Henry

John Kay has a piece about the travails of modern economic theory in the Financial Times today. This analogy struck me as a bit unfair.

The only descriptions that fully meet the requirements of consistency and rigour are completely artificial worlds, such as the “plug-and-play” environments of DSGE – or the Grand Theft Auto computer game. … Economists – in government agencies as well as universities – were obsessively playing Grand Theft Auto while the world around them was falling apart.

After all, as best as I am informed, Grand Theft Auto has an entire simulated world, with multiple interactions between quasi-autonomous, if scripted personalities. Dynamic Stochastic General Equilibrium models – not so much. But this spurred me to think – how would Grand Theft Auto work if it looked a little bit more like a DSGE model? All interactions taking place with a single modal gangsta, whose preferences were taken as representative of all gangstas across the entire economy? Frictionless exchanges, in which gunfire never occurs because all actors anticipate what other actors are likely to do, and hence avoid welfare-lowering actions? My imagination is limited, both (a) because I’ve never actually played Grand Theft Auto, and (b) because my exposure to the relevant economic arguments primarily consists of dim memories of snotty comments about Robert Lucas in lectures by neo-Keynesian Peter Neary (who taught advanced macro to my undergraduate class and was keen on the Malinvaud tripod). But I’m sure that other members of the CT community don’t labour under these twin disadvantages, and can do better. Also, I recognize that the title of this post is quite unfair, since Kocherlakota, whatever his other faults, is not especially keen on DSGE arguments, but if the belabored wordplay fits, then wear it …

Matt Yglesias suggests after a Twitter debate that I and Tom Philpott are conceding a lot to neo-liberalism because we’re OK with microbrews. I’m not so sure.

Matt’s original claim was that craft brewers were somehow analogous to charter schools, giving us delicious individualist brews, rather than unionized mass-produced piss.

So here’s the thing. You may not like Miller or Bud Light, but Miller and Anheuser-Busch both run unionized breweries. And as Loomis notes, one consequence of the cartelization of the American beer brewing industry was to generate monopoly profits for the large breweries. This was good not just for “Miller executives” but for all the stakeholders in the enterprise. When a unionized firm is in a non-competitive marketplace, the union is in a strong position to force the firm to share some of the monopoly rents with the workforce. When the market becomes more competitive, not only does the unionized firm lose market share but the union in general loses leverage. The craft breweries are basically the charter schools (or foreign-built trains) of the beer world.

I think this first version of the claim was wrong, on any reasonable interpretation. If Matt was suggesting that good beer and good unions are somehow incompatible, all I can say is Sir, I refute you thus!. If he was arguing instead, as he seemed to be claiming on Twitter, that Big Microbrew threatens the bargaining power of unions in the American beer industry, then he was making a wildly implausible claim. Not only do microbrews only account for a small percentage of the market (about 7% as best as I can see) but they constitute a more or less entirely separate market from the market for Miller, Budweiser etc. There’s simply not that much substitution between the two – hence, not much in the way of market effects. Unlike e.g. steel minimills in the 1980s, microbrews pose no fundamental threat to the way the major industry is organized. He’s correct that charter schools (which I personally have no very strong inherent objections to, by the way) also only constitute a small percentage of the US education market – but beer, obviously, is not subject to the same political forces as is education. There is little likelihood that the appeal of microbrews will lead state, local or federal officials to impose or encourage mandatory hopping levels for Anheuser-Busch, or that US unions would object if they did. Unlike their Danish compatriots they have no skin in the game. Microbrews have no realistic chance of transforming the main marketplace in ways that would undermine unions.

Matt seems now to be making a somewhat different claim, which doesn’t really make much sense to me.

The Farrell/Philpott explanations of why this is okay in the case of domestic craft beer rely on the claim that empirically speaking the impact of the new entrant in question on the marketplace is going to be small. That may be true, but it’s in considerable tension with the impulse of Philpott (based on his original article) and Farrell (assuming “pissy” is not a compliment) to valorize the new entrants. … There seems to me to be a kind of special pleading at work here, where on the one hand a neoliberal approach to the beer market is justified on the grounds that it’s giving consumers superior options, but then it’s okay to be a neoliberal about beer because only a tiny minority of consumers will actually appreciate these new options. Neoliberalism for me but not for thee

This is a very peculiar argument. Matt has been quite good in the past at taking on libertarians and conservatives who claim that all liberals want is a bigger state. Now, he seems to be suggesting that all that people to his left want are bigger regulation and bigger unions, and that when it comes to craft ales and stuff that they really care for, they’re big old hypocrites who want deregulation all the way. This claim rests both on a caricature of the left and a fundamental misconception about the issues at stake, which concern personal likes and dislikes, not politics. I have particular tastes in beer, but I don’t feel that other people are missing out on very much if they don’t share those tastes, and instead drink beers that I myself dislike. Not only am I prepared to share a blog with such people, I’m even married to one of them. Nor, even if my tastes were like those of dsquared and my spouse, would I have any reason to oppose deregulation that did no apparent damage to the causes that I believe in. Where a policy change gives people more choices, and there are no discernible negative side-effects, I’m all in favor. I cannot on earth see why anyone would prefer to describe this stance as ‘special pleading,’ or a major concession to neo-liberalism rather than e.g. ‘common sense.’

Perhaps there is some Bierstalinismus Fraktion out there, which believes that the proletariat will never be fully realized as a class-in-itself until it learns to appreciate hoppy microbrews, but which has reached an accommodation with neo-liberalism in which these joys are reserved for the revolutionary vanguard. I’m not a member of it. Nor, I suspect, is anyone else whom Matt is disagreeing with. This is a rotten test-case for arguments about neo-liberalism, precisely because neo-liberals, left-liberals and social democrats have no reason to disagree with each other. In cases where there is a clash between (a) increasing individual choice, and (b) plausibly weakening political forces that help militate against inequality, there are real arguments to be had (and, depending on the specifics of the case, one might reasonably favor the one side or the other). But I’m not seeing any such clash here, and I’m rather confused as to why Matt thinks that there is, and that people to his left are engaging in special pleading so as to ignore it.

I’m teaching my Ph.D. level course on institutions and politics this fall. The idea behind the course is to provide Ph.D. students with (a) an understanding of core debates in institutional theory in political science (distinguishing between rational choice, historical institutionalist and ideational accounts), (b) some sense that these accounts go across the subfields of political science, and (c ) an intuition that there are Other Social Sciences with debates about institutions, and that they often have fun and important things to say. Below the fold is my draft reading list: suggested amendments, additions, revisions etc are gratefully received (and if anyone finds the syllabus useful, they should feel free to take it and adapt it for their own requirements &c&c). I also have a class without assigned readings yet – which I hope to fill in with some fun new topic.

[click to continue…]

Ta-Nehisi Coates has been writing about whether the Civil War should be considered a tragedy or not (his take is emphatically on the ‘not’ side of the ledger). One way to think about this is to think about what would America have looked like if the Civil War hadn’t taken place? This is the kind of counter-factual that both philosophers and science-fiction writers use – and as it happens, there’s a fine and moving short story by the science fiction author Robert Charles Wilson on this topic, “This Peaceable Land: Or The Unbearable Vision of Harriet Beecher Stowe.” (it’s first published in the Other Earths anthology, and also available in a couple of ‘Best of 2009’ round-up SF collections). The story takes place in an America where the Civil War was barely averted, and where the South saw a gradual depopulation of African Americans, hastened greatly by a kind of quiet Holocaust in which many of them were murdered as slavery ceased to be economically viable. The nub of the story is precisely the difficulty that white abolitionist liberals have in seeing that the war that was avoided may have been a lesser tragedy than the unheralded war that was not.

“That is a decent white woman,” Ephraim said when he had heard the letter and given it some thought. … “But I don’t know what she’s so troubled about … This idea that there was no war. I suppose there wasn’t, if by war you mean the children of white men fighting the children of white men. But, sir, I have seen the guns, sir, and I have seen them used, sir, all my life – all my life. And in my father’s time, and before him. Isn’t that war? And if it is war, how can she say war was avoided? There were many casualties, sir, though their
names are not generally recorded; many graves, though not marked; and many battlefields, though not admitted to the history books.”

Or as Coates puts it:

Taken together, the slave system was, itself, a Leviathan—a force with deep roots in the economic, social and political system of this country. From the black perspective it was the nation-state mobilized for more than two and half centuries as a war-machine against that which so many regard as the foundation of humanity, itself—the family. And I do not merely mean the biological nuclear family: The slave system subjected family, in all its permutations—adoptive, same-sex, parent-less, child-less—to consistent, if capricious, violence. If there is such a thing as an African-American people—and I believe there is—then it must be said that that for 250 years, that people lived in a state of war.

Michael Lewis’s recent article brings up again the question of why Germans bought so much toxic financial waste in the run-up to the financial crisis. It seems clear that his ‘because they’re all obsessed with shit’ theory isn’t any better an explanation than his Provo gangsters and fairy rings take on Irish economic disaster. But that still leaves an open question.Peter Frase takes one go at it here, first using Lewis’ earlier work to ding the ‘idiots’ theory of why the meltdown happened:

One popular interpretation of the crisis, and of Lewis’s book, is that the explosion of sub-prime lending and securitization was the result of mass stupidity, and that huge numbers of people simply failed to understand or account for the incredible financial risks they were taking. This is basically the approach Ezra Klein takes when he quotes Larry Summers’ famous remark that “there are idiots” and concludes that the crisis was a consequence of human weakness and error in the context of a system with few regulatory restraints. … Yet idiocy does not stand up as a the central causal factor behind the crisis. For one thing, it seems odd that there would be such a concentration of idiocy in the most lucrative field of the American economy, one which has been leeching the brightest minds out of the rest of the society for decades. Moreover, it is necessary to explain not only the preponderance of idiots, but the tendency for their idiocy to work systematically in the same direction. … In academic finance, the technical term for idiots is “noise traders”, and they are thought to provide erratic and irrational actions that may destabilize markets but do not systematically move them in one particular direction. …

Though the financial crisis produced a great deal of institutional calamity … the individual people responsible for the worst decisions of the last decade managed to greatly enrich themselves even as they nearly annihilated the global economy. … it’s undeniable that some of them, particularly toward the end, were getting high on their own supply, taking the the bogus triple-A ratings on toxic subprime garbage at face value even though they had an inside understanding of the con game they represented. …ultimately, these people–who in a just world would be penniless and serving extended prison terms–walked away with millions of dollars. There are plenty of apt descriptions for people like that, but “idiots” isn’t the one I would choose.

and then pointing out that even if everyone wasn’t an idiot, there did appear to be a heavy concentration of them in the investment arms of German banks.

German institutional investors, or as they are called at one point, simply “Dusseldorf”. Lewis never really tries to explain their outsized appetite for murky subprime instruments. … In the language of the “varieties of capitalism” school of comparative political economy, Germany is what is known as a “coordinated market economy” or CME, whereas the U.S. is a “liberal market economy” or LME. The structure of the market in a CME is fundamentally different in that it relies heavily on coordination between firms, based on tight long-term inter-linkages and above all, trust. This contrasts with the more ruthlessly competitive ethic of the LME, in which formal contracts take the place of reciprocal trust relations. So German bankers and investors were a) relative novices at modern securities wizardry; b) steeped in a capitalist culture quite different from the dog-eat-dog rapacity of the American version.

The stylized story that is doing the rounds among comparative political economy of Europe people is a little different than this. It points to how the EU forced Germany to get rid of rules that favored its regional and local banks, obliging these banks to seek new investment opportunities outside the local and Land businesses that had previously provided their bread and butter. And when they went international, they found many people who were willing to sell them unimpeachable investment opportunities, and little internal or external capacity to figure out when someone was trying to sell them a pup …

Here, the suggested problem is an organizational one as much as (or more than) a cultural one – banks which are geared to a certain kind of business, and which suddenly find themselves being pushed out of that market, are likely not to have built up the expertise that will allow them to prosper in new ones. What this explains (and the cultural explanation does not) is why it is that Deutsche Bank (which was far bigger) appears to have done conspicuously well out of the crisis, while its smaller compatriots have done very badly indeed. Of course, this isn’t to say that this theory is right : political scientists often have a poorish enough understanding of what is happening in markets – but if there are better ones, or contradictory evidence for this one, I’d be interested to hear it.

Another Kevin Myers classic, explaining that the London riots are a result of too many black immigrants and not enough patriarchy.

They are clearly, and overwhelmingly, Afro-Caribbean, the descendants of immigrants, though such has been the utter British failure to integrate so much of the immigrant population that many have retained something of a Caribbean accent. Admittedly, not all of the rioters are “black”: clearly, some white youths have joined in. But where they have not got race is common, they probably have another feature that joins them: absent father-figures. … They have been raised without the presence of a male authority figure to impose familial order, and furthermore and most vitally, to promote the patriarchy.

The piece opens with an exhortation “that the duty of journalists is to tell the truth” and closes with two paragraphs where Myers congratulates himself at length for his lack of “cowardice,” and hints that he’ll take legal action against anyone who suggests that his … concerns … about the horrors of immigration, African indigents with massive erect cocks who have too many children etc etc are motivated by racism. Clearly, Mr. Myers fancies himself as a bold truth-teller – his recent column suggesting that todger-mutilating Jews shouldn’t make laws that interfere with Catholic social practices was framed in a similar fashion.

And this brings us back to Jeffrey Goldberg, who did American public debate the disservice of introducing it to Mr. Myers’ theories. Goldberg is not, unless I am very badly mistaken indeed, a bigot in the sense that Kevin Myers is a bigot. He nonetheless appears eager to believe claims about generic European anti-Semitism that are propagated by Mr. Myers, without checking into his sources. If I had made a gross and offensive claim that an entire country was a “bastion” of “anti-Israel hatred,” and then discovered that my source for this claim had the general worldview that Kevin Myers has, it would cause me to think about my journalistic practices, and likely to question whether my beliefs on this question were well-founded. Goldberg apparently takes a different approach.

Matt Yglesias notes Tim Lee’s editing rule that you should never use the prefix ‘cyber’ unless you’re William Gibson. A cyber-rule aptly illustrated in the cyber-breach by this particular cyber-contribution to cyber-knowledge from Ian Bremmer and Parag Khanna.

Cyberteeth bared

2010 was the year that removed all doubt that cybersecurity is now a geopolitical problem. … Yet WikiLeaks was far from the only big cyberstory in 2010. … We also learned that cyberattacks are no longer simply a weapon for petty criminals and teenagers. …In fact, WikiLeaks showed that a cyber-villain can prove just as elusive and decentralized as Al Qaeda. … Julian Assange, will probably have many days in court. If he is prosecuted in the United States, some will cast him as the world’s first cybermartyr. … will defend that freedom with more acts of cyberrevenge. … In the past, corporate willingness to provide the U.S. government with sensitive data hasn’t been hugely consequential for these firms, because they didn’t yet face a powerful cyberenemy capable of launching sophisticated attacks.

In fairness to the authors, they can’t be blamed for the “Cyberteeth” headline, which one can only imagine was a subtle act of revenge by whichever poor misfortunate bastard of a sub-editor had the grim task of polishing this cyberturd. The rest is all theirs though.

I’ll leave those who are better qualified than I to argue about the econometrics, but the timing of this paper’s release is extraordinary.

Expenditure cuts carry a significant risk of increasing the frequency of riots, anti-government demonstrations, general strikes, political assassinations, and attempts at revolutionary overthrow of the established order. While these are low- probability events in normal years, they become much more common as austerity measures are implemented. … We demonstrate that the general pattern of association between unrest and budget cuts holds in Europe for the period 1919-2009. It can be found in almost all sub-periods, and for all types of unrest. Strikingly, where we can trace the cause of each incident (during the period 1980-95), we can show that only austerity-inspired demonstrations respond to budget cuts in the time- series. Also, when we use recently-developed data that allows clean identification of policy-driven changes in the budget balance, our results hold.

Via Kevin O’Rourke.

The last month or two, I have started getting solicitations to review articles submitted to journals I’ve never heard of before, published by a crowd called academicjournals.org (the most recent of their journals to solicit my professional and disinterested advice is the International Journal of English and Literature). The journals and articles have absolutely nothing to do with my areas of research, and I get the very strong impression that I’ve been selected by some blunderbussing algorithm working from scraped email addresses of random academics. A quick Google search suggests that I’m not the only person who is puzzled about all of this, and suspects that there’s something fishy. What I can’t work out though is, is what they’re trying to do by soliciting me and umpteen non-bcced academics in the same email to review their bollocks for them. Is it some sort of advertising? Means of confirming that the email address is live, if you’re stupid enough to respond and tell them that you know nothing about African literature? Something else entirely?

I presume there’s some underlying business model here – but can’t figure out quite what it is. If it’s the obvious one of getting people to submit crap research and pay to get it ‘published’ in journals that no-one has ever heard of, I can’t see why they would be soliciting people to review aforementioned crap research. Suggested plausible motivations are welcome below …

I suspect that most people who want one have gotten one already. But in case any CT readers haven’t, and would like to try it out, click here to get one of the 150 invites I have to distribute …

Matt Yglesias responds to Chris’s post below, by suggesting that British “lefties”’ criticisms of New Labour’s record on inequality are discredited by a Lane Kenworthy graph, which he says he’ll take as a decisive argument in favor of what he calls “progressive neo-liberalism,” “until [he sees] a rebuttal of it.” But didn’t we have a rebuttal of Yglesias’ interpretation from Brian Weatherson, the last time he was pushing this line, back in October 2010? Perhaps he found this rebuttal inadequate in some way. But even if this were so, one would have thought that Lane’s own quite specific and limited explanation of what the graph suggests – that it showed that the UK poor probably did better under Labour than they would have under the Conservatives – might have given him pause (I’m quite sure that Chris, for all his dislike of New Labour, would agree with Lane’s claim here).

I also should note that he had a go last week at John Quiggin’s arguments about inequality, where he suggested that NYU professors had it pretty good, and that:

a lot of the political dialogue I see online seems to consist of a slightly strange form of class resentment in which intellectuals, nonprofit workers, or public servants express bitterness about the high incomes of businesspeople whose lives they don’t actually envy.

I wrote a somewhat ill-tempered post in response to this, and then deleted it, because I wasn’t greatly looking forward to policing the comments section. So I’ll limit myself to saying that Yglesias’ aside certainly doesn’t do justice to the genuine and quite serious debates around inequality, which, as far as I can see, are not being driven by ‘class resentments’ but by a genuine and well-founded dismay about the current state of the US political economy. Enormous disparities of wealth help reinforce huge disparities in political power (see e.g. Bartels’ findings on how the interests of different economic segments get represented in the electoral process) in a self reinforcing cycle. That’s a problem – and it’s a particularly big problem for someone who wants to concentrate on maximizing growth first, and only on sharing out the goodies afterwards. As Cosma says in the best post on this broad set of topics that I’ve read to date.

“When you tell us that (1) the important thing is to maximize economic growth, and never mind the distributional consequences because (2) we can always redistribute through progressive taxation and welfare payments, you are assuming a miracle in step 2.” For where is the political power to enact that taxation and redistribution, and keep it going, going to come from? A sense of noblesse oblige is too much to hope for (especially given how many of our rich people have taken lots of economics courses), and, for better or worse, voluntary concessions will no longer come from fear of revolution.

To be clear – I think that Matthew Yglesias is an extremely smart and interesting writer, even when I disagree with him, as I often do. He’s a net contributor to US public debate. But when he comes up against this particular set of issues, he has an unfortunate tendency to wave difficulties in his position away by making unsubstantiated imputations about the motives of people who bring up the problem of wealth inequality, and (update: now withdrawn – see his comment below) referring to graphs which don’t actually say what he thinks they say. I wish he’d do better.

Update – I see that Chris has also updated his post in response.

Some remarkable logic on display in the Washington Post ombudsman’s defense of Jennifer Rubin’s notorious jihadism in Norway post.

There are other reasons I got so many e-mails on Rubin; they have much less to do with terrorism and tragedy and more to do with modern technology and partisan politics. Liberals and conservatives don’t talk to each other much anymore; they exist in parallel online universes, only crossing over to grab some explosive anti-matter from the other side to stoke the rage in their own blogosphere. The liberal blogosphere, propelled by tweets, picked up Rubin’s piece and spread it around rapidly, helped by a trifecta of posts from theatlantic.com. … This brings us back to the shootings in Norway, an act committed by a disturbed man who drew some of his inspiration from extremist Web sites. A blogosphere given to vitriol and hasty judgments ought to consider the possible consequences of its own online attacks.

If I understand the logic of this column correctly, the ombudsman, one Patrick Pexton, thinks something like the following.

(a) Bloggers are partisan and don’t usually engage with people on the other side. In this sense, they are rage-filled extremists.
(b) Breivik was partly inspired by rage-filled, extremist websites.
(c) Therefore, rage-filled extremist leftwing bloggers ought to consider their own culpability, and shut the hell up about Jennifer Rubin.

I can’t remember the term for this logical fallacy (it’s of the ‘all cats have fur – all dogs have fur – therefore all cats are dogs’ variety). No doubt someone who, unlike me, took Philosophy 101, will inform me in comments within moments of publication. But an awful lot of work is being done by the elasticity of the notion of rage-stoking extremism here. And this is not to mention the intimation that James Fallows and Ta-Nehisi Coates are rage-filled hatebloggers …

However, there is a serious point to be extracted from this muddle. Which is that discussions of online extremism often tend to confuse two, quite different forms of extremism (here, I think Cass Sunstein’s work has had quite some problematic consequences). One is not really extremism at all – it is common or garden partisanship. That is, it is plausible that online interactions makes vigorous partisanship (in which you perceive yourself as in competition with the other side, perceive little value in direct intellectual exchange with them etc) more prominent, either because it makes it easier for partisans to find each other and organize, makes people’s partisanship stronger through mutual reinforcement, or both. Here, though, there is a crucial moderating influence. Partisans are engaged in political contention through electoral competition. This (as Nancy Rosenblum argues) has a substantial moderating effect – in the end, they need to win votes by influencing people if they want to succeed. This also leads to all kinds of indirect learning. The second is actual extremism, where people are potentially willing to abandon democratic politics and pursue violent means to achieve political ends. Here, there is no such moderating influence.

There is no necessary reason to believe that the former necessarily leads to the latter. In the US case, the online forces that push towards partisanship on the left tend overwhelmingly push against the other kind of extremism. There is no effective contact between e.g. MoveOn or the Daily Kos on the one hand, and the various subgroups and splinters who are more enthusiastic about violence on the other. When the latter try to influence the former, they get mobbed and repelled. The right is a quite different matter – there are dense social ties between online partisans and anti-Muslim bigots and crazies claiming that universal dhimmidom is right around the corner.

Pexton’s suggestion that leftwing bloggers need to think carefully about whether they too will inspire the mass-murder of scores of teenagers doesn’t deserve a serious response in itself. But it is worth looking at as a specific manifestation of a more pervasive intellectual confusion between two different forms of ‘extremism,’ one of which is not in fact a form of extremism at all.

A number of people (including Matthew Yglesias) suggested that they didn’t really understand my arguments about the deficiencies of left neo-liberalism, because they were too abstract. I’ve spent the weekend reading an Advance Reading Copy of Suzanne Mettler’s The Submerged State, which in addition to being a fantastic little book in its own right (and excellent value!), has a number of relevant – and quite concrete – points. Mettler wrote up a broad summary of her arguments last month for the Washington Monthly. But in the book, she goes into much more detail about the sources of the pattern of policy making that she argues against – the provision of welfare state benefits through semi-invisible tax breaks and forms of private provision rather than directly. [click to continue…]

I’m a fan of the artist and illustrator Ian Miller, much of whose work combines very fine ink drawing with watercolor and collage, and among my most precious possessions are a couple of the illustrations from his graphic novel collaboration with M. John. Harrison, The Luck in the Head. He’s been working together with a couple of other people on a short animated film, which provides a good sampling of his combination of the sinister and the jolly. Work in progress is here for those who are interested.