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Further proof of the Only Nixon could go to China (mandatory sentencing reform) Theorem

Right-wing politicians can sometimes implement policies that left-wing politicians cannot, and vice versa under Cowen and Sutter’s only Nixon can go to China theorem:

The point is that politicians with a previous record of opposing a policy shift are often the only ones who can bring it about, because their policy support provides a credible signal of policy quality to the relevant interest groups who would otherwise oppose the policy.

Contemporary wisdom has it that only Nixon could go to China and make a deal because his decades of fierce anti-Communist stance gave him credibility with fellow conservatives and shielded him from any domestic attack.

Cowen and Sutter say that a policy could depend on information – on which policies or values everyone could potentially agree, or on which agreement is impossible.

Politicians, who value both re-election and policy outcomes, realise the nature of the issue better through inside and secret information and superior analytical skills (or access to those skills), whereas voters do not have access to such information base or skills.

Only a right-wing president can credibly signal the desirability of a left-wing course of action. A left-wing president’s rapprochement with China would be dismissed as a dovish sell-out. Nixon must be going to China because that is the best possible policy choice and he would never do so otherwise giving his previous record of firm anti-Communism.

Left-wing parties adopt right-wing policies because they are good ideas that will get them re-elected. Bob Hawke, Tony Blair, and Bill Clinton were centre-left economic reformers who can credibly signal the desirability of their economic reforms because of the brand name capital they invested in distributional concerns and protecting the poor.

Only right-wing Republicans such senators Rand Paul and Ted Cruz can introduce mandatory sentencing reform without been accused of being soft on crime. They must be doing it because it is right and just.

The same goes for marijuana decriminalisation, the decriminalisation of medical marijuana and right to die bills in the New Zealand Parliament.

Only a right-wing party, a party perceived as extreme right wing, and tough on crime such as the ACT party can introduce such bills and win a majority.

Although the ACT party is proudly and consistently socially liberal, the voting public does not perceive this and only sees it’s tough on crime image.

Taking advantage of that misperception will allow many National party MPs to vote for such bills introduced by the ACT party MP, David Seymour, without looking like a selling out to the Green Left who just want to smoke dope under the pretext of medical marijuana. Only ACT can win enough votes in the New Zealand Parliament to pass bills to decriminalised medical marijuana and allow the right to die.

George Stigler vindicated: Learning the Wealth of Nations

Tyler Cowen has drawn attention to a 2011 paper on policy learning in the 1970s and 80s by Francisco J. Buera, Alexander Monge-Narajo, and Giorgio E. Primiceri was published in Econometrica in 2011. Their paper found that:

1. Policymakers have priors about how good the market economy is, and they revise those views — and thus revise policy — as they observe their own growth results and those of their neighbors.

2. A simple learning model predicts about 97% of the policy choices observed in the data.  The model accounts for more than 77% of the observed policy switches over a three-year time window.

3. Evolving beliefs — and not just the fixed demographic characteristics of countries — are critical for understanding policy decisions.

4. It was probably the growth collapse of the late 1970s for interventionist countries which led to a greater reliance on markets.

5. Adjustment toward better-performing policies is often quite slow.  In part this is because policymakers attribute the superior performance of other countries to heterogeneity rather than policy per se.

This record of politicians learning from failure and success at home and abroad is a vindication of George Stigler’s views of the relative unimportance of economists in influencing public policy.

There was no neoliberal conspiracy that captured the hearts and minds of politicians through mass hypnosis in the 1970s and 1980s as both the Left over Left and the Twitter Left like to suggest

The policies of Friedman had to wait, as George Stigler predicted, for a market to develop among interest groups and the voting public. Once that market developed, Milton Friedman, FA Hayek and others looked like leaders of an opinion.

A few years earlier, Friedman and Hayek were just angry men in the wilderness.

The reason for this sudden change in their public profile and purported influence on the shape the course of public policy in th 1970s and 1980s onwards was political parties were yet to conclude that the existing policy regime had failed irretrievably, and that the successes of neighbours on economic reform might be worth imitating locally.

Once politicians, the voting public and interest groups concluded that new solutions are needed, just as Stigler predicted, the ideas for reform been around for a long time came to the front.

via http://marginalrevolution.com/marginalrevolution/2014/11/learning-the-wealth-of-nations.html

Competition as a force for media accuracy or infotainment

Limiting the number of TV stations has unusual effects on media slant and muckraking.

Tyler Cowen argues that competition by itself is not a powerful force for media accuracy.

In the traditional conception of the demand for news, audiences read, watch, and listen to the news in order to get information. The quality of news is its accuracy.

But when there are many media outlets, competition results in a common slanting of news towards reader biases in the audience niche each network are serving. The market is very good are serving up what the customer wants.

Competition forces news outlets to cater to their customer’s niche preferences.

  • Realised profit is the criterion by which the market process selects survivors: those who realise positive profits survive; those who suffer losses disappear.
  • Positive profits accrue to those news outlets who are better than their competitors. These lesser rivals will exhaust their retained earnings and fail to attract further new investor support.

On topics where reader beliefs diverge on politically divisive issues, media outlets profit from segmenting the market and slanting reports to the biases of their niche audiences.

There is less bland truth-telling and more of the polemics that each market niche wants.

This means that left-wing and right-wing media outlets will hound the political enemies of their readers to cater to the preferences of their audience niche.

The clearest illustration of infotainment is the Lewinsky affair:

  • The left wing press presented information designed to excuse Clinton’s sins; and
  • The right wing press dug out details pointing to his culpability.

When there are only a few media outlets, the networks instead go for the median viewer/reader and offer more sedate and less scandal driven coverage.

More media competition increases the chances of the muckraking that brings down ministers and governments.

Why I am not reviewing Thomas Piketty’s Capital in the Twenty-First Century – updated again

It’s 700 pages long and goes on about Marx. Some people were watching the other channel when the Berlin Wall fell.

thomas-piketty-economist-will-hutton

My 1 o’clock lecture at ANU in 1990 was next to a room rented out ironically from 12 to 1 to the Campus Trots and then to the Campus Christians for an hour of prayer to another saviour.

The Twitter summary of Piketty is this:

Karl Marx wasn’t wrong, just early. Pretty much. Sorry, capitalism. #inequalityforevah

The only Marxist I bother with is Jon Elster. He is a leading proponent of Analytical Marxism and one of the last polymaths. Brian Barry once wrote that to review one of Elster’s books one:

would either have to have taken off several years to master the many fields which fall within Elster’s purview or would be a consortium of at least twenty carefully-chosen experts.

All of Elster’s books and writings are worth reading, including

  • Ulysses and the Sirens (1979);
  • Sour Grapes: Studies in the Subversion of Rationality (1983);
  • Making Sense of Marx (1985); and
  • An Introduction to Karl Marx (1986).

As Jon Elster noted:

Marxian economics is, with a few exceptions, intellectually dead

and Marx’s labour theory of value is:

useless at best, harmful and misleading at its not infrequent worst.

To go on with my non-review, I will quote Tyler Cowen:

The crude seven-word version of Piketty’s argument is “rates of return on capital won’t diminish.”

Piketty’s reasons why rates of return on capital won’t diminish are fairly specific and restricted to only a small share of capital.

.. In any case this is pure speculation and Piketty’s entire argument depends upon it.

… Piketty converts the entrepreneur into the rentier.

To the extent capital reaps high returns, it is by assuming risk…

Yet the concept of risk hardly plays a role in the major arguments of this book.

Once you introduce risk, the long-run fate of capital returns again becomes far from certain.

In fact the entire book ought to be about risk but instead we get the rentier…

Overall, the main argument is based on two (false) claims.

First, that capital returns will be high and non-diminishing, relative to other factors.

Second, that this can happen without significant increases in real wages.

Piketty’s advocacy of a top marginal income tax rate of 80% and a an international treaty for a wealth tax are wildly impractical and destructive of economic growth and entrepreneurship. His advocacy of 60% marginal tax rates on incomes above $200,000 strike at the heart of the professional and managerial occupations that are the backbone of day-to-day capitalism. Piketty’s wealth tax would tax the homes and the retirement savings of the ordinary middle class:

  • wealth below 200,000 euros be taxed at a rate of 0.1 percent,
  • wealth between 200,000 and one million euros at 0.5 percent,
  • wealth between one million and five million euros at 1.0 percent, and
  • wealth above five million euros at 2.0 percent.

Piketty’s reason for these high top tax rates is not to bring in more revenue or to redistribute wealth to poor and the downtrodden but simply “to put an end to such incomes.” Harsanyi argues that:

Like many progressives, Piketty doesn’t really believe that most people deserve their wealth anyway, so confiscating it presents no real moral dilemma.

He also argues that we can measure a person’s productivity and the value of a worker (namely, low-skilled labourers) while arguing that other groups of workers (namely, the kind of people he doesn’t admire) are bequeathed undeserved, “arbitrary” salaries. What tangible benefit does a stockbroker or a kulak or an explanatory journalist offer society, after all?

This takes me back to Jon Elster who had this to say on socialism:

Optimism and wishful thinking have been features of socialist thought from its inception.

In Marx, for instance, two main premises appear to be that whatever is desirable is possible, and that whatever is desirable and possible is inevitable.

…It has become clear that classical socialism massively underestimated the importance of economic incentives.

Greg Mankiw is less harsh, but still to the point:

Like President Obama and others on the left, Piketty wants to spread the wealth around.

Another philosophical viewpoint is that it is the government’s job to enforce rules such as contracts and property rights and promote opportunity rather than to achieve a particular distribution of economic outcomes.

No amount of economic history will tell you that John Rawls (and Thomas Piketty) offers a better political philosophy than Robert Nozick (and Milton Friedman).

John Rawls was actually very much alive to the importance of incentives in a just and prosperous society.

Unequal incomes might turn out to be to the advantage of everyone. Work effort and entrepreneurial alertness respond to incentives; incentives channel people into the occupations and jobs where they produce more.

Rawls lent qualified support to the idea of a flat-rate consumption tax because these taxes:

impose a levy according to how much a person takes out of the common store of goods and not according to how much he contributes.

A simple way to have a progressive consumption tax is to exempt all savings from taxation.

With his emphasis on fair distributions of income, Rawls’ initial appeal was to the Left. Left-wing thinkers then started to dislike his acceptance of capitalism and his tolerance of large discrepancies in income and wealth.

It’s impossible to make the workers better off by taxing capital. The optimal rate of tax on income from capital is zero. This is why the Mirrlees Review of the UK taxation system argued for zero taxation of the returns to capital.

Robert Lucas estimated in 1990 that eliminating all taxes on income from capital would increase the U.S. capital stock by about 35% and consumption by 7%.

Hans Fehr, Sabine Jokisch, Ashwin Kambhampati, and Laurence J. Kotlikoff (2014) found that eliminating the corporate income tax completely would raise the U.S. capital stock (machines and buildings) by 23%, output by 8% and the real wages of unskilled and skilled workers each by 12%.

Book reviews serve the same purpose as film reviews. They are filters for our time. Do you agree?

I made a time management decision to not read a long book plenty of others reviewed and some even understood.

As for the growing income inequality, there is a long literature dating back 25-years arguing that skill-biased technological change is increasing the returns to investing in education as Gary Becker blogged in 2011:

Earnings inequality in the United States and many other countries has increased greatly since the late 1970s, due in large measure to globalization and technological progress that raised the productivity of more educated and more skilled individuals.

While the average American college graduate earned about a 40% premium over the average high school graduate in 1980, this premium increased to over 70% in 2000.

The good side of this higher education-based earnings inequality is that it induced more young men, and especially more young women, to go to and finish college.

The bad side is that many sufficiently able children could not take advantage of the greater returns from a college education because their parents did not prepare them to perform well in school, or they went to bad schools, or they lacked the financing to attend college.

As a result, the incomes of high school dropouts and of many high school graduates stagnated while incomes boomed for many persons who graduated college, and even more so for those with post graduate education.

There is nothing new under the sun.

Why only Nixon could go to China and Clinton finish the Reagan Revolution

The secret of winning the swing vote is having policies slightly different from your opponent. Recall Tyler Cowen and Daniel Sutter’s Why Only Nixon Could Go to China in Public Choice.

 

File:Nixon Mao 1972-02-29.png

Cowen and Sutter say that a policy could depend on information – on which policies or values everyone could potentially agree, or on which agreement is impossible.

Politicians, who value both re-election and policy outcomes, realise the nature of the issue better through inside and secret information and superior analytical skills (or access to those skills), whereas voters do not have access to such information base or skills.

Only a right-wing president can credibly signal the desirability of a left-wing course of action. A left-wing president’s rapprochement with China would be dismissed as a dovish sell-out. The Nixon paradox held because citizens could vote retrospectively on the issue.

Left-wing parties adopt right-wing policies because they are good ideas that will get them re-elected. Bob Hawke, Tony Blair, and Bill Clinton were firmly camped over the middle-ground.

Only centre-left economic reformers can credibly signal the desirability of their economic reforms because of the brand name capital they invested in distributional concerns and protecting the poor.

Because of their proven record and brand name, they do not jeopardise their support or credibility by seemingly departing from their core values. They must have done so because it was the right thing to do given events and the long-term interests of the lower-income groups they represent.

Bill Clinton balanced the budget and introduced sweeping welfare reforms in 1996 after vetoing two earlier bills because this finally fulfilled his 1992 campaign promise to “end welfare as we have come to know it”. As he signed the bill on August 22, 1996, Clinton stated that the act:

gives us a chance we haven’t had before to break the cycle of dependency that has existed for millions and millions of our fellow citizens, exiling them from the world of work. It gives structure, meaning and dignity to most of our lives.

Jimmy Carter was a bigger deregulator than Reagan. Obama uses drones far more often than Bush did.

Major labour law reforms were passed in Germany under a left-wing government after decades of 10% unemployment rates and average German unemployment spells for about a year. The key part of these reforms came into play just before the global financial crisis hit and was a major reason for the unemployment rate in Germany falling despite the onset of GFC.

Why Only Nixon Could Go to China also explains why hawks such as Reagan and Begin and other right wing party leaders were able to negotiate peace treaties that eluded more dovish politicians who ran on ‘peace now’ slogans.

Reagan signed the Intermediate-Range Nuclear Forces treaty, walked with Gorbachev in Red Square and seriously offered complete mutual nuclear disarmament in Reykjavik in 1986. Any other American President who offered complete mutual nuclear disarmament would have been impeached.

https://i2.wp.com/www.reagan.utexas.edu/archives/photographs/large/c47345-10.jpg

Hawks also have the right negotiating stance. Robert Aumann argues that:

If you are ready for war, you will not need to fight. If you cry ‘peace, peace,’ you will end up fighting… What brings war is that you signal weakness and concessions.

Only then will both sides negotiate because they know that the other side is willing to walk away and perhaps not come back for a long time. Unless it gets reasonable offers that will be binding on both sides for a long time because both win more for honouring their promises rather than threatening war again soon.

Left-wing politicians can deliver economic reforms because they can deliver new voting blocs to the realignment of political coalitions. This new bloc of centre-left voters and some members of existing political and special interest groupings benefit from regrouping and joining new political coalitions that push through the reforms. An ageing society, budget deficits, technological innovations and shifts in production cost structures and in consumer demand can all make the existing political coalitions less rewarding than in the past.

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