Political Economy

At the end of last week, I attended the conference on “Equality and the New Global Order” at the Kennedy School of Government that I had mentioned here. The extremely impressive list of speakers lived up to the high expectations. I have written up some fairly extensive notes below. However, they are based on my recollections and notes, not any recordings or transcripts, so please don’t quote from these or rely on their accuracy – if you’re interested in pursuing these issues, many of the papers are available here.
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The debate over the need for new ideas on the left isn’t confined to the US. Australia has also experienced a shift to the right, but the process and outcomes have been different, being much more similar to Britain and New Zealand. This post from my blog is about Australia but most of what follows applies to all three countries.

Andrew Norton at Catallaxy has an interesting piece responding to a claim by Dennis Glover that rightwing thinktanks in Australia are much better funded than their leftwing counterparts. He makes the contrary argument that the universities represent a left equivalent, a claim which I don’t think stands up to the close examination it gets at Larvatus Prodeo.

More interesting, though is Norton’s characterisation of the state of the debate

Since most of the institutions of the social democratic state are still in place, social democratic ideas are perhaps going to seem less exciting than those of their opponents on the right or the left. They are about adaptation and fine-tuning more than throwing it all out and starting again. …. The right doesn’t have ideas because it has think-tanks, it has think-tanks because it has ideas that need promoting

This was a pretty accurate description of the situation in the 1980s and early 1990s, but it has ceased to be so. The right hasn’t had any new ideas for some time, and the policy debate between social democrats and neoliberals has been a stalemate for most of the last decade.

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The current issue of _PS: Political Science and Politics_ has a “symposium”:http://www.apsanet.org/section_651.cfm on inequality and American democracy, collecting together various responses to the “report”:http://www.apsanet.org/imgtest/taskforcereport.pdf and book issued on the topic by the American Political Science Association’s taskforce. There’s a lot of valuable commentary and empirical data in there; also well worth reading are the accompanying critical papers on “inequality and American governance”:http://www.apsanet.org/imgtest/governancememo.pdf and “inequality and public policy”:http://www.apsanet.org/imgtest/feedbackmemo.pdf. A lot of meat in there, including the below graph drawn from Larry Bartels’ “paper”:http://www.apsanet.org/imgtest/PSJan06Bartels.pdf . It shows income growth by income level under Democratic and Republican administrations from 1948 to 2001. The solid line shows how families at the 20th percentile (lowest), the 40th percentile etc have done under Democratic adminstrations, the dotted line how they’ve done under Republicans. The difference is startlingly obvious. Under Democratic administrations, growth has been fairly egalitarian, ranging from 2.6% average growth for the poor at the 20th percentile to 2.1% for the rich at the 95th percentile. Under Republican administrations, the rich have done about as well as under Democratic administrations, but the poor at the 20th percentile have only seen .6% income growth. As Bartels says:

bq. Are partisan differences in the economic fortunes of American families really this stark? The arithmetic calculations from the Census Bureau data are straightforward. Their political significance can only be gainsaid by supposing that the apparent pattern is the result of a massive historical coincidence. Elsewhere, I have provided extensive checks on the robustness of the partisan disparity evident in Figure 2, including comparisons based on alternative economic units, time periods, and income definitions, statistical controls for historical trends, nonparametric tests, and the like ( “Bartels 2004”:http://www.princeton.edu/~bartels/income.pdf ). It seems hard to escape the conclusion that, over the past half-century, Republican presidents have been consistently bad for the economic health of middle-class and poor people.

!http://www.henryfarrell.net/bartels.jpg!

Via “3 Quarks Daily”:http://3quarksdaily.blogs.com/3quarksdaily/ this very enjoyable “interview”:http://www.nyu.edu/gsas/dept/politics/faculty/przeworski/przeworski_munck.pdf with Adam Przeworski on his life, his research and his intellectual development. And on the causal explanations for dictators’ economic strategies …

bq. Then, for the particular question I addressed in Democracy and Development I thought I needed statistics. But in the work I’m currently doing on development, I am back to reading biographies of dictators and novels about dictators, which are very informative. I would like to get into Park’s shoes and Mobutu’s shoes and see why one of them was a developmental leader and the other was a thief. My current hunch is that developmentalist dictators are those who loved their mothers: obviously this is not something you will learn or be able to test with statistics, but when you read novels and biographies, the pattern becomes uncanny.

I’ve “complained in the past”:https://crookedtimber.org/2003/07/22/learned-friends/ about the lack of an SSRN equivalent for political scientists (while APSA has put together a portal site for papers, it still leaves something to be desired; e.g. no stable permalinks). Now SSRN has created a new “working paper series”:http://www.clpenet.ca/mission.html which aims to bring together “international studies in comparative law and political economy.” This looks to be a great resource – the idea is to bring scholars in relevant fields of comparative politics, comparative law, international political economy and economic sociology into a single debate. There’s a lot of fascinating work on new modes of international and domestic governance – but it’s difficult to keep track of, because it’s split across several disciplines.Worth “signing up for”:http://hq.ssrn.com/jourInvite.cfm?link=LSN-RES-all-inclusive-journal.

The excellent “Equality Exchange”:http://mora.rente.nhh.no/projects/EqualityExchange/ — a repository for papers about the theory and practice of equality from philosophers, political scientists, sociologists, lawyers and economists — has moved. Adjust your bookmarks for the new site, and take the opportunity to have a look around one of the most valuable resources for political theorists and philosophers.

I’m just back from Germany where I’ve been to a very interesting interdisciplinary workshop at the University of Bremen ‘s Sonderforschungsbereich “Staatlichkeit im Wandel”:http://www.staatlichkeit.uni-bremen.de/ on Trade Governance, Democracy and Inequality. As usual in such cases, the bringing together of philosophers and practitioners was both stimulating and revealing of how little we know about one another. Starting my own, basically normative, paper, I asserted that a central purpose of trade rules should be to promote justice. I was informed that “justice” was one word that would never pass the lips of a WTO negotiator. Which, doesn’t show, of course, either that I’m wrong about what should happen or that concerns about justice aren’t lurking in the shadows somewhere. But it suggests a startling disconnect between the public rhetoric about global inequality and the concerns at the negotiating table.

Review of _Off Center: The Republican Revolution and the Erosion of American Democracy_
Jacob S. Hacker and Paul Pierson, Yale University Press 2005

Jacob Hacker and Paul Pierson have written a distinctly unusual book. Political scientists don’t often write books that take sides in political arguments, and when they do, they usually don’t do any better at it than common or garden pundits. It’s hard to combine the attention to detail and to careful argument that academics are supposed to have with a passionate concern for the results of the fight. _Off Center_ (available from Amazon “here”:http://www.amazon.com/exec/obidos/redirect?link_code=ur2&camp=1789&tag=henryfarrell-20&creative=9325&path=tg/detail/-/0300108702/qid=1128460939/sr=8-1/ref=pd_bbs_1?v=glance%26s=books%26n=507846 ; Powells don’t seem to be stocking it yet) pulls off both. On the one hand, it is very clearly the work of people who have thought carefully and hard about how politics works. There’s a depth of analysis here that’s completely absent from the common or garden partisan bestseller-wannabe. But on the other, it doesn’t pull its punches. Hacker and Pierson have no compunctions in arguing that the current Republican hegemony is dangerous, and needs to be rolled back. (rest of review below fold)

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“David Kopel”:http://www.insidedenver.com/drmn/news_columnists/article/0,1299,DRMN_86_4105129,00.html argues, rightly, that there is something very nasty about the willingness of companies like Google and Yahoo! to knuckle under to authoritarian regimes such as China by banning words from search engines, snitching out democracy activists and so on. He’s also correct when he “claims”:http://www.volokh.com/archives/archive_2005_09_25-2005_10_01.shtml#1127700874 that “the greedy and immoral policies of these corporations directly endanger Americans.” However, his claim that “[p]erhaps only consumer and shareholder pressure can persuade the American companies to change their evil ways” seems to me to be quite mistaken. Consumer and shareholder pressure simply isn’t likely to have much of an impact, when measured against the power of the Chinese government to ban these companies from access to a quite enormous and important marketplace. Nor does it seem likely to me that many large shareholders are likely to raise a fuss in any event. More generally, when firms weigh the power of consumers to use exit and protest against the ability of powerful states to impose heavy sanctions, and completely block access to important markets, they are usually going to do what the state(s) want them to do. The only solution that would have some chance of biting would be if the US passed legislation requiring US-based firms not to cooperate with Chinese government authorities on pain of substantial penalties, and enforced this regulation vigorously, transforming it into a battle between powerful states with big markets.

We’re going to see more and more of these problems cropping up. People used to think that the Internet would empower firms and other private actors against the state, helping the spread of democracy, free markets and all that. What we’re seeing instead is that firms and private actors have an interest in keeping powerful states happy, regardless of the impact on global prosperity, freedom and so on. This has always been the case – but it’s being exacerbated by the Internet. I’ve just written a “paper”:http://papers.ssrn.com/sol3/papers.cfm?abstract_id=799269 which talks about what this means for international politics (although it doesn’t discuss the particulars of the Yahoo! case).

The Woodrow Wilson School at Princeton has launched a new initiative to make available audio and video recordings of academic lectures and events. For now, the University Channel is focusing on public and international affairs, because, as the site claims, “this is an area which lends itself most naturally to a many-sided discussion”. Perhaps the idea is to have people link to the material on the site and then host discussions on their own blogs or classrooms as I do not see a place for the suggested “many-sided discussion” on the UC site itself. The scope of materials that will be included seems quite broad judging from what is already available (IT, religion, politics, etc.).

It is certainly nice to have one central repository of such materials. If the project succeeds in getting lots of places on board and hosting material from all over then it has the potential to be a great service. In fact, the collaborators it already has lined up are already a good sign of its potential. (Then again, some people have suggested [see first comment] that “text is the only useful information on the Internet”.;)

Over at the Volokhs, Jim Lindgren gets “upset”:http://www.volokh.com/archives/archive_2005_07_17-2005_07_23.shtml#1121820182 “twice”:http://www.volokh.com/archives/archive_2005_07_17-2005_07_23.shtml#1121843543 at co-blogger Orin Kerr for “claiming”:http://www.volokh.com/archives/archive_2005_07_17-2005_07_23.shtml#1121819891 and “repeating the claim”:http://www.volokh.com/archives/archive_2005_07_17-2005_07_23.shtml#1121843543 that prediction markets did a bad job of prediction the Roberts nomination. For Jim, the issue is whether markets are in general better than experts at aggregating publicly available information; he believes that “markets (however “good” or bad they are in absolute terms) should be better than experts on balance, or at least better than experts who lack actual first-hand knowledge of the forthcoming decision.” For Orin, Tradesports seems to be no more than a “way of monitoring what a few newspapers and blogs are saying,” and, on the whole, it “seems easier to just scan the headlines at How Appealing.”There’s an obvious alternative hypothesis which neither considers. Roberts futures shot up in value from 1% to near-certainty in the few hours before the decision was “officially” leaked. One highly plausible interpretation of this is that word had already leaked to a privileged few with good contacts in the Administration. Then, some of those people with insider knowledge took advantage of their privileged position by betting Roberts and fleecing the rubes. As Steve Bainbridge has “noted”:http://www.professorbainbridge.com/2005/07/inside_informat.html, Tradesports doesn’t seem to have any rules against insider trading. On this interpretation, Lindgren is right in saying that markets like Tradesports can provide more information on executive decisions than scanning the blogs – but only because they’re being used by those who have insider information to take advantage of the less-informed (who naively assume that they’re playing a fair game). In other words, there’s strong reason to suspect that this case doesn’t support Lindgren’s more general claims about the superiority of prediction markets vis-a-vis experts; in this case the markets are arguably being manipulated by people with insider knowledge that isn’t available to the experts. The reason that markets are doing better than experts “without first-hand knowledge” is most likely that they’re being used by experts _with_ first hand knowledge to make money from those who don’t have such knowledge. This is a very bad case to test the efficacy (or lack of same) of prediction markets in aggregating dispersed public knowledge into a usable metric; it seems to me rather unlikely that this sort of aggregation is what is in fact happening here.

Update: Orin Kerr says in comments. “You claim in your post that “Roberts futures shot up in value from 1% to near-certainty in the few hours before the decision was “officially” leaked.” That is incorrect. As best I can tell, Roberts futures shot up to near certainty only after every news website started posting that Bush had picked Roberts.” In which case, it seems to me that Kerr is right on this, and Lindgren and I are wrong, for different reasons.

Update 2: “Brayden King”:http://pubsociology.typepad.com/pub/2005/07/bad_versus_good.html has a very good post on the topic.

An indubitable Airmiles “classic”:http://www.nytimes.com/2005/07/01/opinion/01friedman.html?ex=1277870400&en=342cb2bd52a44f4e&ei=5090&partner=rssuserland&emc=rss :

bq. There is a huge debate roiling in Europe today over which economic model to follow: the Franco-German shorter-workweek-six-weeks’-vacation-never-fire-anyone-but-high-unemployment social model or the less protected but more innovative, high-employment Anglo-Saxon model preferred by Britain, Ireland and Eastern Europe. It is obvious to me that the Irish-British model is the way of the future, and the only question is when Germany and France will face reality: either they become Ireland or they become museums. That is their real choice over the next few years – it’s either the leprechaun way or the Louvre.

Now those familiar with leprechauns will recall that they’re untrustworthy little bastards, inclined to evaporate along with the pot of gold when given half a chance. The same is true of dodgy generalizations constructed around trite metaphors, especially when they’re employed by someone who clearly doesn’t know what he’s talking about. We’ll leave aside the basic claim that a small post-industrial economy provides the right model for two largish economies with large industrial bases, and concentrate on the glaring material errors in Friedman’s account. Point One: Ireland is _not_ an exemplar of the “Anglo Saxon model.” For evidence, take a look at this recent “paper”:http://www.u.arizona.edu/~lkenwor/institutionalcoherence.pdf by Lane Kenworthy, which argues convincingly that Ireland doesn’t fit well into either the Anglo-Saxon ‘liberal market economy’ or Rhenish ‘coordinated model economy’ models. Point Two: Ireland is an _especially_ poor fit with the Anglo-Saxon model in the area of labour market policy, a fact which rather undercuts the argument Friedman is trying to make. Again, Dr. Kenworthy:

bq. beginning in the late 1980s and continuing throughout the 1990s, [Ireland] has had a highly coordinated system of wage setting (Baccaro and Simoni 2004). In addition, Ireland has higher levels of employment and unemployment protection than other liberal market economies and longer median job tenure (Estevez-Abe et al. 2001, pp. 165, 168, 170).

Finally, there’s a very strong argument to be made that it is _exactly_ the non-Anglo-Saxon features of the Irish economy – and in particular the “systematized concertation”:http://www.ucis.pitt.edu/cwes/papers/work_papers/ODonnell.pdf between trade unions, management, government and other social actors – that was at the heart of Ireland’s economic success in the 1990’s. This system, unbeloved of free market economists, set the broad parameters for wage and income tax policy, and provided Ireland with the necessary stability for economic growth. It’s now coming under strain thanks to growing inequality in Irish society, but that’s another story. As already noted, Ireland isn’t necessarily the best example for big industrial economies to follow; but insofar as it does set an example, it isn’t the kind of example that Friedman thinks it is.

“Alex Tabarrok”:http://www.marginalrevolution.com/marginalrevolution/2005/06/krugman_beneath.html denounces Paul Krugman as an “illiberal demagogue” who has forgotten his heritage as an economist. The reason: Krugman’s claim that China is a strategic rival, and his recommendation that the Chinese bid for Unocal be blocked. Now I’m far from being an expert on Asian politics, and so won’t pronounce on the substance of whether Krugman is right or wrong on this specific issue. But I do think it’s fair to say that there’s another term than “illiberal demagogue” for someone who believes that strategic concerns trump trade interests when push comes to shove. That term is “mainstream international relations specialist.” The kind of “doux commerce” liberalism that Alex seems to favour has been out of fashion in IR theory since Norman Angell’s (somewhat unfairly) ballyhooed _The Great Illusion_ .

If I understand Alex correctly, he’s telling us that economics, which likes to portray itself as a rationalistic and impartial approach to the understanding of human behaviour, is at its core a set of normative arguments for the increase of trade and commerce, and against the pursuit of a certain kind of ‘irrational’ self-interest. I think that Alex is largely right on this – though many economists wouldn’t admit it (and one is faced with the interesting question of whether scholars like, say, Dani Rodrik, are economists under Alex’s definition of the term). But it leads to the interesting question of when economists’ prescriptions for free trade over strategic manoeuvre are in fact the right prescriptions. On the one hand, posturing and mutual distrust can lead to a downward spiral and thus to war, in circumstances where peaceful commerce might otherwise have been possible. And it may well be, as Alex believes, that you can reconstruct people’s beliefs away from war, and towards peaceful exchange by substituting the voices of liberal economists for those of “mercantilists, imperialists and ‘national greatness’ warriors.”* On the other, if one state _does_ see politics as a zero-sum game and is unlikely to be persuaded otherwise, then it may be a big mistake to concede strategic resources to that state – it may use them against you later. This is of course the reason that international trade in, say, advanced weapons systems, does not resemble a free market (whether control over oil companies is a similarly sensitive strategic asset, I’ll leave to the discussion section). Which means that if Alex wants to make a convincing case that Krugman isn’t just making a claim that runs against the usual normative biases of economists, but is actually wrong on the merits here, he needs to provide more evidence than an argument-by-assertion that China is now “moving” from war to trade. As stated above, I’m not a China expert, but from what I do know, this is very much an open debate.

* interestingly, those in international relations theory who make this sort of claim are usually vehemently opposed to economic reasoning.

I just finished reading Rick Perlstein’s “The Stock Ticker and the Super Jumbo”:http://www.powells.com/cgi-bin/biblio?inkey=62-0976147505-0 yesterday (an earlier version of the essay and the various responses is available “here”:http://bostonreview.net/BR29.3/contents.html, but buy the book if you can for extra post-election analysis goodness). It’s a great read, and a smart essay, but I think it buries its real argument.
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