Category: Political Science

Do high interest rates get people down?

by  Tyler Cowen in

Unemployment is low and inflation is falling, but consumer sentiment remains depressed. This has confounded economists, who historically rely on these two variables to gauge how consumers feel about the economy. We propose that borrowing costs, which have grown at rates they had not reached in decades, do much to explain this gap. The cost of money is not currently included in traditional price indexes, indicating a disconnect between the measures favored by economists and the effective costs borne by consumers. We show that the lows in US consumer sentiment that cannot be explained by unemployment and official inflation are strongly correlated with borrowing costs and consumer credit supply. Concerns over borrowing costs, which have historically tracked the cost of money, are at their highest levels since the Volcker-era. We then develop alternative measures of inflation that include borrowing costs and can account for almost three quarters of the gap in US consumer sentiment in 2023. Global evidence shows that consumer sentiment gaps across countries are also strongly correlated with changes in interest rates. Proposed U.S.-specific factors do not find much supportive evidence abroad.

That is from a new NBER working paper by Marijn A. Bolhuis, Judd N.L. Cramer, Karl Oskar Schulz, and Lawrence H. Summers.

What international issues become national interests worth fighting for, and why?

by  Tyler Cowen in

That sentence starts the abstract, here is the rest of it:

Contrary to conventional wisdom, I argue that issues without clear economic value, such as barren lands, are more likely to be perceived as national interests because they do not benefit any single domestic group. Since who benefits is unclear, politicians have an easier time framing such issues as benefiting the whole nation. I test this argument using survey experiments on the American public. The results show that first, issues providing diffuse benefits to citizens are more likely to be considered national interests than issues providing concentrated benefits to certain domestic groups. Second, issues with clearer economic value are harder to frame as having diffuse benefits because they are more easily associated with specific beneficiaries. This study proposes a new theory of national interest and offers a potential explanation for why people frequently support conflict over issues without obvious benefits.

That is from a new paper by Soyoung Lee, via the excellent Kevin Lewis.

What should I ask Fareed Zakaria?

by  Tyler Cowen in

Here is Fareed’s home page, here is Wikipedia:

Fareed Rafiq Zakaria…is an Indian-American journalist, political commentator, and author. He is the host of CNN‘s Fareed Zakaria GPS and writes a weekly paid column for The Washington Post. He has been a columnist for Newsweek, editor of Newsweek International, and an editor at large of Time.

He was managing editor of Foreign Affairs at age 28, briefly a wine columnist for Slate, and much more.  His new book Age of Revolutions: Progress and Backlash from 1600 to the Present is very classically liberal, and in my terms “Progress Studies”-oriented.

So what should I ask him?

Why don’t nations buy and sell territory more?

by  Tyler Cowen in

Egypt has agreed to a $35bn deal with the United Arab Emirates to develop the town of Ras el-Hekma town on its northwestern coast, Egyptian Prime Minister Mostafa Madbouly announced on Friday after weeks of speculations.

Madbouly said at a news conference, which was attended by Egyptian and Emirati officials, that Egypt will receive an advance amount of $15bn in the coming week, and another $20bn within two months.

The deal is the largest foreign direct investment in an urban development project in the country’s modern history, the prime minister said. It is a partnership between the Egyptian government and an Emirati consortium led by ADQ, he said.

Here is the full story, Nuuk here we come…

Shruti Rajagopalan interviews Doug Irwin

by  Tyler Cowen in

Doug of course is one of the top trade economists.  Here is the audio, video, and transcript, from the same wonderful Mercatus team that brings you CWT.  Here is one excerpt:

RAJAGOPALAN: I have a different question on Adam Smith. We’re all taught Adam Smith’s division of labor, specialization, economies of scale, the cliff notes version of that. Then, we learn about absolute advantage in about five minutes. Then, we set it aside and start thinking about comparative advantage.The first question I have is does Adam Smith’s basic model of division of labor, specialization, and economies of scale anticipate the comparative advantage trade models, or does it actually undermine the comparative advantage trade models in the way that Krugman wrote about or something else?IRWIN: I think that Adam Smith has a broader view of trade, a much richer view of trade than what I would think is of the narrower David Ricardo theory of comparative advantage. If you have to read one of the two, read Adam Smith because it’s much more fun to read. Reading David Ricardo is more like reading a textbook in the sense that he doesn’t have this broad historical sense and these new rich ideas and how they’re interacting that leaves a lot to the imagination and leaves a lot to future research to flesh out.He’s saying, “England can produce wine and cloth. Here are the labor coefficients, and we’re going to do this static comparison between England and Portugal.” That’s a very narrow way of thinking about trade.RAJAGOPALAN: So badly written, you want the wine by the end of it.IRWIN: There’s a wonderful quote by George Stigler saying: “the only thing that someone will take away from reading Ricardo’s theory of comparative advantage is that they need a bottle of wine to get through it,” or something along those lines.RAJAGOPALAN: I agree.IRWIN: Adam Smith isn’t technically as sophisticated if you will, but in terms of the ideas, they’re very sophisticated. Obviously, he wasn’t thinking in terms of an economic model directly, but it’s a much richer overall discussion of trade that I think you can learn a lot from, even reading today.RAJAGOPALAN: When you see the world today, what do you think the world looks like more? Does it look more like Ricardian comparative advantage and the more recent models like Heckscher–Ohlin, and those things that came about? Do you think it really looks like the Adam Smith story, which is much more nuanced, pay attention to what’s happening in the domestic economy in terms of division of labor, specialization, and that is the lead-in to foreign trade, which is so deeply entangled with domestic trade?IRWIN: Well, I hate to waffle, but I think you need a little bit of both. It depends on the question, depends on the country, depends on the issue that you’re examining. These are just tools that you draw to help out your understanding of a particular situation. I will confess I’m a little bit more in favor of Adam Smith. I’ve always said that his theory of trade, and in particular his analysis of trade policy, which I think is underrated, is very sophisticated, and very wise, and has a lot to say to us today.RAJAGOPALAN: Beautifully written, if I may add.

There are now 100 episodes of Ideas of India, here is a link to all of them.  And here is my own earlier CWT with Doug.

Scott Sumner on Nato

by  Tyler Cowen in

He titles his post What Tyler and Trump get wrong about NATO, excerpt:

I believe that both Trump and Tyler misunderstand the role of Nato. The most important aspect of Nato is not the amount it spends on the military, rather its role is to provide a mutual defense pact so large that no nation would dare to attack even its tiniest members. In that regard, it’s a smashing success.

Do read the whole post.  I agree that Nato is a relative success, but nonetheless think “pure alliance” is not enough as a model, rather it has to be backed by an actual not-solely-American-or Turkish-capability-to-defend.  One increasingly plausible risk is simply that American forces and supplies (the latter being already undersupplied) may be stretched thin elsewhere.

Another risk is that America may elect a leader who is not strongly committed to Nato, and this may even be likely.  To limit member defection ex ante, Nato membership still needs to offer some credible (non-American) protection ex post. Poland, for instance, could do a lot more to help protect Lithuania if it had some significant German military aid and assistance.

Finally, and perhaps most importantly, the degree of American protection is never guaranteed by a mutual protection treaty per se.  Let’s say that Russian “volunteer forces” encroached on Eastern Estonia.  How much do American voters care about this?  Exactly how strong a response would the U.S. mount, and against what or whom?  I suspect the U.S. would be far more enthusiastic about serious rather than nominal involvement if front-line Polish, German, Lithuanian and other troops are doing a reasonable share of the heavy lifting.

In sum, for the Nato alliance to be credible, including on matters of degree, the defense capabilities need to be more broadly distributed than they are at the moment.  It is odd to me that “credibility of degree” is so important in Scott’s monetary policy thinking, but not on this issue.

Well-functioning democracy for neither me nor for thee?

by  Tyler Cowen in

I have been following only snippets of the debate over whether Biden should step down as the Democratic nominee, for instance here Josh Marshall responds to Ezra Klein (NYT).  Most of all, I am struck by how little faith some of the commentators have in democratic processes.  Let’s consider a few possible arguments why Biden should not step down:

1. The Democratic Party process would not produce an electable candidate against a Republican with dozens of criminal charges against him.  Not even in an election that is supposed to have such enormous stakes.

2. The Democratic Party process would not produce a better candidate than a guy who, whatever the reality may be, is regarded by most of the American public as too old.  Not even in an election that is supposed to have such enormous stakes.

3. An open Democratic Party convention would badly embarrass itself, if it were on the television (and internet) every evening.  Remember Chicago 1968?

4. An open Democratic Party convention would be chaos, and perhaps commandeered by party extremists.

5. “Dealing” with Kamala Harris, whether that means accepting her as the nominee, or easing her out, somehow involves unacceptable consequences.

6. There are other arguments floating around too.

I am not saying these arguments are true (mostly I don’t know), I am merely reporting that I am reading and hearing them, and yes I mean from Democrats.

Most of all, I am struck by how skeptical and cynical these arguments are about democracy.  It’s not even democracy in the “can we beat the Trumpers?” sense, but democratic processes internal to the Democratic Party.

Skepticism about democracy — yet never ever explicitly voiced — is a growing problem among Democratic Party thinkers (though not Ezra).  On one hand, they wish to turn around and call people on the Right, or libertarians, “undemocratic,” or “anti-democratic,” or whatever.  On the other hand, when it comes to actual decisions of great consequence, they are the ones terrified of the democratic processes they themselves have created.  They know that, but can’t quite bring themselves to voice their doubts in those terms.

I am pleased to see that I am more positive on democracy than so many of the Democratic Party thinkers.  I don’t have any particular predictions about the 2024 cycle, but I can report that I am not short the market.  What I observe, however, is just how many people are shorting democratic processes and ideals.  Must, sooner or later, a greater consistency between theory and practice reign?  Or are professed views simply the handmaiden of political convenience, and they will, one way or another, disperse and end up blowing in the wind?

I am tired of making this point

by  Tyler Cowen in

Here Robin Hanson notes that social spending as a percent of gdp tends to rise almost universally:

 

Correlations between spouses

by  Tyler Cowen in

What should I ask Coleman Hughes?

by  Tyler Cowen in

I will be doing a Conversation with him, based in part around his new book The End of Race Politics: Arguments for a Colorblind America.  On Coleman more generally, here is Wikipedia:

Coleman Cruz Hughes (born February 25, 1996) is an American writer and podcast host. He was a fellow at the Manhattan Institute for Policy Research and a fellow and contributing editor at their City Journal, and he is the host of the podcast Conversations with Coleman.

Also from Wikipedia:

Hughes began studying violin at age three. He is a hobbyist rapper—in 2021 and 2022, he released several rap singles on YouTube and Spotify, using the moniker COLDXMAN, including a music video for a track titled “Blasphemy”, which appeared in January 2022. Hughes also plays jazz trombone with a Charles Mingus tribute band that plays regularly at the Jazz Standard in New York City.

I saw Coleman perform quite recently, and I can vouch for his musical excellence, including as a singer.  So what should I ask Coleman?

Literacy or Loyalty?

by  Alex Tabarrok in

Why does schooling in much of the developing world not result in much in the way of increased skills? Maybe because education bureaucrats in these counties want obedient citizens more than literate, numerate, informed citizens.

In a discrete choice experiment in which bureaucrats in education were asked to make trade-offs between foundational literacy, completion of secondary school, and formation of dutiful citizens, respondents valued dutiful citizens 50% more than literate ones. For many policy makers, the goal is not the production of knowledge, but the fostering of nationalism.

This may sound like an odd set of priorities, but both European and Latin American countries had similar priorities when they expanded their education systems to serve more than a small elite around the turn of the 20th century. The goal was not to produce scientists or entrepreneurs but to inculcate a reliable workforce that would support the state.

…Developing-country schools are trying to achieve much the same ends. Students learn to memorize, to obey, and to not question — but they do not particularly learn to read or write. But then again, that was never the goal — developing countries are following the path trod on by developed countries. Just like developed countries, they will try to “teach ordinary people obedience, respect for the law, [and] love of order.”

I am reminded that if you want to predict which countries invest a lot in education, look at which countries invest a lot in government owned television stations.

Religion and the ideological gender gap

by  Tyler Cowen in

Did the Trump tariffs help the heartland?

by  Tyler Cowen in

No, but they did get him some votes there:

We study the economic and political consequences of the 2018-2019 trade war between the United States, China and other US trade partners at the detailed geographic level, exploiting measures of local exposure to US import tariffs, foreign retaliatory tariffs, and US compensation programs. The trade-war has not to date provided economic help to the US heartland: import tariffs on foreign goods neither raised nor lowered US employment in newly-protected sectors; retaliatory tariffs had clear negative employment impacts, primarily in agriculture; and these harms were only partly mitigated by compensatory US agricultural subsidies. Consistent with expressive views of politics, the tariff war appears nevertheless to have been a political success for the governing Republican party. Residents of regions more exposed to import tariffs became less likely to identify as Democrats, more likely to vote to reelect Donald Trump in 2020, and more likely to elect Republicans to Congress. Foreign retaliatory tariffs only modestly weakened that support.

That is from a new NBER working paper by David Autor, Anne Beck, David Dorn, and Gordon H. Hanson.

From the beginning, “neoliberalism” was an obnoxious term

by  Tyler Cowen in

It was meant as an insult, implying that Mises – a marginalist – was trying to salvage 19th century liberal economics from the collectivist attacks of the Marxist left and the Nazi right, hence the “neo” moniker being attached.

One of the main promoters of this use was Othmar Spann, a rival of Mises on the University of Vienna faculty. Spann was a prominent proto-Nazi intellectual. In 1924 he added a disparaging chapter on “neoliberalism” to the new edition of his economics textbook.

By the time Mises arrived in Paris in 1938 for the CWL gathering, he had endured a decade and a half of simultaneous disparagement as a “neoliberal” by Nazis and Marxists. It should be no surprise that he was not keen to adopt the label himself.

Here is the full Phil Magness tweet storm.