Happy Tax Day–April 15th

Well, today is tax filing day and I’ve often wondered just where my taxes go.  I’ve often thought that given the extant technological capabilities, and the normative desire for more direct forms of democracy, that each and every taxpaying citizen should be given the opportunity not only to file her taxes electronically, but to be able to specifically allocate her tax dollars to the uses that she sees fit.  How would you choose to allocate your tax dollars?  How does the federal government choose to allocate its tax dollars?  Look at the figure below–from the Office of Management and Budget–to see what the Federal government spends its money on.  This graph goes a long way to undermining the demagoguery of politicians when talking about taxes and spending.  When a politician tells you that he is going to cut taxes and does not mention spending cuts, then he is playing politics (unless, of course, he thinks that budget deficits are a non-issue).

The fact is that discretionary spending is a small minority (18%) of total spending.  In order to put a real dent in the budget deficit and the federal debt (two different–but related–concepts), you must cut entitlements, cut defense spending, raise taxes, or a combination of the three.

Happy Tax Day!

H/T Andrew Sullivan

Barack Obama on the Financial System, Uncertainty and Risk

In my post below, I linked to an article by Thomas Homer-Dixon in which, among other things, he argued that the problem with the contemporary financial system is that the arcane machinations and lack of transparency (Level-III assets, anyone?)  have transformed the market from one of risk–which can form the basis for a stable financial system–to uncertainty–which cannot.  So the question then, is how to create the conditions under which banks and other financial institutions, and investors can adequately assess risk.  The lack of transparency is the reason that the credit markets have currently seized up and the Federal Reserve has had to come to the rescue of Bear Stearns. (Ben Bernanke–the Chairman of the Federal Reserve–himself has argued that “banks will fail” over the next couple of years.  Indeed, a couple of small regional American banks have already failed.)

By coincidence, Democratic Presidential candidate Barack Obama gave a speech at Cooper Union in New York setting out his vision of how his policies would help the engine  of the American (and international) financial system become more transparent and a solid foundation for the US and world economy.  I encourage you to watch the speech, wherein Obama presents his view of the nature of the relationship between the market and state (government).

“It’s worth taking a moment to reflect on the role that the market has played in the development of the American story.  The great task before our founders was putting into practice the ideal that government could simultaneously serve liberty and advance the common good.  For Alexander Hamilton, the young Secretary of the Treasury, that task was bound to the vigor of the American economy.  Hamilton had a strong belief in the power of the market, but he balanced that belief with the conviction that human enterprise, ‘may be beneficially stimulated by prudent aids and encouragements on the part of the government [state]'”

First, Conflict Diamonds; now, Junta Jade?

I know; the j in junta is pronounced like an h. Regardless, The Christian Science Monitor asks “Who’s buying Burma’s gems?: Laura Bush’s campaign for a global boycott is being undone by China’s appetite for Olympic souvenirs made of Burmese jade.” The US First Lady argues that those of you purchasing precious gems from Burma are indirectly supporting the rule of the brutal military dictatorship in that southeast Asian country.

burma_jade.jpgIt’s the last hour of the last day of the gems auction in Rangoon, and tired buyers are fanning themselves with worn auction catalogs, and making their final bids.

Over the past five days, jade, rubies, sapphires, and close to $150 million have passed hands here, according to the Union of Myanmar Economic Holdings Ltd., the consortium that dominates Burma’s gemstone trade and is owned by the defense ministry and a clutch of military officers.

Who’s buying? China, India, Singapore, and Thailand are scooping up Burma’s stones. US first lady Laura Bush’s efforts at a global boycott of Burma’s gems seem to have done little to reduce China’s appetite for Burmese jade to make trinkets and souvenirs to sell at the Summer Olympics.

At this recent auction, 281 foreigners attended, leaving behind much-needed foreign currency and generally turning the auction into a resounding success, according to the state-run New Light of Myanmar newspaper.

Mrs. Bush – and human rights campaigners – would not be pleased.

The first lady has taken on the military regime in Burma (Myanmar), urging jewelers not to buy gems from a country where the undemocratic rulers and their cronies amass fortunes selling off the country’s stones, as well as many of the county’s other natural resources – such as minerals, timber, gold, oil, and gas – but keep Burma’s citizens in abject poverty.

She has urged UN Secretary General Ban Ki Moon to act more forcibly on Burma and stood beside President Bush on several occasions recently as he announced the growing list of US sanctions on the country. And, on International Human Right’s Day this past December, Mrs. Bush added her voice to those seeking a global boycott on gems from Burma.

“Consumers throughout the world should consider the implications of their purchase of Burmese gems,” she said in a statement from the White House. “Every Burmese stone bought, cut, polished, and sold sustains an illegitimate, repressive regime.”

Earlier in the semester, we read an article [which he has made available to the general publilc on his web site] by Richard Snyder on the link between “lootable wealth” and political stability. In fact, the final section of his paper deals explicitly with the Burmese tropical timber trade and its role in funding rebel groups. What are the implications of Snyder’s argument for how we–as potential consumers of junta jade–should respond to Laura Bush’s plea? Of course the two phenomena are not exactly the same (Snyder is seeking to understand the link between “lootable wealth” political stability, while Laura Bush is arguing that “lootable wealth” supports dictatorial rule.) Here is the abstract to Snyder’s article:

This article proposes a political economy of extraction framework that explains political order and state collapse as alternative outcomes in the face of lootable wealth. Different types of institutions of extraction can be built around lootable resources – with divergent effects on political stability. If rulers are able to forge institutions of extraction that give them control over revenues generated by lootable resources, then these resources can contribute to political order by providing the income with which to govern. In contrast, the breakdown or absence of such institutions increases the risk of civil war by making it easier for rebels to organize. The framework is used to explain two puzzling cases that experienced sharply contrasting political trajectories in the face of lootable resources: Sierra Leone and Burma. A focus on institutions of extraction provides a stronger understanding of the wide range of political possibilities – from chaos, to dictatorship, to democracy – in resource-rich countries.

Oil, Islam, and Women

There is a new article [paywall] in the most recent issue of the American Political Science Review written by Michael L. Ross entitled “Oil, Women, and Islam.” Ross has written a lot about the nexus between resources and regime type, the so-called “resource curse” phenomenon. In this article, Ross argues that the well-known empirial link between lack of women’s rights and Islam washes away once controls related to oil production are incorporated into statistical models. (Note that the analysis is restricted to the Middle East.)

Here is the abstract and a couple of his charts:

Women have made less progress toward gender equality in the Middle East than in any other region. Many observers claim this is due to the region’s Islamic traditions. I suggest that oil, not Islam, is at fault; and that oil production also explains why women lag behind in many other countries. Oil production reduces the number of women in the labor force, which in turn reduces their political influence. As a result, oil-producing states are left with atypically strong patriarchal norms, laws, and political institutions. I support this argument with global data on oil production, female work patterns, and female political representation, and by comparing oil-rich Algeria to oil-poor Morocco and Tunisia. This argument has implications for the study of the Middle East, Islamic culture, and the resource curse.

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The Political Economy of Assassination

Today in intro to IR, we discussed the role of individuals in international politics.  On Friday, we’ll look at the policy debate on page 152 of Mingst, where the debate question is “Should ‘bad’ or ‘corrupt’ leaders be forcibly removed by the international community?  Mingst provides arguments for and against.  What about not only removing them, but having them assassinated?  Two economists–Ben Olken and Ben Jones–have decided to take a look at the link between assassinations and other factors such as democratization and economic growth.  What have they found?

Olken wonders whether economic devel­opment and the path to democratization are shaped more by broad historical forces or by the actions of specific leaders—be they demo­cratically elected prime ministers or thuggish authoritarians…

…In “Hit or Miss? The Effect of Assassinations on Institutions and War,” Olken and Jones looked at the effects of political assassination, using a strict empirical methodology that takes into account economic conditions at the time of the killing and what Olken calls a “novel data set” of assas­sination attempts, successful and unsuccessful, between 1875 and 2004.

Olken and Jones discovered that a country was “more likely to see democratization follow­ing the assassination of an autocratic leader,” but found no substantial “effect following assassinations—or assassination attempts—on democratic leaders.” They concluded that “on average, successful assassinations of autocrats produce sustained moves toward democracy.”

…In “Do Leaders Matter? National Leadership and Growth since World War II,” Olken and Jones explored whether “individual political leaders make a difference in economic growth.” This is tricky business for the researcher because, as Olken explains, a country’s economic situa­tion can affect the election of a leader: when the economic outlook is good, for instance, presi­dents are more likely to be reelected. [This is the problem of endogeneity–JD] So Olken and Jones looked at 57 leaders who died in office from accidents or natural causes and “found big changes in growth when autocratic leaders die in office—both positive and negative,” but no sub­stantial change when democratic leaders died in office. “The results suggest,” they write, “that individual leaders can play crucial roles in shap­ing the growth of nations,” provided they are ruling with minimal or nonexistent checks and balances to their power (think Augusto Pinochet or Robert Mugabe).

 

Map of Economic Freedom

We’ll be comparing countries today based on their respective approaches to political economy; that is, on how the economic systems apportion the relative influences of the market, state, and civil society sector in the economy. Often, work on political economy tends to focus on the state/market nexus at the expense of civil society. We saw earlier in the course (Alesina and Guiliano) that attitudes and ideologies in the civil society sector can have a dramatic impact on economic patterns within society.

At the end of the lecture today, we’ll look at trends in economic liberalization worldwide over the last decade or so by means of a report from the US Federal Reserve Bank of Dallas, and this map from the Heritage Foundation annual report on economic freedom around the world.

(The darker the color, the more economically free is that country’s economy.)

index2008_econfreedommap.jpg

Cuba’s Human Welfare Indicators

Recent news regarding Fidel Castro’s plans to step aside in favor of his brother have returned Cuba to the news headlines here in the United States.  It has prompted some to take stock of Castro’s tenure as Cuba’s leader of nearly five decades.  Unfortunately, much of what we are likely to read will be ideologically-driven and devoid of much empirical substance.  For a comparative look at Castro’s and Batista’s regimes, we turn to Cal-Berkeley economist Brad DeLong:

ist2_64313_vintage_1950s_cars_in_havana_cuba.jpgThe hideously depressing thing is that Cuba under Battista [sic]–Cuba in 1957–was a developed country. Cuba in 1957 had lower infant mortality than France, Belgium, West Germany, Israel, Japan, Austria, Italy, Spain, and Portugal. Cuba in 1957 had doctors and nurses: as many doctors and nurses per capita as the Netherlands, and more than Britain or Finland. Cuba in 1957 had as many vehicles per capita as Uruguay, Italy, or Portugal. Cuba in 1957 had 45 TVs per 1000 people–fifth highest in the world. Cuba today has fewer telephones per capita than it had TVs in 1957.

You take a look at the standard Human Development Indicator variables–GDP per capita, infant mortality, education–and you try to throw together an HDI for Cuba in the late 1950s, and you come out in the range of Japan, Ireland, Italy, Spain, Israel. Today? Today the UN puts Cuba’s HDI in the range of Lithuania, Trinidad, and Mexico. (And Carmelo Mesa-Lago thinks the UN’s calculations are seriously flawed: that Cuba’s right HDI peers today are places like China, Tunisia, Iran, and South Africa.)

Thus I don’t understand lefties who talk about the achievements of the Cuban Revolution: “…to have better health care, housing, education, and general social relations than virtually all other comparably developed countries.” Yes, Cuba today has a GDP per capita level roughly that of–is “comparably developed”–Bolivia or Honduras or Zimbabwe, but given where Cuba was in 1957 we ought to be talking about how it is as developed as Italy or Spain.

This week in intro to comparative, we’ll discuss various indicators of well-being and welfare, such as GDP per capita and the HDI, comparing the indicators themselves and comparing different countries.