Marginal Revolution

Can libertarianism limit corporate statism?

Matt Yglesias opines (the piece is interesting throughout):

… the larger problem is that libertarianism, even at its very best, tends to suffer from an impoverished set of ideas about how corporate domination of the public policy space might be prevented. The political left has, by contrast, the tradition of community organizing, a set of public interest advocacy organizations, allies in the trade union movement, efforts to improve the quality and independence of the civil service, and various notions about changing the methods by which campaigns are financed in the United States. This is hardly a perfect toolkit, and it can be enhanced in some ways by drawing on libertarian insights, but it’s something. And libertarians tend to be either indifferent or hostile to it, campaigning against public financing, strong labor unions, and the civil service.

In practice, libertarianism seems to have little to say about how to bring about political change except to work hand-in-hand with business lobbies when the interests of business and free markets are aligned, or else when business interests are masquerading as libertarianism.

Here is Will's response.  In my view at the margin it would be better to have both less corporate privilege and less labor union privilege.  Maybe we have no good theory (much less a strategy) for how to get there, but surely some marginal improvements are possible and who knows maybe more.  Chile is much less corporatist than it used to be and the relatively free economy of New Zealand was never that corporatist in the first place.

"Libertarianism in practice" will be excessively pro-corporate but so are most ideologies.  Rahm Emanuel, for instance, served on the board of Freddie Mac and earned $16 million in a two-year stint at an investment bank. Wall Street has been the single biggest backer of his political career.  He won't be pushing to destroy this sector but I don't take those facts to be some great refutation of Obama as a President. 

Sometimes the left-wing tactics, especially supporting labor unions, are exactly what lead to greater corporatism.  Look at the forthcoming GM bailout.  Or consider France, which has strong labor unions but arguably it is also more corporatist than is the United States.

But let's say that turning America over to the labor unions would in fact limit corporate power.  It's still difficult to get the unions more anti-corporate power, just as limiting corporate statism is difficult.  And these two tasks are difficult for more or less the same reasons.  The bottom line is this: ultimately the "feasibility objection" may cut against very radical change, but it doesn't cut against change in one particular direction more than the other.

A simple model of China's model of China

Compared to the U.S. economy, the Chinese economy has fewer automatic stabilizers, such as welfare programs and unemployment insurance.  That implies their fiscal policy should, if possible, be especially countercyclical, compared to what is called for in most richer countries.

Chinese leaders view volatility as serially correlated and increasing from the source outwards.  Given Chinese history, they expect that shocks grow and spread rather than dampening down.  So when a shock comes, the demand to hold and indeed hoard very safe assets increases rather than decreases.  Chinese fiscal policy ends up being pro-cyclical rather than countercyclical.  And it is hard to succeed with fiscal policy in the first place.

Fortunately, I'm just making that model up.  Why should we expect lots of mistakes to be made? 

The election: what really happened

We can't not cover this topic, so here is Andrew Gelman with the bottom line.  The main result, it seems, is that the electoral gap between the young and the old increased by quite a bit.  Hat tip goes to Mark Thoma.

Addendum: Brad DeLong comments.

The thought of Ezra Klein

Soencer Ackerman asks, "Remember in 2003 and 2004, when there was all this talk about how the Democrats were in danger of no longer being a national party?" I do remember that. I also remember how Democrats had to get religion if they ever wanted to be competitive again. I also remember how they had to appeal to the white heartland by nominating candidates more culturally recognizable to rural voters. Instead, they went in the opposite direction, running a candidate who was recognizable to the majority coalition Democrats hoped to have in 10 years. It seems to have worked out pretty well. It's almost as if pundits don't really know what they're talking about.

Here is the link.

I voted

First time, ever.

Addendum: By the way, it took me less than 3 minutes (I was surprised) and I got a free coffee at Starbucks. Not bad on instrumental or expressive grounds.

My simple thought on voting

Most of what you do is for expressive value anyway, so you shouldn't feel guilty about voting, if indeed you vote.  The people who think they are being instrumentally rational by not voting are probably deceiving themselves more.  They are actually engaged in an even less transparent form of expressive behavior (protest against the voting system) and yet cloaking that behavior under the guise of instrumental rationality.  The best arguments against voting are simply if you either don't like voting or if you don't know which candidate is better.  High-status people hardly ever offer the latter justification, even though the split of opinions among high-status people suggests that not all high-status people can in fact know which candidate is better.

In other words, both voting and not voting are motivated by the thought that you are better than other people.  I am glad that we have an entire day devoted to this very important concept.

New models of voting

This paper, "Attitude-Dependent Altruism, Turnout and Voting," is from Julio Rotemberg, one of my favorite economists:

This paper presents a goal-oriented model of political participation based on two psychological assumptions. The first is that people are more altruistic towards individuals that agree with them and the second is that people's well-being rises when other people share their personal opinions. The act of voting is then a source of vicarious utility because it raises the well-being of individuals that agree with the voter. Substantial equilibrium turnout emerges with nontrivial voting costs and modest altruism. The model can explain higher turnout in close elections as well as votes for third-party candidates with no prospect of victory. For certain parameters, these third party candidates lose votes to more popular candidates, a phenomenon often called strategic voting. For other parameters, the model predicts "vote-stealing" where the addition of a third candidate robs a viable major candidate of electoral support.

Here is an ungated version.

Africa military recruitment fact of the day

My evidence from Uganda suggests that, when coerced, children are the most likely to be indoctrinated and disoriented, and so are the least likely to escape.

Here is much more, from Chris Blattman, interesting throughout.

Why vote?

Economists often argue that voting is a waste of time, since the chance that your vote will influence the election outcome is virtually nil.  Maybe, but after watching this fear impels me to the polls. 

Thanks for the Scrooge treatment go to loyal reader and GMU student Adam.  If anyone knows of something similar for other candidates I will post an addendum.

Will Wilkinson is upset

If a smattering of libertarian ideas can bring it [the system] all down, then the problem isn’t really libertarian ideas, is it? If the integrity of the economy in your preferred model requires a high level of ideological conformity, you might think to reconsider the wisdom of harnessing it so thoroughly to democratic political institutions meant to accomodate pluralism.

That's not the part where he is really upset.  He's also upset here and here.

Bulgarian corruption markets in everything

According to corruption fighters and election observers, votes can be traded, depending on the town, for marijuana cigarettes or sold for up to 100 leva, or $69. People document their votes by taking pictures of their ballots with their cellphone cameras, according to Iva Pushkarova, executive director of the Bulgarian Judges Association.

Trust, then verify, as they say.  In fact you can't trust the government either, so that requires a market in "decoy lawyers":

While corruption affects many corners of society, the impact is particularly stark in the legal system, where some people without political connections have resorted to hiring decoy lawyers, for fear that their legal documents would vanish if presented to particular clerks by lawyers recognized as working for them.

I cannot find a comparable concept of "decoy lawyers" in English-language Google.  There is yet another market:

Sofia has a thriving black market for blood outside hospitals, where patients’ families haggle over purchases with dealers, according to Bulgarian news reports that track the prices.

Here is the article.  I thank KB and also Stephen (check out his blog at the link) for the pointer.

Power vs. knowledge

Arnold Kling weighs in:

We got into this crisis because power was overly concentrated relative to knowledge. What has been going on for the past several months is more consolidation of power. This is bound to make things worse. Just as Nixon's bureaucrats did not have the knowledge to go along with the power they took when they instituted wage and price controls, the Fed and the Treasury cannot possibly have knowledge that is proportional to the power they currently exercise in financial markets.

He refers to Paulson as "the American Mussolini."

Ireland forces Europe, Europe forces the United States

Is this a race to the top or a race to the bottom?

“The Europeans not only provided a blueprint, but forced our hand,” said Kenneth S. Rogoff, a professor of economics at Harvard and an adviser to John McCain, the Republican presidential nominee. “We’re trying to prevent wholesale carnage in the financial system.”

Here is much more on today's events.  In the current version of globalization the equilibrium seems to be that non-guaranteed banking systems are swiftly penalized and turned into zombies.  This suggests, by the way, that undoing current bank guarantees, when recovery comes, won't be as easy as we might have thought.

Addendum: Here are the opinions of many economists.

Who is Greener?

There is a new InTrade.com contract, this one on whether oil futures and the Democratic President contract move in the same direction on Election Day.  Right now it's running at about 50 percent, which means an Obama victory won't on average bring a higher price of energy.  Mark Thoma directs us to this interesting article on the bursting of the Green bubble, most of all among the Democrats.

The problem is that both of you are right

David Brooks is right that the failure to pass the bailout represents a massive failure of American governance and leadership, most of all at the Congressional level.  That's true even if you think, for other reasons, that the bailout was a bad idea.  (Can any hero be cited in this debacle?)  Andrew Sullivan (and others, including myself) was right that early versions of the Paulson plan bypassed checks and balances and gave far too much power to the Executive Branch.  So Congressional oversight was needed.

That's the problem, namely that both of these views are right.  And this is just one reason, of many to come, why the Paulson plan (whether or not we need it) will not work as promised.

Vulture Capitol

Much like John McCain, Rudy Giuliani, who accompanied the presidential candidate on a campaign plane earlier today, is very interested in what happens with the government's bailout plan. That's because his law firm, Bracewell & Giuliani, is letting potential clients know it can best steer them--with its new Task Force-- to deal with the bailout.

See the photo and press release, which says this:

Mr. Giuliani noted that the Bracewell Task Force includes a former Comptroller of the Currency, a former Assistant Secretary of Legislative Affairs of the U.S. Department of the Treasury, former members of Congress from both political parties, former federal prosecutors, and former SEC enforcement attorneys.

They will even have a blog, to update people on the latest revenue opportunities.  I thank a loyal MR reader for the pointer.

Markets in everything, India electoral fact of the day edition

According to the study...almost one in two voters in Karnataka, where assembly elections were held in May, had taken money for voting or not voting.

However, the share of voters is higher among the voters in the so-called below the poverty line, or BPL, category: 73% in Karnataka while the national average is 37%.

And the price?

“The bribe money varies from state to state. It may be Rs100-150 (a voter) in some states and it can go up to Rs1,000 in some constituencies,” said Rao, adding that the CMS study refers to only cash bribes, not the value of liquor or other material inducements being doled out during election campaigns.

The exchange rate is about 45 to 1.  Here is the full story.  It is estimated that one-fifth of the Indian electorate sells its vote in some manner.  I thank Deane Jayamanne for the pointer.

Won't Get Fooled Again

The end of central bank independence, a continuing saga

"Why does one person have the right to grant $85 billion in a bailout without the scrutiny and transparency the American people deserve," asked House Speaker Nancy Pelosi (D., Calif) a reference to the loan the Fed gave AIG with the Treasury's blessing.

And:

"No one in a democracy, unelected, should have $800 billion to spend as he sees fit," said Mr. [Barney] Frank.

He was referring to Bernanke's balance sheet and not to Gerald Ford, in case you were not sure.  Here is the link, courtesy of Arnold Kling, who responds: "I just get a chuckle hearing a Congressman complain about someone spending other people's money."  Here is Arnold on RTC-like plans.

Tim Groseclose tells me

Research by UCLA political scientists into the "facial competence" of candidates puts the Republican VP hopeful in the top 5%.

Their paper (http://renos.bol.ucla.edu/AtkinsonEnosHill.pdf ) shows that facial competence explains a significant portion of the vote -- about 4% of independent voters in a congressional election.

Here're some more details: http://renos.bol.ucla.edu/AtkinsonEnosHill.pdf

Elsewhere concerning news events of the day, Megan McArdle covers money market funds here and here.

Sarah Palin and John McCain on AIG

This was "unscripted", from Sarah Palin:

Disappointed that taxpayers are called upon to bailout another one. Certainly AIG though with the construction bonds that they’re holding and with the insurance that they are holding very, very impactful to Americans so you know the shot that has been called by the Feds it's understandable but very, very disappointing that taxpayers are called upon for another one.

That's via Andrew Sullivan.  It's the phrase "very, very impactful" I object to.  The point about construction surety bonds is actually correct, as indeed AIG did issue them and it doesn't seem that any regulation or state authority will make good those guarantees (readers, correct me if I am in error but I can find no record of such guarantees).  That means a lot of people bought insurance against adverse construction events and will be left without that protection.

Of course this matters less at lower levels of construction.

The real lesson of this quotation is that the Republicans have no good language for discussing recent events.  They're not allowed to say anything that sounds like "showing sympathy for Wall Street," so they have to find someone else to show sympathy for but they can't turn to traditional Democratic rhetoric about how an unregulated capitalist economy is failing us.  Citing the construction bonds is like worrying that the financial crisis will postpone the retirement of many professors.  Yes that is true but it's odd (though not unprecedented) if that's the first thing that comes to your mind or for that matter to your talking points.

Here is John McCain on the crisis, again unscripted, from The Today Show:

LAUER: So if we get to the point middle of the week as we heard in that report where AIG might have to file for bankruptcy, they're on their own?

McCAIN: Well...quote, "on their own"...we have to - we cannot have the taxpayers bail out AIG or anybody else...this is something we're gonna have to work through -- there's too much corruption, there's too much access, we can fix it, I believe in America - we can have a 9/11 commission such as we had after 9/11, 'cause this is a huge crisis and we can come up with fixes and we can make sure that every American has a safer future and that is to make them know that their bank deposits are safe and insured.

Here is more of the session.  He did worse than she did and that's after decades on the national scene.

The Gorgon in the room

The empirics on beautiful women imply that, in a great many cases, a) they have their own agendas, b) they stick to those agendas, no matter what they may say in public, or no matter what "more experienced" men tell them to do, c) they are very good at fooling the men they associate with and they are used to thinking they can get away with it, and d) agendas are often more local and less global than you think.  If you don't believe me, read the final act of Henry V.

Andrew Sullivan is calling Sarah Palin "Rovian."  Maybe, but her first order of business has been to fool the Republican establishment, not the American people.  (Read this silly AEI guy.)  Her few genuine words on foreign policy indicate her positions are hardly the modern Republican norm.  She is "unusual" on pot smoking and benefits for gays and juror nullification.  The Republicans are underestimating her role as a Hegelian agent of world-historical change, just as the Democrats did at first.

Which narrative do you find more plausible?:

"Lovely Sarah, she's saying and doing everything we want her to.  What a quick learner.  How pliable she is.  Remember Descartes on tabula rasa?"

"Once John and I are elected, they'll need me more than I need them."

The people who are right now the happiest may end up the most concerned.  For better or worse, they're about to lose control of their movement.

The economics of the two Koreas

The official told FOX News there are no signs of instability in North Korea now, but the likelihood of a smooth transition of power in that country is not high.

Here is the story, fully speculative throughout.  Many people think Kim is in very bad shape.  Apparently the U.S. and China are drawing up contingency plans for what comes next, financed in part by those interest payments on the agency debt.

One topic at today's lunch was to guess the chance that the North Korean communist regime might collapse forever in the next few years.  I said p = 0.3, which others found to be a high estimate.  A second topic was, if reunification of the Koreas occurred (itself an open question), how long it would take for the South to grow again, given the amount of reconstruction it would have to finance in the North.  I said twenty years, though upon reflection I'll revise that downwards a bit.

It's hard to say much about these topics with any grounding, but since no one else in the econ blogosphere is talking about them, I will.  It's by far the most important drama going on in the world right now.

Katha Pollit has some questions for Sarah Palin

I know this is serious stuff and it shouldn't cause me to snort.  But it does.  I loved this dual question:

What is the European Union, and how does it function?

Not quite as good is:

What is the function of the Federal Reserve?

The link is from Ezra Klein.  Bear Stearns, Ireland, Georgia, and Denmark are invited to submit their answers as well.  How about Lehman Brothers and Turkey?

Addendum: On this list, questions #2, 4, 6 and 17 bear some pondering too.  Nor is #3 as simple as many people think.

Insect politics

In case you had forgotten:

"Have you ever heard of insect politics? Neither have I! Insects don't have politics.... they're very brutal. No compassion.... no compromise. We can't trust the insect. I'd like to become the first insect politician. I'd like to, but.... I'm an insect.... who dreamed he was a man, and loved it. But now the dream is over, and the insect is awake."

That's from David Cronenberg's The Fly.  I was reminded of the scene by this post.  Best of all, the YouTube of that scene is here.  I will genuinely be glad when this campaign is over.

Addendum: The new operatic version of The Fly is receiving negative reviews.

Why Libertarians Should Vote for Obama (1)

First, war.  War is the antithesis of the libertarian philosophy of consent, voluntarism and trade.  With every war in American history Leviathan has grown larger and our liberties have withered.  War is the health of the state. And now, fulfilling the dreams of Big Brother, we are in a perpetual war.

A country cannot long combine unlimited government abroad and limited government at home. The Republican party has become the party of war and thus the party of unlimited government.

With war has come FEAR, magnified many times over by the governing party. Fear is pulling Americans into the arms of the state. If only we were better at resisting. Alas, we Americans say that we love liberty but we are fair-weather lovers.  Liberty will flourish only with peace. 

Have libertarians gained on other margins in the past eight years? Not at all. Under the Republicans we have been sailing due South-West on the Nolan Chart – fewer civil liberties and more government, including the largest new government program in a generation, the Medicare prescription drug plan, and the biggest nationalization since the Great Depression. Tax cuts, the summum bonum of Republican economic policy, are a sham. The only way to cut taxes is to cut spending and that has not happened.

The libertarian voice has not been listened to in Republican politics for a long time. The Republicans take the libertarian wing of the party for granted and with phony rhetoric and empty phrases have bought our support on the cheap. Thus - since voice has failed - it is  time for exit.  Remember that if a political party can count on you then you cannot count on it.

Exit is the right strategy because if there is any hope for reform it is by casting the Republicans out of power and into the wilderness where they may relearn virtue. Libertarians understand better than anyone that power corrupts. The Republican party illustrates. Lack of power is no guarantee of virtue but Republicans are a far better - more libertarian - party out-of-power than they are in power. When in the wilderness, Republicans turn naturally to a critique of power and they ratchet up libertarian rhetoric about free trade, free enterprise, abuse of government power and even the defense of civil liberties.  We can hope that new leaders will arise in this libertarian milieu.

Alaskan state politics, circa 1976

"You were against statehood?"

"Oh, sure.  Oh, sure.  Before then, three-quarters of the people here weren't here.  Eight or nine hundred people ran the Territory.  Ten thousand now run the state.  Where it used to take one person to investigate you, it now takes two to four.  The state spends too much.  If a tree blows down, two guys from the state come with a chain saw.  The state has sold the state out.  To the unions.  To the oil companies.  The oil companies have more power than the legislature.  The capital move [away from Juneau] is a lot of talk.  That's all it is, a lot of talk.  What we need is not a new capital but better legislators than we have.  I'd say leave the capital where it's at.  The state can't afford it.  There is no economy.  They're dreaming about all this oil money.

That is from John McPhee's excellent Coming into the Country, a study of Alaska recommended to me by several MR readers.  Here is a short 2002 piece on switching the capital of Alaska and the oddity of putting it in Juneau.  Here is a useful map.  Here is a picture of Juneau and from the air.  Googling "Juneau traffic report" does not in fact bring up any traffic reports.

Big Mac Attack

No country with a McDonald's outlet, the theory contends, has ever gone to war with another....

Thomas Friedman, who invented the theory in 1996, said people in McDonald's countries "don't like to fight wars. They like to wait in line for burgers."...

The Russia-Georgia conflict has finally blown this theory out of the water.

From the Guardian.  Clearly the theory was over-identified.  Perhaps no two countries with Taco Bell's every go to war with one another.

Hat tip to Chris Blattman.

Why are governors in small states so popular?

Ezra Klein channels Andrew Gelman:

...small states tend to be more approving of their governors. Why? Gelman has some theories: "In a large state, there will be more ambitious politicians on the other side, eager to knock off the incumbent governor; small states often have part-time legislatures and thus the governor is involved in less political conflict; small states (notably Alaska) tend to get more funds per capita from the federal government, and it’s easier to be popular when you can disburse more funds; large states tend to be more heterogeneous and so it’s harder to keep all the voters happy. As the graphs show, the pattern isn’t perfect, but it looks real to me."

I have an additional hypothesis.  People from small states, especially atypical small states, sometimes have an inferiority complex vis-a-vis the other states or regions.  Taking pride in their politicians is one way of compensating for that.  Furthermore there is often less to do in underpopulated states and is not pride sometimes a substitute for action?  New Yorkers are not in fact so proud of the Metropolitan Opera, but in parts of Wisconsin the Green Bay Packers are king.

My IM dialogue with Ezra Klein

Find it here.  Here is Ezra's version of Markets in Everything.

The economics of secession

The classic paper is Buchanan and Faith, AER 1987.  Here is a recent extension of this classic work, with a dash of economic determinism:

Secessionist movements present themselves to the global public as analogues of colonial liberation movements: long-established identities are denied rights of self-determination by quasi-imperial authorities. Self-determination is presented as the solution to the challenge of peaceful coexistence between distinct peoples. The global public not only accepts this message but reinforces it: both Hollywood and diasporas relay it back to populations in developing countries. In this paper, we will argue that the discourse of secessionist movements cannot be taken at face value. We will suggest that a more realistic characterization of secessionist movements is that their sense of political identity is typically a recent contrivance designed to support perceived economic advantage, if the secession is successful, and facilitated by popular ignorance.

There are, of course, plenty of successful secessions.  Slovakia has been successful nation because of a language and a desire to be free of Czech rule, backed by EU free trade, EU largesse and political precommitment.  Or secession can help you break free of an evil empire, such as when Georgia left the former Soviet Union.  The most likely American state to make a success out of secession is, I think, Texas (or offer up your pick in the comments).  A Texan nation is hardly a good idea, but at least the state is big, has a diversified economy, has an outlet to the water, has a history of independence, and has a border with another nation, namely Mexico. 

The least likely American state to make a success of secession is, I think...Alaska.  The state takes in lots of federal money, has only a small natural population base, and is not too far from Russia.  Here are some data on which states receive the most on net from the federal government.  According to these numbers, only the state of New Mexico benefits more in (proportional) fiscal terms.  The states which fare the worst from federal transfers are New Jersey, Connecticut, New Hampshire, Minnesota and Illinois.

You can stop worrying

Martin Feldstein and John Taylor reassure us:

And by maintaining strong control over the growth of government spending, Mr. McCain will bring the budget into balance. His long record of fighting against excessive government spending, his plans to veto earmarks and reverse the spending binge of the past few years, and his strong commitment to balancing the budget can make this goal a reality.

Here is the full article, hat tip to Greg Mankiw.

This article claims that goldfish are as smart as mice.

Is Sarah Palin the female Ross Perot?

Palin is being compared to Dan Quayle and Clarence Thomas but I think Ross Perot may be the more apt citation (the rest goes under the fold)... 

Palin has an outside, straight talker, pro-reform, true blooded American, take no prisoners image much as Perot did.  (A second point of comparison is Arnold Schwarznegger, with some obvious differences.)  And she has only begun to cultivate that image.  Do you recall how much impact Perot had on the American people? 

Of course if Perot actually had had the chance to be President, the results probably would not have been pretty.  He would have been forced to act like "just another politician," as has been the case with Arnold because in fact the job revolves around knowing how to govern. 

There is one biographical fact about Palin's life that the critics (Drum, DeLong, Yglesias, Klein, Sullivan and Kleiman are among the ones I read) are hardly touching upon.  I mean her decision to have a Downs child instead of an abortion.  This is the fact about her life and it will be viewed as such from now through November and perhaps beyond. 

If only for this reason, she will be seen as a candidate who stands on principle.  I don't think the critics are sufficiently appreciating how tired the American people are of candidates who say one thing and do another and who abandon their principles at the first provocation.  This is a deep and very strong current and it runs through virtually every group of American political voters.  Because of her decision to have a Downs child, many voters will not view Sarah Palin in a cynical light, no matter what the critics say.  No story about firing a state trooper will break that seal.

In my jaded view, "politicians who break their word, violate their ideals, and do not follow through on their promises" is not one of the major problems in American politics.  In fact it's often good that political promises are forgotten in the light of the realities.  So the American obsession with political promise-keeping does not resonate with me.  But the American people have been hungry for a "promise keeper, ideals believer" for decades and when was the last time they actually got one?

By the way, my mom's first reaction to the nomination (hi mom!) was that other mothers of "different" children (what exactly is the right word here?) would very much identify with Palin and view her life as validating theirs and thus support her.

Go away and watch a Frank Capra movie and think about Palin again.  Larry Ribstein gets it.

I do recognize and indeed emphasize that this analysis requires that she is good on TV.  I give that p = 0.63.  I'll also give p = 0.13 that she ends up off the ticket, but most of that chance comes from her deciding she needs to spend the time with her kids.

Addendum: The best argument against the pick is this, although it does not much revise my priors.

The experience trap

Around the blogosphere you will see many left-wing writers criticizing Palin for lack of experience.  Maybe this criticism is correct, but these commentators are falling into The Trap.  Most American voters do not themselves know much detail about foreign affairs and their vision of an experienced leader does not require such knowledge.  Was it demanded from Reagan?  Doesn't everyone agree that Cheney and Rumsfeld knew plenty?  Rightly or wrongly, many American voters will view Palin's stint as mayor of small town, her background in sports, her role in a beauty contest (yes), her trials raising teenage children, and her decision to stick with her priinciples and have a Downs Syndrome baby as all very valuable and relevant forms of experience.  The more the word "experience" is repeated, no matter what the context, the more it will hurt Obama.  Palin needs to appear confident and capable on TV and in the debates, but her ticket is not going to lose votes if she cannot properly spell Kyrgyzstan or for that matter place it on a map.

Addendum: Here is early response over at The Clinton Forum.

Voters trust good-looking extremists

Trying to appear moderate is not always the best strategy for capturing votes during an election, reveals a new study. Extreme positions can build trust among an electorate, who value ideological commitment in times of uncertainty.

Here is the full story, with a hat tip to Eduardo Pegurier.  And here's Robin Hanson:

In a TV game show, pretty contestants were not better or more cooperative players, but other contestants seemed to act as if they were.

I don't know much about the substance or qualifications of Sarah Palin, but I believe that Democrats should be a little worried right now.  The otherwise-expected Romney and Pawlenty gifts have been taken off the table.

Addendum: Here's Palin talking economics with Larry Kudlow.

Sarah Palin

Now over 80 percent in the betting markets.  And here is the gossip behind that.  Electorally this is a very effective pick I think (if indeed it is true), though it is hard for me to imagine a President with five (young) kids.

Addendum: No, that wording isn't quite right.  How should I put this...?

Second addendum: Her stock in the market is now plummeting, now down to about 35, as there is a report she is still in Alaska.  I am told that last night Pawlenty was up to about 85 but then fell dramatically as well.  It has been a wild ride in this market.  And now Palin is back up again, etc.  Whatever.  Now it's at 96.  Now confirmed.

More: Credible signals, in one link or less.

Kay Bailey Hutchison on economics

Here are some of her votes.  Her ACU voting lifetime record is 91 percent.  She is strong on free trade and seems to be a relatively conservative and corporatist Republican on economic issues.  She's way up in the betting markets for the Republican VP spot, about 30 percent last I looked.  Note that she is not pro-life according to conservatives.  She has been very pro-drilling and very active on energy issues.  Since picking Mitt Romney would violate all known economic models of rational choice, and picking a woman would pop the Democrats' post-convention bounce, I suppose this is a rumor to be taken seriously.  Here is her Wikipedia page.

The best two paragraphs I read today

Ezra wins:

...the campaign against Obama has metastasized into a variant of class warfare. It's the resentment of the meritocracy. What the GOP realized was that Obama did come across different than the average American, but not so much because he was black as because he was effortless. The very set of supercharged talents and qualities that allowed Obama to levitate past the boundaries of race and class make him different than those who haven't rocketed upward on the strength of their intelligence and charisma and charm. After all, if you're a fumbling, struggling individual out in suburban Ohio, how can you believe that this guy who doesn't look to have struggled a day in his life cares about your pathetic problems? Obama, in other words, is elite. As in "A group or class of persons enjoying superior intellectual, social, or economic status." Obama isn't an economic elite, but he is a social and intellectual elite. And it's that creeping sense that he's different, that he's better and knows it, that McCain is trying to exploit.

The Obama campaign, similarly, has realized that McCain is an elite, and that voters won't believe that a guy who has so many houses that he can't keep track of them will care if they lose the small condo they call home. This election, in other words, is becoming a contest to decide which type of elite voters hate -- or fear, or mistrust -- more: A social elite or an economic elite?

Here is the first Google Images entry for "mediocre."

Obama insecurity

Obama has many good qualities but this does not prevent the circulation of massive amounts of "Obama insecurity," as evidenced by some of the comments on a recent post.  (It's not about disagreeing; note how the tone changes.)  For some people no comment on Obama, other than the purely laudatory, is anything other than a hackish right-wing attempt to forge an alliance of lies with Karl Rove and his ilk.  But an election need not be framed as a war where all remarks must be strategically proper and in line with the objective of electing a preferred candidate; a blog is a discourse first and foremost.

The mood on Obama reminds me of the response of some MR commentators to Eric Lyon on Radiohead.

I cannot imagine how devastated and hopeless the Democratic left would feel if Obama loses.  That response would be a big mistake but in part it explains "Obama insecurity."  The left is uneasy that so many of their hopes are pinned on this man and as Paul Krugman points out he is somewhat unknown.  There is a secondary fear that Obama is in fact committed to the notion of America as a center-right country or at least is unwilling to challenge that idea. 

"Obama insecurity" hurts his electoral chances and hurts the intellectual future of the left as a corrective force in American politics.  There's not a convincing or credible path toward painting his enemies as immoral, even if that is what you believe.  Some campaign lies are painting Obama as weak, inexperienced, and non-American or even anti-American.  Responding with a dose of "Obama insecurity" only plays into the hands of those who would turn this into a race of emotions and innuendo. 

Regulation and Distrust

Brought to you by Aghion, Algan, Cahuc and Shleifer, this is one of the best papers so far this year.  It's so good I'll give you a longer than usual quotation from the opening pages:

In a cross-section of countries, government regulation is strongly negatively correlated with social capital. We document, and try to explain, this highly significant empirical correlation.  The correlation works for a range of measures of social capital, from trust in others to trust in corporations and political institutions, as well as for a range of measures of regulation, from product markets, to labor markets, to judicial procedures. 

We present a simple model explaining this correlation. The model turns on the idea that investment in social capital makes people both more productive and more civic (e.g., Coleman 1990). Compared to people who have invested in social capital, those who have not are both less productive and impose a negative externality on others when they produce (e.g., pollute).  The community (whether through voting or through some other political mechanism) regulates production when the expected negative externalities are large. But regulation itself must be implemented by government officials, who are corrupt if they have not invested in social capital. As a consequence, when production is restricted through regulation, investment in social capital may not pay off.  In this model, when people expect to live in a civil community, they expect low levels of regulation, and so invest in social capital. Their beliefs are justified, as lack of investment leads to incivility, high regulation, high corruption, and low production.  The model has two Pareto ranked equilibria.

...The model predicts, most immediately, that distrust influences not just regulation itself, but the demand for regulation...distrust fuels support for government control over the economy.  What is perhaps most interesting about this finding, and also consistent with the model's predictions, is that distrust generates demand for regulation even when people realize that the government is corrupt and ineffective; they prefer state control to unbridled production by uncivil firms.

...We take evidence on the demand for regulation as supportive of causality running from distrust to regulation.  To test the reverse causality, we look at the experiment of transition from socialism, which we interpret as a radical reduction in government regulation in low trust societies.  Our model predicts that such a reduction should lead to 1) a reduction in output, 2) an increase in corruption, 3) an increase in demand for government control at a given level of trust, and 4) a reduction of trust in the short run.

Celebrity and politics

Many of the supposed "heroes" of the past were liars, frauds, and butchers to varying degrees.  The association of fame with entertainers, for all its flaws, departs from earlier concepts of heroic brutality and martial virtue.  Most of today's famous people have had to persuade consumers to offer their allegiance and their dollars.  Nowadays fame is attained through a high-stakes game of pursuit and seduction, rather than a heroic contest or a show of force in battle.  The shift in fame to entertainers is a modern extension of the Enlightenment doux commerce thesis that the wealth of the market civilizes morals and manners and supports an ethic of bourgeois virtue.

...Modern politics emphasizes images, rumor, negative campaigning, and a circus-like, mass media atmosphere.  Leaders lose their stature and become another set of celebrities.  We talk about them and use them for entertainment.  Yet contrary to the views of many critics, these developments are by no means wholly negative.

Commercial society has brought the taming of fame to politics...

That is from my 2000 book What Price Fame?

The Power of Oprah to help Obama

Finally I have something new to report on Barack Obama:

Prior to the 2008 Democratic Presidential Primary, Barack Obama was endorsed by Oprah Winfrey, a celebrity with a proven track record of influencing her fans’ commercial decisions. In this paper, we use geographic differences in subscriptions to O! – The Oprah Magazine and the sale of books Winfrey recommended as part of Oprah's Book Club to assess whether her endorsement affected the Primary outcomes. We find her endorsement had a positive effect on the votes Obama received, increased the overall voter participation rate, and increased the number of contributions received by Obama. No connection is found between the measures of Oprah's influence and Obama's success in previous elections, nor with underlying local political preferences. Our results suggest that Winfrey’s endorsement was responsible for approximately additional 1,000,000 votes for Obama.

That is work by Craig Garthwaite and Tim Moore and here is the full paper.

Sometimes I favor nationalization

There is talk of a state funeral for Margaret Thatcher, for when that sad day comes.

Not everyone agrees:

"Thatcher should only be allowed a state funeral if the contract is put out to compulsory competitive tender and awarded to the lowest bidder. Any offers?" was one of the more polite responses from readers.

The economics of vengeance

Within a given country, people who have been victims of the same kind of crime (here, a burglary) tend to be more vengeful, but not if they have been victims of a different crime, like mugging.

Of course the basic idea comes from Adam Smith.  Here is the full story, which features commentary by GMU economists.  Here is my previous post on the topic.

Play *Jeopardy* at MarginalRevolution

...shorting requires a [margin] deposit at zero interest rate, that is the key here...

That's my email answer to the question I receive most frequently these days.  Who can state the question?

Move on -- this isn't true here

I have a simple model of how some people -- but by no means all -- process political issues.  Occasionally the real force behind a political ideology is the subconsciously held desire that a certain group of people should not be allowed to rise in relative status.

Take the so-called "right wing."  I believe that some people on the right do not like those they perceive as "whiners."  They do not want these whiners to rise in relative status.  That means they must argue against the whining and also they must argue against the presuppositions behind the whining.

If the whiners say that times are bad, the rebuttal is that times are pretty good or times will become better again.  But if the whiners want to increase government benefits (perhaps there is a victim to whine about), we hear about the need to tighten our belts and all the talk about good times is, at least temporarily, muted.  Fiscal discipline is now in order.

Take the so-called "left wing."  Some of these people favor a kind of meritocracy.  They feel it is unfair that money so determines access in capitalist society and they do not want the monied class to rise in relative status, certainly not above the status of the smart people and the virtuous people.  It is important to fight for the principle that the desires of this monied class have a relatively low priority in the social ranking.  Egalitarianism is the rhetoric of the day, and readjusting the status of other Americans to the status of this monied class often receives more attention than elevating the very poorest in the world to a higher absolute level.

So when happiness research indicates that money brings more happiness only up to a point, this is a popular result.  That perspective lowers the status of this monied class by showing they really aren't that happy.  When happiness research indicates that conservatives are relatively happy, however, or that many redistributions don't make the beneficiaries much happier (in some accounts the money-happiness relationships flattens out at a pretty low level), suddenly happiness research isn't talked up so much.  Inequalities which do not raise the status of this monied class, such as inequalities in the sphere of beauty or teenage sex, don't come under so much criticism.

Some on the right wing will stress "individual responsibility" as a value when it lowers the status of the whiners (why whine when it was the victim's own fault?).  Some on the left wing will stress "individual responsibility" when it is time to punish corporate wrongdoers and thus lower their status.  Not everyone applies (or rejects) this value consistently.

Given this difference in rhetoric, the right wing will be identified with the monied class, even when the left often has more money.  And the left wing will be identified as the whiners, even though the right at times whines as much or more.  You might say that both sides are monied, high human capital whiners, on the whole.  And if you compare them to Burmese rice farmers, the two sides seem somewhat alike.

For the people caught up in these intellectual traps, it all boils down to which groups of whiners they find most objectionable.  And once they choose sides, the wisdom of that choice becomes increasingly clear with time.

Fortunately not everyone has these subconscious motivations.  But even if more people did, it's not something I would want to whine about.

Where should you cast your vote?

Jonah Berger, Assistant Professor of Marketing at the Wharton School of Business, conducted a terrific study where he demonstrates that where people vote affects how they vote. Essentially, people whose voting booth is located in a church are more likely to put more weight into social issues, people voting in fire houses care more about safety, and people voting in a school tend to put more weight on things like education.

Admittedly there is a problem here of isolating causation.  Perhaps you go to the polls whose location you know, and if you have kids you know how to find the school, if you are religious you know how to find the church, and so on. 

Auren Hoffman, whom I will see next week in Quebec City, concludes:

Your gut might be much better at telling you what not to do than giving you good direction on what to do. If your gut tells you something is wrong with someone, than you probably do not want to entrust your kid with her. But a positive gut-check often does little good (at least for me).

Robin Hanson on the belief in religion and government

A stunning hypothesis from the latest Journal of Personality and Social Psychology:

High levels of support often observed for governmental and religious systems can be explained, in part, as a means of coping with the threat posed by chronically or situationally fluctuating levels of perceived personal control. Three experiments demonstrated a causal relation between lowered perceptions of personal control and ... increased beliefs in the existence of a controlling God and defense of the overarching socio-political system.  A 4th experiment showed ... a challenge to the usefulness of external systems of control led to increased illusory perceptions of personal control. ... A cross-national data set demonstrated that lower levels of personal control are associated with higher support for governmental control.

It seems we hope a stronger and more benevolent God or State will protect us when feel less able to protect ourselves.  I'd guess similar effects hold for medicine and media - we believe in doc effectiveness more when we fear out of control of our health, and we believe in media accuracy more when we rely more on their info to protect us.  Can we find data on which beliefs tend to be more biased: confidence in authorities when we feel out of control, or less confidence in authorities when we feel more in control?

I would say "read the whole thing" except that is the whole thing.  Here is evidence from California that voters are more likely to prefer conservative candidates (not exactly what the above study is testing) when economic times are good.

Why might Israel attack Iran

According to this line of thinking, which has adherents...focusing on the tactical questions surrounding such an operation -- how much of Iran's nuclear program can Israel destroy?  how many years can a bombing campaign set the program back? -- is a mistake.  The main goal of a hit would not be to destroy the program completely, but rather to awaken the international community from its slumber and force it to finally engineer a solution to the crisis...any attack on Iran's reactors -- as long as it is not perceived as a military failure -- can serve as a means of "stirring the pot" of international geopolitics.  Israel, in other words, wouldn't be resorting to military action because it is convinced that diplomacy by the international community cannot stop Iran; it would be resorting to military action because only diplomacy by the international community can stop Iran.

That is Shmuel Rosner in the 30 July The New Republic.  Personally I do not think that Israel will attack Iran, but since I had never heard this argument before I thought I would pass it on.

What if the candidates pandered to economists?

Do read Greg Mankiw on this topic.  The list of policies favored by economists includes support free trade, oppose farm subsidies, leave oil companies and speculators alone, tax the use of energy [does he mean carbon-based energy?], raise the retirement age, invite more skilled immigrants, liberalize drug policy, and raise funds for economic research.

I don't disagree that there is a consensus on retirement age but it was news to me to read that.  My informal impression had been that many economists on the left felt this would place undue burdens on people with physically demanding jobs.  And personally I would sooner subsidize hard science than economics; I don't think we've earned our keep lately!

Or maybe Greg is just saying that it would win economists' votes.  Like Alex, I wonder if economists vote on a more rational basis than do other people.  If I meet a French economist, I suppose that his views are more shaped by his being a Frenchman than by his being an economist.  I'd like to see a poll of Canadian economists on health care reform.

The Liberal Hour

The authors are G. Calvin Mackenzie and Robert Weisbrot and the subtitle is Washington and the Politics of Change in the 1960s.  Everyone interested in social change, or for that matter American political history, should read this book.  It doesn't unearth new material but it is a good summary of what is known.  The jacket flap sums it up:

For a brief period in the 1960s, more progressive legislation was passed in Congress than in almost any other era in American history.  Demands that had lingered for decades on the political agenda finally entered the realm of possibility.  Reform has seldom come with such speed, such sweep, and such consequence.  What drove this political sea change?...[the authors] argue that the primary force behind it was not the counterculture, but those in the traditional seats of power.

If you study the history portrayed in this book, you are more likely to believe that an Obama victory would not bring radical change to American economic policy.  It's hard to find the comparable "shock troops" in Washington right now.

Geo-engineering to cure global warming?

Robin Hanson summarizes one case for it.  I don't know much about the technologies but my worries are mainly political.  Won't the Russians benefit greatly from a warming world, both because they are a bit cold and because they will access a warmer Arctic?  Would the UN Security Council approve climate engineering?  Probably not.  If the United States did it on its own, could that be perceived as an act of war?  If geo-engineering is cheap (which is part of its very promise), and unilateral action is acceptable, don't other countries also get to take their shot at influencing the environment and moving us toward an optimal climate?  What does the resulting equilibrium look like?  Who moves last?  How would we feel if someone changed the U.S. climate to make many parts of the country colder?

Statement of 300 economists supporting John McCain

I don't always have something to say, sometimes it is just a link and a list of names.  Do you think maybe they had the movie in mind?

Evidence of Absence

Here is China's new 10 Yuan banknote.  Notice what is missing?  It's not on the back either. 

Hat tip to Metafilter.

0.4% of gdp

Paul Krugman explains.

Grand New Party

The authors, Ross Douthat and Reihan Salam, invited me to their book party at Borders -- and I wanted to meet them -- but no I must stay home and read and blog their book!  (I wrote this post last night.)  If there was rush hour road pricing, as indeed they propose, I would have been there in a flash but no I am munching on cherries on my sofa.

The subtitle is "How Republicans Can Win the Working Class and Save the American Dream" and the Amazon link is here.  Their favored policies include the following (with varying degrees of enthusiasm/utopianism on their part):

1. Family-friendly tax reform.

2. Sprawl is OK or at least it could be with rational traffic management policies.

3. Government reinsurance for catastrophic health care expenses, plus they consider the Brad DeLong health care plan.

4. Abolition of the payroll tax for many lower-income earners.

5. Allocate money to public schools on a student-weighted basis, as is done in San Francisco.

6. Reallocate funding toward lower-tier state universities and away from flagship schools.

7. Don't expect old-style unions to come back.

That is only a sampling.  The broader vision is that the Republicans can and must find a way to be more friendly to the non-rich.  Personally I don't see any reason to tie all of this to the Republican Party but I agree with most of their proposals.  There's a great deal of common sense here and it stands as one best general policy books in a long time.

The deep question is why something like this hasn't already happened.  You'll find the superficial "Republicans are just pro-corporate crooks" answer from bloggers like Kathy G.  Another possibility is that Republicans don't get much electoral credit for pro-poor initiatives (just as many voters simply won't believe that "Democrats can be tough").  The more competitive political messaging becomes, the more this constraint binds and so the policies of upward redistribution are more likely to be enacted by Republicans in the resulting political equilibrium.  If the authors are to get their way somehow this dynamic must be reversed.

Addendum: I've met Reihan only in passing and I have not had substantive correspondence with either of the authors.  Nonetheless the authors thank me in the conclusion for having saved them from "all manner of errors"; maybe this is another instance of the influence of blogs.

Second Addendum: You'll find links to video and audio on the book at Ross's blog.

Is there anything new to say about Barack Obama?

I, for one, have nothing new to say about Barack Obama, even though I am exposed to more news about him than any other single person.  I wish I did, but I don't.

Do you?  Does anyone?  Comments are open, the stipulation is that you must believe what you write about him genuinely represents new insight; it's OK if it's already appeared on your blog, provided it is not a major one, or you can link to the thoughts of others.  Please respect our usual standards of politeness.

Will anyone have anything to say?  Should I hope you do or don't have anything new to say about him? 

Why do lefties dominate Presidential politics?

Ford, Reagan, Bush I, Clinton, Gore, and now Obama and McCain are all left-handed.  Call it chance or availability bias, but I'm still wondering.  Read more here, and thanks to Martin Weil for the pointer.  Here's one on-line discussion.  Here is a brief survey on Wikipedia.  It is my general view that left-handers have higher genetic variance in a number of dimensions, so they should be over-represented in many different kinds of extreme situations, including the Presidency. 

What does campaign finance do?

Here is Ed Lopez's survey article, here is the survey from Thomas Stratmann.  Overall the academics who work on this issue tend to see the practical ramifications of campaign finance restrictions as very often constituting less than meets the eye.  It's also well understood that most campaign finance reform benefits incumbents, who already have name recognition.

The pointer is from Ed Lopez, who notes:

Consider two ratios.

1. In 2000 the federal government spent about 1.8 trillion (~18% of GDP), and total campaign expenditures on all federal elective offices was about $1.85 billion (about $1b on congressional races, $0.35b on presidential, and $0.5b in soft money). So federal public sector advertising was 1/1000th of federal public spending. Ratio 1 = 0.001.

2. In 2000 the private sector share of GDP was about $7.5 trillion (after federal, state and local spending net of intergovernmental transfers), and total private sector advertising, according to Advertising Age, was $240 billion (Statistical Abstract Table 1251). So private advertising was 3.2% of private spending. Ratio 2 = .032.

By this comparison, private sector advertising is more than thirty times greater than the amount we spend on federal elections trying to make sure we get the right person for the job. Given how much we expect from our federal government, isn't it surprising that campaign spending isn’t twice, or even ten times, more than it is right now?

Ed thinks that campaigns need more money flowing through them, not less; I don't have a personal view on this issue.  Reihan Salam offers interesting comment on recent controversies surrounding Barack Obama.

Very good sentences

Liberals tend to believe that sexual orientation is determined by genetics but that gender-difference in behavior is not, whereas conservatives tend to believe the reverse.

That's Matt Yglesias.

Irish thoughts

Henry writes:

In particular, German parliamentarian Axel Schäfer’s comment that “With all respect for the Irish vote, we cannot allow the huge majority of Europe to be duped by a minority of a minority of a minority,” would have a bit more credibility if, you know, the majority of the majority of the majority had been given a chance to vote on the Treaty themselves.

I can imagine a few other lessons:

1. Give people a referendum on a big question and they will use it as a chance to voice their general displeasure with many other matters.  New Zealand made that mistake on electoral reform.  The Irish vote was strongly divided among rich-poor lines.

2. According to polls, the Irish are not especially Euroskeptical.  I guess that is "Eurosceptical".  In any case multilateralism has limits.

3. The option under consideration *was* Plan B.  There is no obvious Plan C.

4. It worked last time (2002) to ask them to vote again.  Few people think that gambit can be played a second time.

5. One Irishman opined: ""We're told we can vote no, that the system requires unanimity. But when (a `no' vote) actually happens, every time, the EU tells us: You really only have a right to vote yes," said Dublin travel agent Paul Brady, who voted against the treaty.

6. Some deluded soul in the EU read a copy of John Calhoun instead of Buchanan and Tullock's Calculus of Consent.  Hadn't they remembered the history of 17th and 18th century Poland and decided that a unanimity rule is a bad idea?

7. If European nations demand a unanimity rule (which I can well imagine), is that not a sign that they have a free trade area but nothing close to a real political union?

Why do people oppose globalization?

Dani Rodrik writes:

So the "us" and "them" characterization that Tyler attributes to irrational nativism perhaps has more to do with the absence of a common set of international rules on labor standards, environment, consumer safety, and so on.

(There is much more at the link.)  I was surprised to read this.  In the 1980s people were very hostile to Japan and Japanese imports, even though Japan at the time was quite wealthy and had relatively high standards in these areas.  I also receive a fair number of emails -- some of them of the hate variety -- by people who are suspicious of the rise of China.  I believe it is Chinese success which bothers them even though they sometimes come up with ancillary stories about unfairnesss.  These people are not less upset when other countries use capital rather than labor or when foreign production does not create much pollution.

Most of all, many people in poorer countries object to having to compete with America, with McDonald's, with Hollywood, and so on.  Those objections are usually more strenuous than the complaints of Americans about a poorer China and of course the poorer countries tend to be more protectionist, in part for this reason.  That's where feelings of unfairness are truly strong.  There's nothing special about the "regulatory arbitrage" unfairness story and in fact it is one of the weaker feelings of unfairness out there.  In reality the entire past of the world is unfair but cosmopolitanites can look past that to appreciate the gains from ongoing trade.

Rodrik himself seems to object to when Americans trade with countries in which first world labor standards are violated.  But doesn't such trade raise wages in these countries and also give a long-run boost to labor standards?  And where does the net unfairness lie?  Haven't the Western powers -- if only through imperiali