Political Economy

Tyler Cowen has a pretty interesting essay.

The more wealth we have, the more government we can afford. Furthermore, the better government operates, the more government people will demand. That is the fundamental paradox of libertarianism. Many initial victories bring later defeats. I am not so worried about this paradox of libertarianism. Overall libertarians should embrace these developments. We should embrace a world with growing wealth, growing positive liberty, and yes, growing government. We don’t have to favor the growth in government per se, but we do need to recognize that sometimes it is a package deal. … We need to recognize that some of the current threats to liberty are outside of the old categories. I worry about pandemics and natural disasters, as well as global warming and climate change more generally (it doesn’t have to be carbon-induced to be a problem). These developments are big threats to the liberty of many people in the world, although not necessarily Americans. The best answers to these problems don’t always lie on the old liberty/power spectrum in a simple way. … Intellectual property … Another major problem – the major problem in my view – is nuclear proliferation … In short, I would like to restructure classical liberalism, or libertarianism — whatever we call it — around these new and very serious threats to liberty. Let’s not fight the last battle or the last war. Let’s not obsess over all the interventions represented by the New Deal, even though I would agree that most of those policies were bad ideas.

The essay seems to me to glom together two, quite different theses – that the demand for government increases along with wealth, and that new, complex global problems require more government intervention than most libertarians would care for. Even so, his call for a pragmatic libertarianism seems on target to me (I’d vastly prefer a political debate in which smart libertarians acknowledged that global warming was a major problem in need of a political solution, and contributed insights from their own perspective, to a debate in which many libertarians either minimize the problem or suggest that no real political solution is possible).

From the acknowledgements page of Christopher Howard’s _The Hidden Welfare State: Tax Expenditures and Social Policy in the United States_ (Powells has cheap hardbacks).

No one in his right mind would choose to study and write about tax expenditures (better known as tax loopholes) knowing in advance that it entailed a ten year commitment. Investigating the ins and outs of the byzantine U.S. tax code is simply not its own reward, which is why many people pay lawyers and accountants good money to do it for them. If someone were going to study tax expenditures for longer than a day or two, he or she would need to come upon the topic by accident. Over time, that someone might develop a curious affection for tax expenditures, much as one does for a stray dog or cat that keeps hanging around the house. Even then, one would have to remind oneself constantly that studying tax expenditures was not the ultimate goal, but a means of saying something interesting about a larger issue, like U.S. social policy. At least that has been my experience.

Many thanks to everyone who chipped in with comments on my reading list; I enclose the final (assuming that I can track down a scannable copy of the DiMaggio JITE reading for Week 1) version beneath the fold. Also, the syllabus that I linked to for Jonathan Zeitlin’s course on institutions at UW Madison last week was apparently incomplete; the full version is here.

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David Leonhardt has a nice piece in the New York Times on the opportunity cost of the trillion dollar Iraq war. Leonhardt does a good job of getting the concept across without actually using the economic jargon. Coincidentally, I have a piece in tomorrow’s (Thursday’s) Australian Financial Review, making the same point, not for the first time, along with a reference to the work Kahneman and Renshon on psychological biases to hawkishness.

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.

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Update: All six posts and Berman’s response are now up. I hope to have the PDF version finished by the late afternoon.

As promised earlier, we’ve put together a seminar on Sheri Berman’s new book, _The Primacy of Politics: Social Democracy and the Making of Europe’s Twentieth Century_ (Powells, Amazon ). This is a really interesting and enjoyable book, both as an intellectual and political history of the origins of social democracy, and as a set of arguments about social democracy’s crucial role in in post-World War II Europe and in the future. If you want to link to the seminar, you should link to

https://crookedtimber.org/category/sheri-berman-seminar/

The first three contributions are below; the second three, as well as Sheri’s response, will be posted tomorrow. In order of publication, the contributors are

Henry Farrell provides a summary of the book’s arguments. He suggests that the book is a major contribution to a new, neo-Polanyian school of political economy, but thinks that Berman gives too little credit to Keynes and Christian Democrats for their role in creating the post-WW II European order, and is a little worried at the future possibility of a version of European social democracy with a fascistic tinge.

Tyler Cowen is a Professor of Economics at George Mason University; he blogs at Marginal Revolution and has a monthly column on economics for the _New York Times._ He claims that for all the brilliance of Berman’s arguments, the future prospects for European social democracy are bleak, given demographics and economic facts.

Mark Blyth is Associate Professor of Political Science at Johns Hopkins University, editor of the Review of International Political Economy, and sometime blogger at the excellent 3 Quarks Daily. He investigates the ways in which Berman contributes to a constructivist political economy, and ends up arguing that Fascism may have lost less because of its internal contradictions than because of an accident of history.

Jim McNeill does communications work for the Service Employees International Union and writes occasionally for magazines including _The American Prospect_ (see here for his recent piece on Sherrod Brown), _Dissent_ and the _Baffler._ He laments the lack of a strong basis for social democracy in the US, and asks, in the absence of a powerful union movement, what forces might help promote it.

Matthew Yglesias has an eponymous blog, and is a Staff Writer at The American Prospect. He’s currently on leave, writing an as-yet-untitled book about the Democrats and US foreign policy. He argues that Berman underestimates the key contribution of liberalism to taming the market.

John Quiggin writes about how social democracy in English speaking countries didn’t have the hang ups about Marxist orthodoxy that its continental variants experienced. He also notes that there is conceptual slippage in contemporary neo-liberal arguments between the experience of capitalism as it exists (i.e. with a fair dollop of social democracy mixed in) and the abstract neo-liberal model of capitalism.

Tomorrow, we’ll link to a PDF of the complete seminar for those who prefer to read it on paper.

This work is licensed under a Creative Commons Attribution-ShareAlike 2.5 License.

Sheri Berman’s book on the past and future of European social democracy makes (at least) two big contributions. First, it takes up Karl Polanyi’s claims about the origins of socialism and fascism and makes something new of them. Berman is explicitly writing in a Polanyian tradition, but she isn’t a disciple or an epigone of Polanyi. Like the social democrats who are the heroes of this book, she takes a classic set of arguments and interrogates and updates them, making claims about what works and what doesn’t, what’s relevant to our contemporary situation, and what isn’t. Second, in so doing she decisively demonstrates the importance of ideas to politics. Her story is one where ideas have dramatic consequences for history. The failure of some socialists to escape from the straitjacket of economistic Marxist thought doomed them to failure and political irrelevancy. The willingness of others to challenge conventional nostrums, and to become actively involved in politics had an enormous historical impact, whether they went to the left (social democrats) or to the right (various strains of fascists and national socialists). [click to continue…]

“Political history in the advanced industrial world has indeed ended, argues this pioneering study, but the winner has been social democracy…”

So runs the opening blurb on Sheri Berman’s The Primary of Politics: Social Democracy and the Making of Europe’s Twentieth Century. Most of the book is a well-researched account of the history and subtlety of social democratic thought, but I wish to consider the broader framing of the argument. In the last chapter the author returns to her apparent view that social democracy is fundamentally a solution to the problem of politics and it will remain relevant, indeed dominant, throughout the twenty-first century. [click to continue…]

Review: Jacob Hacker, The Great Risk Shift: The Assault on American Jobs, Families, Health Care, and Retirement and _How You Can Fight Back_. Available from Powells , from Amazon .

In his ethnography (PDF) of Grover Norquist’s weekly breakfast meetings, Thomas Medved tells us how Newt Gingrich sold reluctant conservatives attending the meeting on Medicare reform. [click to continue…]

I have a post up on the Guardian blog, in praise of “stasis” as an under-rated strategy for government when compared to “reform“.

Of course, the general principle that the status quo is no worse than the status quo, and that all proposals for radical change should first be assessed to see if they can beat this hurdle, is one that has applications in foreign policy as well as domestic. For example, via Normblog Wole Soyinka is apparently castigating the UN and African Union for “inaction” on Darfur. Soyinka apparently believes that sponsoring two sets of peace talks, providing a massive humanitarian relief effort and negotiating the AMIS peacekeeping force don’t count as “doing anything”, which suggests to me (along with the fact that Norm links Soyinka’s speech to a series of diatribes by Eric Reeves on Jeff Weintraub’s site) that the only thing that would count as “doing something” would be war, or economic sanctions of such severity as to be roughly equivalent to war in terms of lethality.

Nobody, from Alex de Waal to Jan Pronk to Mark Malloch Brown, thinks that an invasion would pass the simple test of “would it make things worse or better”. As I’ve said repeatedly with respect to Darfur, it’s the height of irresponsibility to demand “action” without saying what that action might be, or to provide some kind of sensible assessment of its likely consequences.

We’ll be doing a Crooked Timber seminar around the end of next month on Sheri Berman’s new book on the past and future of social democracy in Europe (now available from Powells and Amazon). The book itself is highly recommended, and should make for a fun and interesting discussion.

Tyler Cowen at _Marginal Revolution_ today.

bq. The libertarian vice is to assume that the quality of government is fixed. … If the quality of government is fixed, the battle is then “government vs. market.” Not everyone will agree with libertarian views, but libertarians are comfortable on this terrain. … But sometimes governments do a pretty good job, even if you like me are generally skeptical of government. The Finnish government has supported superb architecture. The Swedes have made a good go at a welfare state. The Interstate Highway System in the U.S. was a high-return investment. … The libertarian approach treats government vs. market as the central question. Another approach, promoted by many liberals, tries to improve the quality of government. This endeavor does not seem more utopian than most libertarian proposals. The libertarian cannot reject it on the grounds of excess utopianism, even though much government will remain wasteful, stupid, and venal. More parts of government could in fact be much better, and to significant human benefit and yes that includes more human liberty in the libertarian sense of the word. Libertarians will admit this. But it does not play a significant role in their emotional framing of the world or in their allocation of emotional energies. They will insist, correctly, that we do not always wish to make government more efficient. Then they retreat to a mental model where the quality of government is fixed and we compare government to market.

When reading this post, it’s hard not to think of Albert Hirschman’s brilliant little book, _Exit, Voice and Loyalty_. Hirschman’s theoretical innovation is precisely to assume that quality (of organizations, of products etc) _isn’t_ fixed, and that there are different mechanisms through which we might imagine that quality would be improved. “Exit” – the threat of switching to a competing organization – is one such mechanism, and it’s one that libertarians will be very comfortable with, as it’s greatly enhanced by free markets or market-like competition under many circumstances. The other is voice – which refers to more directly political actions, of argument, protest, criticism etc, and which doesn’t seem to me nearly as congenial to libertarians, because it suggests that faulty organizations and governments can be made better without recourse to market mechanisms. Indeed, under some circumstances, increased opportunities for exit may reduce the ability of voice to bring through change. Authoritarian regimes frequently allow some critics to go into exile, for fear that they’d become rabble-rousers at home.

Which makes me curious. What do libertarians think about Hirschman’s arguments? Do they read him? Do they have a sophisticated response?

Update: Alex Tabarrok points me to an old post of his, which rightly points out that under some circumstances exit and voice can be complements.

Attention Conservation Notice: Over 1500 words on a wacky quasi-socialist economic scheme, from someone utterly lacking in credentials in economics. The scheme does not respect the sanctity of private enterprise, but at the same time would not reduce the alienation of labor one iota. Includes a lengthy quotation of a game-theoretic impossibility result.

In the previous installment in this series of modest proposals for the reform of corporate governance, I looked at ways of making the incentives of the managers of large, publicly-held corporations align more closely with those of their long-term shareholders. This left alone the question of the beneficiaries of corporate value; assuming that the managers are busily working to maximizing their revenue streams, who benefits from their industry and diligence? Having just read Mark Greif’s great essay on redistribution in n+1, I would like to make a suggestion. (Issue 4; long excerpt here, as pointed out by Matt in the comments.)

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Via Dan Drezner, this fun little article by James Surowiecki in the _New Yorker_.

bq. 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.