Category: Political Science

The politics of order in informal markets: Evidence from Lagos

That is the title of a new paper by Shelby Grossman, here is the abstract:

Property rights are important for economic exchange, but in much of the world they are not publicly guaranteed. Private market associations can fill this gap by providing an institutional structure to enforce agreements, but with this power comes the ability to extort from group members. Under what circumstances do private associations provide a stable environment for economic activity? Using survey data collected from 1,179 randomly sampled traders across 199 markets in Lagos, I find that markets maintain institutions to support trade not in the absence of government, but rather in response to active government interference. I argue that associations develop pro-trade institutions when threatened by politicians they perceive to be predatory, and when the organization can respond with threats of its own; the latter is easier when traders are not competing with each other. In order to maintain this balance of power, the association will not extort because it needs trader support to maintain the credibility of its threats to mobilize against predatory politicians.

Via Henry Farrell, that abstract reminds me of my earlier essay, and critique of libertarian anarchy, “Law as a Public Good,” shorter version of the argument here.

G. Warren Nutter and Chile

In 1969, Warren Nutter left the University of Virginia Department of Economics to serve as the Assistant Secretary of Defense for International Security Affairs in the Nixon administration. During his time in the Defense Department, Nutter was deeply involved in laying the groundwork for a military coup against the democratically elected president of Chile, Salvador Allende. Although Nutter left the Pentagon several months before the successful 1973 coup, his role in the ascendance of the Pinochet regime was far more direct than the better-known cases of Friedrich Hayek, Milton Friedman, James Buchanan, and Arnold Harberger. This paper describes Nutter’s role in Chile policy planning and generating a “coup climate.” It shows how Nutter’s criticisms of Henry Kissinger are grounded in his economics, and compares and contrasts Nutter with other economists who have been connected to Pinochet’s dictatorship.

That is a new paper by Daniel Peter Kuehn.  You should note that Friedman and Buchanan have a truly scant connection to Pinochet and the coup (Harberger I do not know, Hayek was too skeptical of democracy in his thinking and informal remarks later in his life).

Claims about Iran (model this)

“Iran has probably arrived at the conclusion that it has less to lose from acting this way than from doing nothing,” Aniseh Tabrizi, a research fellow and Iran expert at London’s Royal United Services Institute, told CNBC via phone Tuesday.

“There is a gamble behind it that wasn’t there before, which is: ‘If other countries retaliate, we are willing to take the risk because we have really nothing to lose at this point’,” Tabrizi described. “And that is a dangerous way to feel.”

Iran’s economy is expected to shrink by 6% this year, after having contracted 3.9% last year, the International Monetary Fund says. By contrast, it clocked 3.8% growth in 2017, before the Trump administration re-imposed economic sanctions after withdrawing from the 2015 nuclear deal that offered the Islamic Republic relief from prior sanctions.

And:

“It’s all about careful calibration and plausible deniability,” Hussein Ibish, a senior resident scholar at the Arab Gulf States Institute in Washington, told CNBC.

Iran’s tactics, experts say, are designed to disrupt but not provoke a military response. So far, attacks have specifically avoided civilian deaths and environmental damage like an oil spill.

Instead, the Revolutionary Guard or its naval equivalent may be sending the message that it’s capable of undermining U.S. and Arab Gulf states’ interests in the region. And if they feel they can get away with it, it’s because they’re banking on President Donald Trump not wanting to actually start a war.

“Ultimately, Iran’s intention is to call President Trump’s bluff,” says Ibish.

I don’t have a clear view on this matter, but find it an interesting and of course important question.  Here is more from Natasha Turak.

Why China is not close to democratizing

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

It’s also worth thinking through exactly what changes Chinese democracy is supposed to bring. China’s urbanization has been so rapid — it has had more urban than rural residents for less than a decade — that a national election might well reflect the preferences of rural voters, which after all most Chinese were until very recently. If you belong to the Chinese upper class or even middle class along the eastern coast, you may end up asking yourself the following question: Who is more likely to protect my basic economic interests, the current Chinese Communist Party, or a democratic representative of Chinese rural interests? China is also growing rich during a time of extreme economic inequality, which may make many Chinese elites think twice about democratization.

Compare China’s situation to that of Taiwan, which is much smaller, does not have a comparable preponderance of rural population, and started becoming democratic in an era when inequality was not so extreme. There was enough of a sense of a common Taiwanese national interest for democracy to be trusted, and furthermore Taiwan has always been keen to distinguish itself from a non-democratic mainland.

What about social issues? One recent study has shown that Communist Party members are more likely to have progressive views on issues of gender equality, political pluralism and openness to international exchange than do the Chinese public at large. Again, if you are an elite among the Chinese citizenry, it is not a sure thing that you will do better with democracy than under the Communist Party.

There are many other points at the link.

*The Great Successor*

The author is Ana Fifield, and the subtitle is The Divinely Perfect Destiny of Brilliant Comrade Kim Jong Un.  I’ve never read a book that has so much actual information about Kim, most of all about his early time in Switzerland.  Or how about this?:

Kim Jong Un’s efforts to clamp down on illegal drugs did not work.

At the time he left North Korea, Mr. Kang estimated that about 80 percent of the adults in Hoeryong were using ice [meth], consuming almost two pounds of the highly potent drug every single day…

For many North Koreans, taking meth became an essential part of daily life, a way ot ease the grinding boredom and deprivations of their existence.  For that reason, drugs can never be eradicated, he said.

Men are not allowed to have long hair, the concentration camps are reputed to be worse than those of the Nazis, and there is a detailed account of the rise of the “new rich” class in Pyongyang.  Plastic surgery has arrived as well.

Definitely recommended, the book also serves up the inside story on the Dennis Rodman visit to North Korea.  By the way, Kim hates the showiness of the Harlem Globetrotters.

Hong Kong in the broader history of liberty

That is my other Bloomberg column for this week, here is one excerpt:

Still, actual life in Hong Kong seemed to be pretty free, especially compared to the available alternatives, which included the totalitarian state that was Mao’s China. Yet as the British lease on Hong Kong approached expiration, an even deeper problem with a non-democratic Hong Kong became evident: Because there was no legitimate alternative sovereign to protest, the British simply handed the territory over to China. (Compare Hong Kong’s experience to that of Taiwan, which did evolve into a free democratic state and remains independent.) Hong Kong was bartered away like a piece of colonial merchandise. Everyone learned the hard way that democracy really does matter.

Hong Kong still ranks near or at the top of several indices of economic freedom. But that may be a sign these indices have lost touch with the nature of liberty. In Hong Kong, the notion of a credible commitment to the future ceased to have meaning some time ago. Not only is there the specter of Chinese intervention, but there is also a broader understanding that the rules of the game can change at any time, including of course when it comes to extradition procedures. Meanwhile, many Hong Kong residents know their behavior is being monitored and graded, and they know the role of the Chinese government will only grow.

Thus is revealed a deeper lesson still: Freedom is not merely the ability to buy and sell goods at minimum regulation and a low tax rate, variables that are readily picked up by economic freedom indices. Freedom is also about the narratives people live by and the kind of future they imagine for themselves. Both of these are greatly affected by the legitimacy and durability of their political institutions.

The piece also offers a brief discussion of the Bruce Lee movie “Enter the Dragon.”

My trip to Israel

I was very pleased to have been sponsored by the Friedberg Economics Institute, who were wonderful hosts and put together great audiences on my behalf.

Here is my interview with Globes, which they helped to arrange, excerpt:

“We started this trade war with China by shooting in all directions. It would have been much wiser to form our alliances first, and then consider doing something versus China. I believe that the current trade war with China is unavoidable. It would have taken place even without Trump as president. There are too many cases of unfair trading by China, of Chinese companies operating unfairly and even spying, of stealing of US ideas, and preventing US or Western businesses from operating in the country. This dam had to burst sooner or later.

“What is happening now is not good for any country: not for the US, not for China, and also not for Israel, which like many other small countries will be harmed by the trade war. We’re in a situation in which everyone loses.

“The US is pressuring, and will pressure, Israel not to cooperate with China. It has already begun, and it will get worse. You can understand Washington – if you have the Sixth Fleet in Haifa and China controls part of the port, US concern is understandable. On the other hand, China depends on oil from the Middle East. It needs reliable partners in the region in order to ensure its regular supply, and Israel is the only country that meets this criterion. Imagine a future in which China exerts strong pressure on Israel to help it conduct its foreign policy. I think that it will be harder and harder for Israel to cope with Chinese pressure on the one hand and US pressure on the other.”

A variety of other topics are covered at the link.

My Conversation with Russ Roberts

The podcast master himself, here is the audio and transcript, here is the opening summary:

What are the virtues of forgiveness? Are we subject to being manipulated by data? Why do people struggle with prayer? What really motivates us? How has the volunteer army system changed the incentives for war? These are just some of the questions that keep Russ Roberts going as he constantly analyzes the world and revisits his own biases through thirteen years of conversations on EconTalk.

Russ made his way to the Mercatus studio to talk with Tyler about these ideas and more. The pair examines where classical liberalism has gone wrong, if dropping out of college is overrated, and what people are missing from the Bible. Tyler questions Russ on Hayek, behavioral economics, and his favorite EconTalk conversation. Ever the host, Russ also throws in a couple questions to Tyler.

Here is one excerpt:

COWEN: Here’s a reader question. “In which areas are you more pro-regulation than the average American?” They mean government regulation.

ROBERTS: Than the average American?

COWEN: Yes.

ROBERTS: I can’t think of any. Can you help me out there, Tyler?

COWEN: Well, I’m not sure I know all of your views.

ROBERTS: What would you guess? Give me some things to think about there. In general, I think government should be smaller and regulations should be smaller.

COWEN: I’ll give you–

ROBERTS: Let me give you a trick answer. Then I’ll let you feed me some.

COWEN: Sure.

ROBERTS: Many people believe that the financial crisis was caused by deregulation. I think that’s a misreading of the evidence. It’s true that some pieces of the financial sector were deregulated, but government intervention in the financial sector was quite significant in advance of the crisis. In particular, the bailouts that we did of past failed financial institutions, I think, encouraged lenders to be more careless with how they lent their money, mainly to other institutions, not so much to people out in the world like you and me.

Deregulation’s a little bit tricky, so I wanted to get that in. I’m not sure how that pertains to the question. It does, probably, in some way. So give me something I should be more regulatory about.

COWEN: Well, one answer —

ROBERTS: Baseball? Baseball, of course. [laughs]

COWEN: I would say animal welfare — government should have a larger role. But also what counts as a tax-exempt institution, I would prefer our government be stricter.

ROBERTS: Well, I’m with you there. Yeah, okay, kind of.

COWEN: Well, that’s more regulation, okay?

ROBERTS: I guess.

COWEN: Kind of.

ROBERTS: Yeah, kind of. It’s different standards.

COWEN: Higher capital requirements for banks.

ROBERTS: I’m okay with that. Yeah, that’s a good one. I’d prefer a laissez-faire world for banks, more or less. If we can’t credibly promise not to bail out banks — if that’s the case, we live in a world where banks get to keep their profits and put their losses on taxpayers — bad world. A more regulated world would be better than the world we live in; not as good as my ideal world, though. But there’s a case where I would be in favor — like you just said — more capital requirements.

You’re on a roll. See what else you can come up with for me.

COWEN: Spending more money for tax enforcement, especially on the wealthy.

ROBERTS: Not the worst thing in the world.

COWEN: You can spend a dollar and bring in several times that, it seems.

ROBERTS: I don’t think rich people cheat on their taxes. Do you? [laughs]

COWEN: “Cheat” is a tricky word, but I think we could spend more money.

ROBERTS: We could probably collect more effectively.

COWEN: And it would more than pay for itself.

ROBERTS: Yeah. That’s probably true.

COWEN: We’re actually big fans of government regulation today.

ROBERTS: Yeah, we’ve really expanded the tent here. [laughs]

Do read or listen to the whole thing.

Why do right-wing authoritarian regimes allow so much citizen exit?

Derek Bonett emails me:

I’ve been considering the differences between left-wing authoritarian regimes and right-wing authoritarian regimes throughout history. One particular difference springs to mind that I do not believe has been explored:

Left-wing authoritarian regimes very frequently restrict emigration. Legal emigration from the U.S.S.R. and the Eastern Bloc was very difficult, same with Mao’s China, Castro’s Cuba, the DPRK, “Democratic Kampuchea”, Ethiopia under Mengistu, the list goes on.

But, strikingly, it seems to me that with the partial exception of the Third Reich, fascist/ultranationalist/right-wing authoritarian regimes generally do not restrict emigration. In the Third Reich, it seems that even Jews were allowed to emigrate until 1941. Mussolini’s Italy didn’t impose extensive emigration controls either. And, accordingly to my admittedly casual familiarity with these regimes, neither did Franco’s Spain, Salazar’s Portugal, Pinochet’s Chile, nor the more generic authoritarian regimes of Chiang Kai Shek’s Taiwan or Park Chung He’s South Korea.

Does your much more comprehensive reading of history confirm this difference? Has someone already written about this?

Perhaps the more “right-wing” regimes tolerate different sorts of income inequality.  Cuba and the USSR had plenty of inequality, but the main earners, in terms of living standards, are restricted to people within the state apparatus.  That means a lot of the talent will want to leave.  Many fascist regimes, however, are quite willing to cultivate multi-millionaires and then try to co-opt them into supporting the state.  Since you can still earn a lot in the private sector, exit restrictions are less needed.

What would be other hypotheses?

No sweet spot for Singapore in US-China tensions

That is the title of the new and remarkable Bilahari Kausikan Op-Ed in The Straits Times.  I will serve up some bits, and please note this is now the world we live in:

Evoking the Long March [by Xi] is intended to prepare the Chinese people for a prolonged struggle with the US. It was, in effect, a tacit admission of the CCP’s mistakes with the consequent need for a retreat, while holding out the promise of ultimate victory…

The Chinese have long memories. Despite our constant denials, they still consider Singapore a “Chinese country” and may feel entitled to our support and will not quickly forget if we are regarded as insufficiently helpful in their time of need.

Some in the Trump administration also seem inclined to view the issue in racial terms. As the only ethnic Chinese-origin majority sovereign state outside greater China, we may be subject to special scrutiny.

What Singaporeans need to understand better is that, under present circumstances, there may be no sweet spot we can occupy that will keep both the Chinese and the Americans simultaneously happy. There is no silver bullet, and it is a fool’s errand to look for one.

Neither can we just lie low and hope for the best. You may not look for trouble but trouble may come looking for you. And trouble is all the more likely to seek you out if either side thinks you are, or can be, intimidated.

We must have the courage to pursue our own national interests. Sometimes our national interests may lead us to tilt one way, sometimes the other. But it must always be our national interest that guides us and nothing else.

Both the Chinese and Americans may not be too happy with us for pursuing our own interests. But Singapore does not exist to give joy to American or Chinese hearts. So long as neither side is so unhappy that it dismisses us as unredeemable, we can live with their unhappiness and manage it…

Our more complex domestic politics is a complication. I see still faint but distinct signs that some section of our population – how large, I do not know – either for transactional economic reasons, or unthinking ethnic sympathies, or sheer chauvinism, is beginning to look at the current US-China tensions through a racial lens.

As US-China competition heats up, this tendency may be accentuated. This is the greatest danger to Singapore in this new phase of US-China competition. It is still at a nascent stage and must be checked, if necessary by the prophylactic exercise of the coercive powers that are the legitimate monopoly of the state, before external and internal forces act and react with each other in a vicious spiral downwards.

If we hold together, we can manage the external complications. If we do not, and the social compact which is the foundation on which modern Singapore was built is strained or broken, these internal stresses may make the external complications unmanageable.

Since this period of US-China tensions will be prolonged, this is not a challenge that lends itself to definitive solutions. Managing it requires continual vigilance and periodic decisive action. It is our own Long March.

Do read the whole thing, as I said above this is now the world we live in.

Cosmopolitanism vs. nationalism

That is the topic of my latest Bloomberg column.  It is hard to excerpt, but here is the closing bit:

The best way for that to happen is to let practical nationalism reign, while at the margin seeking to soften it with moral cosmopolitanism. Both perspectives are valuable, and neither can be allowed to dominate. Each perspective, standing on its own, is intellectually vulnerable, yet the two outlooks together are not quite fully harmonious. It is this dynamic clash, however, that helps to account for the strength of each.

Try explaining all that, and its required background knowledge, in a 280-word tweet. Yet much of the world manages a pretty fruitful balance between moral cosmopolitanism and practical nationalism. There is a wisdom embodied in this lived experience which neither pundits nor philosophers can convey.

A tempered and centrist cosmopolitanism won’t always command the strongest loyalties, nor will practical nationalism always look so pretty. If we can accept that reality, then maybe we can stop throwing stones at each other.

*The New Right: A Journey to the Fringe of American Politics*

That is the new book by Michael Malice, and I have to say it will go down as one of the more important albeit objectionable books of this year.  Imagine an well-informed anthropological treatment of Gamergate, PUA, Ann Coulter, Mike Cernovich, Milo, and all the rest of “that stuff,” both its history and how it fits together.

Just to be clear, this book is not written from the perspective of a journalist trying to make these movements look weird, rather it is written from the perspective of an anarchist trying to make these movements look (relatively) normal.  You might find that approach is not affiliated with the proper mood.  I don’t get the sense that Malice is “one of them,” but his “objectivity” might not be the right kind of objectivity.  I’m not going to try to resolve that meta-issue here, I’ll just say that a “normalizing” treatment of “the New Right” has some descriptive virtues, and you might end up more scared and more concerned than if you read a journalistic expose.  That said, I am not sure the author really grasps the non-niceness of so much of this stuff, or the import of that non-niceness.

Every page of this book is interesting, and so I am going to recommend it.  Here is a Kirkus Review, otherwise MSM doesn’t seem to be touching this one at all.  Here is the Amazon link, 79 reviews and an average of five stars.  The reviews themselves are not entirely reassuring.

I thank an MR reader for the pointer.