Marginal Revolution

Understanding politics

I was wondering why there had been so much talk recently of ramping up antitrust attacks on Google.  Now I know.  This is the way politics works.  See my letter on antitrust protectionism (pdf) if you need more.

Symposium on Paul Collier

You will find a Collier essay on democracy and development along with numerous comments, including from Bill Easterly and Nancy Birdsall, all courtesy of Boston Review.

Easterly is not happy:

I have been troubled by Paul Collier’s research and policy advocacy for some time. In this essay he goes even further in directions I argued were dangerous in his previous work. Collier wants to de facto recolonize the “bottom billion,” and he justifies his position with research that is based on one logical fallacy, one mistaken assumption, and a multitude of fatally flawed statistical exercises.

Nancy Birdsall suggests that donors support more investment in policing.  She also notes:

The economy of sub-Saharan Africa—including Nigeria and South Africa—is smaller than the economy of New York City.

There is much more at the link.

Administrative costs, a simple point or two

Andrew Gelman serves up some links.  Mankiw's addendum serves up some more.

Public sector programs usually have higher administrative costs -- all relevant costs considered -- than corresponding private sector programs.  The public sector program is funded by taxation.  That means the public sector doesn't have to worry so much about marketing or meeting payroll on commercial revenue alone.  That will bring significant cost savings on administrative matters.  But you can't stop counting there.

The deadweight loss from taxation is perhaps twenty percent or more.  (It depends on which tax you consider as "the marginal tax" and there is not a simple factual answer to that question.)  That should be factored into any comparison, even if you define that cost as "not an administrative cost." 

The public sector also engages in less monitoring of who receives its services.  If you're 67 and have worked a lifetime in this country, usually you can receive Medicare benefits.  The "indiscriminate" nature of the program may be either a net social cost or a net social benefit but certainly it should not be counted as zero or ignored.

If you favor "indiscriminate" programs over targeted programs, OK.  But the accompanying lesson is not one about the relative efficiency of the public sector at a comparable task.  The lesson is that sometimes the public sector can be more effective when you don't wish to discriminate in supplying a particular kind of service.

TANSTAAFL.

Should "Fairfax County" become a city?

Should Fairfax County become a proper city?  It has over a million people, many more than Washington, D.C.  The bottom line seems to be this:

The basis for the idea is largely tactical -- under state law, cities have more taxing power and greater control over roads than counties do -- and it led to more than a few snickers about the thrilling nightlife in downtown Fairfax (punch line: there isn't any).

Natasha could no longer say "We are from Washington":

If Fairfax does become a city, it would instantly become one of the largest in the nation, the size of San Antonio or San Jose.

It would also diverge dramatically from the stereotype of the gritty metropolis. Fairfax enjoys many of the benefits -- wealth and jobs -- and few of the detriments -- crime, troubled schools -- of a large urban center. With a median household income of $105,000, it is the wealthiest large county in the nation. Among large school systems, it boasts the highest test scores. And it has the lowest murder rate among the nation's 30 largest cities and counties.

One question is why this rather uncoordinated mix works so well.  Federal dollars, diversity of immigration, and diversity of planning strategies all can be cited.  The latter factor probably means we should not touch the status quo.  And by the way, almost all of our nightlife is Korean but it does exist.

The value of personal experience

It's rare that I read something about Barack Obama which I had not already seen:

Barack Obama's last visit to Russia, as a senator in 2005, did not end so well. He was detained by the security services at an airport near Siberia for three hours, locked in a lounge, his passport confiscated, like a scene from a John le Carré novel.

The Russians later called it a “misunderstanding.”

A theory of Fed announcements

If you've been paying attention, the Fed likes to release bad news after the markets close on Friday afternoon. The past couple weeks, they've announced the failures of small regional banks.

Well today [referring to a Friday], they announced something just a little bit bigger - the government bailout/takeover of Fannie Mae and Freddie Mac, the two large mortgage finance guarantors. The markets have been expecting this for a while, but obviously not everyone was expecting it as their stock prices were $5.50 and $4 respectively when the market closed today. If everyone was expecting this, then those prices would have been a lot closer to zero.

Here is more.

Cap-and-trade-war

Eric Posner and Paul Krugman defend the use of tariff threats against polluting countries, such as China.  I'll outsource my response to an earlier post by Matt Yglesias:

The bottom line about the international aspects of climate change is that the very idea of an effective response assumes the existence of a generally cooperative international environment. It doesn’t assume the non-existence of the odd “rogue” state here or there, but it assumes the absence of any kind of serious great power rivalries. Not just China, but also India and probably Russia, Brazil, and Indonesia as well are going to need to cooperate in a serious way with the OECD nations on this. And I just don’t see how you’re going to get where you need to get through coercion. If anything, I think attempted economic coercion of China is more likely to wind up breaking down solidarity between the US, EU, and Japan than anything else. First, we impose our carbon tariff. Then suddenly Airbus and European car companies are getting all kinds of sales because the EU hasn’t followed suit. Now not only are the Chinese mad at us, we’re mad at the Europeans. Optimistically, at this point everyone decides coercion is unworkable and we start to back away.

I'll say it again: the current version of Waxman-Markey will make things worse.  Keep in mind by the time we are slapping those 2020 tariffs on China, we won't have made much progress on emissions ourselves.  How would we feel, and how would it influence our domestic politics, if the Chinese demanded we pass Waxman-Markey, while polluting at a high level themselves, or otherwise they will stop buying our Treasury securities?

When No Means Yes

... Having voted against the administration's climate change bill on the record means that at least some of these House Democrats will be able to vote for what emerges from a House-Senate conference later in the year. Therefore, the chances of a climate bill being enacted this year is now much greater than it was 24 hours ago.

That's the ever-perceptive Stan Collender on the politics of the climate change bill.

Regulation and Distrust

In an interesting paper, Aghion, Algan, Cahuc and Shleifer show that regulation is greater in societies where people do not trust one another.  The graph below, for example, shows that societies with a greater level of distrust have stronger minimum wage laws.  Note that the result is not that distrust in markets is associated with stronger minimum wages but that distrust in general is associated with greater regulation of all kinds.  Distrust in government, for example, is positively correlated with regulation of business.  Or to put it the other way, trust in government (as well as other institutions) is associated with less regulation.

Aghion et al. argue that the causality flows both ways on the regulation-distrust nexus. Distrust makes people turn to government but in a society with a lot of distrust government is often corrupt and this makes people distrust even more.  Crucially, when people distrust others they invest not in the highest return projects but in human and physical capital that is complementary to distrust--for example, they invest in human capital that helps them bond with their group/tribe/family rather than in human capital that helps them to bond with "outsiders" and they invest in physical capital that is more difficult to expropriate rather than in easier to expropriate capital, even though in both cases the latter investments may be the all-else-equal higher return investments.  Such distrust traps are quite similar to Bryan Caplan's idea traps.

Thus, societies with a lot of distrust generate regulation and corruption and citizens who don't have the skills or preferences to break out of the distrust equilibrium.  Consider, for example, that in societies with a lot of distrust parents are less likely to consider it important to teach their children about tolerance and respect for others.

Insightful books on politics, written by politicians

That is another question I was asked yesterday, here are a few nominations:

1. Julius Caesar.

2. James Madison and John Adams, for the latter Discourses on Davila.

3. Some of Richard Nixon, scattered.

4. Ulysses S. Grant.

5. Tocqueville, J.S. Mill and some other political writers were also politicians of a sort but I am not counting them as I do not view their contributions as stemming so directly from their political experience.  Along these lines, you could try John Kenneth Galbraith's book about being ambassador to India.

6. Winston Churchill is a beautiful writer and important historian but I am not sure how insightful he is about politics.

7. Denis Healey, Time of My Life.

8. I've yet to read the new book by Zhao Ziyang.

9. Willy Brandt, My Life in Politics.

My knowledge is weak in this area (here is a list of Canadian political autobiographies and I know not a single one) and Google is surprisingly unhelpful; what else am I missing?  And why are there not more?  Are politicians so drunk with self-deception that they cannot write insightful books?