Category: Political Science

Scott Sumner on China and trade and me, and why it really is all about geopolitics

The first bit is mine, the second is his commentary, link here:

[TC] This [China] is an issue that predates Trump, and he deserves some credit for doing something to help solve it.

[SS] Everything in that paragraph is completely correct–except the last portion of the final sentence, which is wrong.

Scott’s is a common view in free market circles, so it’s worth outlining why I see things differently.  Like it or not, the United States is the global hegemon.  In my view this is an overall positive, but for our purposes today let’s just take it as given.

If you are the global hegemon, and another country, largely hostile to your political values and geopolitical desires, engages in widespread subversion of your power and influence, you must in some way hit back.  Otherwise you will not be global hegemon for much longer.  And unlike India or the EU, China desires to build an international political and economic order which would destroy liberalism as we know it.  Imagine a world where autocracy is a much more widespread norm, the Xinjiang detentions and North Korean nuclear weapons are considered entirely appropriate behavior, Taiwan is a vassal state, and few Asian countries could allow their media to print criticism of the Chinese government, for fear of retaliation.  Institutions such as the WTO would persist only insofar as they created loopholes which gave China the benefits of membership without most of the obligations.

Did I mention that politics in Australia and New Zealand are subverted regularly and blatantly by Chinese influence and money?  Very likely the same is underway in the United States (and other countries) right now.

You can put aside trade practices altogether, and simply look at the extreme and still under-reported degree of espionage and spying conducted by China, aimed at major U.S. corporations.  It’s not quite an act of war, but it is not the classical model of trade either (“Mercantilism is bad…what’s wrong if they send us goods and we just send them back paper dollars?”).  China is violating U.S. laws on a massive scale, and yes, I am sorry to say, trade is our main way of “reaching” them and sending a message.

Some kind of push back is needed, and I find it striking how much Westerners — and this includes free market types — who have lived in China full-time tend to agree with this conclusion.  It is also striking how many market-oriented economists, usually from the outside, don’t talk much about this issue at all.

That said, I fully agree that Trump has a poor understanding of economics, he is incapable of building the proper alliances, the benefits from Trump’s actions are likely to be marginal, and perhaps the best case scenario is simply that his provocations cause the Chinese to think twice before proceeding further along their current path.

Scott’s comparisons are with the EU and India, neither real rivals of the United States nor intended subverters of the Western economic order.  His p.s. is the part of his post that comes closest to my view:

PS.  There may be a few national security issues with China where sanctions are appropriate. I’m no certainly expert on high-tech espionage.  But that’s only a tiny faction of the trade dispute, and if it is a problem is better addressed through sanctions targeted at specific high-tech companies like Huawei.

I would have written “PS: For China, everything is a national security issue.  It is neither stable nor desirable for the world’s other major power to take exactly the opposite view.”

Is the trade war with China over?

That is the topic of my latest Bloomberg column, here is one excerpt:

The basic problem with any U.S.-China trade conflict is that there is not very much the Chinese are interested in offering, and their intransigence is more than just a bargaining stance. They are willing to buy more American soybeans and manufactured goods (and probably wish to anyway), and they might give U.S. financial institutions freer rein within China. But they won’t dismantle their system of state-owned enterprises, as those companies are among China’s most powerful special interest groups. Nor will China give the major U.S. tech companies free rein in China, if only for reasons of national security and China’s desire to build a surveillance state based on data controlled by China.

Overall, the grievances on the U.S. side are significant, and the possible concessions on the Chinese side are minor. So the most likely outcome is only modest progress in difficult negotiations. It’s also likely that the power and focus of the Trump administration will wane as it deals with investigations from the new Democratic-controlled House of Representatives. It might be said that the trade war you now see is the trade war you are going to get. Foreign relations gridlock will set in.

Nonetheless, it’s not quite fair to describe the trade war with China as a problem that Trump started and then pretended to solve. The reality is that hostility toward Chinese trade practices has been building for some time. Anti-China measures have long commanded bipartisan support not only in Washington but also among corporate leaders, who see themselves as victims of unfair Chinese trade practices and espionage. This is an issue that predates Trump, and he deserves some credit for doing something to help solve it.

Do read the whole thing, which contains other points of interest.

*Order Without Design: How Markets Shape Cities*

That is the new and excellent book by Alain Bertaud, so many pages have excellent food for thought.  Here is one simple bit:

Cities are primarily labor markets.

Or this:

…large cities are growing at about the same rate as medium and small cities in the same countries or regions.  It seems that cities’ growth rates follow Gibrat’s law of proportionate effect, which states that the size of a city is not an indicator of its future growth rate — that is, cities’ growth rates are random, with the same average expected growth rate and same variance…The population of larger cities keeps growing, but on average, so do smaller cities.  This seems paradoxical, given that larger cities are more productive than smaller ones.  However, larger cities do not play the same economic role as smaller ones do.  They complement each other’s activities.  The increase productivity of larger cities is therefore linked to the existence and growth of smaller cities.  In turn, smaller cities’ economic growth is dependent on larger cities’ innovations and inventions.

How about this:

In 1830…London’s population density had reached a very high density of 325 people per hectare.  By 2005, however, the density of London had decreased to only 44 people per hectare.  The larger decrease in London’s density has not caused a corresponding decrease in mobility.  On the contrary…

I learned a great deal from the discussion (starts p.287) of Indonesia’s “kampungs,” and how the Indonesian has managed their integration with local infrastructure relatively well.  In contrast, this is the common alternative procedure:

The predictable first reaction of governments has usually been to set minimum urbanization standards to prevent the legal construction of these unsanitary urban villages.  The regulations made the situation worse, as they prevented these informal settlements from obtaining normal urban services from the municipality.  They also created a risk of future demolition, which discourages housing improvement that the households would have naturally done themselves.  Eventually, many governments slowly regularized the older informal settlements in a piecemeal fashion, as is the practice in India, for instance.  But the regularization of informal settlements usually had been conducted with a provision that after a set date, no more informal settlements would be regularized.

The outcomes of these successive policies — first ostracism, then benign neglect followed by reluctant integration — has been disastrous.  A significant share of the urban labor force, otherwise gainfully employed, live in large “informal” settlements often with unsafe water supplies, deficient sanitation, and sporadic solid waste collection.

But:

What made a difference [in Indonesia] was a decision taken in 1969 by the government of Indonesia to concentrate its resources on the improvement of the kampungs’ infrastructure without trying to remove or restructure the existing housing, however small or inadequate it was…And, even more exceptional, since 1969 to this day, the Indonesian government’s support for KIP has been unwavering…The government housing policy objective consists of allowing the poor to settle in and around existing villages at the standards of their choice, while the government concentrates its efforts not on housing construction but on gradually improving residential infrastructure and services to all residential settlements.  The policy has proved largely successful.

Later in the book, pp.351-352 have a fascinating discussion of how relatively good urban/suburban policy, and also the fragmentation of municipalities, contributed to the early success of the tech community in Silicon Valley.

Definitely recommended, this is now one of my favorite books on cities, and it will be joining my “best non-fiction of 2018″ list.  Again, you can buy it here.

Why historians worry more about Trump than economists do

That is the topic of my latest Bloomberg column.  Here is one excerpt:

…historians stress the importance of contingency, that things really could have gone another way. The decisions of a solitary assassin or the outcome of a single battle can shift the course of history. Particular leadership decisions might have avoided or limited World War I. Or what if the Germans had not, in 1917, put Lenin on a train back into Russia? The Bolshevik Revolution might have been avoided and probably the entire course of history would have been different. A shrewder President Paul von Hindenburg might have prevented the rise of Adolf Hitler.

If you think about these questions enough, you can end up very nervous indeed. Historians have seen too many modest mistakes spiral out of control and turn into disasters.

Economists, in contrast, work more with general models than with concrete historical situations, and those models emphasize underlying structural forces. Economies have fairly set populations, birth rates, natural resources, capital stocks, savings rates, trading partners, and so on. So to an economist, the final outcomes are closer to necessary than contingent…

And when it comes to politics, economists of the “public choice” variety tend to see outcomes as controlled by a fairly tight structure of voter preferences and interest groups, variables which a president can change only at the margin and with great effort.

So which perspective is correct — the historian’s or the economist’s?

There is much more at the link, including a discussion of how Paul Krugman’s strong anti-Trump stance fits into this picture.

Is the internet good for African politics?

That is the topic of my latest Bloomberg column, here is one excerpt:

A second dynamic is harder to measure or prove, but is also likely positive: greater national unity…

One source of gain is simply that the colonial era is receding ever further into the past. In the meantime, a wide array of media outlets have helped to further African notions of national unity and cultural coherence. Soccer and other athletic teams compete on the world stage, and African players competing in Europe are portrayed as representatives of their nations, not particular ethnic groups. Commercial brands and celebrities help define national identities. Exposure to international media, most of all through smart phones and the internet, cements the notion that these regions are indeed perceived as nations by the outside world and that such designations are likely to stick. Mobile phones have knit together different African regions, and ethnic groups, in closer economic ties.

The notion of a nation as an “imagined community,” to use a term from political scientist Benedict Anderson, is under accelerating construction in many parts of Africa. Cultures and cultural expectations are adapting to current borders, even given earlier injustices, thereby contributing to falling rates of violence and conflict.

Unfortunately, Africa is exposed to a lot of “fake news,” perhaps more than Americans are. The good news, if you would call it that, is that Africans seem to be relatively skeptical of social media as a news source, and they put a relatively high degree of trust in international media.

Better yet is that most Africans say that the internet has improved their politics and economics. For instance, 64 percent of Nigerians reported in 2017 that the increasing reach of the internet was good for Nigerian politics. That number compares to just 43 percent in 2014, and positive impressions of a similar nature are common throughout Africa. For all the talk about social media creating divisions (such as in Myanmar), the net effect of modern technology seems to be greater unity, including with respect to national borders.

Do read the whole thing.

Why do so many academics dislike the market?

It seems Nozick was right after all, here is Raul Magni-Berton and Diego Rios:

In this article, the authors explore why academics tend to oppose the market. To this intent the article uses normative political theory as an explanatory mechanism, starting with a conjecture originally suggested by Robert Nozick. Academics are over-represented amongst the best students of their cohort. School achievement engenders high expectations about future economic prospects. Yet markets are only contingently sensitive to school achievement. This misalignment between schools and markets is perceived by academics – and arguably by intellectuals in general – as morally unacceptable. To test this explanation, the article uses an online questionnaire with close to 1500 French academic respondents. The data resulting from this investigation lend support to Nozick’s hypothesis.

Via Rolf Degen.

Tyler Cowen predicts our coming 19th century future

Here is my podcast with New York magazine, with a short excerpt of it offered in print.

And they offer this summary: “On the latest episode of 2038, Cowen predicts that over the next 20 years, “this nation will go back to an earlier version of its politics, which were highly dysfunctional. You had plenty of people becoming president who probably should not have been. And yet at the same time we muddled through that era and emerged as modern America.””

The Republican Club — why is this painting interesting?

It hangs in the White House, and Trump seems to like the picture.  What about the image is striking?  I can think of a few things:

1. There are no Founding Fathers in the painting, or other references to the more distant past, and so “Republicans” are presented as a distinct club of their own, above and beyond the broader American tradition.  (On the far right, is that Theodore Roosevelt, Vernon Smith, or somebody else?)

2. The first George Bush (upper left), and Gerald Ford, are both denied a “seat at the proverbial table.”  Bush seems to look on with admiration.  The second George Bush, on the left side of the table seated, appears run down and haggard, defeated by the job.  He looks a wee bit like a paler Obama.

3. Nixon, who had to resign, drinks alcohol while Trump seems to have Coca-Cola.

4. Reagan is shown as Trump’s only peer, while Eisenhower is the one “closest” to Trump, and the one most appreciative.  Of course many of Trump’s policy preferences seem aimed at returning us to the Eisenhower era in some way (higher tariffs, lower immigration, less regulation, etc.)

5. Trump is the only one with a tie, except for TR, and it is a striking red tie.

6. Hoover, Harding, and Coolidge are in the distant back right.

7. It reminds me of a variety of “Last Supper” paintings, though not Leonardo’s.  There are twelve of them.

8. The background, with its column and twinklings lights, is reminiscent of late 19th century French impressionism.

9. Who is the bearded figure in the foreground, with his back to us?  At first I thought it was Mephistopheles, but it turns out to be Lincoln.  He is a passive onlooker with weak shoulders, and with no commanding or influential presence of his own.

10. Andy Thomas, the artist, also painted the very different The Democratic Club.  You could write a short book on the contrasts between the two paintings, for instance notice the Democrats are drinking beer and have a much wider and open background, with fewer columns.

Here is a related interview about the painting.  Via Anecdotal.

My Conversation with John Nye

John is one of the smartest people I know, and one of my favorite people to talk to, here is the transcript and audio.  Here is the opening summary:

Raised in the Philippines and taught to be a well-rounded Catholic gentleman, John Nye learned the importance of a rigorous education from a young age. Indeed, according to Tyler he may very well be the best educated among his colleagues, having studying physics and literature as an undergraduate before earning a master’s and PhD in economics. And his education continues, as he’s now hard at work mastering his fourth language.

On this episode of Conversations with Tyler, Nye explains why it took longer for the French to urbanize than the British, the origins of the myth of free-trade Britain, why Vertigo is one of the greatest movies of all time, why John Stuart Mill is overrated, raising kids in a bilingual household, and much more.

Here is one bit:

NYE: In fact, one of the things I do know about the 19th century is that there’s no evidence that either unilateral free trade or multilateral did very much.

Almost all the free trade in Europe in the 19th century was a product of, initially, the bilateral trade agreement between Britain and France, sometimes known as the Anglo-French Treaty of Commerce of 1860, in which they each agreed to much more liberalized trade on a most-favored-nation basis. Once they accepted this, then what happened is, anyone who signed on to either Britain or France on the most-favored-nation basis then bought into, in some sense, this system.

Here is another:

COWEN: Particular mistakes aside, what were the systemic mistakes the Western world was making in, say, 1910, 1912?

NYE: I think the systemic mistake really boils down to how do you deal with the problem of power? How do you deal with the problem of different groups, different cultures wanting their place at the table? It’s clear that, if you look, a lot of the fight of imperialism was great-power competition.

If you look in the Far East, for example, some people may know that the United States took the Philippines from Spain at the end of the period of Spanish control of the Philippines in 1898, and partly this was due to Perry’s decision to sail into Manila Bay.

One of the things that’s not discussed — most people are unaware of — is that the German and British fleets were waiting in Hong Kong. They were waiting to see what the Americans did. And it’s quite likely that, had the Americans not steamed into Manila Bay, that the Germans or British would have intervened in the Philippines once the Spanish collapsed.

And:

COWEN: And if there’s an underlying political subtext or import of Hitchcock, what do you think that would be? Not what he necessarily intended as his politics, but what’s in the movies in terms of human nature and political man?

NYE: Well, I think there’s this question of suspicion and the tendency to not appreciate how much is going on under the surface. I think people tend to see these things narrowly in terms of Cold War paranoia. But Hitchcock was a political conservative, and he was much more of the very old British conservative view that one should be wary in times of —

COWEN: Suspicion is metaphysical, right?

Definitely recommended, I am very honored to have had the chance to do this with John.

Procurement and compliance costs (from the comments)

From my time in both the military and healthcare I can say that the biggest problem are the compliance costs.

For example, I have a phone app that allows me to send texts. We pay very good money to have said app. It does nothing that my phone cannot innately do – except be HIPAA compliant. EMR software is clunky, an active time suck, and adds little or no value … but we are required by law to use it. In each case there are scads of less specific programs out there which are insanely cheaper and more functional, but those programs cannot justify the costs of becoming compliant for a small niche of their business.

In the military we had similar difficulties. If you want systems to be secure, you need to pay extra as the marketplace does not do real security for consumer goods. Likewise, if you worry about logistical tails, building in assured access drastically increases costs.

And I fully suspect that prices will continue to diverge. As ever more of the internet ends up in a giant interconnected mess there will be fewer people able to code in a secure fashion. There will be fewer parts of the ecosystem that can be used by security conscious actors.

Then we get to actual procurement itself. People worry that arcane institutions will somehow make off with lots of money and spend it either poorly or nefariously. Absent easily observed price and cost data in both sectors we began developing rules. These rules drive firms out of the market (e.g. we needed some light interior remodeling to comply with a regulation that specified inches between things, the contractor who has been most affordable and highest quality refused to bid because the hassle on his side was too great). Eventually the rules become too complicated and you start needing specialists to interpret them. Costs skyrocket and firms abuse rules to pad profits. Then the lawyers get involved and things get more expensive. Again, medical and military consumers become a captive market facing greater monopoly as fewer firms can navigate the thicket of rules to even try to make money.

Then we have the problem that people look at these sectors and say that it is public money. All public money should help with goal X (e.g. going “green”, affirmative action, boycotting South Africa/Israel, patriotism, “America first”) and then we become even more overly constrained. Find vendors who meet one hurdle is hard, finding ones that meet 30 is nigh unto impossible unless the vendor is engineering the firm to market solely to this niche – and charging monopoly rates as his reward.

Any single thing would not be too bad for prices, but the marketplace in general is diverging from military and healthcare. Even education is diverging with mandates in FERPA and political business constraints. We have pretty effectively restricted supply, why exactly would we not expect an increase in cost?

That is from “Sure.”

China five surveys of the day

Chinese leaders often invoke the feelings of the Chinese people in denouncing foreign actions in international confrontations. But most survey research on Chinese public opinion on international affairs has looked at measures of nationalist identity rather than beliefs about foreign policy and evaluations of the government’s performance. Five surveys of Chinese citizens, netizens, and elites help illuminate the public attitudes that the Chinese government grapples with in managing international security policy. The results show that Chinese attitudes are more hawkish than dovish and that younger Chinese, while perhaps not more nationalist in identity, may be more hawkish in their foreign policy beliefs than older generations. Netizens and elites are even more inclined to call on the Chinese government to invest and rely more on military strength.

That is by Jessica Chen Weiss, via the excellent Kevin Lewis.

How much did the housing shock drive political polarization?

From Henry van Straehlen, a job market candidate from Northwestern:

This paper studies the effect of economic conditions on political polarization using micro-data on house prices, mortgages, and individual political contributions. I argue that shocks to housing wealth — the largest asset for most households in the U.S. — lead to political polarization. Using the housing market bust of 2007-2011 as an empirical laboratory, I show that negative shocks to housing wealth increase political polarization. The richness of the data enables me to use individual heterogeneity in housing location and timing of home purchase to disentangle changes in personal wealth from other factors that might be at play in determining political polarization. The effect of housing shocks on polarization is stronger during the crisis, and cannot be attributed to reverse causality or changing neighborhood composition. Survey evidence comparing homeowners and renters shows that only homeowners polarize in response to house price shocks, while renters do not — suggesting that house price shocks are not merely a proxy for other economic shocks. Furthermore, extreme politicians benefit electorally from negative house price shocks to their contributor network, whereas moderate politicians are hurt by negative house price shocks. Financial crises destabilize politics, which then can feed back into the crisis. These results provide insight into the difficulty of adopting structural economic reforms following financial crises.

Work in progress by Henry argues: “I show that when the common ownership between two firms increases through mutual fund acquisition of their stock, the firms converge in political donation behavior and lobbying activity.”

Twentieth-century cousin marriage rates explain more than 50 percent of variation in democracy across countries today.

That is the last sentence of the abstract in this job market paper, from Jonathan F. Schulz:

Political institutions vary widely around the world, yet the origin of this variation is not well understood. This study tests the hypothesis that the Catholic Church’s medieval marriage policies dissolved extended kin networks and thereby fostered inclusive institutions. In a difference-in-difference setting, I demonstrate that exposure to the Church predicts the formation of inclusive, self-governed commune cities before the year 1500CE. Moreover, within medieval Christian Europe,stricter regional and temporal cousin marriage prohibitions are likewise positively associated with communes. Strengthening this finding, I show that longer Church exposure predicts lower cousin marriage rates; in turn, lower cousin marriage rates predict higher civicness and more inclusive institutions today. These associations hold at the regional, ethnicity and country level. Twentieth-century cousin marriage rates explain more than 50 percent of variation in democracy across countries today.

Here is Jonathan’s (co-authored) working paper on “The origins of WEIRD psychology.

Propaganda, Nation Building and Identity in Rwanda

The lead title is “Erasing Ethnicity,” the authors are Arthur Blouin and Sharun W. Mukand, and the paper is forthcoming in the Journal of Political Economy:

This paper examines whether propaganda broadcast over radio helped to change inter-ethnic attitudes in post-genocide Rwanda. We exploit variation in exposure to the government’s radio propaganda due to the mountainous topography of Rwanda. Results of lab-in-the-field experiments show that individuals exposed to government propaganda have lower salience of ethnicity, increased inter-ethnic trust and show more willingness to interact face-to-face with members of another ethnic group. Our results suggest that the observed improvement in inter-ethnic behavior is not cosmetic, and reflects a deeper change in inter-ethnic attitudes. The findings provide some of the first quantitative evidence that the salience of ethnic identity can be manipulated by governments.

Propaganda works.

Words of wisdom from Vitalik Buterin

Both reasoning from behavioral-economic first principles, and my personal experience, people are at their most evil out of fear, not greed. Growth means there is less fear going around.

That is from Vitalik Buterin, reviewing Stubborn Attachments on TwitterAnd this:

I have a different take on “growth is good for harmony” (52-53). Arrow’s theorem doesn’t become more or less true if a conflict is between, say (+5, +1) vs (+1, +5) or (+2, -2) vs (-2, +2). Rather, the reason why the latter is more disharmonious is loss aversion.

And:

Redistributing money to the rich (p88) is risky because the rich are not necessarily aligned with general population. Caring for old people (p91) is valuable not just for the sake of present individuals, but also as a commitment to future old people who are present-day workers.

Here is my earlier Conversation with Vitalik Buterin.  And here is Garett Jones’s tweet storm on the book.