Category: Political Science
Why don’t we nudge people toward more risk?
Most paternalistic nudges encourage more safety (or at least the appearance of safety), such as when government steers people away from trans fats with a warning label or when the transportation authority structures the contours of a road to induce drivers to slow down. I can think of a few nudges in the direction of greater risk-taking:
1. QEII and activist monetary policy more generally. Investment tax credits and upbeat Presidential speeches.
2. Military recruitment campaigns and ads.
3. Social norms that people should pursue the love of their life, propose marriage, have children, and so on.
What else?
The Hansonian question is why the bias toward safety is neglected for risk-taking in these areas. Is it a simple utilitarian standard? Is it that these forms of risk-taking are affiliated with larger social purposes, namely ones whose relative status we are trying to boost? Are nudges toward risk just as common as nudges toward safety, but we are less willing to describe them as such?
Risk-taking by eating dangerous food has a relatively low social status, perhaps because the gain is mostly private. Sushi or sampling street food in exotic locales have minority or cult followings, perhaps because they are (sometimes) associated with higher class values. Many people eat and enjoy trans fats but few people defend or elevate them.
The deficit commission report
I've read only the summaries (and here), not the report. Mankiw is happy, Krugman and DeLong are upset. The home mortgage interest deduction goes and income tax rates are 8, 14, and 23 percent. No one thinks this is the final deal. I would say evaluate this as you would a movie trailer: will it get people to take the next step of thinking about a ticket purchase? The top 23 percent tax rate is like the quickly cut scene with the rolling boulder, the skimpily clad girl, the grinning enemy, and the face of the star. "The Bowles-Simpson plan has a ratio of roughly $3 in spending reductions for every $1 in revenue increases…" It won't happen in real life. As a movie preview I judge this as "good enough." It basically declares that some major deductions have to be on the table and it gets us to the next step.
Ezra Klein comments.
Brad DeLong’s fiscal plan
You'll find it here and I agree with much of it. I would phrase the rhetoric differently, but let's put that aside. And also let's assume — as is likely the case — that Obamacare is here to stay and thus that is taken off the table. The most important development is simply that Republicans (and Democrats) support the potential for Obamacare to reduce the rate of growth of Medicare expenditures. That is the #1 issue in fiscal policy today. And it saddens me how infrequently it comes up, except to be attacked.
I get nervous when I read Brad's phrase "commit immediately," which appears repeatedly in the post and it appears in critical moments. I favor the specified commitments but I also think they are highly unlikely. The phrase "commit immediately" is almost an oxymoron, as the call for immediacy highlights that no one to date has made such a commitment or wants to or, in all likelihood, will, until of course an emergency comes, as with the passage of TARP.
This "don't commit, rather do it now" reasoning is easy to understand when the Democrats pushed for a rapid passage of Obamacare, or when we look at the frustration with the stalled repeal of DADT. Few on the left thought that "precommitment to do" was a viable option in those cases, so the push was "do it now," even if that was not convenient in terms of the election or, in the case of DADT, relations with the Pentagon. Yet when we return to fiscal policy, the talk is once again of "commitment." I fear it is a placeholder for the idea of "no commitment."
What's the best fiscal policy when there is no commitment? I say let the Bush tax cuts expire fairly soon, so that spending feels to the public like it has a cost. (It's become increasingly clear to me that when it is possible for taxes to fall again that they will do so; I am less worried about high tax rate lock-in than I was fifteen years ago.) Have prominent Republicans endorse the better parts of Obamacare. Continue QEII but no second fiscal stimulus and no extension of any Obama tax cuts, which were a mistake in the first place. Carbon tax if possible but it's not. Reindex Social Security ASAP. Cut discretionary spending where you can.
That's my fiscal recipe, for this lovely Wednesday morning, sans commitment. Like Brad's proposals, it won't happen, but it feels "merely impossible," as opposed to impossible at a more fundamental metaphysical level. Should that distinction matter?
Oh, and get rid of DADT during the lame duck session of Congress. Ha.
Addendum: Interfluidity has brilliant, and related, remarks. The best post I've read in some time.
The more things change…
Via Veronique deRugy, here is the recently elected Rand Paul on earmarks:
In a bigger shift from his campaign pledge to end earmarks, he tells me that they are a bad “symbol” of easy spending but that he will fight for Kentucky’s share of earmarks and federal pork, as long as it’s doled out transparently at the committee level and not parachuted in in the dead of night. “I will advocate for Kentucky’s interests,” he says.
Ireland facts of the day
The increase in spending, which is part of Ireland’s present problem, is quite recent. From 2000 to 2006, the number of people employed in the Irish health sector increased 20 percent, in education by 27 percent, in the justice sector by 22 percent, and in the civil service by 27 percent.
In the past decade, Irish health spending has doubled, in real terms. In 2000, about 22 million items were prescribed; 10 years later, 52 million items were. People aren’t twice as healthy as a result.
As far as taxes on income are concerned, Irish people now pay about half as much as an equivalent family does on the same income in Germany. There is currently no recurring tax on property, no charge for water supplies, and modest fees for a college education. Welfare payments compare favorably with those in Northern Ireland.
Here is more. Currently there is talk of a "buyer's strike" in the market for Irish bonds. When the Irish accept the full extent of the standard of living "reset" implied in all of this, how big a step back will be required? Ten years? More? If you take away pre-war, war, and post-war examples, is there any precedent for such a large reset in the history of wealthy countries? Apart from contemporary Iceland, that is.
Will Ron Paul oversee the Fed?
Politico reports:
Here's a little irony in the House GOP sweep: The next chairman of the monetary policy subcommittee — overseeing the Federal Reserve?
None other than Ron Paul (R-Texas), who'd just as soon abolish the Fed.
Paul is the ranking member of the Subcommittee on Domestic Monetary Policy and Technology on the Financial Services , which oversees the Federal Reserve, the U.S. Mint and American involvement with international development groups like the World Bank. Unless someone bumps him, he's next in line for the subcommittee gavel.
The Republican Conference has to vote on the matter, however. Paul has long called for the abolition of the Fed and restoration of a gold standard.
My impression of the election results, from a great distance
There is an anti-gay backlash in Iowa and I don't see marijuana climbing the legalization hill, if it can't make it through current-day California. We're seeing the high water mark for pot, as aging demographics do not favor the idea. Just 32% of the Tea Party candidates won; admittedly that figure should be adjusted by the rate of incumbency (a lot of Tea Party candidates were challengers). In any case, there was not a Tea Party tidal wave. Sarah Palin as nominee is up a few points on InTrade.com, although I do not see why. Haley Barbour is also up and Chris Christie is down considerably (why?). Given that the Democrats did better than expected in the Senate, Obama's reelection chances look better now than they did a week ago. The Republican strategy is not dominating in broad constituency, MSM-reported, "lots of scrutiny" races, even with an abysmal economy and a not so popular health care bill. My mental model of Obama is that he will cut deals with the Republicans, even on (mostly) their terms, if indeed any deal is on the table. I would be pleased if critics of the Obama presidency would indicate their managerial background and expertise, yet few do. How many of them could manage a team of ten people with any success?
The next step in FinReg?
Mr Bachus told the FT that he would go “page by page†‰ [through Dodd-Frank].†‰.†‰.†‰to identify job-killing provisions or lending-killing provisions”. He highlighted new rules pushing over-the-counter derivatives trading through clearing houses and on to exchanges as a problem for non-financial corporate users.
“The derivatives provisions in Dodd-Frank alone… as they stand now they’re going to take a trillion dollars out of our economy. Think how many jobs that’s going to kill,” he said.
It is difficult to fathom how that last pararaph (article here) can make any sense, other than as fabrication. What is the public choice factor here? Ag producers who trade customized swaps and who wish to keep doing so? Or is it financial institutions, including the trading branches of commodities firms, which earn money trading the spread? How about traders which don't want to deal with the potentially onerous margin requirements at a newly established clearinghouse? All of the above?
Very good sentences
But insofar as many people do have nationalist convictions, it’s worth noting that there’s a tradeoff between the nationalist impulse to seal the borders and the nationalist impulse to prolong the period of American hegemony.
In other words, if a country has a small or shrinking number of people it will lose international power and status. That is from Matt Yglesias.
The “Dalai Lama” effect on international trade
Andreas Fuchs and Nils-Hendrik Klann report:
The Chinese government frequently threatens that meetings between its trading partners’ officials and the Dalai Lama will be met with animosity and ultimately harm trade ties with China. We run a gravity model of exports to China from 159 partner countries between 1991 and 2008 to test to which extent bilateral tensions affect trade with autocratic China. In order to account for the potential endogeneity of meetings with the Dalai Lama, the number of Tibet Support Groups and the travel pattern of the Tibetan leader are used as instruments. Our empirical results support the idea that countries officially receiving the Dalai Lama at the highest political level are punished through a reduction of their exports to China. However, this ‘Dalai Lama Effect’ is only observed for the Hu Jintao era and not for earlier periods. Furthermore, we find that this effect is mainly driven by reduced exports of machinery and transport equipment and that it disappears two years after a meeting took place.
For the pointer I thank The Browser.
*State of Emergency*
Could it be the best non-fiction book so far this year? The author is Dominic Sandbrook and the subtitle is The Way We Were: Britain, 1970-1974, here is an excerpt:
As a spender, Joseph had only one Cabinet rival: the Education Secretary, Margaret Thatcher. Derided as the "Milk Snatcher" in 1971 because she had to carry out Macleod's plan to scrap free school milk for children aged between 8 and 11. Mrs Thatcher was actually a big-spending education chief who secured the funds to raise the leaving age to 16 and to invest £48 million in new buildings. In December 1972, she even published a White Paper envisaging a massive £1 billion a year for education by 1981, with teaching staff almost doubling and vast amounts of extra cash for polytechnics and nursery schools. She wanted "expansion, not contraction", she said. It never happened; if it had, her reputation in the education sector might be very different.
Every page of this book has excellent analysis and information, attractively presented. It masterfully covers a wide range of topics, ranging from how the British started drinking wine, to how the power cuts affected public morale, to the strategies of British labor unions, to the insightfulness of Fawlty Towers. It's a key book for understanding how the Thatcher Revolution ever came to pass.
It is simply a first-rate book. It is out only in the UK, but I was happy to pay the extra shipping charge from UK Amazon, which you too can pay here. Or maybe try these used sellers. Some reviews are here.
Theodore Sorensen quotation
The ambassador was never present, but his presence was never absent.
Here are two more.
From the comments
I never really bought the "conservatives are fearful" argument; after all, the left is the one arguing for more economic protection.
I think a more useful distinction is that people want free-market competition in areas where they are strong, and protection and regulation in areas where they are weak. Conservatives want free competition in the economic sphere but moral protections in social interactions; liberals want protection from market forces but are happy to take their licks in status-seeking competitions.
In a state of nature, the highest-status people get away with much more bad behavior than low status folks. Therefore, strict social rules are essentially a progressive tax on status!
More on Arrow’s theorem
Dirk writes:
I vote that this post deserves a follow up post with more clarification. If anyone is against this please express your vote with inaction. Us laymen would like to understand this a little better. For the record, the reason I got on a tangent about the law of large numbers was that I watched Boudreaux's lecture and understood it in terms of 3 parties but kept thinking if there were 3000 parties it was unlikely that exactly 1000 would have preference A, 1000 preference B, and 1000 preference C. I guess I'm used to thinking in terms of run-off elections and not the sort in the example. That is why I couldn't grasp why things should "collapse" back to an island situation where n = 2 or 3.
Arnold Kling comments as well and not everyone is happy.
Return to the oft-neglected difference between intra-profile and inter-profile versions of the theorem. Most commentators and expositors have in mind an intra-profile version of the theorem. They set up an example of people and preferences and show how cycling or some other paradox of choice or voting is possible. Observers then wonder whether this cycling is likely as the number of people increases, or as preferences change, and indeed sometimes it is not, as Gordon Tullock pointed out long ago and as Dirk above wonders.
That's interesting stuff, but those fun and practical-sounding expositions are not Arrow's theorem as Arrow wrote it up. Think of Arrow's theorem as modal in nature: "Maybe there is no paradox with current preferences, but there exist possible preferences where everything goes screwy, under any decision rule satisfying a few criteria." Arrow showed that claim is related to something like: "if we apply a specified decision-making procedure across all possible preference configurations, consistent application means the same person gets her way each time."
That's called Arrovian dicatorship, but it does not have to be either harmful or unjust or not even necessarily undemocratic. It just means that one person — the same person — is always getting her first choice, across these modal worlds with differing preference configurations.
This more metaphysical and more originally Arrovian version of the theorem is perhaps why Arnold Kling finds it difficult to apply the theorem to practical problems. It is not about the likelihood or relevance of cycling (though it is a jumping-off point for those analyses). It is instead a deep result about the implications of consistency, combined with limited information about the value of ordinally ranked outcomes.
The intra-profile versions are still important. For intra-profile versions of Arrow, start with Kemp and Ng (1976). Here is a good summary article on that literature. Samuelson, by the way, remained somewhat recalcitrant when it came to the theorem.
Allowing in even limited amounts of interpersonal comparability defuses the paradox, as shown by Kevin Roberts (ReStud, 1980) and Amartya Sen (see the essays in Choice, Measurement, and Welfare). That said, interpersonability can lead to other paradoxes, as shown by Derek Parfit and his Repugnant Conclusion. Paradoxes everywhere, and you must choose which ones to live with.
I take the practical upshot of Arrow's interprofile theorem to be this: when you make a judgment, it is our assessment of the interpersonal comparisons (or intersport importance comparisons, for scoring a decathlon) which is doing all the work. Be very careful with those.
Neither Tullock nor Samuelson was happy with Arrow's theorem, especially when it came to practical implications, so it is fine if you wish to add your name to that list. But I also think they each missed Arrow's point a bit and that of the major economists of his time he was probably the deepest thinker, albeit not the best practical thinker.
The gridlock myth?
Michael Barone, who has an encyclopaedic knowledge of American politics, writes:
The evidence suggests that partisan polarization in the absence of supermajorities does not cause gridlock. What can and has caused it on so many important domestic policy issues has been electoral volatility. From the TARP example to a raft of others, it is clear that as long as enough congressional members with safe seats are prepared to hammer out deals across party and ideological lines, significant legislation can pass.
That is from the November/December 2010 issue of The American Interest.