World Economy

Via Ezra Klein, I see that Jonah Goldberg has lapsed into what Ezra describes as a “weird revery over how the rugged individualism of Americans makes them totally unsuitable for social welfare programs.” In Goldberg’s own words:

I find interesting about the liberal defense of European welfare states (They really work! No Really!) is how they leave culture out of the equation almost entirely. … liberals are uncomfortable discussing the reality and constraints of culture for a host of reasons, from multiculturalism to vestigial hangups about seeing the world through prisms of class. … Maybe, just maybe, France and Denmark can handle the systems they have because they have long traditions of sucking-up to the state and throne? Marty Lipset wrote stacks of books on how Canadians and Americans have different forms of government because the Royalist, throne-kissing, swine left America for Canada during the Revolutionary War and that’s why they don’t mind big government, switched to the metric system when ordered and will wait on line like good little subjects…. If government systems are the only variable, or even the most important and decisive one, then how come it’s so damn hard bringing third world countries into the first world?

Now it’s a bit rich for a National Review hack to be talking smack about “long traditions of sucking-up to to the state and throne.” But even if we were to pretend for a moment that Goldberg’s argument is serious, it’s terrible. First of all, it gets Lipset’s thesis badly wrong. While Lipset was keen on enduring American values, he didn’t pretend for a moment that they were the only force shaping US politics. Indeed, he explicitly documented how American values became more ‘European’ as a result of the institutional innovations of the New Deal (funnily enough, Goldberg seems to have missed that bit in his doubtless extensive reading on the topic). But more generally, sweeping claims about the all-determining-power of fixed national cultures have a godawful reputation in the social sciences these days. Values change, and sometimes change dramatically. Individuals are more than the passive bearers of cultural traits; they, like, make choices, and sometimes change their minds about things. The institutions that surround them change, and when these institutions change, so too, very often, do political beliefs, values etc.

There are respectable and serious scholars out there, who make more limited and specific contentions about how culture matters to politics (I tend not to agree with many of their arguments, but I obviously don’t have a monopoly on the truth). However, sweeping, half-assed claims that Culture is Destiny simply don’t feature in serious argument any more. Instead, they enjoy a sort of zombie-like half-life in some corners of the rightwing punditocracy, where their explanatory deficiencies are outweighed by their political usefulness in providing a higher justification for selfishness. Which is what seems to me to be happening here.

A new bloggingheads between Dan Drezner and meself is up, in which, as the blurb puts it, “Dan and Henry analyze Bh.tv’s new business model and then defy it by failing to yell at each other.” One of the topics we discuss is the economic future of the EU, and Andy Moravcsik’s recent article on it. As a slightly belated EU 50th birthday post, and an addendum to my previous disagreement with Andy, I’d like to point to this brand new paper (pdf) by Martin Höpner and Armin Schäfer at the Max-Planck Institut in Cologne. The take home point is that the EU’s market integration processes aren’t neutral and technical, as they are often described as being, but are instead highly political, and have adverse consequences for coordinated market economies. This feeds into the EU’s legitimation problems.

Deregulating the economy is a genuinely political decision that cannot be left to independent agents. … Whether the member states need a ‘neo-liberal’ corrective is not for the observer to choose but must be the result of public deliberation and parliamentary decisions – otherwise, the price to pay is a serious democratic deficit. However, instead of a strengthening of input-oriented legitimacy, we witness ongoing – yet increasingly unsuccessful – attempts to de-politicize EU politics. European-level actors transform essentially political matters into apparently technical ones. An extensive interpretation of the ‘four freedoms’ of the European Treaty allows Commission and Court to enforce
liberalization measures juridically. The law shields these attempts from political resistance especially in organized economies.

Which leads me to wonder, after having read Dani Rodrik’s critique of the cheerleaders of globalization in the FT yesterday whether the EU isn’t being badly misinterpreted by outside observers, especially in the US. The usual claim that one reads is that the EU’s problems are the problems of creaking economies refusing to modernize, rejecting sensible proposals such as the original, tougher form of the Services Directive etc. But can’t this be interpreted from the other direction? Couldn’t one reasonably argue that the near-stalling of the EU’s market integration process demonstrates how over-strident efforts to deregulate are liable to result in political stalemate and backlash from an increasingly truculent public? In short, can’t the EU’s political problems be interpreted not as a failure of the European social state, but as a demonstration of the political limits of attempts to introduce global deregulation, free trade in services und so weiter without real public discussion?

I came across James Fallows’ 1991 piece on The Economist (to which my subscription has just lapsed), The Economics of the Colonial Cringe, and thought it pretty interesting. On the one hand, this seems a little dated:

In functional terms, The Economist is more like the Wall Street Journal than like any other American publication. In each there’s a kind of war going on between the news articles and the editorial pages. The news articles are not overly biased and try to convey the complex reality of, well, the news. Meanwhile, the editorials and “leaders” push a consistent line, often at odds with the facts reported on the news pages of the same issue.

If there’s any marked difference these days between the line touted in the editorial pages line and the perspective of the news articles, I can’t detect it. The WSJ seems to still have a firewall between the two (although in fairness its editorial pages are also far loopier than those of the Economist).

On the other, this still seems bang on the mark.

The other ugly English trait promoting The Economist’s success in America is the Oxford Union argumentative style. At its epitome, it involves a stance so cocksure of its rightness and superiority that it would be a shame to freight it with mere fact. American debate contests involve grinding, yearlong concentration on one doughy issue, like arms control. The forte of Oxford-style debate is to be able to sound certain and convincing about a topic pulled out of the air a few minutes before, such as “Resolved: That women are not the fairer sex.” (The BBC radio shows “My Word” and “My Music,” carried on National Public Radio, give a sample of the desired impromptu glibness.) Economist leaders and the covers that trumpet their message offer Americans a blast of this style. Michael Kinsley, who once worked at The Economist, wrote that the standard Economist leader gives you the feeling that the writer started out knowing that three steps must be taken immediately — and then tried to think what the steps should be.

Brad DeLong on China and Jeff Faux:

In general, we have a choice between policies. We can eliminate or sharply restrict trade with an odious regime—as we do with Cuba—in the hope that it will put pressure on it for reform. We can encourage the maximum possible trade with an odious regime—as we do with China—in the hope that the more economic, cultural, and political contact there is the more we strengthen the forces over there that we like. Which of these policies we follow will have impacts on domestic income distribution—but much smaller impacts than do our educational, social insurance, and tax policies which do much, much more to move wealth and opportunity down or up the American income distribution. I tend to be on the side of free trade abroad and social democracy at home. But I am not sure that I am right. I am sure, however, that painting the issues as Davos plutocrats (and their water carriers) and commissars-turned-capitalists on one side and America’s working people on the other doesn’t move us forward at all.

I don’t agree with Brad that ‘painting the issues as Davos plutocrats … doesn’t move us forward at all.’ The consonance between mainstream political opinion on China and the interests of American businesses hungry for access to the Chinese market surely reflects in part the efforts of think tanks and politicians who depend on aforementioned businesses for funding and donations. But I do agree that there’s more to the story. The most interesting piece I’ve read on this recently is James Mann’s long article (behind paywall) in the current issue of The American Prospect. [click to continue…]

This story from the Irish Times ought to be of interest to US readers.

A Californian technology firm with only a handful of workers in Dublin funnelled revenues of almost $1 billion (€762 million) into an Irish holding company which made more than a quarter of its profits. SanDisk Manufacturing made a net profit of $105.96 million on revenues of $955 million in the eight months after its Irish unit started business in April 2005 …By accounting for such revenues in Ireland, they take advantage of the 12.5 per cent rate of corporate taxation on their profits, a rate that compares favourably with other EU states and the US. … SanDisk indicated last year that the total cost of setting up its Irish operation was less than $500,000. It said then that tax “certainly was part of the consideration” when moving here but that tax “certainly was not the determining factor,”

Sandisk isn’t the only company doing this, of course, but its (to employ the common euphemism) ‘tax-avoidance strategy’ is more blatant than most. The US is pretty vigorous about reclaiming taxes from citizens living abroad, but has been curiously supine in its attitude to the various schemes that US companies have come up withto relocate revenues outside the taxman’s grasp. Some of this is probably unavoidable – large multinational corporations have complicated internal flows of revenue which they can manipulate to make tax-dodges look legitimate – but the failure of companies like Sandisk even to try to hide what they’re up to suggests that they don’t expect much in the way of enforcement action.

In the past few weeks John and Henry have engaged in arguments with Tyler Cowen and Will Wilkinson on the subject of whether relative wealth matters. To be sure, that isn’t the ostensible focus of the dispute with Tyler, which is about demographics. But digging deeper, the crux of Tyler’s argument has been that Europe’s ageing population matters because it will lead to lower growth rates and that the compounding effect of these will be that Europe’s position relative to the US (and China, and India) will decline, and that that’s a bad thing for Europeans. Whilst Tyler insists that these global relativities matter enormously, Will suggests that domestic relativities between individuals matter hardly at all. Since I think of Will and Tyler as occupying similar ideological space to one another, I find the contrast to be a striking one, and all the more so because I think that something like the exact opposite is true. That is to say, I think that domestic relativities matter quite a lot, and that global ones ought to matter a good deal less (if at all) just so long as the states concerned can ensure for all their citizens a certain threshold level of the key capabilities.

I’ve received an email chivvying me into linking to the new Economist blog with the irresistible hook that now I “can attack [them] directly.” The new blog would appear to be at least in part a subdivision of Megan McArdle industries. Consider it linked.

Back to Jacob Hacker’s book, this review by Roger Lowenstein in the NYT this weekend is really pretty awful. It’s one of those reviews which prompt you to wonder whether the reviewer has read the same book as you have. The very faintest of praise,”as predictable and, at times, whiny as his examples seem, Mr. Hacker does make a contribution to our understanding,” together with some unpleasant insinuations, “[s]ounding at times like a liberal Pat Buchanan.” But what really gets me is that Lowenstein baldly mis-states Hacker’s argument. [click to continue…]

Jeffrey Sachs, William Easterly (and Bono for that matter) can stop their bitching, Christopher Hitchens has an explanation for a good deal of global destitution:

… the mass murder of people on aeroplanes is a leading cause of poverty.

If only Larry Summers were still in post, he could have offered Hitch a job. (shamelessly stolen from Marc Mulholland ).

Via Dan Drezner, this fun little article by James Surowiecki in the New Yorker.

Airbus’s woes are being held up as proof that it is, in the words of one columnist, “a textbook example of how not to run a commercial enterprise.” The Wall Street Journal explained that Airbus was failing because of its “politicized management,” while the Times suggested that Airbus had to decide whether it was a company or a European “employment project.” … What much of the talk about the inherent weakness of Airbus ignores is that, just a few years ago, it was Boeing that looked fundamentally flawed, while Airbus was seen as the future of the industry. … The problem with such prognostications is that they infer basic truths about a company’s prospects from its short-term performance. … People are generally bad at accepting the importance of context and chance. We fall prey to what the social psychologist Lee Ross called “the fundamental attribution error”—the tendency to ascribe success or failure to innate characteristics, even when context is overwhelmingly important. … Because we underestimate how much variation can be caused simply by luck, we see patterns where none exist. It’s no wonder that management theory is dominated by fads: every few years, new companies succeed, and they are scrutinized for the underlying truths that they might reveal. But often there is no underlying truth; the companies just happened to be in the right place at the right time.

This applies not only to judgements about the success of companies, but to judgements about the success of countries. A few years ago, the political scientist Peter Katzenstein went through a couple of decades worth of those special issues that the Economist runs on particular countries for his own amusement. He found that there wasn’t any long term consistency in judgement – a country cited as a model of how to create a thriving economy in one special issue might be cited as a prime example of political dysfunction the next time round, and back in the good books a few years later. This isn’t a problem that’s specific to the Economist; it’s a more general one of how the political wisdom on the sources of economic success is incredibly unstable. A couple of decades ago, the shelves were filled with books on Japan Inc., and nasty xenophobic bestsellers like Michael Crichton’s Rising Sun claiming that Japan was going to gobble up America unless it fought back. Before that, there was a lot of talk about Modell Deutschland as the way forward. Und so weiter. We don’t know very much at all about the root reasons why economies succeed or fail, for some of the reasons that Surowiecki cites. Countries too can happen to be in the right place at the right time, and may find their luck running out unexpectedly when conditions change.

I wish Daniel would post more on CT and less on the Guardian’s Comment is Free site, partly because I worry that regular CT readers may sometimes miss his pieces. Today he has a really interesting article arguing that agricultural subsidies aren’t always bad for the global poor and, indeed, by lowering prices for Africa’s consumers, may often be good for them. That definitely goes against the conventional wisdom (both left and right) in blogdom. Definitely worth a read.