dissonance by accepting what was formerly intolerable.  In this sense, a few more true-tolerants might help to tip society towards acceptance of some variant practices.

But since few people are or ever-will-be truly-tolerant, tolerance by itself probably can't get us very far towards a society of peaceful variation.  Instead, we will have to argue that variant practices are normal, not bothersome or a subject of indifference.  The route to drug legalization, for example, is to encourage more normal people who "smoke pot and like it" to come out of the closet.  Kudos to you, Will Wilkinson!  In the case of marijuana, I think this is possible but for many of the present and future variant practices mentioned by Robin, the limitations of tolerance put a big constraint on those that will ever be "tolerated." 

Should the SEC self-finance?

I haven't seen this issue receive much attention on the usual blogs (Yves Smith is one exception).  Here is one argument for self-finance:

The Obama administration has requested long overdue increases in both budget and staff for the S.E.C., and has plans to add as many as 374 employees. Those increases are vital, but because they’re dependent on Congress, there is no guarantee that they will be sustained.

Instead, the commission should finance itself – much as the Federal Reserve and the Federal Deposit Insurance Corporation do today through fees on banks. These two pivotal financial regulatory agencies thus have the flexibility to adjust their own staff.

And it appears easy:

Such a self-financing system would not mean higher fees; the commission collects far more in fees from corporate filings and stock market trading than it gets from Congress. But those fees go back into the federal coffers. In 2007, the S.E.C. brought in $1.5 billion, almost twice its 2007 budget.

This seems like a short-run improvement, but the idea nonetheless makes me a bit nervous.  What will it look like in practice, ten or fifteen years from now?  Was reliance on fees in every way beneficial for the FDA?  Admittedly, self-finance is one pathway to higher levels of finance, but the two issues are conceptually distinct and we might prefer to implement the appropriate level of finance directly through Congress.  I fear that in the longer run self-finance means that the SEC never wishes to see the financial sector shrink.  (Of course maybe it's not going to shrink anyway.)  A related question is what kind of internal controls the SEC would need to maintain its own fiscal discipline and prevent overspending, backed by an excess raising of funds and fees.  So whether self-finance is a good idea probably depends on what you are comparing it to.  A final question, and not a small one, is whether you think the SEC should be more independent from Congress.

Here is the SEC's own case for self-finance.  Here is a 2002 GAO study of the idea, very useful and it also discusses other cases of self-finance among regulatory authorities.

I don't have any strong conclusion here other than "maybe."