The Past Speaks

Alex Tabarrok makes some important observations about the nature of knowledge in society and prediction in a blog post about the West’s policies towards Ukraine.  His key insight is that Western politicians and pundits have strong views about what is to be done about Ukraine despite knowing little about the country or even being able to speak its language. 

Foreign policy experts love making bold predictions.  The clearer their conclusions, the wiser they sound.  Unfortunately, as Philip Tetlock documents, their predictions about controversial topics are scarcely better than chance.  They’re all style, no substance.  

I’m reminded of F.A. Hayek’s words: 

The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design. To the naive mind that can conceive of order only as the product of deliberate arrangement, it may seem absurd that in complex conditions order, and adaptation to the unknown, can be achieved more effectively by decentralizing decisions and that a division of authority will actually extend the possibility of overall order. Yet that decentralization actually leads to more information being taken into account. The Fatal Conceit : The Errors of Socialism (1988), p. 76

Hayek was talking about the impossibility of successful central planning: the economy is so complex that central planners wouldn’t be able to manage it even with supercomputers. However, his basic point can be applied to the making of foreign policy as well. 

Zeta Psi Fraternity House (1909-1910) at Lafayette College is a historic fraternity house located at Easton, Northampton County, Pennsylvania.

AS: There are many problems in UK higher education, but thank goodness they don’t have fraternities here. I’ve taken this paragraph from a blog post by Harry Brighouse, who is summarizing a new academic book on the economics of fraternities on US college campuses. The book argues that university administrators are complicit in a system that destroys human capital, reduces social mobility in the United States, has contributed to the growth of income inequality, and encourages sexual assault.

Sadly,the fraternity system has crept over the border into some of the more culturally Americanized universities in Canada. Luckily they didn’t have it at Queen’s, at least when I was there.

Brighouse writes:

The authors lived for a year in a “party” dorm in a large midwestern flagship public university (not mine) and kept up with the women in the dorm till after they had graduated college. The thesis of the book is that the university essentially facilitates (seemingly knowingly, and in some aspects strategically) a party pathway through college, which works reasonably well for students who come from very privileged backgrounds. The facilitatory methods include: reasonably scrupulous enforcement of alcohol bans in the dorms (thus enhancing the capacity of the fraternities to monopolize control of illegal drinking and, incidentally, forcing women to drink in environments where they are more vulnerable to sexual assault); providing easy majors which affluent students can take which won’t interfere with their partying, and which will lead to jobs for them, because they have connections in the media or the leisure industries that will enable them to get jobs without good credentials; and assigning students to dorms based on choice (my students confirm that dorms have reputations as party, or nerdy, or whatever, dorms that ensure that they retain their character over time, despite 100% turnover in residents every year).

The European Public Choice Society Conference for 2014 will take place at Robinson College, Cambridge. Thursday April 3 to Sunday April 6 2014. 

Destined for Democracy? Labour Markets and Political Change in Colonial British America
Elena Nikolova, European Bank for Reconstruction and Development, United Kingdom

This paper proposes a new explanation for the emergence of democratic institutions: elites may extend the right to vote to the masses in order to attract migrant workers. I argue that representative assemblies serve as a commitment device for any promises made to labourers by those in power, and test the argument on a new political and economic data set from the thirteen British American colonies. The results suggest that colonies that relied on white migrant labour, rather than slaves, had better representative institutions. These findings are not driven by alternative factors identified in the literature, such as inequality or initial conditions, and survive a battery of validity checks

War and the Transition Away for Absolutism
Francesco Giovannoni, University of Bristol, United Kingdom

We propose a model to explain the transition from Absolutism to rule by Parliament. The Elite faces a trade-off between the loss of a war today with the future benefits under an alternative King. The threat of losing a war and being replaced may lead the King to compromise with the Elite and hand over power. The model has two key parameters. One is the fraction of the country’s wealth that is non-verifiable (and therefore hard for the King to tax or expropriate). The second is how likely the country is to be attacked. Our model gives a rationale for historical transitions away from Absolutism such as in ancient Athens, medieval Venice, 16th century Netherlands and the Glorious Revolution in 1688 England. The model also gives a rational for why (respectively) Sparta, other Italian cities, Spain, and France did not observe a similar transition.

Rebellions, Technical Change, and the Early Development of Political Institutions in Latin America
Alvaro Aguirre, Central Bank of Chile, Chile

This paper documents that differences in the early development of institutions in Latin America explain the subsequent economic performance in the region. It develops a model with the aim of identifying the factors behind this institutional development. The model predicts that the risk of conflict, which in the model arise due to labor coercion, leads to poor restrictions on the powers of chief executives. Since elite members cannot commit to a strong response to conflicts they empower the executive so he may react forcefully to conflicts. Technical advance leads to higher constraints as expropriation becomes more costly. But this does not happen with a large fraction of coerced labor because higher returns raise labor demand and conflict risks. Finally, the paper conducts an econometric exercise which shows that the dynamics of the institutional gap can be explained to a large extent by the risk of rebellion, globalization, and their interaction.

Also, people in Quebec and Scotland will likely be interested in the following paper:

If You Want me to Stay, Pay: A model of asymmetric federalism in centralised countries
Peter Claeys, Free University of Brussels, Belgium

Highly centralised countries like Italy and Spain have devolved fiscal power to regions in an asymmetric way. Some well-off regions get transfers that turn them into net recipients of the fiscal system. We demonstrate in a political economy model of fiscal federalism that in centralised countries, side-payments are used to compensate regions that are set back by the fiscal system and can credibly threaten to secede. Compensation blocks political negotiation on alternative “more efficient” fiscal systems. We study two regions, Valle d’Aosta in Italy and Pais Vasco in Spain, as an example.

AS: That’s the theme of a recent blog post by Dart-Throwing Chimp. Discussing the Chinese state’s plans to socially engineer the rate of urbanisation, he writes:

In certain circles of development studies, it’s become almost cliché to invoke James Scott’s Seeing Like a State: How Certain Schemes to Improve the Human Condition Have Failed. I’m going to do it anyway—because the book is that good, but also because Scott’s framework suggests two important predictions about where China’s process of managed urbanization is headed.

DTC goes on to make some good points about China’s government. I agree that Scott’s book is an important one that every social scientist ought to read. However, it also needs to be said that Scott’s concept of “high modernism” has a lot of similarities to F.A. Hayek’s concept of “rational constructivism.” Hayek developed the term “rational constructivist” to identify the mindset that was behind central planning and other attempts to impose grandiose master plans on society.  In my view, Hayek’s discussion of this issue is far more sophisticated than that of Scott. I would certainly commend DTC for reading and citing Scott’s important work, but I would encourage him to re-engage with Hayek’s ideas.

China Isn’t Socialist, It’s High Modernist.