Why Nations Fail thoughts, part 3

A&R's story has two dimensions: economic and political institutions. The economic institutions story is basically Adam Smith’s: “peace, easy taxes and a tolerable administration of justice” lead to economic growth. For most of the past two centuries, with some unfortunate exceptions, this has been the conventional wisdom. The question is how you get good economic institutions. Here they argue that good political institutions, which allow people to control their rulers, are important. This is the nub.

A&R don’t list any particular institutions as always inclusive. Is democracy inclusive? (This blog post of theirs offers some relevant thoughts.) It certainly allows people to control their rulers and a change to democracy is likely to generate large one-off gains as policies are altered to benefit the people, not the elite. However, the potential for extraction (transfer of money from the many to the few) persists, for two reasons.

First, many political systems have very limited competition. For example, first past the post systems are basically duopolies, because once two parties are ahead in the polls, it makes no sense to vote for a third party. On subjects where competing parties share interests they will soon agree not to offer the voters a choice.

Second, voters are rationally ignorant of policy, and therefore easily swayed by intellectual fads and media manipulation. (I think A&R's blog post claim, "[t]he available evidence doesn’t indicate that the uneducated masses are ignorant and irrational" is quite wrong, if by "uneducated masses" you mean voters, and by "ignorant and irrational" you mean ignorant and rational. There is a ton of evidence for rational ignorance.) This allows for a lot of extraction behind their backs.

Another dimension is long-run prudence. A monarch who will tax his people ruthlessly may also take care of their long-term well-being, because he will benefit from it. A democratic ruler may provide short-run benefits to people for fear of losing office. But because he may lose office, and expects only to be in power half the time or less in future, he may also have few incentives to do the right thing in the long run. This means that democracies may under-insure themselves against rare risks, and may accumulate long-term weaknesses and vulnerabilities.

Why Nations Fail thoughts, part 2

Here is an alternative explanation of the fall of the Roman empire:

“No doubt the imperial State created by the Julii and the Claudii was an admirable

machine, incomparably superior as a mere structure to the old republican State of the patrician families. But, by a curious coincidence, hardly had it reached full development when the social body began to decay.

Already in the times of the Antonines (IInd Century), the State overbears society with its anti-vital supremacy. Society begins to be enslaved, to be unable to live except in the service of the State. The whole of life is bureaucratised. What results? The bureaucratisation of life brings about its absolute decay in all orders. Wealth diminishes, births are few.... After the time of the Severi, the army has to be recruited from foreigners. Is the paradoxical, tragic process of Statism now realised? Society, that it may live better, creates the State as an instrument. Then the State gets the upper hand and society has to begin to live for the State. But for all that the State is still composed of the members of that society. But soon these do not suffice to support it, and it has to call in foreigners: first Dalmatians, then Germans. These foreigners take possession of the State, and the rest of society, the former populace, has to live as their slaves- slaves of people with whom they have nothing in common. This is what State intervention leads to: the people are converted into fuel to feed the mere machine which is the State. The skeleton eats up the flesh around it. The scaffolding becomes the owner and tenant of the house. ”

This story is superficially close to A&R’s. But the author blames the Roman state itself, not the way that state was used, for the decay of the Empire. An important point is that the centralized state which is the focus of A&R’s story is not actually a historical constant. For much of history, the state has simply lacked the capacity to impose its will directly, and has instead ruled through intermediaries, such as aristocracies. A&R tend to treat these forms under the rubric of “inadequate centralization”. That is not revealing: the feudal system is really not like modern Somalia.

Just before this bit, our author explains how states can decay:

“But the mass-man does in fact believe that he is the State, and he will tend more and more to set its machinery working on whatsoever pretext, to crush beneath it any creative minority which disturbs it- disturbs it in any order of things: in politics, in ideas, in industry.

The result of this tendency will be fatal. Spontaneous social action will be broken up over and over again by State intervention; no new seed will be able to fructify. Society will have to live for the State, man for the governmental machine. ... Such was the lamentable fate of ancient civilisation. ”

Again this is close to A&R: extractive political institutions foreclose innovation. But here the problem is the existence of the state machinery itself, not its control by a greedy minority at the top.

The author of the above is Ortega y Gasset and the book is The Revolt of theMasses, mentioned in a recent post on the Why Nations Fail blog. My curiosity was piqued and I got hold of a copy. It’s an excellent book – highly tendentious, sometimes very prescient, sometimes way wrong. It provides a nice complement to the A&R book. (Off-topic: don't only read new books! Otherwise you will be historically provincial. Old books are mind-expanding.)

Why Nations Fail, random thoughts, part 1

This is a brilliant book. Daron Acemoglu & James Robinson (henceforward A&R) set out to answer the question “why are some nations poor and others not?” As social science questions go, that is the Big One. And their answer is appealing and plausible: poverty is the fault of elites who set up economic and political institutions to extract money from the rest of us. The next few posts contain some of my not very well-organized thoughts.

A&R make their arguments by historical narrative, although underlying these, there are often academic papers that use the toolkit of modern econometrics. This is a great approach – a credible historical narrative is much more convincing than a bunch of cross-country regressions. And, looking far back into history is surely the correct thing to do. For to answer the question above, you must think both about contemporary variation (why are some nations poor now and others rich now) and about historical variation – why were all nations poor for most of recorded history, before the take-off into growth of Britain, then Europe, then the world in the past 3 centuries. 

These guys are not professional historians by training. This creates a bit of a trust problem. When I read their (very interesting) stories about Ethiopia, the French Revolution, Indonesia, etc. I wonder to myself how many specialist historians of the time and place would agree. Their narratives are plausible, but I can often imagine alternative stories.

One episode where I do know a little is the decline of the Roman empire. Here A&R’s story seems pretty unusual. They blame the end of the Roman republic for the decline of the empire, which collapsed four centuries later in the West and fourteen centuries later in the East. In fact much of the empire’s expansion happened under the emperors. They have no persuasive causal link between political institutions and the overtaxation which may have caused the decline of the Roman countryside in the third century. (Here’s a modern book which gives lots of detail, without losing track of the big picture.)

A poem from long ago

Here's a poem by Enoch Powell from between the wars:

In far Australia to sleep
You snuggle down; I here
Fancy that in your arms you keep
The world’s wide sphere –
This whole great multi-coloured All,
No larger than a playing-ball.
But if I move my lips to speak
Or try to touch your hand,
The coloured tissues with a shriek
To monstrous form expand,
And I apart from you am hurled
Across the endless, dreary world.

(I haven't been able to find the copyright holder -- Falcon Press, which originally published this, doesn't seem to exist. Get in touch if you are the copyright holder and wish to object.)

Bernanke speech

Ben Bernanke's thoughts about the subprime crisis.

"... Contemporaneous data indicated that the total quantity of subprime mortgages outstanding in 2007 was well less than $1 trillion; some more-recent accounts place the figure somewhat higher. In absolute terms, of course, the potential for losses on these loans was large--on the order of hundreds of billions of dollars. However, judged in relation to the size of global financial markets, aggregate exposures to subprime mortgages were quite modest. By way of comparison, it is not especially uncommon for one day's paper losses in global stock markets to exceed the losses on subprime mortgages suffered during the entire crisis, without obvious ill effect on market functioning or on the economy...."

I don't really like 38 degrees, but...

They kind of annoy me -- all those chummy emails from "Marie, Becky, Hannah, David, James, Cian..." seem more like astroturf than a real decentralized group. Plus, I think they are a bunch of knee-jerk Lefties. Nevertheless, they are where the petition is, so I can't really complain when they push an issue I care about.

Therefore, I urge you all to go and sign up to:
https://secure.38degrees.org.uk/stop-the-snooping-plan

Probably late on this meme

But...

Immigration politics with cape and mask

http://www.arabtimesonline.com/NewsDetails/tabid/96/smid/414/ArticleID/181499/reftab/73/t/Lucha-libre-pushing-immigrant-storyline/Default.aspx

"Then he points to the message painted on the backside of his red trunks: “SB1070” - a reference to Arizona's controversial immigration law. The crowd, some wearing masks of their favorite Mexican wrestlers, shrieks even louder...."