Category: Political Science
This is Chile, not Haiti
"There is a certain lawlessness in this country that the government enabled," he said in Spanish. "They don't protect people and people don't respect them and criminal elements get out of control. People also have a high sense of entitlement. They expected the government to have water and power and things under control."
There is much more at the link or try this tweet: "The situation in Concepción is deteriorating. Citizens have taken up arms to defend themselves and their stores. 8 PM to 12 PM Army curfew." By no means is it just a bunch of people trying to feed themselves: "…many residents in the most damaged areas have not only taken food from supermarkets, but also robbed banks, set fires and engaged in other forms of lawlessness."
Haiti, on the other hand, remains fairly orderly and there have been reports that police corruption has gone down significantly.
One implication here is that I fundamentally distrust the use of "social trust" or "social capital" indicators in cross-country growth regressions. Repeat three times after me: context-dependence, context-dependence, context-dependence. The lessons for social science run deep.
My deeper worry is that this event will change Chile and set it back more than the damage alone would indicate. It will alter their self-image and national unity could decline. An alternative story is that Chile will become more progressive, as there will be greater common knowledge of income divisions and it will be harder to pretend everything is just fine.
Maybe it is a sign of social health to have some looting after an earthquake. In this part of blogland we do not dismiss the counterintuitive conclusion out of hand. For instance perhaps Haiti is so orderly because a) looters would be killed on the spot, and b) the entire fate of the nation is at stake and thus every small event is taken very seriously. Neither factor is exactly good news.
How have previous currency unions dissolved?
Marc Flandreau writes:
This paper examines the historical record of the Austro-Hungarian monetary union, focusing on its bargaining dimension. As a result of the 1867 Compromise, Austria and Hungary shared a common currency, although they were fiscally sovereign and independent entities. By using repeated threats to quit, Hungary succeeded in obtaining more than proportional control and forcing the common central bank into a policy that was very favourable to it. Using insights from public economics, this paper explains the reasons for this outcome. Because Hungary would have been able to secure quite good conditions for itself had it broken apart, Austria had to provide its counterpart with incentives to stay on board. I conclude that the eventual split of Hungary after WWI was therefore not written on the wall in 1914, since the Austro-Hungarian monetary union was quite profitable to Hungarians.
Other gated versions you'll find here. The bottom line is that collapse of the currency union stemmed from political factors, not economics. Contra the author, I would say it was written on the wall.
I found this 1920 Economic Journal article, "The Disintegration of the Austro-Hungarian Currency," useful on the details of the transition. The different parts of the Austro-Hungarian empire moved to different currencies by imposing capital controls and by stamping domestic currency to make it worth less. That limits the bank run problem since moving into currency has no advantage and funds cannot be easily transferred in an advantageous manner. Once all the money is stamped the currency has in effect been devalued.
Here is a paper on the collapse of the ruble zone, though it doesn't have much on transition dynamics. I suspect the transition is much easier in the absence of free capital movements.
There is a Peter Garber IMF Working Paper on the economics of the Austro-Hungarian dissolution – apparently not on-line — which I am still trying to get my hands on. Do any of you have a pdf? At that previous link you'll find other references and links as well.
Addendum: Matt Yglesias covers the former Czechslovakia.
*Reputation and Power*, a new theory of the FDA
The subtitle is Organizational Image and Pharmaceutical Regulation at the FDA and the author is Daniel Carpenter. Here is the book's home page but I don't yet see an Amazon listing. Here is a Barnes&Noble listing, note the price discount.
Where to start? It exhausts me to even write about this book, which is the most comprehensive and most detailed study of a regulatory agency written — ever – to the best of my knowledge. It supplements and overturns all existing work on its subject and it will prove a model for future investigations. It's not short!
The starting point is the notion of reputational capital and the claim that the FDA seeks to preserve and extend its reputation, for a variety of political reasons. One implication of this is that the FDA is sometimes too loose and other times too strict but that both biases are possible. The framework is then used to address numerous questions, including the following:
1. Why the U.S. has the most bureaucratically intensive drug regulation in the world.
2. Why the 1962 amendments were passed.
3. Why FDA regulation is so often treated as de facto irreversible.
4. Why the tenure of a division director matters for how the decisions of that division are treated.
5. Why there is so much judicial deference to the FDA.
6. Why the FDA has been so influential on a global scale.
7. How public attention affects the speed of FDA procedures.
The author makes a strong case that the FDA is one of the most powerful and most important regulatory agencies in the world and one of the most important extensions of state power. Everyone interested in the economics of regulation should read this book, just be prepared to be a little overwhelmed. I would also note that this is not mainly a partisan book in one direction or the other, though on net I read the author as wishing to see a stronger FDA. (On p.379, for instance, I read Carpenter as overly dismissive of the "drug lag" argument.)
Here is Carpenter's previous book, which I have not read. For the pointer to this work I thank Steve Teles.
Dominance Displays
Compare:
Is the systemic risk council on its way?
I visited Across the Universe only because I liked the dreamy feel of the sappy newspaper ad; the movie had several potential negatives for me, including being a musical, tampering with the sacrosanct Beatles, and a slew of negative or lackluster reviews. I loved it, though it messed up my plans for the day when I realized I had to stay and see the whole thing. The kitsch was self-mocking plus the music director understood what made Beatle vocal lines so good, why most of the instrumentation should not be mimicked, and which of the guitar riffs were essential as filler. The movie was willing to plain flat out admit it didn’t make much sense, which was also a virtue of Dragon Wars. I saw the first third of that one only because it was South Korean.
Book season this fall is amazing; there is an impressive pile on the sofa, but sadly (for the sake of science) I cannot find many books that I have only one reason for reading. I liked the title of An Arsonist’s Guide to Writers’ Homes in New England (though nothing else about it) and so I have a library copy. Tree of Smoke is shaping up as the best American novel in years. The new Pamuk is getting me interested in rereading Dostoyevsky; it is sad to see Pamuk having written that he cannot imagine leaving Istanbul.
Jacqueline Passey reports that I am less funny in person though she did not resort to the word grim.
I gave my DVD of The 25th Hour to Peter Boettke; we both loved it. Natasha and I have started following Tell Me You Love Me, the brutal and anti-erotic new HBO show.
I’ve been to lots of meetings lately, if only to become a better and more productive person.
From the comments
It seems to me that the American political system is simply broken. Canada could reduce the size of government and keep health care spending in check because in a parliamentary system with strong party loyalty, individual politicans are given 'cover' by their parties and are not held personally responsible for the taxes and benefits of their constituents. If the party in power makes a decision to cut benefits which will harm an individual politician's district, that politician isn't necessarily on the hook for it. The voters know that he has to vote the party line even if he disagrees with the legislation. He gets re-elected so long as the public feels his party in general is better than the opposition.
In the U.S. system, where every vote is a free vote, each member of Congress has to answer for his/her votes, and this drives NIMBY-ism and ever-increasing benefits without the tax hikes to pay for them, and it also causes wheeling and dealing which ultimately makes large regulatory packages like health care reform incoherent and bloated with pork.
I think American government works well when it's strictly limited. When Americans try to implement Euro-style social democracy, they fail due to the nature of American government. It is uniquely unsuited to centralized technocratic governance.
That's from Dan H. and he has more to say at the link.
Is there a case for a VAT?
I outlined it yesterday, to a small group at GMU. My tale went as follows:
1. The United States is on an unsustainable fiscal path.
2. For whatever reason, long-term interest rates don't reflect this problem. There will either be a sudden collapse of demand for government securities, or the current market already is figuring we will get a VAT. Either way it is more revenue for the government or a Greece-like scenario writ large.
3. I would prefer spending cuts, but voters seem too irrational to be willing to cut spending; here the libertarian argument comes back to bite us on the bum. They might be willing to cut spending once a financial crisis arrives (though maybe not), but then there will be days or only hours for decisive action.
4. We could, for now, wait and postpone fiscal reform. That means encountering a sudden collapse some number of years from now. We will then clean up the budget in some way, but under a TARP sort of mood rather than what we might do today.
5. We'll get a better deal, and make wiser decisions, if we do it today rather than in a panic. Plus another financial crisis would prove deadly to both the budget and to the quality of economic thinking.
6. There exists a credible bipartisan deal which involves at least half the VAT revenue for deficit reduction, combined with cuts, or slower increases, in marginal tax rates on income and perhaps an elimination of the corporate income tax. Spend some of the rest on health care for the poor, if that is the deal on the Democratic side.
I am by no means convinced this argument is correct but I would like to hear the strongest arguments against it. No one I talked to succeeded in defeating it, other than mentioning they don't like the idea of more revenue for the government. You will notice I structured the argument to be as neutral on the "left vs. right" question as possible.
You'll notice the use of a pivot here: the common "right-wing" views that a fiscal crisis would be awful, voters are irrational, and governments make bad decisions in panic times, are used to favor a VAT.
I wonder: how many people agree with this argument, but they are unwilling to say so because they don't want to weaken their bargaining position if and when a "deal" is put on the table.
Addendum: You'll notice that on Sunday Greg Mankiw mentioned that a VAT might be the best of available alternatives.
The Importance of Marketing
From Ben Smith. Hat tip: Daniel Lippman.
The new cabinet in Chile
E. Barandiaran notes in the comments:
You may want to know about the qualification of the new cabinet of 22 secretaries. There are 6 economists with graduate studies in the best US universities: Felipe LarraÃn will the secretary of the Treasury (Felipe is well known as the co-author with J. Sachs of a macro textbook and also got his Ph.D. from Harvard), two a Ph.D. from Minnesota and three a Master from Chicago. There is only one laywer but with training in law and econ in Harvard. A few others have degrees in public policy or MBA, and most of the others are engineers, all with graduate studies abroad. Most have been related as students, professors, and deans with Universidad Católica. Thus, Sebastián Edwards knows well the six economists (they studied there in the 1970s and were my students and/or assistants). Most have already long, successful careers in private enterprises and close relations with important NGOs. Quite a cabinet.
Here is one external report.
One reason why Germany can’t play tough guy with Greece
In the first year of the German occupation of Greece, austerity and "wage cuts" were imposed on the economy; at least 300,000 Greeks died of hunger.
Here is one contemporary account of that occupation. The IMF, on the other hand, can't override EU strictures on currency policy and on fiscal policy.
Who then will play tough guy with Greece?
Beware of Greeks bearing gifts
In an interview in Ta Nea newspaper, Papaconstantinou also insisted that middle- and low-income earners would pay less tax.
The full article is here. Is that a sign they're not so serious? There was a recent poll:
…most Greeks back Prime Minister George Papandreou's plans to freeze civil servants' wages and cut their bonuses. But the majority of respondents also opposed a hike in the fuel tax and the introduction of new taxes.
“When Politics is Stuck in the Middle”
That's the header of my New York Times column today, here are some excerpts, starting with the health care issue:
The point here is not to belittle or praise the president, but to point out that his hands are tied. The biggest leftward move in American economic policy occurred during the Roosevelt and Truman years, when the Democrats had the upper hand for five consecutive presidential terms. Because of depression and war, people were looking for real change. Competitive forces in politics were relatively weak, and the Democrats had the chance to make their policies stick.
The Supreme Court‘s recent ruling on campaign spending also comes into clearer focus through the median voter theorem. The court ruled that the government may not ban political spending by corporations in candidate elections. Critics fear that the political influence of corporations will grow, but some academic specialists in campaign finance aren’t so sure.
For all the anecdotal evidence, it’s hard to show statistically that money has a large and systematic influence on political outcomes. That is partly because politicians cannot stray too far from public opinion. (In part, it is also because interest groups get their way on many issues by supplying an understaffed Congress with ideas and intellectual resources, not by running ads or making donations.) It is quite possible that the court’s decision won’t affect election results very much.
Here are the concluding two paragraphs:
The median voter theorem doesn’t predict that the legacy of the Obama administration will be a wash. But it does imply that we might find the most important achievements in areas that don’t always linger on the front page. For instance, the president’s ideas on education, which involve accountability and charter schools and pay for performance, may please the American public and thus make their way into policy. And because education transforms the knowledge and interests of the median voter for generations to come, such acceptance could make for a lot of other improvements.
If you’re looking for change to believe in, and change that will last, the odds are best when political competition is pushing the world in your direction.
Jacob Weisberg has a not unrelated column. And, for another perspective, here are the comments over at Mark Thoma's blog. A few further points:
1. "How tough Obama is" matters less than is usually portrayed. That is the fallacy of anthromorphizing the outcome of political battles. Obsessing over either positive or negative evaluations of key actors probably interferes with one's abilities to understand underlying structural forces.
2. Even the Supreme Court usually tracks voter sentiment reasonably well.
3. On the health care issue, I don't think the electoral calculations of the Democrats are over.
Economists’ petitions
Dan Klein, Carrie Milton, and David Hedengren are starting a new project, namely a study of petitions signed by economists. Their list is here, can you add to it? This is part of a longer-term project to understand the behavior of economists and to treat us as rational, maximizing agents, not just disinterested truth-seekers.
I wonder why institutions bother to generate petitions signed by economists. Is it to influence the world? To signal which economists are on their side? To cultivate better connections with economists and create an excuse to contact them and affiliate with them? Something else?
I've signed petitions once or twice but in general I don't like doing it, in part because I don't understand the game I am playing in doing so.
Bryan Caplan responds to criticisms of libertarianism
He makes many points, here is one of them:
E&O might be right that cynicism about government perversely increases support for government. But if so, libertarians shouldn't attack the public's justified cynicism. Instead, they should help people see the logical anti-government conclusion of their cynicism. Academics who are cynical about government generally are anti-government; see for yourself at the Public Choice Society meetings. Why not teach laymen to make the same connection?
I worry when I read this. Most of all, it is surprisingly meliorist; I once read a book that suggested voters were doomed to irrationality (albeit to varying degrees). If voters can be taught the correct sophisticated mix of cynicism and pro-liberty sentiment, can they not be taught to support good policies, thus making democracy a well-functioning system of government? The E&O criticism strikes at the heart of an important tension in libertarian thought. Outcomes which might be described as "good libertarian" also require important public goods to be produced at the level of overall public sentiment; there's no getting around that.
Admittedly, being pessimistic about public sentiment under democracy does not a priori mandate being pessimistic about the ability of public sentiment to support and maintain more libertarian settings. (You might for instance think that the public good can be produced under some settings but that democracy per se corrupts public opinion, because of its internal workings, electoral pandering, etc.) Nonetheless, I've yet to see good, well-fleshed out arguments to support the split claim Caplan is proposing, namely that public sentiment can be produced to support good libertarian outcomes but not good democratic outcomes.
Addendum: Caplan responds.
*The Cleanest Race*
This is a very interesting book about the ideologies behind North Korea. The author is B.R. Myers and the subtitle is How North Koreans See Themselves — and Why it Matters. Excerpt:
One searches these early works in vain for a sense of fraternity with the world proletariat. The North Koreans saw no contradiction between regarding the USSR as developmentally superior on the one hand and morally inferior on the other. (The parallel to how South Koreans have always viewed the United States is obvious.) Efforts to keep this contempt a secret were undermined by over-confidence in the impenetrability of the Korean language and the inability of all nationalists to put themselves in a foreigner's shoes. The Workers' Party was taken by surprise, for example, when Red Army authorities objected to a story about a thuggish Soviet soldier who mends his ways after encountering a saintly Korean street urchin — another child character symbolizing the purity of the race.
I liked this bit as well:
The lack of conflict makes North Korean narratives seem dull even in comparison to Soviet fiction. Rather than try to stimulate curiosity about what will happen next, directors and writers try to make one wonder what has already happened. Films introduce characters in a certain situation (getting a medal, say), then go back and forth in time to explain how they got there. Nowhere in the world do writers make such heavy use of the flashback. But we should beware of assuing that people in the DPRK find these narratives as dull as we do. The Korean aesthetic has traditionally been very tolerant of convention and formula. (South Korean broadcasters rework the same few soap-opera plots every year). According to refugee testimony, however, most North Koreans prefer stories set either in the "Yankee colony" or in pre-revolutionary times, with real villains and conflict.
I also recommend the new book Nothing to Envy: Ordinary Lives in North Korea, by Barbara Demick. Excerpt:
North Koreans have multiple words for prison in much the same way that the Inuit do for snow.
From the WSJ, here is a joint review of the two books.