Category — Politics

Bruce Bueno de Mesquita – The Predictionieer’s Game:

Conversely, the notion that the developments that make up history are primarily a series of chance events seems equally odd to me. Why fight over ideas, select governments, build armies, fund research, promote literacy, create art, or write histories if all we are doing is twiddling our thumbs while chance developments sund us bouncing around like the physicist’s particles? How can anyone deny strategic behavior and its consequences when we are surrounded by it in almost everything we do?

To be sure, the world as we know it could have swung one way or the other. That’s why neither the past nor the future follows an inevitable path. There are always chance elemnts behind which ways things, but those cahnce events rarely decide the future.

I’m currently reading the excellent Killing Rage by Eamon Collins based on a recommendation from Chris Blattman’s blog. Having became interested in Politics and the wider world around the time of the Good Friday Agreement, being a big fan of Irish literature and culture, and having stayed close to the Irish border during marching season I have always been very interested in the conflict, its origins, and possible solutions. Collins is a former IRA Intelligence agent turned informer and was murdered after the book was published. While Blattman was particularly struck by the insight of why young people turn to violence I am more struck by reading of the banality and acceptance of violence in places I have since visited and fallen in love with. One frequent locale is Rostrevor, a small village by Carlingford Lough (the border runs through the lake) where I stayed for a week taking a language course, one of the most peaceful places I have ever seen which was previously the scene of much smuggling in violence. The bank where my host father worked had been bombed several times and he had been held up during a bank robbery and everyone talked about these events with an acceptance and calm that was difficult to fathom. The contrast between the serene hill paths and parks and music and laughter and the darker sides of all of it is difficult to accept.

I just finished Superclass and while it initially sounded like exactly the kind of book I don’t like to read, after hearing Rothkopf in person and seeing Chris Blattman recommend it (in a hilarious post titled ‘Midway Down the Intellectual Food Chain) I decided to get the audio book. It was definitely entertaining and pretty interesting at times but definitely not a must-read. I was, however, struck by a conversation Rothkopf  had with Timothy Geithner (remember him?) on how he helped resolve a crisis in the derivatives market (the book doesn’t give any further information) that I think really captures the way many complicated (and extremely urgent) problems are addressed in our increasingly complex world:

What we did is, we got the fourteen major firms in a room down the hall here with their primary supervisors [..] and we said to them “You guys have got to fix this problem, tell us how you are going to fix it and we will work out some basic regime to work out there are no free riders to give you comfort so you know that if you move individually, everybody else will move with you” and there is nothing written, no guidance, no regulation, no formal process, [...]

These fourteen firms he continued, accounted for something like 90% of the all the activity in this market. The Fed, the SEC, the FSA, the Swiss and the Germans were there, and hose were the principals, each firm brought three people, they had an executive committee of four firms that had almost weekly a conference call among the four firms. And the best thing about the process was that it was efficient, there was nothing written except letters from the firm laying out their commitments, there’s no formal mechanism we could have used to force this on anybody so we had to invent it.

You have to have a borderless collaborative process, it does not mean it has to be universal every jurisdiction or every institution it just needs a critical mass of the right players it is a much more concentrated world, if you focus on the limited number of the ten to twenty large institutions that have some global reach, then you can do a lot.

Geithner is right, the world is becoming increasingly international but there are very few effective (and quick acting) international governing bodies and these adhoc meetings work very well. You don’t need to be a believer in World Government to realize that closer international coordination on finance and the economy (if nothing else) will be important in the future. The problem with doing things on an adhoc basis by getting the most powerful people and organizations in one room is that the concerns of the wider populace will be underrepresented (or not represented at all). The hurried actions of the US Treasury and Federal Reserve during the failure/bailout of Bear Stearns, AIG, and Lehman Brothers showed that personal contacts and informal meetings can help ensure quick action in an unforeseen crisis but they also show the dangers and resulting unfairness of the outcomes reached in such meetings. In the years ahead we will have to figure out how to build more effective coordinating (and potentially regulating) bodies on both the national and international scale. That should be a fun challenge.

I generally tend to be pretty skeptical of Tom Friedman’s writing, hoping that he would think about some of the things he says a bit more critically before putting them out to the public as fact, and I don’t agree with much of the (admittedly partially satirical) tone of his last column, but he is 100% right on the core conclusion:

We live in a technological age where every study shows that the more knowledge you have as a worker and the more knowledge workers you have as an economy, the faster your incomes will rise. Therefore, the centerpiece of our stimulus, the core driving principle, should be to stimulate everything that makes us smarter and attracts more smart people to our shores. That is the best way to create good jobs. 

A government-funded venture capital fund might not be the right solution (that’s a longer question I don’t want to get into now) but he’s right – this is also the time to get smarter, more agile, and more productive.

We don’t want to come out of this crisis with just inflation, a mountain of debt and more shovel-ready jobs. We want to — we have to — come out of it with a new Intel, Google, Microsoft and Apple. I would have loved to have seen the stimulus package include a government-funded venture capital bank to help finance all the start-ups that are clearly not starting up today — in the clean-energy space they’re dying like flies — because of a lack of liquidity from traditional lending sources. 

Newsweek had an essay this week that began: “Could Silicon Valley become another Detroit?” Well, yes, it could. When the best brains in the world are on sale, you don’t shut them out. You open your doors wider.

I was just reading a little bit about the Greek Economy and wanted to highlight the following observation about the IMF that ends up giving it a bad name for government’s mistakes:

One key feature in all this woe has to be a political process that is extremely ineffective, and driven by the fact that no one likes to hear bad news, and that the last thing a politician is able to say is tighten-up your belts now lads and lasses, we are in for a rough ride. But isn’t this just how the IMF gets such a bad name for itself, since the IMF doctors get called in just where the domestic political process breaks down, and where local politicians haven’t the ability to stand up in front of their citizens and say, it’s going to have to be like this, I’m afraid. Isn’t this what just happened in Ukraine, Hungary and Latvia? And then people say, those “nasty folk” at the IMF, they cut pensions everywhere they go, and wages are down 8% in Hungary, and 15% in Latvia once the IMF get to run the show. That is the IMF make for a convenient scapegoat, but people seldom ask themselves why wages needed reducing, or why there is no money to pay the pensions.

Granted, there are other ways to reduce a deficit and the IMF might be biased on how it wants to cut deficits but the general point stands.

David Fisman, Ray Fisman, Julia Galef, and Rakesh Khurana have a fascinating (I know I overuse this word but it’s really deserved here) working paper that tries to estimate the value to a company of a connection to Vice President Dick Cheney. They look at the market reaction (i.e. stock price) of companies connected to Cheney to Cheney’s heart attacks, his selection as Vice President, the likelihood war in Iraq at certain points in time, and the probability of a Bush victory in 2000 to see if these events cause the companies to significantly over- or underperform their respective sectors. They find that the value of such ties is zero.They think that this is to some degree generally applicable to individual politicians in the US:

While prior evidence suggests that business-government relations are an important part of U.S. commerce, our results suggest that these connections are more institutional than personal. That is, there are well-organized institutions (such as political action committees and other lobbying entities) for facilitating these relations that differ from the deeply personalized favor exchange that characterize business-politics relations in so much of the world.

I think that this result needs much further study but the implication that the value to a company of a personal connection to a politician is relatively unimportant compared to more formal and broad lobbying and PACs is going to be hugely important in figuring how to best fight corruption and the influence of special interests.

Update: Here’s another similar paper Estimating the Value of Political Connections by Ray Fisman on how news about former Indonesian President Suharto’s impacted companies with connections to him. I remember reading this about two years ago but don’t remember for which class…

Here’s another interesting article I found through Chris Blattman’s blog, this time on Zimbabwe (I swear I’m going to switch to articles from elsewhere soon, I’m just catching up on the week’s reading and posting things as I find them). I’ve always been very skeptical about these kinds of power sharing agreements that are forced upon opposition parties that have a legitimate claim to an actual election victory, but I haven’t read any formal studies. Are these compromises better than continued post election violence or will they only lead to even less effective government and therefore make things worse in the future? Can actors resolve their disagreements and work together effectively?

Power sharing certainly works in many European governments (though it is often very unstable as recent events in my native Austria show) but I think it is virtually impossible in a situation like Zimbabwe where the ruling party is willing to try virtually anything to undermine its new ‘partner’. The article cites many reasons as to why power sharing wont work but I think the most important is the point below:

Even if a power-sharing arrangement was a viable option and could prevent more violence in the shorter or longer term, it is not necessarily a strategy worth pursuing. Allowing a small number of elites to determine outcomes is inherently undemocratic, and manifestly ignores voters’ choices. It would make more sense to hold new elections as soon as possible, preferably under a caretaker government. Otherwise, a terrible precedent is set, encouraging politicians who are not committed to democracy to attempt to steal elections and then, through power-sharing agreements, secure a much stronger position than they otherwise would have held. The Zimbabwean opposition and international actors would be well advised to consider this before supporting further negotiations.