Category: Political Science

Compared to the U.S. economy, the Chinese economy has fewer automatic stabilizers, such as welfare programs and unemployment insurance.  That implies their fiscal policy should, if possible, be especially countercyclical, compared to what is called for in most richer countries.

Chinese leaders view volatility as serially correlated and increasing from the source outwards.  Given Chinese history, they expect that shocks grow and spread rather than dampening down.  So when a shock comes, the demand to hold and indeed hoard very safe assets increases rather than decreases.  Chinese fiscal policy ends up being pro-cyclical rather than countercyclical.  And it is hard to succeed with fiscal policy in the first place.

Fortunately, I’m just making that model up.  Why should we expect lots of mistakes to be made? 

We can’t not cover this topic, so here is Andrew Gelman with the bottom line.  The main result, it seems, is that the electoral gap between the young and the old increased by quite a bit.  Hat tip goes to Mark Thoma.

Addendum: Brad DeLong comments.

Soencer Ackerman asks,
"Remember in 2003 and 2004, when there was all this talk about how the
Democrats were in danger of no longer being a national party?" I do
remember that. I also remember how Democrats had to get religion if
they ever wanted to be competitive again. I also remember how they had
to appeal to the white heartland by nominating candidates more
culturally recognizable to rural voters. Instead, they went in the
opposite direction, running a candidate who was recognizable to the
majority coalition Democrats hoped to have in 10 years. It seems to
have worked out pretty well. It’s almost as if pundits don’t really
know what they’re talking about.

Here is the link.

First time, ever.

Addendum: By the way, it took me less than 3 minutes (I was surprised) and I got a free coffee at Starbucks. Not bad on instrumental or expressive grounds.

Most of what you do is for expressive value anyway, so you shouldn’t feel guilty about voting, if indeed you vote.  The people who think they are being instrumentally rational by not voting are probably deceiving themselves more.  They are actually engaged in an even less transparent form of expressive behavior (protest against the voting system) and yet cloaking that behavior under the guise of instrumental rationality.  The best arguments against voting are simply if you either don’t like voting or if you don’t know which candidate is better.  High-status people hardly ever offer the latter justification, even though the split of opinions among high-status people suggests that not all high-status people can in fact know which candidate is better.

In other words, both voting and not voting are motivated by the thought that you are better than other people.  I am glad that we have an entire day devoted to this very important concept.

This paper, "Attitude-Dependent Altruism, Turnout and Voting," is from Julio Rotemberg, one of my favorite economists:

This paper presents a goal-oriented model of political participation
based on two psychological assumptions. The first is that people are
more altruistic towards individuals that agree with them and the second
is that people’s well-being rises when other people share their
personal opinions. The act of voting is then a source of vicarious
utility because it raises the well-being of individuals that agree with
the voter. Substantial equilibrium turnout emerges with nontrivial
voting costs and modest altruism. The model can explain higher turnout
in close elections as well as votes for third-party candidates with no
prospect of victory. For certain parameters, these third party
candidates lose votes to more popular candidates, a phenomenon often
called strategic voting. For other parameters, the model predicts
"vote-stealing" where the addition of a third candidate robs a viable
major candidate of electoral support.

Here is an ungated version.

My evidence from Uganda suggests that, when coerced, children are the
most likely to be indoctrinated and disoriented, and so are the least
likely to escape.

Here is much more, from Chris Blattman, interesting throughout.

Economists often argue that voting is a waste of time, since the chance that your vote will influence the election outcome is virtually nil.  Maybe, but after watching this fear impels me to the polls. 

Thanks for the Scrooge treatment go to loyal reader and GMU student Adam.  If anyone knows of something similar for other candidates I will post an addendum.

If a smattering of libertarian ideas can bring it [the system] all down, then the problem isn’t really libertarian ideas, is it? If the integrity of the economy in your preferred model requires a high level of ideological conformity, you might think to reconsider the wisdom of harnessing it so thoroughly to democratic political institutions meant to accomodate pluralism.

That’s not the part where he is really upset.  He’s also upset here and here.

Arnold Kling weighs in:

We got into this crisis because power was overly concentrated relative to knowledge. What has been going on for the past several months is more consolidation of power. This is bound to make things worse. Just as Nixon’s bureaucrats did not have the knowledge to go along with the power they took when they instituted wage and price controls, the Fed and the Treasury cannot possibly have knowledge that is proportional to the power they currently exercise in financial markets.

He refers to Paulson as "the American Mussolini."

Is this a race to the top or a race to the bottom?

“The Europeans not only provided a blueprint, but forced our hand,” said Kenneth S. Rogoff, a professor of economics at Harvard and an adviser to John McCain, the Republican presidential nominee. “We’re trying to prevent wholesale carnage in the financial system.”

Here is much more on today’s events.  In the current version of globalization the equilibrium seems to be that non-guaranteed banking systems are swiftly penalized and turned into zombies.  This suggests, by the way, that undoing current bank guarantees, when recovery comes, won’t be as easy as we might have thought.

Addendum: Here are the opinions of many economists.

There is a new InTrade.com contract, this one on whether oil futures and the Democratic President contract move in the same direction on Election Day.  Right now it’s running at about 50 percent, which means an Obama victory won’t on average bring a higher price of energy.  Mark Thoma directs us to this interesting article on the bursting of the Green bubble, most of all among the Democrats.

David Brooks is right that the failure to pass the bailout represents a massive failure of American governance and leadership, most of all at the Congressional level.  That’s true even if you think, for other reasons, that the bailout was a bad idea.  (Can any hero be cited in this debacle?)  Andrew Sullivan (and others, including myself) was right that early versions of the Paulson plan bypassed checks and balances and gave far too much power to the Executive Branch.  So Congressional oversight was needed.

That’s the problem, namely that both of these views are right.  And this is just one reason, of many to come, why the Paulson plan (whether or not we need it) will not work as promised.

Much like John McCain, Rudy Giuliani, who accompanied the presidential
candidate on a campaign plane earlier today, is very interested in what
happens with the government’s bailout plan. That’s because his law
firm, Bracewell & Giuliani, is letting potential clients know it can best steer them–with its new Task Force– to deal with the bailout.

See the photo and press release, which says this:

Mr. Giuliani noted that the Bracewell Task Force includes a former
Comptroller of the Currency, a former Assistant Secretary of
Legislative Affairs of the U.S. Department of the Treasury, former
members of Congress from both political parties, former federal
prosecutors, and former SEC enforcement attorneys.

They will even have a blog, to update people on the latest revenue opportunities.  I thank a loyal MR reader for the pointer.