Author Archive
New at Cato Unbound: Monetary Lessons from the Not-So-Great Depression
Accounting for the Great Depression and devising plans for preventing a sequel has been a major preoccupation of monetary and macroeconomics for over seventy years now. If the sometimes vitriolic infighting raging now within the economics profession is any indication, our recent recession and financial collapse may play a similar role for years to come. Did Bernanke display a virtuoso touch and keep a bad thing from becoming worse? Or did the Fed drive the economy over the edge by compounding prior errors with fresh mistakes?
Until the Milton Friedmans and Anna Schwartzes of our “great recession” emerge, try this month’s Cato Unbound for some preliminary answers. We’ve recruited a panel of top-notch money specialists to tease out some of the key monetary lessons from the present mess, and here’s a quick gloss on what they’ve said so far.
In our lead essay, Bentley University economist Scott Sumner, a specialist on the Great Depression, stands against conventional wisdom in arguing that monetary policy in the period running up to the carnage in the financial sector was disastrously contractionary. Easier money, Sumner says, might have prevented the worst. He proposes a new strategy for central bankers — targeting forecasts of nominal GDP — that might help avert future crises. Sumner warns of the political dangers of misdiagnosing the crisis: unless the record is set straight, free markets will once again take the fall for a flubbed central banking.
In his reply essay, “It’s Harder than it Looks,” James Hamilton of UCSD and the popular blog Econbrowser disagrees with some, but agrees with much of Sumner’s diagnosis, including the claim that the Fed could have done better and might have limited the damage of the financial crisis had it pushed rates of nominal GDP growth higher than they were. But Hamilton points out that this is easier said than done and raises doubts about the practicability of Sumner’s preferred targeting strategy.
Cato senior fellow and University of Georgia economist George Selgin agrees with Sumner that “tight money was the proximate cause of the post-September 2008 recession” and that “a policy of nominal income growth targeting might have prevented the recession.” But Selgin encourages Sumner to acknowledge the role easy money played in the subprime crisis, and argues that Sumner’s favored five-percent nominal income-growth target is “unnecessarily and perhaps dangerously high.” Selgin favors a lower target and tolerance for some price deflation, a strategy he contends would be less likely to perpetuate boom-bust cycles.
In the last of this issue’s formal replies, San Jose State’s Jeffrey Rogers Hummel sees merit in much of Sumner’s account of the causes of the financial crisis, but he doubts a better rule for central bankers will keep us out of trouble in the future. Hummel contends that “only abolition of the Fed, elimination of government fiat money, and complete deregulation of banks and other financial institutions offer any long-term hope of bringing better macroeconomic stability.”
Stay tuned as our panelists continue to hash it out in free-for-all blog chat that begins Wednesday. And if this is the sort of thing that revs your engine, don’t forget about Cato’s annual monetary policy conference coming up in November.
Filed under: Cato Publications; Finance, Banking & Monetary Policy
Thomas Friedman’s New Math of Democracy
Thomas Friedman’s New York Times column today would be astonishing in its incoherence if only Friedman hadn’t long ago sapped us of our ability to be astonished by his incoherence. Like many capital-’d’ Democrats, Friedman has soured on democracy for failing to deliver on his policy wish list.
Watching both the health care and climate/energy debates in Congress, it is hard not to draw the following conclusion: There is only one thing worse than one-party autocracy, and that is one-party democracy, which is what we have in America today.
Why does Friedman say the United States has one-party democracy? Because the Republican Party is effectively opposing the Democratic Party’s agenda! Not even kidding. Get this:
The fact is, on both the energy/climate legislation and health care legislation, only the Democrats are really playing. With a few notable exceptions, the Republican Party is standing, arms folded and saying “no.” Many of them just want President Obama to fail. Such a waste. Mr. Obama is not a socialist; he’s a centrist. But if he’s forced to depend entirely on his own party to pass legislation, he will be whipsawed by its different factions.
Only the Democrats are really playing! You might think that would mean they can do whatever they darn well please. But no! The Democrats can’t do anything! Because the other party’s opposition is so effective! So it’s exactly as if there’s just one party: nothing gets done!
My hunch is that the Times’ editors see Friedman aiming the gun at his foot, but watching a man stupid enough to actually pull the trigger is so fun they hate to intervene. That or they’re trying to explode the myth of American meritocracy.
So where were we? Oh, yes: one-party democracy is aggravating because sometimes one party can’t do what it wants because the other party gets in the way. Sooo frustrating!!! Why have democracy at all when all you end up with is a single party stymied by the other one! And so it is that Friedman comes to wax romantic about communist central planning:
One-party autocracy certainly has its drawbacks. But when it is led by a reasonably enlightened group of people, as China is today, it can also have great advantages. That one party can just impose the politically difficult but critically important policies needed to move a society forward in the 21st century. It is not an accident that China is committed to overtaking us in electric cars, solar power, energy efficiency, batteries, nuclear power and wind power.
Nikita Kruschev, the enlightened leader of a now-defunct one-party autocracy, was also committed to overtaking the United States in technology and so much more. “We will bury you” is how he put it. At the time, more than a few left-leaning American opinionmakers suspected he was right. After all, how can inefficiently squabbling democracies possibly keep pace with undivided regimes wholly devoted to scientifically centrally planning their way into the brighter, better future? And that, children, is why we speak Russian today.
Filed under: Government and Politics; Political Philosophy
New at Cato Unbound: Brian Doherty Defends ‘Folk Activism’
In today’s installment of Cato Unbound, Reason senior editor Brian Doherty defends “folk activism” (that’s what we do here at Cato, in case you’re wondering) against Patri Friedman’s complaints of ineffectiveness.
Doherty argues, in effect, that Friedman’s effort to simply go out and float a boat upon which one can do whatever floats one’s boat is parasitic on earlier “folk activism” aimed at persuasion. It is hard to find 20,000 people who will commit to moving to New Hampshire for the cause of liberty and, as Brian points out, it’s even harder to find people who will now commit to moving to a man-made island. The viability of projects like Seasteading seems to depend on the success of prior evangelism.
That said, one of the merits of Friedman’s “dynamic geography” is that it is not really a “libertarian” project at all. As he writes in his Unbound lead essay:
Because we have no a priori knowledge of the best form of government, the search for good societies requires experimentation as well as theory — trying many new institutions to see how they work in practice.
I think there’s good reason to expect competing sea-top jurisdictions to settle on a scheme of governance more libertarian than what the world’s current nation states have to offer. But I also think there’s little reason to expect a seastead to embody the system of most libertarians’ dreams unless a lot of libertarians coordinate and settle there. In that case, it’s really clear that creating a libertarian society from whole cloth depends on the prior existence of libertarians, which depends on the success of the folk activism that produces them.
For more on seasteading, check out yesterday’s Cato Policy forum with Patri Friedman and today’s podcast interview.
No Dice, Pickens!
Last Thursday on public radio’s Marketplace Morning Report, Bob Moon interviewed billionaire T. Boone Pickens about his highly self-publicized energy plan, which centers on using wind power to replace a portion of the natural gas used to create electricity, and then using that replaced natural gas to power cars. As it happens, Pickens has invested in a big way in windmills and is extremely well placed to profit from an increase in the use of natural gas-powered vehicles. But the part that bothers me most isn’t the fact that a billionaire is running a propaganda campaign in an effort to rig the regulatory structure to force consumers to buy what he sells — though that bothers me plenty. The part that bothers me most is the mixture of toxic nationalism and egregious economic illiteracy in the ads Pickens is airing to plump for his plan. Which brings us back to Moon’s interview with Pickens:
Moon: Let me ask you to respond to something that Will Wilkinson of the Cato Institute said in a commentary on Marketplace the other day. Here’s some of his criticism of you:
Will Wilkinson clip: He’s leaning hard on our worst nationalist impulses. What he’s really saying is, why buy the things you need from dangerous foreigners when you could be paying more to buy them from rock-ribbed Americans, like T. Boone Pickens.
Pickens: It’s more than me. I mean, this is about America. This isn’t about Boone Pickens and whether Pickens’ wind farm makes money or whatever happens to it. But I mean, here with $700 billion going out of the country, and let’s say that we could cut it in half — $350 billion in the United States, can you imagine how that would multiply for jobs here. I’d much rather that gonna $350 billion was being used here than to give some for foreign oil.
Allow me to point out that Pickens’ reply is nonsense. He continues to insist on characterizing mutually-beneficial exchange across borders as hundreds of billions of American dollars “going out of the country.” But, in a nutshell, the reason Americans bought all this oil from abroad was that they had no way to get more energy bang for their energy buck. Unless the prices of domestic energy sources decline relative to that of foreign oil, shifting domestic consumption to energy from domestically-produced sources will require Americans to pay more for energy–leaving them less for everything else.
This is not a recipe for multiplying jobs. Rather, it would leave less money in the economy to start new businesses and to expand successful ones. This is a recipe to make ordinary American consumers poorer and energy corporations, like the ones Pickens owns, richer. If Pickens was making sense, the implication would be that Americans would be better off if we “in-sourced” everything. T. Boone Pickens, meet David Ricardo.
Either one of the world’s wealthiest men doesn’t understand elementary economics, which clearly tells us that his plan will make Americans poorer, or his plan is not really “about America.”
Here’s my July 31st Marketplace commentary on Pickens. And here’s Cato’s Jerry Taylor in March debunking “energy independence.”
Filed under: Energy and Environment; Regulatory Studies
Losing Faith in What?
In the Los Angeles Times, Peter Gosselin offers a “news analysis” on the theme that “Americans may be losing faith in free markets.”
For a generation, most people accepted the idea that the core of what makes America tick was an economy governed by free markets. And whatever combination of goods, services and jobs the market cooked up was presumed to be fine for the nation and for its citizens — certainly better than government meddling.
No longer.
This kind of crisis of confidence occurs every time the economy temporarily heads south — which it inevitably does from time to time. What does this tell us? It tells us that people do not understand the economy very well. And what do stories like Gosselin’s tell us? That most journalists don’t either.
But economic downturns do offer the motivated reporter an opportunity to speculate on the possible political consequences of unflagging public and media ignorance. The causes for our current economic troubles are evidently too complex to fathom, so instead of writing intelligibly about what is actually happening and why, we are asked to wonder (hope? fear?) whether voters can be made to demand a “New Deal Lite,” before the economy regains steam and we become too satisfied to regulate ourselves into oblivion.
It would be useful if journalists could find a way to report on the actual nature of the American economy. This would be a real public service. The American economy is in fact a byzantine amalgam of market and state institutions enmeshed in a thicket of regulation. Gosselin maintains that “most people” in the U.S. think there is something out there called “the free market” that operates without “government meddling.” I’m not really sure that most people think that, but it seems Gosselin does, because he goes on to structure his “news analysis” as if the story is that dissatisfaction with a kind of laissez faire we do not have may be generating demand for basically the kind of dirigisme we’ve already got. But since economic systems we haven’t got can’t cause our economic problems, the result is confusion.
Filed under: Government and Politics; Tax and Budget Policy
New at Cato Unbound: Can the Schools Be Fixed?
In April of 1983, the Ronald Regan-appointed National Commission on Excellence in Education released a landmark study, “A Nation at Risk: The Imperative for Educational Reform,” which diagnosed the ills of American education and set forth a list of prescriptions for fixing what seemed to be flailing educational system. It’s been twenty-five years now since the report. So how are we doing? And what, if anything, should we be doing differently? These are the questions we’ll be asking in this month’s edition of Cato Unbound, “Can the Schools Be Fixed?”
This month’s lead essay comes from Richard Rothstein, a former national educational columnist for the New York Times and research associate of the Economic Policy Institute, who offers a fresh, critical assessment of “A Nation at Risk” and the lessons we can draw from its fate. The public schools aren’t as bad as many think, Rothstein argues, and the report oversold the importance of the education system for America’s economic competitiveness and success.
Today, Michael Strong, co-founder of FLOW, education entrepreneur, and former charter school principal, chimes in with a stirring brief for the freedom to innovate in education.
Stay tuned for contributions from Sol Stern, a senior fellow at the Manhattan Institute who recently made waves with his article “School Choice Isn’t Enough,” and from Frederick Hess, the director of Education Policy Studies at the American Enterprise Institute.
If that’s not enough for all you education reform junkies, be sure to tune in to next week’s Cato forum on “Markets vs. Standards: Debating the Future of American Education.” You’ll learn something.
New at Cato Unbound: James Flynn on IQ
If you think you’re so smart, then why don’t you know what intelligence is? Because no one does! Is intelligence a unitary, general factor — the psychometrician’s famed g — or is it more plural and fragmented? What role do genes play in determining IQ? The environment? If intelligence is in the genes, then why do IQ scores continue to rise generation after generation all over the world? Are we actually getting smarter, or are we just getting better at taking tests? While these questions may seem recondite and academic, they are in fact central to ongoing, extremely heated controversies pertaining to education, welfare, and immigration policy. Which is why we have assembled a stellar panel of intelligence experts to delve into “The IQ Conundrum,” the topic of this month’s Cato Unbound.
This month’s lead essay by James R. Flynn, the discoverer of the famed “Flynn effect” and author of the new book What Is Intelligence? Beyond the Flynn Effect, argues that “the brain is much more like our muscles than we had thought” and that the genetic component of IQ is weaker than many have supposed. Commenting on Flynn’s rich essay over the next week we will have Linda Gottfredson, co-director of the Delaware-Johns Hopkins Project for the Study of Intelligence and Society; Stephen J. Ceci, the Helen L. Carr Professor of Developmental Psychology at Cornell University; and Eric Turkheimer, associate professor of psychology at the University of Virginia. They may not get to the bottom of the IQ conundrum, but readers will no doubt come away smarter. Check it out.
Why the Mechanisms of Inequality Matter
Atlantic blogger Matthew Yglesias argues that it doesn’t matter why income inequality is increasing. According to Matt, as long as higher top tax rates and more downward redistribution won’t much hurt economic performance, then we ought to just go ahead and raise taxes and increase transfers, never mind the mechanisms of rising inequality.
Oftentimes, though, liberals act as if the thing that needs to be done is to prove somehow that inequality has exploded because people are in some sense “cheating” — so you get these long stories about corporate governance and corrupt compensation committees, etc. The problem here, though, is that even if this is true, it could still also be true that the cure — policy interventions into the operation of the market — would be worse than the disease. And, conversely, if you could prove that the rise in inequality was all above board — really was driven entirely by globalization and technological change — nothing about that causal analysis would debunk the idea that we ought to make our tax system more progressive.
The relevant debate isn’t about how we got here, it’s about what would happen if we tried to change things. Some people, of course, think changing things would be immoral. Indeed, there are some people I know who adhere to the bizarre view that one source of injustice in the contemporary United States is that our richest citizens aren’t rich enough. But beyond those people, you have a lot of people who take the view that raising taxes would have dire economic consequences, whereas lowering them would have large benefits. That’s the only debate that really matters in this regard. If the costs to the non-rich of higher taxes on the rich would be small (as I believe), then higher taxes on the rich to provide more benefits to the non-rich makes sense irrespective of why inequality has grown so much whereas if the costs would be high then it doesn’t make sense — again, completely apart from the causal issue.
I think Matt and I agree that the pattern of national incomes is largely morally irrelevant, but for quite different reasons.
Filed under: General; Political Philosophy; Tax and Budget Policy; Trade and Immigration
New at Cato Unbound: Philip Jenkins versus Mark Lilla
In his spirited reply to Mark Lilla’s lead essay the eminent Penn State religion scholar Philip Jenkins contests both Lilla’s reading of history and the lessons he draws from it. In contrast to Lilla’s claim of American innocence of political theologies, Jenkins points to the centrality of religiously-motivated politics in “the moral crusades of the late nineteenth century, … the Social Gospel, the era of Progressivism and Prohibition” and the civil rights movement. Jenkins’ alternative theory of the rise of liberal toleration emphasizes “changes in the material life of Western societies” brought about by increasing commercialization, which “has nothing to do with the intricacies of Christian theology, and was only marginally connected with Enlightenment political theory.” Muslim theology and culture aren’t at the bottom of Muslim intolerance and religious militancy, Jenkins says, but the failure of these societies to create “economic development, … free institutions and free media.”
Don’t miss Wednesday’s essay from Damon Linker, author of The Theocons: Secular America Under Siege, and be sure to tune in Monday when blogging eminence Andrew Sullivan joins the fray.
New at Cato Unbound: Mark Lilla on Religion and Politics
The new issue of Cato Unbound on “Religion and Politics, Home and Abroad,” is hot off the electronic presses with this month’s lead essay by Columbia University’s Mark Lilla, author of the new book The Stillborn God: Religion, Politics, and the Modern West. Drawing on themes from his book, Lilla attempts to explain why the United States, the most religious nation in the modern West, can neither understand nor cope with “the religious passions dominating contemporary world politics.” Lilla lays out how the “Great Separation” in Western political thought, which set aside “political theology” as the basis for conceiving of the legitimacy of the political order, together with the exceptional American experience of religious toleration, has made it difficult for Americans to grasp how uneasily Western ideals of democracy and toleration fit within frameworks of thought that still put God at the center of politics.
Joining Lilla over the next few weeks we will have the prolific Penn State professor of history and religion Philip Jenkins; Damon Linker, author of The Theocons: Secular America Under Siege; and The Atlantic’s Andrew Sullivan, author of recent The Conservative Soul: How We Lost It; How To Get It Back.
New at Cato Unbound: Peter Leeson on Practical Anarchy
Everybody seems to know we need government … But pirates didn’t! How did they manage without the state? In this month’s thought-provoking Cato Unbound lead essay, Peter T. Leeson, the BB&T Professor for the Study of Capitalism at George Mason University, explores what pirate “constitutions,” credit institutions among 19th century African bandit traders, and the well-being of Somalians after the collapse of the Somalian state have to tell us about the possibility of practical anarchy. It works better than you think, Leeson concludes. “As long as there are unrealized gains to realize, people will find ways to realize them” — state or no state.
Can organizations really solve complex problems of coordination without government coercion? Can voluntary bands provide public goods? Are there conditions under which groups are better off stateless? Leeson will be joined in tackling these question by three eminent commentators: Florida State economics professor Bruce Benson, author of the seminal The Enterprise of the Law: Justice without the State; Dani Rodrik, professor of international political economy at Harvard’s Kennedy School of Government; and Randall Holcombe, another distinguished Seminole economist and current president of the Public Choice Society. Benson is on deck to reply this Wednesday. Stay tuned!
Filed under: Cato Publications; Political Philosophy; Tax and Budget Policy
Brink Lindsey on “The Libertarian Center”
The July issue of Cato Unbound hits virtual newsstands this morning with Cato VP for research Brink Lindsey’s new essay elaborating his argument in The Age of Abundance: How Prosperity Transformed America’s Politics and Culture that the culture wars are over and a vaguely libertarian consensus is the result. While recognizing that principled libertarianism doesn’t have a significant constituency, Lindsey argues that the soft libertarian synthesis constrains the Democrats and Republicans as they seek to cobble together working political majorities. Keep your browsers pointed to Cato Unbound: Jonah Goldberg of National Review has first whack at Brink on Wednesday.
Full-Spectrum Lindsey
Cato vice president for research Brink Lindsey tries to be a uniter, not a divider. In his much-discussed “Liberaltarians” article for the New Republic, Brink held out an olive branch to liberals. TNR’s Jonathan Chait was, well, less than enthusiastic.
In his “A Farewell to the Culture Wars,” recently published in National Review, Brink does much the same for conservatives, advising them to seek to conserve the “great American heritage of limited government, individual liberty, and free markets,” instead of, say, exclusively heterosexual marriage and a not-so-Mexican America. Perhaps unsurprisingly, NR’s Ramesh Ponnuru has declined the advice. Brink’s rejoinder, published online this Tuesday, is smart and effective:
Ramesh Ponnuru concedes the main point I was trying to make. Specifically, he admits that “[i]t really is pointless to pine for the social order that existed prior to the late 1960s,” and that “most conservatives would not want to go back if they could.”
Ramesh makes this concession almost casually, as if it were no big deal. But I’m sorry, it’s a very big deal indeed. After all, a great deal of intellectual and emotional energy on the right has been expended over the years in precisely the kind of pining Ramesh now regards as pointless. Conservatives have defended, with great conviction and moral passion, positions on race relations, the role of women in society, and sexual morality that most conservatives today would disown as ludicrous or offensive. I don’t think it suffices to dismiss these glaring errors of judgment with an Emily Litella-like “Never mind.”
While commentators left and right may be hesitant to pick up what Lindsey’s laying down, that doesn’t mean he’s about to stop trying to transcend the stale terms of yesterday’s political dialectic.
Tune into Cato Unbound on Monday, where Brink will kick off a fresh round of discussion on “The Politics of Abundance” with a panel of blogosphere luminaries. On the left, we’ll have The Atlantic’s Matthew Yglesias. On the right, National Review’s Jonah Goldberg. And in the … middle? … Reason contributing editor Julian Sanchez.
Filed under: Cato Publications; Government and Politics; Political Philosophy
It Dawns Upon Gore
This Fast Company profile of Al Gore (via Jim Henley) contains this delicious nugget:
One problem he had in politics, he says, was identifying an issue too early–”‘predawn’ is the term I use”–to be able to act on it. But “in the business world, particularly at a time when things are moving so swiftly, if you can see it early, you can make a business opportunity out of it.” He pauses. “For whatever reason, the business world rewards a long-term perspective more than the political world does.”
“For whatever reason”!
It may be that “predawn” Al Gore has killer entrepreneurial instincts, but, being the scion of a political family, just got caught in the wrong game. However, I suspect he landed on the board of Apple, for example, for reasons other than his proven track record as a market ace. And the $175,000 speakers fee may have something to do with his having won the popular vote in a contest against one of history’s most unpopular presidents. But we can only hope that Gore’s many new business ventures help create new wealth and earn him and a bunch of other people a ton of money. For whatever reason, the incentives provided by markets to look further in the future than the next election tend to do us all a lot of good.
Filed under: Government and Politics; Tax and Budget Policy
Furman on Inequality
Following in my illustrious footsteps as an Economist.com guest blogger, Brookings senior fellow Jason Furman writes thusly of rising income inequality:
According to the Congressional Budget Office’s income inequality data, the top 1 percent of households have seen their incomes go up by 7 percent and the bottom 80 percent have seen their income shares go down by 7 percent. In total that is a $664 billion increase in inequality, representing $7,000 for each household in the bottom 80 percent and nearly $600,000 for each household in the top 1 percent.
That number motivates a Hamilton Project tax strategy paper co-authored by Larry Summers, Jason Bordoff and myself that is being released today.
It is far from obvious what has caused the change; in just the last month alone the National Bureau of Economic Research has released three working papers with divergent explanations: a reduction in the bargaining power of workers, an increased reward for skills and worker productivity, and the destruction of good jobs by trade.
Regardless of the cause of rising inequality, lefties, utilitarians, Rawlsians and anyone with a deep-seated reverence for markets and the capitalist system should all be concerned. As Alan Greenspan memorably stated, “income inequality is where the capitalist system is most vulnerable. You can’t have the capitalist system if an increasing number of people think it is unjust.”
Well, I consider myself a sort of Rawlsian (a Rawlsekian!) with a deep-seated reverence for markets and the capitalist system. Should I be concerned? I agree with the sainted Greenspan that capitalism cannot survive a widespread conviction that it is unjust. And I agree that income inequality is one of those things that some thinkers like wheel out to try to convince us that capitalism is unjust, at least around the edges, in order to build popular support for such things as more steeply “progressive taxes combined with expanded benefits like health insurance,” like Furman wants. But I’m not so worried by rising income inequality as I am by Furman’s facile slide from income inequality numbers, which are meaningless by themselves, to the possibility of a crisis of legitimacy.
It is worth repeatedly and forcefully emphasizing that income inequality may or may not be symptomatic of injustice. The three hypotheses for rising inequality Furman mentions are perfectly consistent with advances in justice. And if they are generating income inequality, then it may vindicate capitalism. For example, the loss of jobs, a decrease in wages, or a decrease in bargaining power for some workers may be a consequence of lifting coercive restrictions on voluntary exchange across borders — restrictions that are themselves a form of injustice. Furman himself notes that protectionist policies could decrease inequality, though he advises against them, and rightly so, since they are unjust. But if protectionist policies are lifted, and inequality increases, that uptick in inequality is a side-effect of justice, not a symptom of injustice.
Inequality may reflect real injustice in our culture and institutions, and some portion of it probably does. But then our focus ought to be on rooting out those injustices, not papering them over with confiscatory redistribution which, in the absence of a reason to do it other than arbitrarily reducing measured inequality, is straightforwardly immoral.
Let’s set aside the matter of the intelligibility of “shares” of “national income” as a subject of justice for another time.
New at Cato Unbound: Has Globalization Changed the Game?
Fletcher School international politics hotshot and blogger extraordinaire Dan Drezner kicked off this month’s Cato Unbound last week with an essay drawing on his recent book, All Politics Is Global: Explaining International Regulatory Regimes, which argues that big nation-states still rule the roost and globalization has changed things less than you might think.
In her reply to Drezner, Ann Florini, director of the Centre on Asia and Globalisation at the National University of Singapore and senior fellow at the Brookings Institution, disagrees that global governance remains dominated by a few great state powers. “We’re heading for a multi-polar system where very different kinds of states, at very different levels of development, will matter,” she argues.
Jeremy Rabkin — recently moved from Cornell to the George Mason School of Law — argues that the collapse of communism and the discrediting of socialism has led to a world in which “states now are so entangled in international regimes — because so entangled in international exchange.” He agrees with Drezner that the big states tend to dominate the process, but non-state actors now often succeed in making marginal changes to policy (which add up) while the big powers are asleep at the wheel.
And hot off the press today, UCLA’s Kal Raustiala maintains that we can learn something important about global governance by looking to the forces affecting domestic politics over the last century: powerful lobbyists and special interests did not emerge because the state was getting weaker. “The rise of interdependence and NGOs in American society didn’t signal the end of the state; it signaled the growth of the state.”
Who can get enough of the exciting evolution of international regulatory regimes? So stay tuned as Drezner kicks off the informal blog conversation Friday with a response to his critics.
Rizzo versus Thaler on “Libertarian Paternalism”
Earlier this month, a few of us at Cato had the opportunity to hear NYU economics professor Mario Rizzo discuss a paper he has been working on with Glen Whitman on the so-called “new paternalism.” Their conclusion is that there is nothing “new” about it, and that it collapses into plain old paternalism. Today, over at the Wall Street Journal’s Econoblog, Mario takes on Richard Thaler, who along with his University of Chicago colleague Cass Sunstein, is responsible for the notorious ”libertarian paternalism” pseudo-concept.
Mario, gets the best of Thaler, I think, despite the fact that Thaler is incredibly evasive and slippery in this exchange, basically refusing to address a number of Mario’s rather deep objections head on. He wants to keep the “libertarian paternalism” terminology while denying that he is offering a set of ideas that are in the same line of semantic business as either “libertarian” or “paternalism.” It’s hard to see the point of this, other than to rhetorically “nudge” people into thinking that paternalism is sometimes okay because it is sometimes “libertarian,” and to get people to think that even libertarianism can sometimes be “paternalistic.”
It is surely true, as “behavioral economists” like Thaler have shown, that we have a tendency to make certain kinds of cognitive “mistakes” (relative to some impossible blackboard standard of economic rationality, at least) and suffer from certain weaknesses of will. And it may also be true that many workers will be glad to accept labor contracts that provide for work and compensation arrangements that help them structure their time or manage their money in light of these foibles. I guess if one insisted on abusing words, one could say that voluntary labor agreements are “libertarian” in the sense that they are uncoerced. (By the same standard, choosing to eat pistachio instead of rocky road ice cream is “libertarian.”) But if there is no coercion, there is no paternalism, since “paternalism” already means something.
Here is how Thaler motivates “libertarian paternalism”:
People make mistakes, so sometimes they can be helped. It is possible to help without coercion. That is libertarian paternalism. The concept can be and is used in both the public and private sectors. For example, in London, pedestrians from abroad are reminded by signs on the pavement to “look right” because their instincts from back home are to expect traffic to approach from the left. No one is forced to look right, but fewer pedestrians are hit by trucks.
This is so broad as to be completely intellectually useless. If your kid is misspelling a lot of words, and then you teach them the “‘I’ before ’E’ except after ‘C’” rule, you’ve helped them correct mistakes non-coercively. Is that libertarian paternalism? A “watch your step” sign in restaurant? An instructional DVD that helps your golf swing?
Mario, I think, gets it just right:
Libertarianism is a political philosophy that seeks to reduce the activities of the state to a very low level. It is very much about less government. Paternalism is a political or moral philosophy that seeks to override the actual or operative preferences of individuals for their own benefit, however defined, according to Donald VanDeVeer’s 1986 book on the subject. When applied to the actions of government, paternalism cannot be libertarian. It can only be more or less intrusive.
Does Richard wish to reduce his “libertarian paternalism” to the appropriate management of government-owned streets or other enterprises? In the London case, what people want is obvious: They don’t want to get hit by cars. London is doing what entrepreneurs generally do: satisfying actual preferences. London is mimicking the market.
[...]
Richard wants to use the word “libertarian” to differentiate his paternalism from the traditional variants. Yet he uses the word in a fuzzy way. He wants to define libertarian along a continuous variable — the cost of exercising the exit option. However, libertarianism, as every libertarian understands it, uses a bright-line test — who imposes the cost? The authors of the concept of “libertarian paternalism” have said that clearly intrusive/coercive interventions are consistent with it. See my previous post. And they have also said, explicitly, that there is no sharp line between libertarian and non-libertarian paternalism. Thus, Richard cannot claim that his standard creates a bright-line rule that would help us resist the slippery slope.
As Mario and Glen have titled the paper they’re writing: “Meet the New Boss, Same as the Old Boss.”
If you missed it, be sure to check out Glen’s Cato paper, “Against the New Paternalism: Internalities and the Economics of Self-Control.”
Smoke on Your Pipe and Put That In!
Harvard economist George Borjas, perhaps the leading academic skeptic of increased immigration, has started a blog. In a West Side Story-themed post this morning, Borjas argues that the failure of Puerto Rico’s per capita GDP to converge fully with the United States’, despite the fact that the flow of people and capital between the two countries is completely unrestricted, challenges the idea that a liberal migration policy can make people in the developing world better off.
There are also no restrictions that hamper the flow of capital between the two places. Yet despite all these unrestricted labor and capital flows, there is still a sizable income differential between the United States and Puerto Rico. By 2003, price-adjusted per-capita GDP in Puerto Rico was still only two-thirds that of the United States (according to the Penn World Table). Whatever happened to the factor price equalization theorem? If 60 years is not the “long run,” maybe Keynes was right after all.
The fact that migration entails very high costs if an important–and often ignored–part of the economics of migration. The fact that wages don’t equalize even when a “country” loses a large chunk of its population and there are unrestricted capital flows is both interesting and important. It should give some food for thought to those who view migration as a policy tool that can help alleviate many of the developing world’s problems.
I think this is misleading. Mississippi, the U.S.’s poorest state, has a per capita gross state product of about $28,000 per person, which is not quite 2/3 of the overall U.S. per capita GDP, $43,500. The relevant comparison would seem to be the per capita GDP of Puerto Rico next to that of other Caribbean islands. Puerto Rico’s PPP-adjusted GDP per capita for 2006 was about $19,000.
First, it should be pointed out that the U.S. Virgin Islands, whose inhabitants have been U.S. citizens since 1927, does even less well, at about $14,500 per capita. (That’s a 2004 number, so it’s probably a bit higher than that.) But this isn’t a very good comparison, either; the Virgin Islands has a population slightly bigger than Davenport, Iowa, the economy basically runs on tourism, and the people who own the resorts don’t live there. Cuba, with a population about three times Puerto Rico’s, comes in with a GDP per capita of around $3900, less than a quarter of Puerto Rico’s. But we already knew that communism is terrible. The best comparison is probably the nearby Dominican Republic, which is neither a socialist dystopia nor a U.S. territory. GDP per capita in the Dominican Republic is $8000, less than half Puerto Rico’s.
But who cares about Puerto Rico, the territorial jurisidiction? How are Puerto Ricans doing? According to Wikipedia’s entry on Puerto Ricans in the United States, slightly more Puerto Ricans now live Stateside than on the island, and, “in 2002, the average individual income for Stateside Puerto Ricans was $33,927.”
I find it pretty hard to see this as anything less than a slam dunk for the humanitarian benefit of the freedom of movement.
On a more technical note, why would one really expect wages to fully equalize in the absence of the idealized conditions of the economic model? First, there’s the obvious fact that an island in the Caribbean is “off the grid” of the main U.S. trade infrastructure. Second, as Borjas points out, there is a high cost to immigration. Those able to foot the bill are likely the most productive workers with the greatest capacity to save. And those with higher levels of skill are likely to see a bigger relative returns from participation with U.S. labor markets, reinforcing the incentive for the more skilled to move. If that’s true, and Puerto Rico has lost disproportionately many higher-skilled workers to the U.S., then the fact that GDP per capita is still so high compared to neighboring democracies is really a slam dunk.
To drive the point home, a fun quotation from the the CIA World Factbook entry on the Dominican Republic:
Haitian migrants cross the porous border into the Dominican Republic to find work; illegal migrants from the Dominican Republic cross the Mona Passage each year to Puerto Rico to find better work.
And Puerto Ricans who can afford it “like to be in America.”
[Lyrics to Bernstein and Sondheim's "America" here.]
Filed under: International Economics and Development; Trade and Immigration
Brink Lindsey on the Daily Show!
Cato vice president for research Brink Lindsey will appear tonight on The Daily Show with Jon Stewart to discuss his new book, The Age of Abundance: How Prosperity Transformed America’s Politics and Culture. Someone over at the Daily Show must have got wind of the fact that Brink’s book is a ripping good yarn that explains (finally!) how the separate reactions of Bible-thumpers and filthy hippies to the abundance of post-WWII America eventually blended to give us the mixed up, crazy, socially liberal, fiscally conservative world we live in today.
Watch Brink dazzle Jon tonight at 11 pm EST on Comedy Central.
Also, be sure to check out Brink’s refurbished website, wherein he dredges the depths of YouTube in search of the elusive essences of zeitgeists gone by.
Spain: Immigration Up, Unemployment Down
The recent economic success of Spain has not received the attention it deserves. One element in Spain’s resurgence, which I didn’t previously know about, is a relatively liberal immigration policy. According to BusinessWeek:
Over the past decade, the traditionally homogeneous country has become a sort of open-door laboratory on immigration. Spain has absorbed more than 3 million foreigners from places as diverse as Romania, Morocco, and South America. More than 11% of the country’s 44 million residents are now foreign-born, one of the highest proportions in Europe. With hundreds of thousands more arriving each year, Spain could soon reach the U.S. rate of 12.9%.
And it doesn’t seem to have hurt much. Spain is Europe’s best-performing major economy, with growth averaging 3.1% over the past five years. Since 2002, the country has created half the new jobs in the euro zone. Unemployment has plummeted from more than 20% in the 1990s to 8.6%, within shooting distance of the 7.2% euro zone average. The government attributes more than half this stellar performance to immigration. “We are very thankful for all these people who have come here to work with us,” says Javier Vallés, economic policy chief for Prime Minister José Luis Zapatero.
Apparently all those immigrants haven’t “taken all the jobs.” Ask your favorite Lou Dobbs-loving friend to explain to you how this is possible.
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