Special Interests, Universal Appeal
Democracy is the theory that the common people know what they want and deserve to get it good and hard.
H.L. Mencken
My colleague Bryan Caplan explains today in the Wall Street Journal.
When special interests talk, politicians listen and the rest of us suffer. But why do politicians listen? Social scientists’ favorite explanation is
that special interests pay close attention to their pet issues and the rest of
us do not. So when politicians decide where to stand, the safer path is to
satisfy knowledgeable insiders at the expense of the oblivious public.This explanation is appealing, but it neglects one glaring fact.
"Special-interest" legislation is popular.Keeping foreign products out is popular. Since 1976, … Americans who
"sympathize more with those who want to eliminate tariffs" are seriously
outnumbered by "those who think such tariffs are necessary." Handouts for
farmers are popular. A 2004 … Poll found that 58% agree that "government needs
to subsidize farming to make sure there will always be a good supply of food."
In 2006, … over 80% of Americans want to raise the minimum wage. … These
results are not isolated. It is hard to find any "special interest" policies
that most Americans oppose.Clearly, there is something very wrong with the view that the steel industry,
farm lobby and labor unions thwart the will of the majority. The public does not
pay close attention to politics, but that hardly seems to be the problem. The
policies that prevail are basically the policies that the public approves. …
To succeed, special interests only need to persuade politicians to swim with the
current of public opinion.Why would the majority favor policies that hurt the majority? … The
majority favors these policies because the average person underestimates the
social benefits of the free market, especially for international and labor
markets. In a phrase, the public suffers from anti-market bias.
Thoma excerpts more.
J. Galt’s provocation
A loyal MR visitor, J. Galt, asks:
I challenge you to write a blog post of decent length without the letter e
This woman might add: words of this woman don’t count, no spilling mistaiks aloud, and do it quickly, no agonizing with a dictionary.
This is not hard. An author from a Gallic land — I can’t say who — has a total book in this fashion, so a short blog post is snap. In Tanzania I find lots of corruption, lots of monopoly, lots of bargaining, but not much gross national product. Just think what will occur. (Tanzania is a cool word for my post; it is so good that I am not in a country of a dictator who runs Caracas.)
What about supply and purchasing? In my location — you can just call this city "Dar" — many Arabs add to urban culinary options. Spicy Sichuan food is also around, and Indian food is common. Why not? D falls downward to a rightward slant. Spicy food in Dar costs not so much. Transport of a spicy stuff or two costs virtually nothing. Call it proximity, or is "spatial" a good word too? "Marginal cost" also has not this bad sign, which again I must avoid in this blog post.
So, marginal cost is low for this spicy stuff. Now, S can fly rightwards in an upward slant, almost flat, but low low low.
I can put two flying slants synchronously. Right? Labor cost is low also. Monopoly is common in Dar but not for my mouth and stomach. P is jointly with marginal cost and for moi this spicy stuff is a Traum, of which I gnaw, swallow, chow, finish, grub down, polish off, run through, put away, and dispatch.
Now you try!
Outsourcing markets in everything
…the Pasadena Now
web site apparently posted an ad saying "We seek a newspaper journalist
based in India to report on the city government and political scene of
Pasadena, California, USA."
Via Matt Yglesias. Dani Rodrik has relevant and oft-overlooked remarks, though I think he is underemphasizing the case where trade starts by bidding people into higher-wage jobs.
Tanzania fact of the day
This is scary, no? I’ve got my DEET and my pills:
Every year, 14 million to 18 million new malaria cases are reported in Tanzania, and 100,000–125,000 deaths occur. Of those deaths, 70,000–80,000 occur in children less than five years of age. The annual incidence rate is between 400 and 500 per 1,000 people, and this number doubles for children less than five years of age. These high rates imply multiple episodes of malaria in a single year for many individuals. The annual mortality rate is 141–650 per 100,000 people, increasing to 300–1,600 per 100,000 for children 0–4 years of age. Malaria is the leading cause of outpatients, deaths of hospitalized people, and admissions of children less than five years of age at medical facilities. As a result, it is considered the major cause for the loss of economic productivity of those between 15 and 55 years old, and an impediment to the learning capacity of people between 5 and 25 years of age.
Here is the link.
The new attack on free trade
It is by Erik Reinert, How Rich Countries Got Rich, and Why Poor Countries Stay Poor; here is a home page for the book. The title is misleading and sounds too monocausal. Reinert’s well-written book in fact revives the arguments of Friedrich List, Henry Carey, and the 19th century protectionists. In his view many forms of manufacturing are increasing returns to scale activities and help support civil society in the longer run. Agriculture and the sale of raw materials are "Malthusian" sectors with diminishing returns and they are unable to create a stable middle class. The solution of course is to stop pushing free trade upon the third world and thus allow it to develop. Reinert claims Tudor England, 19th century America (though see Doug Irwin’s revisionist work), Bismarckian Germany, and pre-reform Latin America as data points on his side. Unlike many critics of free trade, he does fully understand Ricardian and other theories of comparative advantage.
I don’t think his main claims are crazy and they are by no means theoretically impossible. I wish however he had devoted more attention to the following:
1. Many other preconditions — most of all educational potential and some decent institutions — must be in place for tariffs to spur economic development in this manner. Not all regions can create sustainable increasing returns to scale industries in manufacturing, tariffs or not.
2. Reinert cites many historical examples but doesn’t establish that they all apply, or apply with the force he suggests. The book is a polemic, as might be written by an advocate of free trade.
3. On average the free-trading poor nations have had higher growth rates than the protectionists; see the work of Anne Krueger. India is one obvious case of a miscalculated protectionism.
4. More often than not, tariffs and trade protection are abused for purposes of corruption and special interests.
5. Reinert himself stresses that the proper growth path requires a later move to free trade. This development is by no means automatic, given that protectionism creates its own special interests.
I’m still not sure why Dani Rodrik thinks that invoking 4 and 5 amounts to playing politics, or guessing at politics, at the expense of substantive economics. I think of it as citing a downward-sloping demand curve in the time-honored tradition of political economy and public choice. Like so much of modern economic thought, it comes from Adam Smith.
No economist says "I favor a philosopher-King and here is what he should do. I can’t tell you what he will do, that is politics." Sub in "protectionist trade policy" for "a philosopher-King" and decide whether this sentence makes any more sense.
Polemics on payday loans
Yours truly, vs. Nouriel Roubini.
Evolution and Moral Community
Paul Rubin argues that our evolutionary heritage biases us against seeing larger moral communities.
Our primitive ancestors lived in a world that was essentially static; there
was little societal or technological change from one generation to the next.
This meant that our ancestors lived in a world that was zero sum — if a
particular gain happened to one group of humans, it came at the expense of
another.This is the world our minds evolved to understand. To this day, we often see
the gain of some people and assume it has come at the expense of others.
Economists have argued for more than two centuries that voluntary trade, whether
domestic or international, is positive sum: it benefits both parties, or else
the exchange wouldn’t occur. Economists have also long argued that the economics
of immigration — immigrants coming here to exchange their labor for money that
they then exchange for the products of other people’s labor — is positive sum.
Yet our evolutionary intuition is that, because foreign workers gain from trade
and immigrant workers gain from joining the U.S. economy, native-born workers
must lose.
What makes England free
The English were well known for their disposition to provide help in emergencies. This disposition went to the heart of their conception of society, as a duty-bound relation between strangers. Their charitable behaviour was a way of emphasizing that strangers are just as important as friends — because all of us, in the end, are nobodies. By devoting yourself to the distressed stranger you make it clear that you too are a stranger in this world. You reaffirm the distance between yourself and others, by showing that the motive that binds you to society is one of impartial justice and objective duty. The charitable relief of strangers was simply another aspect of English reserve.
That is from Roger Scruton’s over the top but nonetheless fascinating England: An Elegy; he portrays the English as a people who have substituted morale and teamwork for intimacy. If you are looking to understand why so many parts of the world find it difficult to adopt either capitalism or free political institutions, this is one of the very best places to start. The English recipe is by no means the only way to go, but from Scruton one gets a good sense of just how much cultural background is needed to sustain liberty.
Better than nothing
Lucas will make two more live-action films set in everyone’s favorite galaxy far, far away. These films will likely be an hour each, and will air on television, though he doesn’t know on what channel (The Sci-Fi network?). Says Lucas of the films, "they won’t have members of the Skywalker family as characters. They will be other people of that milieu."
Here is one report. The episodes are supposed to be set between installments III and IV and they are scheduled for 2009.
A Second Opinion
To most economists and businesspeople, it probably seems perfectly natural that health care should be sold like a commercial service by profit-seeking firms, despite the fact that until the late 1960s, there was neither organized private investment in the delivery of health care, nor large publicly traded for-profit health care corporations.
That is from Arnold Relman’s A Second Opinion: Rescuing America’s Health Care. I read Relman as offering three major arguments:
1. To the extent the private sector handles health care, we should look toward not-for-profit and cooperative means of provision.
2. Single-payer systems will work only if the supply side of health care is reformed. Government provision (see the UK) fails but so will for-profit corporate suppliers, even when combined with greater government involvement. He favors a single-payer system and urges that health care supply be reorganized into multi-specialty prepaid group practices, where doctors receive fixed salaries rather than fee for service. Many of the favored European systems involve some version of this mix.
3. He believes that market-driven or consumer-driven health care, whether of the libertarian or David Cutler pay-for-performance variety, is bound to fail.
This short book is underargued, but anyone interested in health care policy should read it.
Is Sarkozy wrong on the Euro?
Free Exchange reports:
Defending the central bank’s independence, European finance ministers warned Nicolas Sarkozy, the incoming French president, not to blame the ECB for France’s economic woe. While electioneering, Sarkozy suggested the ECB’s policy objective be amended from achieving price stability within the Euro Zone to focus on job creation and growth.
Sarkozy is, in my view, correct to think that a bit more inflation would improve the French macroeconomy. France has about the stickiest nominal wages on Planet Earth. A little extra inflation would boost the labor market by allowing real wages to fall. Some inflation might also spur exports in the short run. Do note that the latter effect is, in the first best, cancelled by the inferior French command over non-Euro-denominated imports. Still the job gains might offer some second best benefits in this context, such as alleviating social tensions.
That said, two very important qualifiers are required:
1. It is not useful for a French politician to make ECB policy a political issue in front of the public. If the ECB gives in to French politicians at their whim, it is not long for this world.
2. The Euro probably requires a lower rate of price inflation than does the dollar, even though European wages are stickier. "Price stability" is focal, more or less. "Three percent inflation" is not. There are now 13 countries in the Eurozone, maybe someday 25. Zero is a good number to agree upon, perhaps it is the only number they can agree upon.
This all reflects a very real tension behind European monetary policy. It is much harder to have monetary discretion when many nations belong to the currency union and have an ultimate voice in what happens. I view the current structure of the ECB as somewhat of a contraption. France and Germany had favored strong ECB independence and a price stability mandate and they more or less forced everyone else in Europe to play that game, whether they liked it or not. Can Portugal and Italy really today make such a stink about tight monetary policy? No. But Germany can’t do the enforcing all on its own. Sarkozy needs to not only give in to Merkel, he needs to signal that he will return France to its previous role as partial enforcer of tight monetary policy. Is he up to so much humbling so soon?
Sarkozy is still right on the economics, so I wonder if he’ll be able to see his way past that. Three percent inflation would be better for France over the next five years. It would not be better for Europe over the next thirty.
My thoughts on Wolfowitz
Brad DeLong sums them up.
Memo to self
Visit London every year. Bar Shu, 28 Frith St., near Leicester Square, is the best Sichuan food I have had. The "Exploded Pork Kidneys" are especially fine, as are the green beans. Also noteworthy is Hot Stuff, 19 Wilcox Rd., a small Pakistani takeaways place which is rapidly gaining global fame.
For the first time in my life, I no longer feel I live in or near the center of the world.
What are the best novels for teaching economics?
Ezra Klein asks me:
What do you think the best fiction books are for understanding economics? Left and right? From my perspective on the spectrum, I’d go with Steinbeck’s Grapes of Wrath, but I’d be interested to hear your favorites…
Some will cite Harrison Bergeron, the Vonnegut anti-egalitarian short story. Others would nominate Ayn Rand, anarcho-capitalist science fiction, and of course there are the fictional-economic creations of Russ Roberts. But what are the Western classics that — policy polemics aside — teach one how to think like an economist?
My attention is usually drawn to 1660-1775 in British fiction, starting with Defoe and continuing through Swift, Boswell, and just about everyone else. To my eye they all thought like rational choice economists, albeit strange ones with a focus on approbation, self-deception, and the perverse social consequences of individual action (see my In Praise of Commercial Culture, the chapter on literature, for more detail). They are the true roots of Smith’s TMS. Dickens and Balzac are contenders, but I find them a bit too one-note, as is Harriet Martineau. Nonetheless the eighteenth century works remain ahead of their time and they certainly don’t teach basic economics or help one think much about policy.
What are your picks?
The vocabulary of economists
Key lexical nouns in Economic Journals:
American Economic Review, 1990s: equation, model, equilibrium
Economic Journal (UK), 1990s: pension, unemployment, wages
Journal of Economic Perspectives, 1990s: insurance, liability, health
American Journal of Economics and Sociology, 1990s: land, property, poverty
Here is the cite and a longer discussion. The paper has many more interesting results.