Daniel

One for the junior-birdman Hayekians, Coasians and such like:

Consider a finite quantity of a consumption good G, which is to be divided into two allocations G1 and G2 for two different agents with utility functions over G described as U1(G1) and U2(G2).

What would be the minimum information that a central planner would need to have about U1 and U2 in order to be able to calculate a Pareto efficient allocation G1/G2?

Answer after the jump – I just asked three economists this question and they all got it wrong.
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I have a post up at the Guardian blog noting that with no activity on its weblog on the last six weeks, the manifesto itself closed to new signatures and nobody so much as remarking its second anniversary, the Euston Manifesto appears to have gone the way of all flesh and most leftwing political tendencies. I suggest, perhaps a little uncharitably, that the cause of death (which I suppose I might be premature in announcing, but really, it doesn’t seem to have much life in it) was the Manifesto Group’s consistent refusal to ever move on from their platforms and slogans to having any concrete program at all[1] (and that this was in its turn probably due to the need to keep together a coalition which, in as much as it extended beyond a very small clique of pro-war ex-Trots, had very little to hold it together other than a personal dislike of George Galloway). If I had the piece to write again, I suspect I might have given more airtime to the other big psychological impetus behind the Paul Berman/Euston/”Decent” tendency, which was genuine trauma at the 9/11 and 7/7 attacks. But I certainly wouldn’t walk away from my assessment of the central motivation – a desire on the part of people who had been wrong for decades during the Cold War to be on the right side of history for once.

In terms of their contribution to British political debate, my epitaph for the Euston Manifesto is basically Byron’s on Castlereagh. For whatever reasons, as a political movement it was never able to get over the personality issues involved, and chose to promote its views by the same tactics of condemnation, excommunication and inflated rhetoric which had served it so badly during its past on the left[2]. But the current of political thought that Euston represented in the UK was not entirely bad or even entirely wrong. What would their legacy be?
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I am responsible for the Ayn Rand/charity beat at Crooked Timber and here’s another story on the subject. This really doesn’t look like it’s going to end up well. A large charitable foundation attached to a bank has given the University of North Carolina Charlotte, among others a donation in return for making “Atlas Shrugged” compulsory reading. Most tragic rationalisation:

BB&T donated $500,000 last year to Johnson C. Smith University to help endow a professorship on capitalism and free markets, with lessons including “Atlas Shrugged.’’ It’s the fourth endowed chair at the historically black college in Charlotte.

“I don’t believe I have to advocate that people accept Ayn Rand’s philosophy,’’ said Patricia Roberson-Saunders, who holds the chair. Roberson-Saunders, who will present Rand with other texts, said students will benefit from reading about a world view held by “people with whom they will have to work and for whom they will have to work.’’

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My assessment of the battle for Basra has changed significantly. I still think that, in the subjunctive conditional tense, it was a reasonable piece of analysis – al-Maliki needed to do something[1] to start to establish his monopoly on violence within Iraq and I put material weight on his own seeming subjective assessment that he was politically and militarily strong enough to pull it off. But in the actual present tense, things are going the other way. (A disclaimer should certainly be appended at this point that this is all rather toward the punditry end of the spectrum rather than analysis so if that winds you up then skip it, but having picked that ball up I’m sort of committed to running with it).
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From the armchair general department … Back when the surge began, I suggested that one of the ways in which things could go wrong (and of course, there are loads of ways things can go wrong and only one way they can go right) would be:

d) Al-Sadr demonstrates his political nous once more, and calms down his operations, carrying out only enough hit-and-run attacks on US troops to keep his popularity up. Then he forms a nationalist bloc with one or more of the Sunni parties. Political collapse of the Maliki government.

Which was looking rather awfully close to how things were shaping up; while the level of violence was falling, the Maliki government was going nowhere fast politically and the anti-government forces were gathering strength. Furthermore, nobody seemed to really be doing much about this, apart from sitting round congratulating themselves that “the surge is working”.

Now, (and I would be very glad to be proved wrong on this one, as I have very little personal credibility at stake having been right on nearly every other important point about Iraq, and contrary to supposition I would very much like to see a world in which far fewer innocent people were in danger of horrible death on a daily basis), it’s all kicking off, apparently (via Chicken Yoghurt).

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Greg Mankiw, in the New York Times, demonstrating the deft common touch for which Harvard economists are famous:

No issue divides economists and mere Muggles more than the debate over globalization and international trade. Where the high priests of the dismal science see opportunity through the magic of the market’s invisible hand, Joe Sixpack sees a threat to his livelihood.

Next week, presumably, Greg Mankiw writes on the subject of “Why is it that economists have so little influence in politics?”
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We’ve been consciously trying to dial down the amount of horse-race coverage of the US presidential nominations (it will probably inevitably get intolerable during the actual race, but that’s the policy), but I don’t think that no coverage at all is the aim. And one thing looks quite interesting to me at the moment; although the general buzz of the news cycle has Hillary Clinton level-pegging or even regaining “momentum”, the Electronic Markets have her, post a small Texas/Ohio bounce, still way out of the money with Obama looking like the favourite at around 75.

As far as I can tell, the tracking polls are telling more or less the same story at present. As far as I can see, the punditosphere seems to have got rather ahead of the data here; there’s a potential test of whether they have any actual predictive ability.

Via Roger in comments to Chris’s post below, Michael Walzer mounts what can only be regarded as an unprovoked dawn raid on his own reputation.

The topic is the ethics of using mercenaries (or at least, that is the formal topic; at a deeper level, the topic is the same as the topic of everything Walzer’s written in the last ten years; that sadly, oh so sadly, “the left” simply doesn’t believe in its principles with the same seriousness and intellectual depth which Walzer does. It’s frankly the philosophical equivalent of “I was into your favourite band before they started to suck”, and it’s frankly becoming tedious).
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This is obviously a terrible abuse of posting privileges to promote something that really ought to be a comment on Harry’s piece below, but whatcha gonna do? I just wanted to add a small note on a technical issue to do with his conclusion about our civic responsibilities:

When you vote, you have a very stringent obligation to deliberate responsibly about the effects of your vote, and about whether those effects are morally justifiable or not. You should deliberate about the moral issues at stake in the elections, and come to have a tentative, but warranted view, about what justice requires, as well as about what the likely effects of policies your candidate is likely to implement (and whether they are morally justified).

That sounds like pretty hard work doesn’t it? However, luckily the Condorcet Jury Theorem comes to our rescue. More or less the same mathematics which ensure that voting is a waste of time also ensure that as long as the average voter has a slightly better than 50% chance of making the right decision and the electorate is large enough, the majority vote will be correct in a two horse race (like a Presidential election; voters in multiparty democracies, do what Harry says). It’s one of those seeming informational free lunches which are the basis of the James Surowiecki’s book.

So, the full advice to potential voters would be that your civic duty is:

1. If you are a reasonably intelligent and responsible citizen, just kind of think for it a bit and make a snap decision, like Malcolm Gladwell says and you’ll probably be right.

2. If you are voting for an essentially completely frivolous reason which has nothing to do with the actual election (like, for example, P Diddy threatened you with death if you didn’t, or you thought it might get you a shag, or you want to commemorate people who died a hundred years ago), then toss a coin; you won’t be bringing the average below 50%.

3. If you’re so stupid that you nearly always cock it up, then follow the Costanza Principle and do the opposite of what you think you should do. Actually, people like that probably can’t be trusted to follow the principle properly, so you lot flip a coin too.

4. If you’re reasonably intelligent, but also a selfish bastard, then stay at home.

So there you go. Voting isn’t actually quite as onerous a social duty as it would seem, at least in two-horse races, so go on, make Stone Cold Steve Austin proud. Or not, as the case may be.

Joe Stiglitz, interviewed in the Guardian about his book (co-authored with Linda Bilmes), “The Three Trillion Dollar War”. A couple of thoughts:

• The cost of the Iraq War could have underwritten Social Security for fifty years. This brings home one of the points Max Sawicky always made in the SS debate (in general to a brick wall). Although the headline amounts associated with these problems are scary, they are actually not all that much as a percentage of GDP. The Iraq War is a horrific waste of money, but I don’t think anyone would actually try and claim that it literally can’t be afforded. Similarly with the Medicare/Medicaid/Social Security nexus of funding costs; it’s absolutely clear that the productive capacity of the US economy can pay for these things, it’s just a question of whether there is political will to do so, or whether the government would rather spend the money on killing hundreds of thousands of people overseas for no very obvious benefit.
  


• It’s not often that one gets to correct a Nobel Prize winner, so I will take the opportunity. Stiglitz is qutoed as saying that “Money spent on armaments is money poured down the drain”. This is actually the best case for armaments spending from an economic point of view. Most of the time, when armaments are used, they damage something valuable. If all the bullets fired in Iraq had been poured down the drain instead, the world economy would be massively better off, even allowing for the cost of cleaning up the pollution caused in the drain.
  


• Three trillion dollars really could have solved a lot of world problems. For example, it would have funded a once-and-for-all offer to the entire population of Gaza, the West Bank and the UNRWA refugee camps of half a million dollars each to slope off and stop bothering the Israelis. That’s the sort of money we’re talking about here.

More from Dan Hardie on the subject of Iraqi employees of British forces; specifically on those ex-employees who are currently stuck in Iraq and neighbouring countries, waiting for the Borders & Immigration Agency to process their applications. Absolutely scandalous. Once more, the Parliamentary switchboard is 0207 219 3000 and it is really not difficult to put a (polite) call in to your MP on the general theme that the Foreign Secretary and Prime Minister have made a public commitment to helping the employees, and delaying the asylum and resettlement applications for these people is as bad as abandoning them.

Dan writes, below the fold:
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I have a post up at the Guardian blog on the general subject of it not being terribly practical to assume that if we all shout hard enough at the Chinese government, they will wave their Chinese magic wand and the Darfur crisis will go away. In the post, I unaccountably forgot to link to Alex Harrowell at Fistful of Euros, who inspired the post by reminding me that I held this view. I’m now correcting this (frankly the CT referral stream is probably a little less, shall we say, problematic[1] than the Comment is Free one). So let the circle-jerk be unbroken, etc. Sorry Alex.

In general, though, and I didn’t explore this enough because it would have looked like rambling, a lot of people seem to think that the Olympic Games is the most important thing in the world to China. How much do we think they really care about it going well? I mean, seriously, we are going to be hosting this thing in London soon, and if it really is true that major world governments regularly make massive shifts of geopolitical influence in order to avoid a few slightly embarrassing scenes at their opening ceremony, then I am rather worried about what the rest of the world might have planned for us.

[1] No, let’s say “insane”

The UK is all agog at the moment over the bugging of an MP’s conversations with one of his constituents, while the constituent was being held by police on (apparently credible) suspicion of terrorist offences. There seems to be quite a debate going back and forth about whether the “Wilson Doctrine” (basically forbidding the tapping of MPs’ telephones and commonly thought to also rule out bugging them in more modern ways) has any place in the new world order. I think this is a very easy question to answer, along game-theoretic lines not a million miles from those suggested by John in a post on the general subject of bugging and spying a couple of years ago. All one has to do is to remember the following fairly basic general principle, which would hardly make it onto the syllabus at most decent business schools because it’s so obvious:

If you create the presumption that the cops can hear anything that you tell an MP, then people will only tell their MP things that they would be happy to tell a cop

I would guess that there are plenty of people in the Muslim community in Tooting who would tell Sadiq Khan MP things that they would not tell the police. I would further surmise that the general security of the British public (ie me) is benefited to some small extent from the fact that there are people in the Muslim community in Tooting who would tell Sadiq Khan MP things that they would not tell the police. I rather suspect that the bod who decided to bug Sadiq Khan’s conversation with Babar Ahmad was concentrating purely on his own case and did not consider the more general ramifications of undermining the general principle that MPs conversations are not directly accessible to the police.

note: I originally wrote this for the Dani Rodrik seminar. As it grew, though, it became apparent that it didn’t really have much to do with “One Economics, Many Recipes” and that it was thus a bit unfair to ask Dani to comment on it. On the other hand, I liked it too much to kill it altogether – dd

“One Economics, Many Recipes” makes a lot of useful and constructive suggestions about how to attack the central problems of economic development. However I don’t think it gives enough emphasis (fundamentally because I don’t think it’s possible to give enough emphasis) to international debt as a constraint on development. Nearly all of the success stories in the book relate to countries which started their periods of development without a large debt burden, and the presence or absence of large net external debt is certainly one characteristic which matches up well to the motivating stylised fact in the book – the distinction between those countries like Argentina which followed all the standard policy recommendations but didn’t develop and those like China which ignored them and did. In this essay, I’ll try and flesh out a few provocative views on the financial aspects of development policy, which in my view are just as important real-world constraints as the institutional real-economy factors that are the main subject matter of the book.

Actually, just as I don’t think it’s sensible to carry out international comparisons of crime rates without taking demographics and urbanisation into account, I don’t think that any kind of comparative analysis of developing economies can be carried out at all without conditioning on the debt burden. It’s that important. When you have a situation in which a country’s capital account is dominated by contractual flows payable in foreign exchange, that is far and away the most important fact about that country’s economy. This is because as long as the debt service constraint is binding (and I discuss what happens when it isn’t, below), then unless the country is receiving massive net transfers from abroad, the entire economic development program is going to end up being twisted toward a capital account constraint which almost certainly has nothing to do with a sensible locally-based development plan of the kind that Dani advocates.
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