the collapse of Communism has taught political economists several things:
first, that economic policy is always nested within a set of institutions—that there are economic/financial, political/legal, and social/cultural issues, which all must be taken into account;
second, that leadership matters throughout the transition process;
and third, that historical contingency can either work in your favour or cut against the successful transition.
And I would add a fourth one: that political power corrupts even the most informed and idealistic of individuals, such that you cannot count on ideological alignment to win the day. You have instead a small window of opportunity in which ideological alignment can be utilized to establish institutions that make it difficult for even bad men to do much harm.
In other words, the goal of our political/legal institutions should not be to ensure that the best and the brightest can govern, but instead that if the worst get in power, they can do little damage. This is the idea of a “robust political economy”.
What Have We Learned from the Collapse of Communism? by Peter Boettke
13 Apr 2014 Leave a comment
in Austrian economics, constitutional political economy, development economics, entrepreneurship, law and economics, liberalism, Public Choice Tags: collapse of communism
Hayek’s spotty record as a prophet in the Road to Serfdom – part 2: what about the post-colonial Third World?
13 Apr 2014 Leave a comment
in constitutional political economy, development economics, economics, F.A. Hayek, politics, Public Choice Tags: Daron Acemoglu, Hayek, Road to Serfdom
Gordon Tullock used Sweden to argue that the problem with The Road to Serfdom was:
“that it offered predictions which turned out to be false. The steady advance of government in places such as Sweden did not lead to any loss of non-economic freedoms.”
But was socialism good for democratic consolidations in the post-colonial third world? Was that not a better hunting ground for Hayek’s fears?
The people and parties, very often with a socialist hew, who won the election after the colonial government left town are not always all that keen to give up the reins of power.
Remember Huntington’s Two Turnover Test: when a nation moves from an emergent to a stable democracy, it must undergo two democratic and peaceful turnovers of ruling parties.
After an emerging democracy’s first turnover, the new administration often reverts to authoritarian rule. Russia under Yeltsin and Putin are examples.
Would Singapore be an example of central planning and state ownership leading to serfdom and a one-party state?
The state controls and owns firms that comprise at least 60% of the GDP through government entities. The vast majority (more than 80%) of Singaporeans live in public housing;
Although initially styling itself an anti-Communist and Social Democratic, the People Action Party (PAP) was expelled from the Socialist International in 1976 because it suppressed dissent and jailed opposition leaders. Hayek would be vindicated?!
The Index of Economic Freedom says that Singapore is a nominally democratic state ruled by the PAP since the country became independent in 1965, and that certain rights, such as freedom of assembly and freedom of speech, remain restricted
The Freedom House 2010 country report notes that Singapore is not an electoral democracy despite elections free of irregularities and mentions that all domestic newspapers, radio stations, and television channels are owned by government-linked companies, which limits free speech. The PAP has used the Government’s extensive powers to place formidable obstacles in the path of political opponents.
Daron Acemoglu has written on the role of institutions on post-colonial development in his why nations fail research agenda.
- In Africa, Central America, the Caribbean and South Asia, European powers set up extractive states. These institutions did not introduce much protection for private property nor did they provide checks and balances against government expropriation. The explicit goal of the Europeans, in one form or another, was the extraction of resources from these colonies.
- This colonization strategy contrasts with the institutions that the Europeans set up in colonies in which they settled in large numbers, e.g., the United States, Canada, Australia and New Zealand. In these colonies, life was modelled after that in the home country; the emphasis was on the enforcement of property rights for a broad cross-section of society, especially smallholders, merchants and entrepreneurs.
The same British colonists established different institutions in very different parts of the world:
- If Europeans settled in a colony, institutions were developed for their own future benefits.
- If Europeans did not settle in a colony, they set up a highly centralized state apparatus and other similar institutions to oppress the native population and to facilitate the extraction of resources in the short run
Acemoglu has written on Singapore as a stable non-democracy that can persist without significant repression.
Singapore was able through industrialization in the post-colonial period to ease social tensions and thus eliminate the need for democratic consolidation and also the need for repression. China’s ruling elite has the same current goal.
Why has Singapore not democratized? Acemoglu suggests is it is because Singapore is a very equal society. There is no traditional wealthy landed elite and the economy relies on external capital and businesses.
Most people appear to be relatively happy with the status-quo, at least not so unhappy that they want to engage in serious, and potentially costly, collective action to induce a major change in political institutions.
All and all, political economy has come on in leaps and bounds since 1944. Hayek should be judged against the other predictions of his times. Few socialist countries in the post-colonial Third World stayed democratic for long.
The rise of the Swedish welfare state, Swedosclerosis and Director’s Law
08 Apr 2014 3 Comments
in applied welfare economics, economic growth, macroeconomics, Public Choice Tags: labour supply, Sweden, taxes, welfare state
Sweden is a common example of a generous welfare state that is compatible with a prosperous society. One interpretation of the UN Development Index is you improve your national ranking by becoming more like Sweden.
Assar Lindbeck has shown time and again in the Journal of Economic Literature and elsewhere that Sweden became a rich country before its highly generous welfare-state arrangements were created
Sweden moved toward a welfare state in the 1960s, when government spending was about equal to that in the United States – less that 30% of GDP.
Sweden could afford this at the end of the era that Lindbeck labelled ‘the period of decentralization and small government’. Sweden was one of the fastest growing countries in the world between 1870 and 1960.
Swedes had the third-highest OECD per capita income, almost equal to the USA in the late 1960s, but higher levels of income inequality than the USA.
By the late 1980s, Swedish government spending had grown from 30% of gross domestic product to more than 60% of GDP. Swedish marginal income tax rates hit 65-75% for most full-time employees as compared to about 40% in 1960.
Swedish economists named the subsequent economic stagnation Swedosclerosis:
- Economic growth slowed to a crawl in the 1970s and 1980s.
- Sweden dropped from near the top spot in the OECD rankings to 18th by 1998 – a drop from 120% to 90% of the OECD average inside three decades.
- 65% of the electorate receive (nearly) all their income from the public sector—either as employees of government agencies (excluding government corporations and public utilities) or by living off transfer payments.
- No net private sector job creation since the 1950s, by some estimates!
In 1997, Lindbeck suggested that the Swedish Experiment was unravelling.
Sweden is a classic example of Director’s Law of Public Expenditure. Once a country becomes rich because of capitalism, politicians look for ways to redistribute more of this new found wealth.
Studies starting from Sam Peltzman (1980) showed that government grew in line with the growth in the size and homogeneity of the middle class that became organised and politically articulate enough to implement a version of Director’s law. Director’s law augmented by Gary Becker’s 1983 model of competition among pressure groups for political influence explain much of modern public policy.
Government spending grew in many countries in the mid-20th century because of demographic shifts, more efficient taxes, more efficient spending, shifts in the political power from those taxed to those subsidised, shifts in political power among taxed groups, and shifts in political power among subsidised groups.
The Swedish economic reforms from after 1990 economic crisis and depression are an example of a political system converging onto more efficient modes of income redistribution as the deadweight losses of taxes on working and investing and subsidies for not working both grew. Improvements in the efficiency of taxes or spending reduce political pressure to suppress the growth of the welfare state and thus increase or prevent cuts to both total tax revenue and spending.
After the rise of Swedosclerosis, the taxed, regulated and subsidised groups had an increased incentive to converge on new lower cost modes of redistribution. More efficient taxes, more efficient spending, more efficient regulation and a more efficient state sector reduced the burden of taxes on the taxed groups. Most subsidised groups benefited as well because their needs were met in ways that provoked less political opposition.
Reforms ensued led by parties on the Left and Right, with some members of existing political groupings benefiting from joining new political coalitions.
The Nordic median voter was alive to the power of incentives and to not killing the goose that laid the golden egg. The deadweight losses of taxes, transfers and regulation limit inefficient policies and the sustainability of redistribution.
For example, while tax rates are high in Sweden and the rest of Scandinavia, hours worked in Scandinavia are significantly higher than in Continental Europe.
Richard Rogerson found in Taxation and market work: is Scandinavia an outlier? that how the government spends tax revenues imply different rates of labour supply with regard to tax rate increases.
Rogerson considered that differences in the composition of government spending can potentially account for the high rate of labour supply in Sweden and elsewhere in Scandinavia. Specifically, examining the conditions on which how tax revenue is returned to Swedes as income transfers or other conditional payments is central to understanding the labour supply effects of taxes:
- If higher taxes fund disability payments which may only be received when not in work, the effect on hours worked is greater relative to a lump-sum transfer with no conditions; and
- If higher taxes subsidise day care for individuals who work, then the effect on hours of work will be less than under the lump-sum transfer with no conditions.
A much higher rate of government employment and greater expenditures on child and elderly care explain the high rates of Swedish labour supply.
Swedes are taxed heavily, but key parts of this tax revenue are then given back to them conditionally if they keep working. Policies that significantly cut the total wealth available for redistribution by Swedish governments were avoided relative to the germane counter-factual, which are other even costlier modes of income redistribution.
The public choice theory of LBJ
08 Apr 2014 Leave a comment
in constitutional political economy, Public Choice Tags: Lyndon Johnson
I am about 3000 pages into Robert Caro’s biography of Lyndon Johnson. Caro, now in his 70s, has spent thirty-eight years writing the biography of one man. Volume 4 published in 2012 finished in early 1964. The best biography about; Caro has you looking over the shoulder of LBJ and into his mind and into the minds of everyone around him.
LBJ was an astute man who could look deep into other men’s hearts to see exactly where he could find a weakness or a common ground to exploit to change their minds.
Johnson was famous for persuading the strongest of men to do something they absolutely did not want to do. It became known as the Johnson treatment.
The Southern Democrats thought JFK was a cream puff when it came to passing civil rights bills. They had no difficulty killing his bills in committee.
The Southern Democrats were full of despair the moment LBJ became president.
They knew that Johnson would find a way to pass a major civil rights bill through congress and despite any senate filibusters. Such was Johnson’s reputation as a legislator and a tactician when he was senate majority leader in the 1950s.
LBJ was behind the first civil rights bill of the 20th century. This was the 1957 civil rights bill.
LBJ’s astute understanding of public choice processes was central to how he crafted the 1957 bill.
Johnson could see that the Southern Democrats would not live with racial integration at the social level.
But he knew from his dealings with the Southern Democrats that in their hearts that they could not ultimately deny that people have a right to vote.
LBJ knew that if Black Americans in the Southern States could secure the right to vote, all the other rights they sought would soon follow and would be protected by law. He was right.
The 1957 and, particular, the 1964 civil rights laws overthrew racial segregation because more Black Americans could vote in the Southern States in state and local elections. Politicians soon courted those votes and there was a political realignment and a social revolution. The lawlessness that back-up most of segregation quickly came to an end because its victims could now vote. Richard Epstein explains:
With Jim Crow in the South this set of insidious practices was not accomplished by explicit laws mandating racial segregation.
Rather, those inflexible social and economic patterns were supported by four interlocking strategies.
First, illicit control of the electoral franchise, which in turn translated into control of the police and the courts.
Second, corrupt use over the infrastructure translated into an ability to deny water and electrical hook-ups to firms that did not toe the segregationist line.
Third, private violence to which southern police forces turned a blind eye when they did not actively support it.
Fourth, social ostracism to those who spoke up against the system. Sensible people either left, stayed away or remained silent.
… At its best, and in its original form, the Civil Rights Act of 1964 sought to break the control of the local segregationist forces over their political institutions. First on the list was Title I, which attacked exclusion from voting.
Is the Blogosphere an Infotopia or an Echo Chamber – the Daily Me?
07 Apr 2014 Leave a comment
in constitutional political economy, industrial organisation, politics - USA, Public Choice Tags: Cass Sunstein, Karl Popper, Milton Friedman
Cass Sunstein made some astute observations in Republic.com 2.0 about how the blogosphere forms into information cocoons and echo chambers. People can avoid the news and opinions they don’t want to hear.
This is not all that surprising. Many do not read the newspaper, or read those newspapers that fuel their initial beliefs. London is famous for its partisan newspapers each pandering to their own slice of the political spectrum.
The standard J.S. Mill view of deliberation is that group discussion is likely to lead to better outcomes, if only because competing views are stated and exchanged.
Sunstein has argued that there are limitless news and information options and, more significantly, there are limitless options for avoiding what you do not want to hear:
- Those in search of affirmation will find it in abundance on the Internet in those newspapers, blogs, podcasts and other media that reinforce their views.
- People can filter out opposing or alternative viewpoints to create a "Daily Me."
- The sense of personal empowerment that consumers gain from filtering out news to create their Daily Me creates an echo chamber effect and accelerates political polarisation.
A common risk of debate is group polarisation. Members of the deliberating group move toward a more extreme position relative to their initial tendencies!
How many blogs are populated by those that denounce those who disagree? This is the role of the mind guard in group-think.
Debate is over-rated as compared to brute experience. Milton Friedman said this in his Nobel price lecture:
Government policy about inflation and unemployment has been at the centre of political controversy. Ideological war has raged over these matters.
Yet the drastic change that has occurred in economic theory has not been a result of ideological warfare.
It has not resulted from divergent political beliefs or aims.
It has responded almost entirely to the force of events: brute experience proved far more potent than the strongest of political or ideological preferences
The market process succeeds because it relies on a bare minimum of knowledge and hardly any deliberation but a lot of learning from experience.
A purpose of voting through secret ballots is both to bring the debate to a close and to clip the wings of those that shout the loudest and longest.
Sunstein in Infotopia wrote about how people use the Internet to spend too much time talking to those that agree with them and not enough time looking to be challenged:
In an age of information overload, it is easy to fall back on our own prejudices and insulate ourselves with comforting opinions that reaffirm our core beliefs. Crowds quickly become mobs.
The justification for the Iraq war, the collapse of Enron, the explosion of the space shuttle Columbia–all of these resulted from decisions made by leaders and groups trapped in "information cocoons," shielded from information at odds with their preconceptions. How can leaders and ordinary people challenge insular decision making and gain access to the sum of human knowledge?
Conspiracy theories had enough momentum of their own before the information cocoons and echo chambers of the blogosphere gained ground.
Must everything be the result of a grand plan? As Karl Popper explains:
…a theory which is widely held but which assumes what I consider the very opposite of the true aim of the social sciences; I call it the "conspiracy theory of society."
It is the view that an explanation of a social phenomenon consists in the discovery of the men or groups who are interested in the occurrence of this phenomenon (sometimes it is a hidden interest which has first to be revealed), and who have planned and conspired to bring it about.
This view of the aims of the social sciences arises, of course, from the mistaken theory that, whatever happens in society – especially happenings such as war, unemployment, poverty, shortages, which people as a rule dislike – is the result of direct design by some powerful individuals and groups.
Cass Sunstein in another book defines a conspiracy theory as:
An effort to explain some event or practice by reference to the machinations of powerful people, who have also managed to conceal their role.
He goes on to argue that millions hold conspiracy theories – that powerful people work together to withhold the truth about some important practice or terrible event.
Conspiracy theories attribute extraordinary powers to political leaders and bureaucracies to plan, to control others, and to maintain secrets. Conspiracy theories overestimate the competence and discretion of these political leaders and bureaucracies, who are assumed to be able to make and carry out sophisticated secret plans, despite ample evidence that most government actions do not remain secret for long.
Conspiracy theories also assume that these nefarious secret plans are easily detected by members of the public without the need for special access to the key information or any investigative resources.
Sunstein also argued that a distinctive feature of conspiracy theories is their self-sealing quality. Conspiracy theorists are not persuaded by an attempt to dispel their theories and look at these attempts as further proof of the conspiracy.
Karl Popper argued that conspiracy theories overlook the pervasive unintended consequences of political and social action; they assume that all consequences must have been intended by someone.
Most people lack direct or personal information about the explanations for terrible events, and they are often tempted to attribute such events to some nefarious actor as a way of coping with an uncertain world. More than a few blogs help them round-up the usual suspects.
How do political parties screen their candidates to ensure they are made of the right stuff – a comparative institutional analysis?
07 Apr 2014 1 Comment
in personnel economics, Public Choice
People do complain about the narrow backgrounds of modern politicians: first a university politician, then MP’s staffer or union organiser, and then candidate perhaps first for a safe seat held by the other party. This is yet another test drive.
The real question is is this new screening process for parliamentary candidates the most efficient that is available?
With no working class left to speak of, do you know of any alternatives that ensure that endorsed candidates are true and loyal members of say the Labor Party?
In the past, the screening process was through occupation and club, union and working class memberships, and then a long apprenticeship on the backbenches.
People are unwilling to wait now on the backbenches because incomes are higher and alternative career opportunities are greater. For smart people these days, there are plenty more opportunities that pay better and do not have crazy working hours.
The purpose of political party internal labour markets such as university student politician, union organiser, MP’s staffer and then candidate is to screen for quality and loyalty and to groom for success. By socialising together, potential candidates can mutually monitor each other for true commitment to the party’s values and aims.
The process in the past and now is the same. Form a small club where members can then monitor each other daily for the qualities they seek.
Do you know of an alternative mechanism to the use of internal party career paths for eliciting the required knowledge?
Congestion pricing – Swedish style
06 Apr 2014 Leave a comment
in politics, Public Choice, transport economics Tags: congestion charges
Sweden had a novel approach to introducing a road congestion charge. The congestion toll is put in place in 2006 for six months and then was lifted for another seven months.
A local referendum was then held on whether to bring the road tolls back or stay with the old traffic congestion. Road traffic passing in and out of the cordon in Stockholm Municipality reduced by between 20-25% during the period of the trial.
Neat.
The Economics of Foreign & Military Intervention with Chris Coyne
04 Apr 2014 Leave a comment
in applied welfare economics, constitutional political economy, development economics, law and economics, liberalism, Public Choice
The Household Demand for Low Carbon Public Policies
04 Apr 2014 Leave a comment
in applied welfare economics, environmental economics, environmentalism, politics - USA, Public Choice Tags: Matthew Kahn
Natural experiments and how South Korea became rich – updated again
04 Apr 2014 Leave a comment
in development economics, Gordon Tullock, Public Choice Tags: industry policy, state-led development
In the early 1960s, Joan Robinson argued with a colleague about the great economic success of Korea. It was a confusing debate until a listener realised Robinson was talking about North Korea and the other about the South. Soon after this discussion, there was a military coup in South Korea.
Gordon Tullock is an interesting writer on South Korea and the consequence of this military coup saying that:
- Syngman Rhee was a socialist who knew nothing of capitalism when he took over after the Second World War.
- To make his country look capitalist to the Americans, Rhee gave many previously Japanese owned industries to his friends as monopolies.
When General Park overthrew Syngman Rhee in 1961, he knew no economics, but Park knew the bureaucracy was filled with Rhee’s cronies, so he fired them all. Before a new lot of cronies got properly in place, the economy boomed.
Tullock considered that South Korea became a prosperous, open economy as a by-product of this political purge. At the time of the 1961 coup, Tullock specialised in China and Korea. He was formerly a diplomat to both countries in the late 1940s and early 1950s. Tullock published in top economic journals on China and Korea in the 1950s despite having completed only one course in economics. Tullock is one of the last great polymaths.
Mancur Olson argued that the accumulation of interest groups in even a previously prosperous society may lead to its economic stagnation because of this institutional sclerosis. These special interests build their power over time and start to slow down a society’s capacity to adopt new technologies and to reallocate resources in response to changing conditions, and thereby reduce the rate of economic growth.
President Park swept away these interest groups after he came to power in Korea. The rest is history. When the old political networks are disrupted, the lack of political connections forces the remain entrepreneurs to focus on productive market activities. The defeat of Germany and Japan in the war also led to the overthrow of special-interest groups that impeded growth.
A realignment of patronage is common after leadership successions in autocratic societies. These routine reallocations of patronage – Perestroika is an example – can get out of hand and destabilise the entire pre-existing rent-seeking society. This happened to the old order when President Park cleaned house in South Korea.
For a discussion of Korean industry policy, see this paper by an old class mate of mine, Heather Smith. A more general survey of the myths of state-led development in East Asia was written by Ben Powell:
Although some state industrial planning did exist in East Asian countries, when these countries were growing, they were some of the most free market in the world.
Hong Kong and Singapore are consistently ranked the top two freest countries in the world, and in 1970, when Japan and Taiwan were growing quickly, they were ranked seventh and sixteenth. Even Korea ranked in the top 20 per cent.
Although state development planning did exist in these countries, overall broader measures of the market’s relative sphere of influence in these countries show that they were far more market oriented than slower growing areas of the world.
Latin America is a good example of stagnation after an extended period of prosperity because of the accumulation of special interests and barriers to efficient production. Latin America has many more barriers to competition than the successful East Asian countries. Why are there no Latin Tigers apart from Chile?
External threats, the dynamics of internal politics, including dramatic break-ups of established interest groups, low taxes and competition in export markets were the enablers of market-led rapid development in Japan, Singapore, South Korea, Hong Kong and Taiwan. Many other under-developed nations did not grow because institutional sclerosis locked them into yesterday’s technologies and industries.
The usual suspects for natural experiments are countries with the same cultures, peoples and similar resources that are suddenly partitioned for arbitrary reasons.
These would be East and West Germany, North and South Korea and Taiwan and China. In each case, the socialist solution was left for dead by capitalism.
Taiwan and Cuba were threatened with invasion and trade sanctions by large bellicose superpower neighbours. Cuba is a dump. Taiwan changed from a rural backwater to a rich country.
I am not too sure how Mises and other Austrian economists would view the use of these natural experiments. The view of Mises on theory and history is that the correctness of a theory can be ascertained without the aid of experience. Natural experiments make no sense without a correct theory to tell us what and how to measure and what to make of our discoveries. Without a theory, we neither know where to look nor what to look for.
p.s. there was some excitement over at Reddit about the role of Chaebol. These are Korean conglomerates. The term was first used in 1984, long after the 1961 coup and after President Park was assassinated in 1979.
The Chaebol invested heavily in export-oriented manufacturing. As such, they would have zero market power and would have been subject to strong global market disciplines on both their costs and any lack of innovation. Their relative domestic size does not matter much if their markets are global.
Post-war trade liberalisation and tariff cuts gave Korean and the other East Asian Tigers much greater access to major export markets. This allowed export production to expand without limit.
Institutional reforms and imported new technologies increased employment and incomes through this explosion in exporting. This allowed the losers from the economic changes to be compensated directly or with new opportunities in the export sectors (Parente and Prescott 1999, 2005; Olson 1982, 1984; Acemoglu and Robinson 2005).
The Bootlegger and Baptists theory of environmental regulation
04 Apr 2014 Leave a comment
in law and economics, Public Choice Tags: interest group politics
Environmentalists accept the views of the majority of scientists when its suits their agenda. In other cases, the precautionary principle is used to suspend judgment, reject science such as on GMOs and demand ever more evidence.
A good discussion of environmental interest group coalitions is Bootleggers, Baptists, and the Global Warming Battle by Bruce Yandle and Stuart Buck
- The theory’s name is meant to evoke 19th century laws banning alcohol sales on Sunday.
- Baptists supported Sunday closing laws for moral and religious reasons, while bootleggers were eager to stifle their legal competition, so they can sell more of their moonshine.
- Politicians can pose as acting in the interests of public morality, even while taking political support and contributions from bootleggers.
Yandle and Buck argue that during the battle over the Kyoto Protocol, the "Baptist" environmental groups provided moral support and political cover while "bootlegger" corporations and the EU and developing nations worked in the background to seek economic advantages over their rivals about who has to cut their carbon emissions most and least:
National governments are strategically positioning themselves to benefit from the negotiations while operating under cover of the international environmental groups sounding the alarm about global warming.
When we survey the participants, we find that some countries, such as the United Kingdom, are positioned to exploit carbon reductions they have made in the past by raising the cost to economies that still rely heavily on coal.
Other countries, including developing countries, are allowed higher emissions. These countries see opportunities for payments from the developed countries for reducing carbon emissions or for offsetting actions such as planting trees.
In addition, within countries, some industries are favoured by the rules and, within industries, some firms will also be favoured.
Meanwhile, environmentalists are running interference and providing cover.
The same goes for the war on drugs. The last thing that drug gangs want is the drugs they are black-marketing to be made legal. The prohibition era in the USA had the same political dynamics.
Then there is BAPTISTS? THE POLITICAL ECONOMY OF POLITICAL ENVIRONMENTAL INTEREST GROUPS By Todd J. Zywicki, 53 Case Western Reserve Law Review 315 (2002-2003). Zywicki specified three testable implications on the public interest model of the activities of environmental interest groups:
(1) A desire to base policy on the best-available science;
(2) A willingness to engage in deliberation and compromise to balance environmental protection against other compelling social and economic interests; and,
(3) A willingness to consider alternative regulatory strategies that can deliver environmental protection at a lower-cost than command-and-control regulation.
On all three counts, Zywicki found that the public-interest explanation for the activities of environmental interest groups fails to describe their behaviour. Instead, the evidence on each of these three tests is consistent with a self-interested model of the behaviour of environmental groups.
Zywicki concluded that environmental regulation can be best understood as the product of an unlikely alliance of "Baptists and Bootleggers" – public-interested environmental activist groups and private-interested firms and industries seeking to use regulation for commercial advantage, private gain and expressive politics.
Bootleggers and Baptists highlights the role of trade-offs and comparative advantage in the competition among pressure groups for political influence.
Both Gary Becker (1984) and Sam Peltzman (1980) predicted that interest group coalitions would be sub-groups of business, unions, workers, consumers and expressive voters. These coalitions form and realign as demand and cost conditions evolve.
Odd political alliances always arise. The coalition of the Christian Right and radical feminists on the Left joining to fight to censor pornography is a classic. They each wanted to ban the same thing for the exact opposite reasons.
Let the climate science be settled! Only the economics matter
03 Apr 2014 2 Comments
in applied welfare economics, development economics, environmental economics, politics, Public Choice Tags: global warming
The great tactical victory of environmentalists is keeping the debate on the science going because even if the science is right, the economic costs are small.
Richard Tol on the scientific consensus about human-caused global warming skepticalscience.com/graphics.php?g… http://t.co/OpdRtsY1tx—
John Cook (@skepticscience) March 24, 2015
Let the climate science be settled. How much will global warming cost is the correct question for policy debate.
Global warming, although real, is not apt to be severe. It will lower the level of GDP by maybe 2%. The loss of one year’s income growth! Courtesy of David Friedman’s reading of the report, this is what the IPCC said this week:
With these recognized limitations, the incomplete estimates of global annual economic losses for additional temperature increases of ~2°C are between 0.2 and 2.0% of income (±1 standard deviation around the mean)
Many of the consequences of global warming will be beneficial – warmer in some places, colder in others; wetter in some places and drier in others. The sea level rises will mean local problems, not a planetary crisis.
New Zealand will have a more reliable power supply because of increased winter rainfall as well as warmer winters. Most of New Zealand’s power supply is from lakes that rely on the Spring melting of the winter snow rather than winter rainfall.
The chances of India, China and the rest of the Third World agreeing to forego or even slow their economic development to fight global warming is zero even before you consider the international collective action, verification and free rider problems.
Climate changes have a greater impact in the most under-developed countries that are yet to embrace capitalism. Agriculture provides the livelihoods of 30 per cent or more of their populations, many of whom still practice subsistence agriculture.
Yet the trend in developing countries is to be much less dependent on agriculture as a source of employment and family incomes. If per capita income in the poor countries grows in the next forty years as rapidly as it has in the forty years just past, their vulnerability to climate change should diminish.
Adaptation and richer is safer are the only games in town for both the developed and the developing worlds.
The only case for even a token carbon tax is to avoid green tariffs in the EU and USA on exports. We may as well collect the revenue for ourselves rather than let the EU and USA pocket it.
p.s The report of the IPCC yesterday was a one-day media wonder in the country where I live. I could not find a single story today in the Dominion Post, which is the paper for the political capital for New Zealand.
One of the greatest moments in TV – The Wire – Major Colvins speech: A paper bag for drugs
02 Apr 2014 Leave a comment
the best single case made for ending the war on drugs from the greatest TV show of them all. A bit over 3 minutes long.
Years ago, I remember reading a short news note about a Rand study of occupational hazards facing drug gangs in Washington, DC in the 1970s.
In a typical career of a few years, the annual risks were these:
- The chances of being caught by the police was 22% – usually 18 months in prison;
- the chances of serious injury 7%;
- The chances of being murdered by a business associate or market rival was 1.4%;
- the pay for street dealers is rather poor and not much better than their next best job opening.
Gave up on the war on drugs right there and then. Death and injury are the main occupational hazards of a drug dealer.
Murder was the leading cause of death of young black Americans.
Another paper pointed out that one reason the death penalty did no work so well was because people spent so long on death row due to appeals that taking them out of the drug trade increased their life expectancy.
The execution rate on death row is about twice the death rate from accidents and violence for all American men, and only slightly greater than the rate of accidental and violent death for all black males aged 15 to 34.
Bad prison conditions—well known, pervasive and immediate—have a more significant deterrent role against crime. Death row is a rather safe place to be?
The incentives to research the economics of global warming – the minimum wage edition
02 Apr 2014 Leave a comment
in applied welfare economics, economics of natural disasters, environmental economics, personnel economics, Public Choice Tags: David Card, global warming, IPCC, Richard Tol
David Card’s research suggested that small rises in the minimum wage do not reduce employment by much.
He said that he did not do much further research in the area because people were so personally unpleasant for him:
I haven’t really done much since the mid-’90s on this topic. There are a number of reasons for that that we can go into.
I think my research is mischaracterized both by people who propose raising the minimum wage and by people who are opposed to it.
… it cost me a lot of friends. People that I had known for many years, for instance, some of the ones I met at my first job at the University of Chicago, became very angry or disappointed.
They thought that in publishing our work we were being traitors to the cause of economics as a whole.
I also thought it was a good idea to move on and let others pursue the work in this area. You don’t want to get stuck in a position where you’re essentially defending your old research.
You need a thick hide and academic tenure to do research into the minimum wage these days. There are plenty of research topics that do not cost you friends.
Richard Tol has pointed out that maybe 20 or so academic economists work on climate change on a regular basis. Many of the key survey papers are written by the same few people, including him.
The reasons were that inter-disciplinary works is looked down on in the economics profession and government agencies do not like what economic research says about the costs and benefits of global warming so they pre-emptively do not fund it.
Richard Tol quit as the lead author of an economics chapter of the most recent of the IPCC report after a dispute about research techniques. Tol had been invited to help in the drafting in a team of 70 and was also the coordinating lead author of a sub-chapter about economics.
When he dissented about the quality and alarmist nature of the economics of the IPCC reports, they smeared him so badly as a fringe figure that you wonder why they hired him in the first place.
The co-chair of the IPCC working group that produced the report, said Richard Tol was outside the mainstream scientific community and was upset because his research had not been better represented in the summary:
“When the IPCC does a report, what you get is the community’s position. Richard Tol is a wonderful scientist but he’s not at the centre of the thinking. He’s kind of out on the fringe,” Professor Field said before the report’s release.
You cannot, on the one hand, say that you have hired the best and the brightest to work on “the greatest moral, economic and social challenge of our time” and then say that a dissenting member is a fringe figure. If that was true, rather than a smear, he would never have been hired in the first instance.
Nor would Richard Tol have been asked to write a 2009 survey of the economics of climate change for the leading surveys journal in all of economics – The Journal of Economic Perspectives. This fringe figure said in that survey in 2009 that:
Only 14 estimates of the total damage cost of climate change have been published, a research effort that is in sharp contrast to the urgency of the public debate and the proposed expenditure on greenhouse gas emission reduction.
These estimates show that climate change initially improves economic welfare. However, these benefits are sunk.
Impacts would be predominantly negative later in the century.
Global average impacts would be comparable to the welfare loss of a few percent of income, but substantially higher in poor countries.
Still, the impact of climate change over a century is comparable to economic growth over a few years.
The IPCC hired Tol because their economics of global warming chapters would have lacked credibility if he had not been on the team. LBJ said that it is better to have someone inside the tent pissing out than outside pissing in.
Richard Tol even has an academic stalker:
Bob Ward, has reached a new level of trolling. He seems to have taking it on himself to write to every editor of every journal I have ever published in, complaining about imaginary errors even if I had previously explained to him that these alleged mistakes in fact reflect his misunderstanding and lack of education. Unfortunately, academic duty implies that every accusation is followed by an audit. Sometimes an error is found, although rarely by Mr Ward.
Richard Tol blogs at http://richardtol.blogspot.co.nz/
Utopia, you are standing in it! 
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