Category: Political Science

Not that there’s anything wrong with that…

…democratic rule and high state capacity combined produce higher levels of income inequality over time. This relationship operates through the positive effect of high-capacity democratic context on foreign direct investment and financial development. By making use of a novel measure of state capacity based on cumulative census administration, we find empirical support for these claims using fixed-effects panel regressions with the data from 126 industrial and developing countries between 1970 and 2013.

Here is the paper by Mart Trasberg and Hector Bahamonde, via Kevin Lewis.

John Stuart Mill on the Californian Constitution

From 1850:

The Californians have not been solely occupied with “the diggings.”  They have found time also to construct a set of institutions…It is worthy of remark how instantaneously any body of American emigrants, as soon as they have formed a settlement, proceed to make a constitution; though European authorities of no small account in their own estimation, are never tired of assuring us that constitutions cannot be made.  But while these sages are stoutly denying the possibility of motion, the Americans, one after another, like Diogenes, rise up and walk; and not one stumble has occurred to mar the completeness of the practical confutation.  Whatever other faults have been found with the Anglo-American constitutions, no one has yet said that they will not work; a fate so often denounced against all constitutions except those which, like the British, “are not made but grow,” or, it should rather be said, come together by the fortuitous concourse of clashing forces.

Mill in particular praised that the California Constitution gave women the right to own their own property.  From the Toronto edition of the Collected Works, vol.XXV.

Do individuals make more rational decisions when the stakes are higher?

Often yes, but this is a shibboleth of economics that doesn’t always fit the facts, as has been illustrated starkly by our behaviors during the pandemic.  Many people have taken too much risk, or been too risk-averse, even with high stakes on the line.  Here is one excerpt from my recent Bloomberg column:

You might wonder why we are getting these big, important decisions so wrong. I have at least two hypotheses. One is that anxiety causes people to make worse decisions. Facing the danger of a deadly pandemic, for example, the higher stakes might induce me to shift into denial, if only to protect my sanity and peace of mind. I might make worse decisions than if I were simply trying to avoid the common cold, for which the stakes are far lower.

My other hypothesis involves identity and the desire for belonging. It is no accident that red states in the U.S. are under-vaccinated relative to blue states; vaccine skepticism is in part an identity marker for Trump supporters. People tend to see big decisions as more important in shaping their identity than small ones. In essence, the significance of a decision induces all kinds of surrounding social forces to “infect” that decision with partisan influences, and that decision in turn becomes a truly credible signal of what we believe.

For most economic decisions, people do still make better choices when the stakes are higher — but this isn’t a universal principle. Are you so sure, for example, that decisions about who to marry are made more rationally than those about which TV show to watch? Maybe they are, but it’s not entirely obvious.

Note that it is now much easier to make good small stakes decisions, largely because of the internet:

An accompanying change is that low-stakes decisions are easier than ever, due largely to the internet, with one crucial caveat: The decision-maker must be relatively rational. Several decades ago, if you wanted to figure out the best paper towels to buy, you might have asked around and then collated a lot of information yourself. These days it is easy enough to search the internet for the answer. Or consider the example of credit-card rewards, which are far easier to collect, manipulate and use because of the internet.

The danger of course is that the sum of all these smaller triumphs convinces people that they are rational about big dilemmas too — despite the fact that they choose rather poorly on some of them. We are not used to a world where we are worse at big decisions than the small ones. But it has been hurtling our way for some while now.

Recommended.  I also cite this: “Bryan Caplan, a colleague who studies human rationality, has put the individual Covid response in only the second percentile of “my initially mediocre expectations.””

Why the lab leak theory matters

Here is Ross Douthat at the NYT:

…there’s a pretty big difference between a world where the Chinese regime can say, We weren’t responsible for Covid but we crushed the virus and the West did not, because we’re strong and they’re decadent, and a world where this was basically their Chernobyl except their incompetence and cover-up sickened not just one of their own cities but also the entire globe.

The latter scenario would also open a debate about how the United States should try to enforce international scientific research safeguards, or how we should operate in a world where they can’t be reasonably enforced.

I agree, and would add one point about why this matters so much.  “Our wet market was low quality and poorly governed” is a story consistent with the Chinese elites not being entirely at fault.  Wet markets, after all, are a kind of atavism, and China knows the country is going to evolve away from them over time.  They represent the old order.  You can think of the CCP as both building infrastructure and moving the country’s food markets into modernity (that’s infrastructure too, isn’t it?), albeit with lags.  “We waited too long to get rid of the wet markets” is bad, but if anything suggests the CCP should have done all the more to revolutionize and modernize China.  In contrast, the story of “our government-run research labs are low quality and poorly governed”…that seems to place the blame entirely on the shoulders of the CCP and also on its technocratic, modernizing tendencies.  Under that account, the CCP spread something that “the earlier China” did not, and that strikes strongly at the heart of CCP legitimacy.  Keep in mind how much the Chinese apply a historical perspective to everything.

A number of you have asked me what I think of the lab leak hypothesis.  A few months ago I placed the chance of it at 20-30%, as a number of private correspondents can attest.  Currently I am up to 50-60%.

My Conversation with Mark Carney

Here is the audio, video, and transcript, definitely recommended.  Here is part of his closing statement:

COWEN: Last question. You wake up each morning. Surely you still think about central banking. What for you is the open question about central banking, where you don’t know the answer, that you think about the most?

CARNEY: I gave a speech at Jackson Hole on this issue, and I started — which is the future of the international monetary system and how we adjust the international monetary system.

I’ll say parenthetically that we’re potentially headed to another example of where the structure of the system is going to cause big problems for the global economy. Because it’s quite realistic, sadly, that we’re going to have a fairly divergent recovery with a number of emerging, developing economies really lagging because of COVID — not vaccinated, limited policy space, and the knock-on effects, while major advanced economies move forward. That’s a world where rates rise and the US dollar strengthens and you get this asymmetry, and the challenge of the way our system works bears down on these economies. I think about that a lot.

And this:

COWEN: If you’re speaking in a meeting as the central bank president, do you prefer to speak first or speak last?

CARNEY: I prefer — I tend to speak early. Yes, I tend to speak early. I’m not sure that’s always the best strategy, but I tend to speak early. I will say, one thing that’s happened over the years at places like the G20, I noticed, is the prevalence of social media and devices. The audience drifts away over time, even at the G20, even on a discussion of the global economy.

And from the horse’s mouth, so to speak, do note this:

CARNEY: …I think you’re absolutely right on that, there wasn’t. It is revealed that there wasn’t a liquidity trap.

Rooftops!  Finally, on more important matters:

COWEN: Are the Toronto Raptors doomed to be, on average, a subpar NBA team due to higher taxes?

And:

COWEN: What’s the best Clash album?

CARNEY: Fantastic question. London Calling, and one of my best memories — I was very fortunate; they came to Edmonton when I was in 12th grade in high school. I went to the concert and that was fantastic, yes.

COWEN: I also saw them, I think in what would have been 12th grade had I been in school that year. But London Calling is too commercial for me. I much prefer the Green album, like “Career Opportunities,” “Janie Jones.”

CARNEY: Well, “I Fought the Law” was the best song at the concert. I have to say, they had got to Combat Rock by this time, which was relative — [laughs] Combat Rock was more commercial, I thought, than London Calling, although they threw it all out the door with Sandinista!

Again, here is Mark’s new book Value(s): Building a Better World For All.

The British in 18th century India

The British were obliged to design a state structure in India virtually from scratch, because the one Warren Hastings lashed together between 1772 and 1784 was considered to have failed.  He had tried to adapt traditional Indian practice while adding a British top layer to it, but this compromise never worked well.  Absence of supervision, abundant temptation, scarcity of reliable information and poor communication between Calcutta and the mofussil (rural areas) created multiple problems.  When placed in Indian shoes, Europeans often behaved worse than their native predecessors.  Hastings’s system lacked discipline, so British politicians resolved in the early 1780s to supply standards and enforce them.  Pitt’s India Act of 1784 and the Cornwallis Code of 1793 were the results.

Traditional ruling practices in India were replaced by specific rules, designed to reduce personal discretion.  What the British most feared in their own rulers — arbitrary power — they were determined, at least initially, to deny to those placed in authority in India.

Just as the US Constitution was designed to thwart the central executive, so the objective of the Cornwallis system of 1793, its near contemporary, was to restrain the EIC’s [East India Company’s] servants in India.  The collective self-regulation that it set up, by means of boards and committees, worked fairly well in enforcing honesty within government in India after 1784, but not in achieving efficiency.  Day-to-day government was not facilitated, and judicial decisions slowed to a crawl.  Meanwhile tax revenues, instead of sticking to British fingers, stayed somewhere out in the rural areas, hid behind an opaque wall of legal and customary technicalities.

That is from Roderick Matthews’s excellent Peace, Poverty and Betrayal: A New History of British India.  Here is my previous post on the book.

Did humans evolve to be suited for large-scale cooperation as well?

Here is the new Boyd and Richardson paper:

We present evidence that people in small-scale, mobile hunter-gatherer societies cooperated in large numbers to produce collective goods. Foragers engaged in large-scale communal hunts, constructed shared capital facilities; they made shared investments in improving the local environment; and they participated in warfare, alliance, and trade. Large-scale collective action often played a crucial role in subsistence. The provision of public goods involved the cooperation of many individuals, so each person made only a small contribution. This evidence suggests that large-scale cooperation occurred in the Pleistocene societies that encompass most of human evolutionary history, and therefore it is unlikely that large-scale cooperation in Holocene food producing societies results from an evolved psychology shaped only in small group interactions. Instead, large scale human cooperation needs to be explained as an adaptation, likely rooted in the distinctive features of human biology, grammatical language, increased cognitive ability, and cumulative cultural adaptation.

If true, this would revise a fair amount of social science, including Hayek on atavistic desires and also various “off the cuff” invocations of evolutionary biology and assumptions about the conditions of early human evolution.

Via Kevin Vallier, who has recently published Trust in a Polarized Age, a book of interest to anyone considering this topic.

Population predicts regulation — but why?

We found that across states, a doubling of population size is associated with a 22 to 33 percent increase in regulation.

The relationship between regulation and population is surprisingly robust- it also holds for Australian states and Canadian provinces, and based on the limited data we have seems to hold across countries too (for instance, the “free market” United States has 10 times as many regulations as Canada- just as it has 10 times the population).

What is less clear is why this relationship is so strong. Mulligan and Shleifer attribute it to a fixed cost of regulating; larger polities can spread this cost over more people, making the average cost of regulating cheaper, so they do it more. We note two other explanations: larger polities might have more externalities worth regulating, or if regulation produces concentrated benefits and dispersed costs, a larger population could make it harder for those harmed by regulation to organize collectively to oppose it.

That blog post is based on work from James Bailey, James Broughel and Patrick McLaughlin, the latter two my Mercatus colleagues, written by James Bailey.

The relationship between religious, civil, and economic freedoms

From Christos Makridis:

This paper studies the relationship between religious liberty and economic freedom. First, three new facts emerge: (a) religious liberty has increased since 1960, but has slipped substantially over the past decade; (b) the countries that experienced the largest declines in religious liberty tend to have greater economic freedom, especially property rights; (c) changes in religious liberty are associated with changes in the allocation of time to religious activities. Second, using a combination of vector autoregressions and dynamic panel methods, improvements in religious liberty tend to precede economic freedom. Finally, increases in religious liberty have a wide array of spillovers that are important determinants of economic freedom and explain the direction of causality. Countries cannot have long-run economic prosperity and freedom without actively allowing for and promoting religious liberty.

Via the excellent Kevin Lewis.

My Conversation with Pierpaolo Barbieri

Here is the audio, visual, and transcript.  Here is part of the summary:

Pierpaolo joined Tyler to discuss why the Mexican banking system only serves 30 percent of Mexicans, which country will be the first to go cashless, the implications of a digital yuan, whether Miami will overtake São Paolo as the tech center of Latin America, how he hopes to make Ualá the Facebook of FinTech, Argentina’s bipolar fiscal policy, his transition from historian to startup founder, the novels of Michel Houellebecq, Nazi economic policy, why you can find amazing and cheap pasta in Argentina, why Jorge Luis Borges might be his favorite philosopher, the advice he’d give to his 18-year-old self, his friendship with Niall Ferguson, the political legacy of the Spanish Civil War, why he stopped sending emails from bed, and more.

Here is just one bit:

COWEN: Why did Argentina’s liberalization attempt under Macri fail?

BARBIERI: That’s a great question. There’s a very big ongoing debate about that. I think that there was a huge divergence between fiscal policy and monetary policy in the first two years of the Macri administration.

The fiscal consolidation was not done fast enough in 2016 and 2017 and then needed to accelerate dramatically after the taper tantrum, if you want to call it, or perceived higher global rates of 2018. So Macri had to run to the IMF and then do a lot of fiscal consolidation — that hadn’t been done in ’16 and ’17 — in’18 and ’19. Ultimately, that’s why he lost the election.

Generally speaking, that’s the short-term electoral answer. There’s a wider answer, which is that I think that many of the deep reforms that Argentina needed lack wide consensus. So I think there’s no question that Argentina needs to modify how the state spends money and its propensity to have larger fiscal deficits that eventually need to be monetized. Then we restart the process.

There’s a great scholar locally, Pablo Gerchunoff, who’s written a very good paper that analyzes Argentine economic history since the 1950s and shows how we move very schizophrenically between two models, one with a high exchange rate, where we all want to export a lot, and then when elections approach, people want a stronger local currency so that we can import a lot and feel richer.

The two models don’t have a wide acceptance on what are the reforms that are needed. I think that, in retrospect, Macri would say that he didn’t seek enough of a wider backing for the kind of reforms that he needed to enact — like Spain did in 1975, if you will, or Chile did after Pinochet — having some basic agreements with the opposition that would outlive a defeat in the elections.

And:

COWEN: The best movie from Argentina — is it Nine QueensNueve reinas?

BARBIERI: It is a strong contender, but I would think El secreto de sus ojos, The Secret in Their Eyes, is my favorite film about Argentina because of what it says about the very difficult period of modernization, and in particular, the horrors of the last military regime that marked us so much that it still defines our politics 50 years since.

Recommended.

Lies vs. silence?

That is the contrast in my latest Bloomberg column.  The claims about the Republicans are more widely circulated in educated circles, so here is the section on the Democrats:

Given the greater deployment of intellectual argument, smart, educated people are exposed to a more persuasive case for Democratic positions. But there is a danger in this asymmetry: when Democratic ideas are not working or are poorly designed.

Rather than constructing brazen untruths, the Democratic intelligentsia remains largely silent when it is unhappy. President Joe Biden’s recent Buy American plan is similar to protectionist ideas from Trump, but it doesn’t come in for heavy criticism on social media. If asked about it, most Democratic-leaning economists would be (correctly) critical. Yet for them this shortcoming isn’t that big a deal, given what are perceived to be the greater sins of Republicans, including their “big lie” strategy.

The continuing problems of migrant children cut off from their parents at the border receive some criticism — but the noise machine is nothing close to what it was under Trump. The new inflation data seem to indicate that Larry Summers’s criticisms of Biden’s stimulus program were largely correct, yet few if any commentators are apologizing to him on Twitter.

There is much more at the link, including about Republicans.  And to be clear, when it comes to the Democrats, the “in fact this wasn’t left wing enough” is an almost obligatory form of self-criticism, serving also as a kind of repeated affirmation of relative moral superiority.  Or the “I/we was even more right than I had thought” criticism is common as well.  The actual self-criticism of “our value schema led us astray on this issue altogether”? — you almost never hear that one.

What should I ask Alexander the Grate?

No typo there, nor has backward time travel been invented.  I will be doing a Conversation with him, and here is a brief summary:

He has lived on various heating grates in Southwest D.C. for almost all of his homeless life, which is why he introduced himself as “Alexander the Grate,” when he and I first met in 1983. Several years ago, he told me this: “The bottom line is that the urban homeless in Washington, D.C., don’t create structures. We can’t because of the restrictions. Rather, we impose ourselves into the interstices of the infrastructure.”

So what should I ask him?

David Brooks on how wokeness will get watered down

But as the discourse gets more corporatized it’s going to get watered down. The primary ideology in America is success; that ideology has a tendency to absorb all rivals.

We saw this happen between the 1970s and the 1990s. American hippies built a genuinely bohemian counterculture. But as they got older they wanted to succeed. They brought their bohemian values into the market, but year by year those values got thinner and thinner and finally were nonexistent.

Corporations and other establishment organizations co-opt almost unconsciously. They send ambitious young people powerful signals about what level of dissent will be tolerated while embracing dissident values as a form of marketing. By taking what was dangerous and aestheticizing it, they turn it into a product or a brand. Pretty soon key concepts like “privilege” are reduced to empty catchphrases floating everywhere.

Here is the full NYT link.