Political Economy

“Kindred Winecoff”:http://ipeatunc.blogspot.com/2011/05/there-will-be-politics.html doesn’t like Paul Krugman’s elite-focused account of politics (see also “Daniel Drezner”:http://drezner.foreignpolicy.com/posts/2011/05/09/the_american_mass_public_as_unindicted_co_conspirator for a rather milder version).

bq. If Greenspan’s “with notably rare exceptions” deserves internet infamy, and it does, then surely Krugman’s less notable exceptions should too. As Drezner notes, Krugman’s examples — the Bush tax cuts and the Iraq war, mainly — were supported by majorities of the population. … What interests me about this isn’t that Krugman is playing fast and loose with his factual claims, or even stacking the deck in a blatantly partisan way. That’s par for his course. It’s that he thinks that a simple political explanation is just not feasible. Instead, some moral lesson is needed. If something bad happens, it must be because bad people are doing it. This is the political sophistication of a six year old. … Occam’s Razor can help us here. If there are tax cuts, maybe it’s because people wanted tax cuts. If there is Medicare Part D, maybe it’s because people wanted Medicare Part D. If there is a housing bubble, maybe it’s because public policy was skewed in ways that home ownership attractive, because that’s what people want. This might not work all the time, but as a first approximation this sort of thinking holds up fairly well. In the examples Krugman gives, it’s batting 1.000.

Um, getting away from the invective, not so much. I like much of Winecoff’s blogging on IPE, but the relevant political science here seems to me to support Krugman far more than it does Winecoff. International political economy scholarship (the field that Winecoff specializes in) tends to have an extremely stripped down, and bluntly unrealistic account of how policy is made. Typically, modelers in this field either assume that the “median voter” plays an important role in determining national preferences, or that various stylized economic interests (which they try to capture using Stolper-Samuelson, Ricardo-Viner and other approaches borrowed from economic theory) determine policy, perhaps as filtered through a very simple representation of legislative-executive relations.

However, actual work on how policy gets made suggests that this doesn’t work. On many important policy issues, the public has no preferences whatsoever. On others, it has preferences that largely maps onto partisan identifications rather than actual interests, and that reflect claims made by political elites (e.g. global warming). On others yet, the public has a set of contradictory preferences that politicians can pick and choose from. In some broad sense, public opinion _does_ provide a brake on elite policy making – but the boundaries are both relatively loose and weakly defined. Policy elites can get away with a hell of a lot if they want to.

The result is that the relevant literature on policy making (located largely within comparative political economy and a growing debate within American politics) argues that elites play a very strong role in creating policies. Take one of the issues where Winecoff argues that Krugman is wrong – the Bush tax cuts. Here, the arguments in the political science literature do not start from the proposition that these cuts were driven by public desire for lower taxes. Instead, they involve debate between those who “suggest”:http://journals.cambridge.org/abstract_S1537592705050048 that the cuts were deliberately crafted in ways that distort public perceptions and those who “claim”:http://www.apsanet.org/imgtest/bartels.pdf that this was unnecessary, since American public opinion on taxation is so inchoate as to give elites wide room for maneuver. More generally, in Andrea Campbell’s “words”:http://pas.sagepub.com/content/38/2/227.full.pdf,

bq. Tax policy, regulatory policy—the laws and rules that have been key in fueling the rising share of national income claimed by the very rich—are extraordinarily complex. The public has no idea what to think of these policies (one reason pollsters don’t ask about them—to do so would merely elicit “nonattitudes”). There is for example considerable confusion about the incidence of various taxes across income groups.

and

bq. One chief problem is that citizens simply don’t pay attention to such complex policies; another is that even if they did, they can’t figure out what their stances should be, and no one is helping them. Low salience and great ignorance make for a disastrous democratic brew.

A similar argument can be made about Medicare Part D. It is fair to say that the Medicare changes _began_ in a shift in partisan patterns of competition over issues. However, it surely didn’t end there. In Andrea Campbell and Kimberly Morgan’s “description”:http://lists.cas.usf.edu/pipermail/agephd/attachments/20080110/329f3dd1/attachment.pdf.

bq. The mobilization strategy of Republicans, and opening of the door to a major expansion of Medicare, also increased the activism and influence of organized interests. The collapse of bipartisan support for government cost controls in Medicare, coupled with the emergence of a budget surplus, eroded legislators’ discipline with regard to provider reimbursements. In addition, the determination of Republicans to enact a reform that relied heavily on private actors created an opening for those groups to extract benefits for themselves. For example, managed care companies could argue that they would not participate as insurance providers if reimbursement levels were not high enough, and employers could demand subsidies to assure their continued willingness to provide retiree drug benefits. All of this added to the cost of the bill. More generally, gaining the support of powerful interest groups was essential in passing a reform that was likely to garner little Democratic support and was viewed skeptically by more conservative Republicans.

I don’t know about the politics of housing policy – perhaps one can make a similar claim, perhaps not (political scientists, and political economists in particular have tended to overlook housing). But I suspect that one can. There is very wide variation in rates of home ownership across democracies. This may reflect differences in underlying preferences (maybe in an ideal world Germans don’t want to own their houses the same way that Americans do). But it also plausibly reflects huge differences e.g. in mortgage regulation which are largely driven by interest groups rather than voters themselves.

More generally, the point is clear. One can certainly make a reasonable case that electoral politics plays a more important role than Krugman acknowledges. But one cannot make a good case that policies of the kind that Winecoff describes are a simple reflection of public preferences. Or, at least, if one wants to make this case, one is going to have to make a detailed counter-case against a substantial body of research which seems to demonstrate the opposite. Elites play an extremely important role in US policy making, and to make an elite-centered argument is not to think like a six year old. It is to think in ways which accord with the relevant political science literature, as best as I know it.

Let me make it clear that I don’t want to bag on Winecoff in particular. He doesn’t like Krugman, and describes him in pretty harsh terms – but then Krugman’s own revealed preferences suggest that politesse is not a necessary condition for good debate. The problem here is a more general problem with the field of international political economy, which frankly (and I say this as someone who writes in the field and teaches it) has an extremely weak understanding of how policy is made. I’d like to see IPE and IR scholars and students being forced to read some of the relevant literature in comparative political economy. For example, Pepper Culpepper’s “Quiet Politics and Business Power”:http://www.amazon.com/gp/product/0521134137/ref=as_li_ss_tl?ie=UTF8&tag=henryfarrell-20&linkCode=as2&camp=217145&creative=399349&creativeASIN=0521134137 has some very nice discussion of the interplay between interest group clout and electoral considerations in policy making processes. Books like this don’t make it onto IPE core syllabi, but they really, really should. And as long as they don’t, IPE scholars will continue to make claims which fit badly with what we know about national level policy making.

Usually I half-agree with what Julian Sanchez has to say. But not in this case.

In a recent post, I suggested that claims about “desert” are generally misplaced in arguments about copyright—whether they are deployed on behalf of “deserving” small fry artists or against “undeserving” labels. As some commenters pointed out, there’s no obvious reason this argument should be restricted to the domain of copyright—and quite right. I think most areas of political philosophy and policy—theory of just punishment springs to mind as a possible exception—would be better off if we just scrapped the concept of “desert” entirely, and just spoke about what people are entitled to.

Here’s the difference, very roughly, in case this sounds like semantic hairsplitting. To say someone deserves X is to say that X is in some sense an appropriate or fair reward in light of that person’s morally virtuous qualities or conduct. To say that someone is entitled to X is just to say that the person has a just claim to X, without any implied commitment to some deeper claim about their moral merit.

Here’s his thesis, a paragraph or so further on: “I think political and policy discussions should concentrate on what people are entitled to, rather than on necessarily muddy attempts to determine (and embed in law) what people morally deserve.”

The post goes on at some length. Sanchez is at pains to confess that he is making a rather vague argument, not trying to nail anything down. But it seems to me 1) absolutely, completely hopeless; 2) a standing temptation to libertarians and conservatives; 3) worth shooting down hard. [click to continue…]

Alan Greenspan is back as free market evangelist, and it’s rather wonderful.

Today’s competitive markets, whether we seek to recognise it or not, are driven by an international version of Adam Smith’s “invisible hand” that is unredeemably opaque. With notably rare exceptions (2008, for example), the global “invisible hand” has created relatively stable exchange rates, interest rates, prices, and wage rates.

It’s best not to interpret this as an empirical claim, but a carefully-thought-out bid for Internet immortality. It has the sublime combination of supreme self-confidence and utter cluelessness of previously successful memes such as “I am aware of all Internet traditions” and the “argument that has never been made in such detail or with such care,” but with added Greenspanny goodness. I tried to think of useful variations on the way in to work this morning – “With notably rare exceptions, Russian Roulette is a fun, safe game for all the family to play,” and “With notably rare exceptions, (the Third Punic War for example), the Carthaginian war machine was extremely successful,” but none do proper justice to the magnificence of the original. But then, that’s why we have commenters. Have at it.

Back in June 2009, I wrote a post on the basic income experiment in Otjivero, Namibia. Recall that this was a two year experiment in which the (about) 1,000 residents of a very poor community were unconditionally given N$100 (about 10 Euro) on a monthly basis for two years (from January 2008 till December 2009). The mid-term effects (on income generating activities, health, school enrollment, reduction of the number of underweight children, …) were very positive.

On Sunday, I’m flying to Cape Town to teach a course on the capability approach, and afterwards I will head to Otjivero to try to better understand the effects and desirability of the basic income grant (BIG), and to gain a better grasp of the overall nature of the project. My South-African colleague Ina Conradie, who is a senior development scholar with many years of experience in development work in South Africa, is joining me; in part we are also interested in finding out to what extent this could be a desirable poverty-reducing policy for South-Africa.
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Via Alex Tabarrok, this “Wall Street Journal article”:http://online.wsj.com/article/SB10001424052748704081604576144401022132530.html is very interesting.

bq. Some U.S. furniture makers and their lawyers have found a reliable way to extract cash from Chinese competitors deemed by U.S. officials to have “dumped” their products in the U.S., selling them at unfairly low prices. Each year since 2006, they have asked the Commerce Department to review the U.S. duties paid by Chinese manufacturers on imports of wooden bedroom furniture. Many Chinese firms, fearing a steep rise in duties, agreed within months each time to pay cash to their U.S. competitors in return for being removed from the review list. “Everybody in the industry in the U.S. and China understands that these payments are clever shakedowns,” said William Silverman, a lawyer representing U.S. furniture retailers, big importers of Chinese products, at an October hearing of the U.S. International Trade Commission. … About $13 million was paid to a group of 20 U.S. furniture makers from 2006 through 2009, according to a November ITC report. The U.S. firms told the ITC that a much larger, but unspecified, amount of money went to pay the U.S. firms’ lawyers.

Not many people realize how much of US trade policy is effectively set by private industry groups, whose interest in free trade, for better or worse, is largely opportunistic. This is especially obvious in the area of property rights. I recently finished reading an excellent “report”:http://piracy.ssrc.org/ edited by Joe Karaganis on the politics of the piracy debate, which has a good chapter on just this topic by Sean Flynn and Karaganis [click to continue…]

Ryan Avent and Matt Yglesias ponder whether the degree of disagreement among economists is exaggerated in public debate. The classic statement of this argument, of course, is Alan Blinder’s dictum in Hard Heads, Soft Hearts that:

Economists have the least influence on policy where they know the most and are most agreed; they have the most influence on policy where they know the least and disagree most.

But ever since reading this argument, I’ve wondered whether it was quite right. Blinder’s observation helps explain a readily observable empirical correlation between (a) disagreement among economists and (b) apparent prominence of economists’ arguments in public debate. But _prominence_ is not the same thing as _influence_ – and I can’t help wondering whether the causation goes the other way, so that economists are only middling influential at most when they disagree. Consider the following model (for _extremely_ casual senses of the term ‘model’). [click to continue…]

The great “what will we do when the machines take over” debate continues, but surprisingly little attention has been paid to the arguments of licensed speculative economists science fiction writers, who have been engaged in this debate for some decades at least. The Bertram/Cohen “thesis”:https://crookedtimber.org/2011/03/07/oh-noes-were-being-replaced-by-machines/ receives considerable support from Iain Banks’ repeated modeling exercises with slight parameter variations, which find that the advent of true artificial intelligence will free human beings to spend their time playing complicated games, throwing parties, engaged in various forms of cultural activity (more or less refined), and having lots and lots of highly varied sex. With respect to the last, it must be acknowledged that extensively tweaked physiologies and easy gender switching are important confounding factors.

But it isn’t the only such intellectual exercise out there. Walter Jon William’s Green Leopard Hypothesis (update: downloadable in various formats here – thanks to James Haughton in comments) suggests, along the lines of the Cowen/DeLong/Krugman argument, that a technological fix for material deprivation will lead to widespread inequality and indeed tyranny, unless there be root and branch reform to political economy. But perhaps the most ingenious formulation is the oldest – Frederik Pohl’s Midas Plague Equilibrium under which robots produce consumer goods so cheaply that they flood society, and lead the government to introduce consumption quotas, under which the proles are obliged to consume extravagant amounts so as to use the goods up (the technocrats fear that any effort to tinker to the system will risk reverting to the old order of generalized scarcity). This is a world of conspicuous non-consumption in which the more elevated one’s social position the less possessions one is obliged to have. Crisis is averted when the hero realizes that robots can be adjusted so that they want to consume too, hence easing the burden. One could base an entire political economy seminar around Pohl’s satirical stories of the 1950’s and 1960’s – he was (and indeed arguably still is, since he is still alive and active ) the J.K. Galbraith of the pulps. If, that is, J.K. Galbraith had been a Trotskyist. I’m sure that there are other sfnal takes on this topic that I’m unaware of – nominations?

Paul Krugman “is worried”:http://krugman.blogs.nytimes.com/2011/03/06/autor-autor/ that lots of jobs will be replaced by machines in the near future. What will all those people do!? Brad DeLong “thinks”:http://delong.typepad.com/sdj/2011/03/the-hollowing-out-of-the-us-income-distribution-under-the-pressure-of-technology.html there’ll still be plenty of jobs, but massive income inequality. Some of Brad’s commenters “think”:http://delong.typepad.com/sdj/2011/03/the-hollowing-out-of-the-us-income-distribution-under-the-pressure-of-technology.html#comment-6a00e551f080038834014e5fb00b99970c that the reserve army of unemployed will take up prostitution on a large scale. Oh dear.

Allow me to suggest a third possibility. Instead of mass unemployment or horrendous inequality, technological improvement could reduce the time people spend working to meet their needs and give them more free time. Free time that they could use for other purposes (such as their all-round human development) . The “Jerry Cohen video”:https://crookedtimber.org/2011/02/02/g-a-cohen-against-capitalism/ that I posted the other week centres on this very point. For more discussion see ch.11 of _Karl Marx’s Theory of History_ , which, I now see, furnished much of the script for that talk. Of course, if you take “free markets”, extensive private property and the domination of the political system by money (so that you can’t do much about the first two) as givens, then the third possibility will appear impossible or utopian. So you’d have to be an incompetent idiot to mention it, wouldn’t you?

The Guardian reports that LSE Director Howard Davies has resigned in the wake of the school’s connections to the Gaddafi family and its acceptance of large donations from them.

Megan McArdle quotes James Joyner on player compensation, in sports, and draws a moral concerning unions. Let me summarize Joyner’s argument, which is pretty generic and familiar in broad outline: major league baseball, the NBA, and the NFL have different systems of caps and regulations limiting pay and restricting free agency. Plausibly, the system that is best for fans, overall, the NFL system, is worst for some players. (Joyner actually says ‘horribly unfair to the players’. We shall consider this sweeping thesis about social justice.) The NFL is not a free-market-style competition between autonomous business units but a profit-sharing cartel organized to ensure rough competitive equality between teams. Winning teams cannot just convert victory into extra profit and plow that back in, investing in team quality to entrench their winning position, which would be less exciting for fans. See also: major league baseball. The NBA is intermediate: you have salary caps, but players have more free agency. As a result, cities that are nice places to live in if you are really rich have an advantage. They have an informal way round the cap, in effect. Which is, again, good for (some) players, but not for fans overall.

McArdle doesn’t provide a link to the Joyner piece, but here it is. The title: “athletes are ruining sports!” The conclusion: “The bottom line is that players are human beings, who ought to have the right to take their talents to South Beach — or wherever they’re wanted. Just like fans can do.” This is, as Joyner is clearly aware, a bit of a paradox: athletes are making the game worse and they ought to have the right to do so. The ‘cure’ – namely, restrictions on pay and mobility – is ‘worse than the disease’, because it is manifestly grossly unjust.

McArdle seems inclined to draw the opposite conclusion: since the game is better if players are restricted in their bargaining power, and since the point is a good game, the proper, market-minded conclusion to draw is that employee bargaining power should, in principle, be restricted to ensure it does not conflict with productivity-minded management decisions. [click to continue…]

Stephen Walt writes a “quite odd post”:http://walt.foreignpolicy.com/posts/2011/02/15/can_ir_theory_predict_the_future_of_the_euro on realism, liberalism and the future of the euro.

bq. Over the past few months, however, German Chancellor Angela Merkel and French President Nicolas Sarkozy have been negotiating a joint proposal for deepening economic coordination within the EU (and especially the eurozone) in an attempt to solve some of the problems that produced the crisis in the first place. … Not only does this question have obvious implications for politics and economics in Europe itself, but it also raises some fundamental questions about IR theory and might even be a revealing test of “realist” vs. “liberal” perspectives on international relations more generally. Realists, … have been bearish about the EU and the euro since the financial crisis, arguing that European member states were more likely to pursue their individual national interests and to begin to step back from some of the integrative measures that the EU had adopted in recent years. … By contrast, “institutionalists”:http://www.newsweek.com/2009/07/31/europe-defies-the-skeptics.html, and EU-philes more generally, have suggested that the only way forward was to deepen political integration within Europe. … So what we have here is a nice test of two rival paradigms, and students of international politics should pay close attention to how this all plays out.

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A useful bit of interactive data visualization for Emmanuel Saez’s time-series on historical trends in income growth and distribution in the United States. As you can see, between 1970 and 2008 people in the bottom 90 percent of the income distribution typically chose not to partake of annual increases in total income, presumably because of a tendency to prefer and thus self-select into lower-paying jobs, or possibly because of an innate dislike for the more complex mathematics (surrounding tax calculations, car payments, and budgeting generally) that is associated with earning more money.

In Spring a young man’s fancy turns to love. Rapidly aging academics such as myself, however, have to decide which readings to assign. This semester I’m teaching Organizations and Management to students in Duke’s MMS certificate program and Markets and Moral Order to a small group of seniors at the Kenan Institute for Ethics. Both classes were a lot of fun last year (perhaps not for the students). I’ve rearranged the running order in the Orgs course a bit, as the flow was wrong last time.

If you think there’s something that absolutely has to be included in either course, I’m open to suggestions. But you’re not allowed to suggest something without also saying what I should drop in order to include it. Unlike the economy, a syllabus is not the sort of thing that you want to grow aggressively in order that everyone gets more and bigger slices of the whole.

Brad DeLong has just posted “a couple of links”:http://delong.typepad.com/sdj/2010/12/rebound-redux-have-we-moved-past-jevons-on-efficiency-the-great-energy-challenge.html to articles that attack “an article by David Owen in the New Yorker [subscription required]”:http://www.newyorker.com/reporting/2010/12/20/101220fa_fact_owen. Owen’s article relied heavily on the claim that increased energy efficiency doesn’t really deliver the hoped-for environmental benefits, because of something called the “rebound effect”. Here’s an explanation of that effect “by James Barrett”:http://www.greatenergychallengeblog.com/2010/12/rebounds-gone-wild/ in one of the linked pieces:

bq. In essence the rebound effect is the fact that as energy efficiency goes up, using energy consuming products becomes less expensive, which in turn leads us to consume more energy. Jevons’ claim was that this rebound effect would be so large that increasing energy efficiency would not decrease energy use….

Owen’s critics say that although the rebound effect is real, whether it is large enough to have the effects Owen claims is an empirical matter, and they are sceptical. Basically, they argue that the increase in energy consumption is not just down to lower prices but also to greater wealth, house size, etc. and so without greater efficiency, we might be consuming a whole lot more energy than we actually are. Basically: it all depends on the facts, and the jury’s out.

Ok, so now let’s do a little substitution in that sentence quoted earlier.
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