Wednesday, April 20, 2011

The deficit is a complicated beast

Jonathan Bernstein argues that independents do not know what "deficit" refers to, to explain how it can be that independents seem to favor a plan to tackle the deficit along the lines of the White House plan as compared to Paul Ryan's, but disapprove the White House plan more. Kevin Drum goes less far by saying that independents do not understand what Obama's plan is.

I lean towards Bernstein's position on this one. My opinion, based on no statistics at all, is that most people don't know and don't care. You can think it's a good thing or a bad thing, you might think of solutions to change this, but that's not really the question.  From a paper by Suzanne Mettler, 40% of Americans do not think that Medicare comes from the government





and from a poll last December, via Ezra Klein, the classic foreign aid statistic:

And it goes on and on and on. I think the important is how easy you can turn a topic in a populist way, by throwing simple intuitions that are completely invalidated by facts. That's what happens with immigration(people come and take your job so we should not have immigrants. Also, they burn stuff), and that's what happen with the deficit(the gvt spends too much, it's bad, because most of it is waste).

Donald Trump for President

The candidacy of Donald Trump for the Republican nomination in 2012 has made quite a fuss. If you need to make your mind on it, it takes 5 minutes and 53 seconds:


Saturday, April 16, 2011

Explaining polarization

In a couple of recent posts, I mentioned the rise in polarization in the US. Lexington in the Economist this week has a nice rundown of the possible reasons that might explain the trend. First, Lexington explains the trend:
One big thing that has changed politics fundamentally is the extreme polarisation of the parties.(...) In 2010 Congress was more deeply split on partisan lines than at any time since the second world war, according to Congressional Quarterly(...).  So far this year, a record 80% of roll-call votes in the House have pitted a majority of Republicans against a majority of Democrats. On average, House Republicans have voted with their party’s majority 91% of the time and Democrats 90% of the time. The picture is very similar in the Senate.

And now, for the list of possible reasons, let me put them in bullet-points form, the only form that matters. The reasons come from Dan Glickman, a former Democratic Representative and agriculture secretary, and Bob Bennett, a former senator from Utah

  • Congressmen depend on money and are indebted to lobbies
  • "The self-reinforcing partisanship of the media"
  • The workload has increased and politicians are spending less time on the Hill, so that they have fewer interactions with the other congressmen. Related, the rise of television made congressmen talk to the camera instead of other congressmen
  • They are less willing to show leadership because of division within their parties(e.g. Republicans who do not want to mess with the Tea Party)
  • Gerrymandering
  • Primaries create incentives for moderates to appeal to more extreme members of their party. Think of Mitt Romney. In France, you can see the issue strongly for next year: Strauss Kahn is the strongest candidate for the Socialist party, but it is definitely not clear that he would win a primary against more leftist members(and this is what happened 4 years ago)

Those reasons are not all satisfying if we look at the graphs I posted earlier and if we want to understand what happened under Reagan. Note that the TV stuff is mentioned. One thing I like is the impact of the primaries, because if we think of the feedback loop I mentioned between party polarization and population's partisanship, the primary story could be the exogenous factor starting it: you have a primary, so candidates need to be more polarized. However, once again, this is not something that happened just at the start of the Reagan era.

Linked links

Krugman on inflation again
Democrats are making nice jokes

Improv-a-Ganza

The new Drew Carey's improvisation show is on GSN and started last week. The episodes seem to be free for now! Available here. For now, I found it a bit weaker than Whose Line is It Anyway(of which all episodes are here), but that doesn't say much...:



Related, I started watching Archer last month. The first season is available on Netflix, some episodes of the second season are availble on Hulu and on the FX website. Probably the funniest show I've ever watched. One promo:

Bad Philosophy can produce good ideas

I have been appalled by an article(restricted) written in The Philosophical Quartely, of which I will copy the abstract:
The practice of unrestricted universal suffrage is unjust. Citizens have a right that any political
power held over them should be exercised by competent people in a competent way. Universal suffrage violates this right. To satisfy this right, universal suffrage in most cases must be replaced by a moderate epistocracy, in which suffrage is restricted to citizens of sufficient political competence.
Epistocracy itself seems to fall foul of the qualified acceptability requirement, that political power
must be distributed in ways against which there are no qualified objections. However, it is less
intrinsically unjust than democracy with universal suffrage, and probably produces more just
outcomes. Thus epistocracy is more just than democracy, even if not perfectly just. 

I will probably discuss the article in its entirety later on, but I have not made my mind yet on whether it requires discussion or not. Basically, two comments on the post from Brian Caplan   which linked to the article destroyed the article in approximately 3 seconds

Kevin H writes:
Who decides who is fit to vote and from what is that authority derived?
MikeDC writes:
But determination of competence is a power itself. 

The paper is a succession of words that sound complicated like "epistocracy", or false wisdom like defining thing as a "competence principle", of not-defined words such as "morally reasonable", "ignorant", "competence" among others. Also, you have a Godwin's law violation, and some sentences worthy of middle-school dissertations. It is published in a top-ranked philosophy journal. It is sickening. But as I said, it is so ridiculous that I do not know if it warrants discussion. We'll see. To finish on it, just look at this sentence and keep in mind that "competence" is never defined:

the competence principle requires each decision of a certain sort to be made competently by competent people


In any case, it led me to an interesting discussion on the right to vote. I have always been puzzled by the rule of having an age-based rule for the right to vote. However, it is hard to find a better-suited objective criterion. Now, consider the French educational system. Education is free and mandatory until you reach 16 years-old. Assume that you mandate an civic instruction course at the first year of middle school(those classes already exist). Everyone gets the right to vote after having finished this first year(importantly, you allow students to repeat the year, but grant them the right to vote after the first year).
The advantages of this, in my opinion, are

  • You somewhat relate the allocation of the right to vote to some change in knowledge. The assumption is that people do not know less before than after taking the class
  • You include people in the political decision process early, and close to the time they have actually learnt what the political process was about(there is a difference between hearing/learning about voting/institutions and doing the voting for those institutions)
  • As usually discussed, including younger voters means that politicians would have an incentive to consider larger horizons(e.g. climate change, energy policy, etc).

One drawback was one thing that I mentioned in one of my earlier posts: political preferences are rigid, at least from the evidence in the US(the 9/11 story). So if we assume that a voter is prone to error(information is not perfect, ...) and that the likelihood of error is higher for younger folks, the process might be worse(yet, there is still to define "eroor"). The possibility of an independent decision by a 12-year old is also a question, but it is hard to use it as a good argument since we have, now, a similar rule that raises a similar question.

The thing seems simple, so it must have been previously thought about. Since nobody cares, it might have been debunked. So what are the other issues?

Friday, April 15, 2011

Why having an opinion is hard: Libyan edition

Some commentators have a fully-conceived opinion on whether the intervention in Libya was warranted. Unfortunately, I do not. One reason is that, well, I am not knowledgeable enough. The second is that it is quite complicated.

That was nice throat-clearing. Now, practically, here is what I mean. Stephen Walt at Foreign Policy is becoming more and more convinced that the intervention was a mistake. He argues 2 points

  • There is fewer and fewer evidence that Gaddafi was preparing a massacre in Benghazi, the main reason for UN intervention and the main rhetorical tool used by Barack Obama, Nicolas Sarkozy and David Cameron to justify quick(and, in my opinion, not-publicly-deliberated-enough ) the UN resolution and the military sorties.
  • There is weaker and weaker evidence that the decision of military intervention was constitutional in the US.
I don't have anything to say on the second point. I invite you to go read the opinion of the Justice Department's Office of Legal Counsel statement that the intervention was constitutional, and the counter-opinion of Michael Glennon, a professor in international law.

The first part relied on an op-ed by Alan Kuperman who argued that Gaddafi only threatened the rebels, and that there is no evidence that a massacre would be perpetrated since we have not seen anything of the sort in the other cities that his loyalists re-captured:
The best evidence that Khadafy did not plan genocide in Benghazi is that he did not perpetrate it in the other cities he had recaptured either fully or partially — including Zawiya, Misurata, and Ajdabiya, which together have a population greater than Benghazi.
The argument makes sense. However, today, we learn from Human Rights Watch and the New York Times that Gaddafi is using cluster bombs in civilian areas.  What is a cluster bomb? The one the NYT reporter found is described as
a Spanish-produced MAT-120 120mm mortar projectile, which opens in mid-air and releases 21 submunitions over a wide area. Upon exploding on contact with an object, each submunition disintegrates into high-velocity fragments to attack people and releases a slug of molten metal to penetrate armored vehicles.
And that's not all:
The cluster munitions are not the only indiscriminate heavy weapon system to imperil the city’s neighborhoods. The Qasr Ahmed residential district near the port was struck Thursday by multiple rockets, known as Grads(...) The Grad barrage on Thursday(...) struck an area without any visible military infrastructure or signs of military activity beyond a roadblock with a lone rebel holding an aged rifle. One rocket landed beside a bakery. Several struck homes. One exploded near a mosque.
It's hard to have an opinion. On the possible massacre at Benghazi, it is clear that we will have a hard time knowing what could have happened. Kuperman probably makes the right comparison: look at similar cities where the "treatment" did not occur: the outcome was not different than where the treatment occured(not a lot of civilian casualties), hence the treatment was unnecessary. But the new information we have makes the case weaker.

When confronted with such problematic issues, where I do not understand how people can have strong opinions on them, I am reminded of this amazing paragraph from Daniel Ellsberg, through Kevin Drum, on the limits of knowledge. Talking to Henry Kissinger at the beginning of his term as National Security Advisor in 1968:
"you're about to receive a whole slew of special clearances, maybe fifteen or twenty of them, that are higher than top secret.
"I've had a number of these myself, and I've known other people who have just acquired them, and I have a pretty good sense of what the effects of receiving these clearances are on a person who didn't previously know they even existed. And the effects of reading the information that they will make available to you.
"First, you'll be exhilarated by some of this new information, and by having it all — so much! incredible! — suddenly available to you. But second, almost as fast, you will feel like a fool for having studied, written, talked about these subjects, criticized and analyzed decisions made by presidents for years without having known of the existence of all this information, which presidents and others had and you didn't, and which must have influenced their decisions in ways you couldn't even guess.

Indeed.

Partisanship

Following the previous post, here is a forthcoming paper from Laurel Harbridge and Neil Malhotra(via The Monkey Cage, again), looking at the impact of the perception of "bipartisanship" on approval ratings for two Congressmen. They show that
Independents and weak partisans are more supportive of members that espouse a bipartisan image, whereas strong partisans are less supportive. People with strong attachments to a political party disavow conflict in the aggregate but approve of individual members behaving in a partisan manner.
which is interesting right now: Barack Obama almost endorsed the Simpson-Bowles plan for the budget, which is a centre-right proposal, while Paul Ryan went to the extreme. The main graph is here:
The graph shows that strong partisans are less likely to vote for the same congressman when she is described as a bipartisan person instead of a partisan one.

Interestingly, this would tend to mean that partisanship is kind of self-fulfilling. If we think that a partisan congress polarizes the electorate, this means that the fraction of strong partisans, and this implies that congressmen have an incentive to be more partisan if they want to get reelected. We are in a typical story of "strategic complements" with multiple equilibria, one with strong partisanship and one with weak partisanship.

Polarization in the US

The US is one of the very few countries which votes on the level of the debt the government can take. The predictions are that in 6 weeks, the US government debt will have reached the current "debt ceiling", and Congress must approve an increase in this debt ceiling by then. Here is the schedule as seen by Tim Geithner, the US Treasury Secretary
Secretary Timothy F. Geithner told Congressional leaders the government would hit the limit no later than May 16. He outlined “extraordinary measures” — essentially moving money among federal accounts — that could buy time until July 8.
The NYT had a nice graph on the debt ceiling issue and the current composition of the debt:



It is interesting to see the divisions between the two parties. And by "interesting", I mean "WOW". Politico reported a couple of days ago on a statement released by the House Majority Leader John Boehner, taking a stronger stance fiscal policies:

(I)f the President begins the discussion by saying we must increase taxes on the American people – as his budget does - my response will be clear: tax increases are unacceptable and are a nonstarter
But Talking Points Memo reports on the proposal circling among Democrats that would prevent the passage of any agreement on the debt ceiling diminishing federal spending
A group of progressive House Democrats is rounding up support for objecting to hiking the debt limit, if it includes GOP plans to slash spending on federal programs.

The polarization on the debt ceiling issue is quite new. Keith Poole has a nice animated gif on his blog showing the polarization over congresses since the 99th(today is the 112th)

More generally, it seems to be clear that polarization in the US has increased. First, in the political institutions. Keith Poole recently reposted the graph on the evolution of polarization in the US House betwen 1870 and 2010. It is quite telling

In February, Gallup released the results from a poll showing that
President Barack Obama's job approval ratings were even more polarized during his second year in office than during his first, when he registered the most polarized ratings for a first-year president

I am trying to find some numbers for the two houses of Congress, but cannot find them for now.

For the population overall,  we can lookt at different indicatiors. At the Monkey Cage, Mike Sances produced a graph on the partisan gap in political trust in government. The first graph in his post shows that people trusts the government more when it is from their own party. But this partisan difference has widen since Reagan:

So the polarization started in the Reagan era. I am not a specialist of American politics so I cannot say what happened at this point(the issue might be actually trivial to some? Is this something simple?)
One thing I am thinking about, that might have been a driver in recent history, is media. It probably sounds stereotypical and I am most probably wrong, but here are my 2 cents, based on 2 papers written by Ethan Kaplan(disclaimer: Ethan is currently working in the same university where I study). The first story comes from a paper showing the effect of Fox News on Republican vote shares. The authors use the variation in the introduction of Fox News across states between 1996 and 2000, and find

a significant effect of the introduction of Fox News on the vote share in Presidential elections between 1996 and 2000. Republicans gain 0.4 to 0.7 percentage points in the towns which broadcast Fox News.

The second looked at the persistence in political ideology, and took advantage of the jump in Republican registration after 9/11 to see whether this jump was perceivable years later. It was:

We first show that 9/11 increased Republican registration by approximately 2%. Surprisingly, these differences in registration patterns fully persist over the two year period from 2006 to 2008
and
the impact of the 9/11 shock seems to have had a much larger impact on 18 year olds than on those between 25 and 60

Jon Stewart often evoked the impact 9/11 had on the creation of 24 hour-news network. If there's no information, the information is made up(e.g. balloon boy). Some cable channels, admittedly watched by only a small group of people, are really partisan(Fox News, MSNBC, etc...). But leaders of opinion matter, so the problem of small audience might not be relevant. So my point is: one chooses his/her information source -> forges political opinion(Fox News effect) -> political opinion becomes permanent(9/11 story).
The million dollar question is why there is persistence. Kaplan and Mukand try to explain that in their 9/11 paper, but the explanations are not really convincing(it relies on psychology, and there is no evidence or tests run.), though they offer nice empirical counter-arguments showing that the permanence is not due to the cost of accessing or processing information or Bayesian learning. The psychological explanations proposed by the authors are  Identity(e.g. there is a benefit derived from belonging in a group, and it is costly to leave the group) and cognitive bias(e.g. one selects information that validates her point). I am quite sympathetic to those theories, but the question is still on the table.

Wednesday, April 13, 2011

Interesting links

The number of job openings rose at their fastest pace in almost seven years in February
Should we talk about Djibouti? Related: Should we talk about Swaziland?
After the World Bank and the IMF, the UN praises Palestinian's developing institutions

Chilling video

An incredible video of Gbagbo's capture


Italian and French firm sizes

In the light of the recent realization that Lactalis was detaining 15% of Parmalat's shares, and then quickly rose this number to 29%(just below the threshold mandating takeover bid), there has been a lot of discussion on the relations between French and Italian firms. The main issue seems to be that France is not reciprocating the openness of Italy to French takeovers. One can look at the two lists made by l'Express of cross-border takeovers/stakes


Acquisitions ou prise de participation d'entreprises françaises en Italie
Lactalis : Parmalat (agroalimentaire) en cours et Galbani (agroalimentaire)
EDF : Edison (énergie) en cours
LVMH : Bulgari (luxe), Fendi (luxe), Emilio Pucci (luxe), Acqua di Parma (luxe), StefanoBi (luxe) Rossimoda (luxe), Tod's (luxe)
PPR : Gucci (luxe), Sergio Rossi (luxe), bottega veneta (luxe)
Auchan : SMA (dsitribution)
Carrefour : DiperDi (distribution)
BNP Paribas : BNL (finance)
Crédit agricole : Intesa Sanpaolo (finance), Cariparma (finance)
AXA : Monte dei Paschi di Siena (finance)
Bolloré : Mediobanca (finance), Generali (assurances), Premafin (finance), Pininfarina (automobile)
Groupama : Mediobanca (finance)
GDF-Suez : Acea (services publics)
Air France-KLM : Alitalia
--
Acquisitions ou prises de participation d'entreprises italiennes en France
Italcementi : Ciments français (construction)
Maurizio Borletti : Groupe Printemps (distribution)
Generali : La France (assurances), Athena (GPA, proxima) (finance), Prudence vie, Continent Assurances, Zurich (finance et assurances)
ENI : Altergaz (énergie)
Campari : Wild Turkey (agroalimentaire)
Delfin : Foncières des régions (immobilier) 

Likewise, french invesments in italian firms reached 36bn euros in the last 5 years while the reverse flow was only 3bn, even if Italy was the 4th source of FDI in 2010, a record year for France when FDI rose 22% year on year. The main example of the asymmetry, and one that seems to be mentioned in Italy, is the Villepin's government not-so-subtle protection of Suez in 2006

In 2006, the French government engineered a merger between the water utility Suez and Gaz de France to prevent Suez from being acquired by Enel, the Italian energy giant.
That same year, BNP Paribas of France bought Italy’s Banca Nazionale del Lavoro. In 2009, Air France-KLM took a minority stake in the Italian flag carrier Alitalia. And this month, LVMH Moët Hennessy Louis Vuitton, the French luxury goods conglomerate, announced that it would buy the Italian jeweler Bulgari.

The main thing I have heard to explain the recent events is the difference in sizes between French and Italian firms. In a recent podcast on France Culture, I understood that France has a deficit in its numbers of Small and Medium-Sized Entreprises(SME) while Italy had a deficit in large firms(it is mentioned in the Economist of this week). Nicolas Baverez mentioned that France has 4350 SME between 250 and 5000 employees, including 3000 subsidiaries of large firms, while except for Fiat & Generali, Italy does not have a lot of big firms. One of the paper I mentioned below states that in 1998, the average firm size in Italy was half the European average and "average size is consistently smaller even within fairly narrowly defined sectors"., so that the difference is not due to sectoral specialization

For  now, I don't have a lot of interesting things to say. The question is just: Why? The first paper I stumbled upon tries to understand the small average size of Italian firms by investigating the impact of employment protection legislation. However, the results are negative
Our results show that EPL does influence firm size distribution, but that its effects are quantitatively modest: average firm size would increase by less than 1% when removing the threshold effect. 
Another paper might provide some ideas:

We contrast firms that continue to be managed within the family by the heirs to the founders with firms in which the management is passed on to outsiders.(...)We find that the maintenance of management within the family has a negative impact on the firm’s performance


One paper and a 2008 article by the WSJ explains that small Italian firms are actually benefiting from globalization and are doing great. From the paper:
small Italian firms have been very successful in the age of globalization, better able to take advantage of their small size by means of flexible strategies to innovate, invest and increase their export.
and from the WSJ
 Once thought too small to survive in a global market, these companies have carved out niches around the world. According to the latest available figures, Italy's share of the global export market rose by 6.1% in the first half of 2007, compared with the same period a year earlier.
In any case, I'll post some stuff if I find some explanations. For now, you can have a look at some data description with some emphasis on Italy in a 1999 paper

Russia Post of the day

Another take on the Medvedev-Putin feud

Tuesday, April 12, 2011

On Prices - Again? YES AGAIN AND IT'S NOT OVER

From a new Chicago Fed Letter:

The shares of firm costs accounted for by energy and commodities are no large and, in fact, have fallen over time. Moreover, at least in the case of oil, price increases tend to slow the economy even without any policy rate increases. Of course, if commodity and energy prices were to lead to a general expectation of a broader increase in inflation,more substantial policy rate increases would be justified. But assuming there is a generally high degree of centralbank credibility, there is no reason for such expectations to develop—in fact, in the post-Volcker period, there have been no signs that they typically do.
The most interesting graph or below. The letter looks at the impact of a commodity price shock(4 graphs on top) and oil price shock(4 graphs at the bottom) on the federal fund rate and, more importantly, the core prices. They compare the responses in the pre and post-Volcker era. The difference is amazing: core inflation does not respond at all in the post-Volcker era. The main driver of the weak relation between headline inflation and core inflation could thus be the credibility of the Central Bank. The channel through which this would play is not clear to me, and the letter is quite vague on it to, in my opinion. From the graphs, what we see is that in the post-Volcker era, a shock to energy or food prices was not followed by monetary tightening, and that even without monetary tightening, core inflation was stable.
The last disclaimer is that, as I said earlier(I think), this is not completely informative for the European case because of, for instance, the fact that oil is priced in dollar. In any case, the short letter is worth reading.


Ah, Hollywood

Yes, it's a slow blogging week.

Eric Barker at Barking Up the Wrong Tree always has interesting links to fancy research papers. In the last 2 days, two papers caught my eye. The two papers looked at gender differences in romanticism. The first paper  directly asked the question "who is the most romantic"
Men were generally more romantic than women, and femininity was a stronger predictor of romanticism than was masculinity
The second paper was more targeted and looked at who says "I love you" first, and who feels better after hearing it. Once again,
Across 6 studies testing current and former romantic relationships, we found that although people think that women are the first to confess love and feel happier when they receive such confessions, it is actually men who confess love first and feel happier when receiving confessions
Of course, those things are prone to, for instance, to some kind of publication bias: the results sound "counterintuitive" or seem to oppose the "common wisdom". In any case, I thought that was fun. Also, some movies should look into that. Especially when Gerard Butler is in them.

Monday, April 11, 2011

Question

Quick question. In today's New York Times, an article about the misinformation campaign organized by the Gaddafi regime has this rather interesting paragraph
 the Qaddafi government’s most honest trait might be its lack of pretense to credibility or legitimacy. It lies, but it does not try to be convincing or even consistent.
It is interesting, but no answer is given in the article. How can that be?

Sunday, April 10, 2011

Middle-East follow up

I mentioned the recent skirmishes in Gaza in a recent post. The NYT follows up on the bus attack:
Hamas said it fired at the bus because Israel had killed three militants last week, but it said Saturday that it did not know the bus was carrying children.
So it seems that Hamas indeed targeted the bus. A previous article was mentioning that all the children but one got out of the bus at a stop before the attack took place, which would give some credence to Hamas' statement. But that's still attacking a school bus, I don't know how you can attack it without being 100% sure there are no children in there. Also, Hamas must have known that usually, you need a driver to drive a bus, and the driver of a school bus is hardly a Mossad operative or a definite member of the IDF.

You can read the NYT article, it also mentions an Israeli attack that killed civilians, while palestinians in the area witnessed no attack originating from there.

Everything's going well

The objectives of the military intervention in Libya

I have been quite puzzled by the back and forth between rebels and Gaddafi loyalists on the Mediterranean coast of Libya, even after the UN/NATO strikes. It reminded me of the feeling you have when you read the accounts of the WWII battles there, where because of its geographical characteristics, you can advance and retreat really fast in those regions. However, with western firepower, how can the regime loyalists still wage strong attacks on the first large city west of Benghazi, Adjabiya?

An article in today's New York Times gave an interesting set of related facts

First, NATO is not completely taking the side of the rebels. That might be warranted, given the account of the killing of a potential Gaddafi loyalist mentioned in the article. The main point here was this tidbit:
two NATO fighter jets working to maintain a no-fly zone forced a rebel pilot who had taken off in a Libyan Air Force MiG-23 fighter to return to Benina Air Base outside of Benghazi. 
Once again, it is not clear what is really going on, but this plays well with  the theoretical goal of the mission in Libya: Gaddafi's loyalists are "allowed" to advance(of course, there are other factors, such as weather, the transition to NATO, the fact that Gaddafi loyalists changed vehicles and weapons to be less distinguishable from the eastern rebels), and the rebels are not favored in the implementation of the no-fly zone.

Second, and related to this story, the article quotes a spokesman for the National Security Council
“The president has been very clear from the outset that our military effort has been focused on civilian protection, particularly in protecting the people of Benghazi, as well as working to avert a humanitarian crisis in other major population centers.”

There is a big stress on Benghazi, and that should probably remind us of the speech Barack Obama made after the UN agreement, comparing Benghazi to Charlotte in terms of population. The point here is that even if some people have mentioned that the actual mission was to topple Gaddafi, it seems that the intervening forces are actually limiting themselves to exactly what was mentioned in the resolution and stressed by Barack Obama.  Note the quote from the NATO operation’s commander in Naples
[He]was silent on the government troops’ advance on Ajdabiya, except to note that allied warplanes had bombed Libyan troops that attacked civilians.

Russian follow-up

The Economist has an article summarizing the situation between Medvedev and Putin in Libya, related to one of my post of last week. To summarize, there are three recent developments that are pointing to a imminent showdown. Note that I don't understand the third:
- Medvedev rebuked Putin on Libya(see my discussion on the post here). One thing I did not mention was that
Mr Medvedev’s team managed to reverse the coverage of Libya on Channel One, Russia’s main television channel, which is controlled by Mr Putin’s friends. It apparently took just one telephone call from the Kremlin to switch the tone from vehemently anti-Western to broadly neutral 
- The Rosneft story mentioned on my post seems to be part or a larger plan
On March 30th Mr Medvedev ordered government ministers to vacate their seats on the boards of state firms. He set a deadline of October 

- Finally, the point I don't understand:
A final, if more indirect, sign of political infighting is a reshuffling of some assets (roads, television, energy) into the hands of Mr Putin’s friends and acquaintances. 
Interestingly, the article then focuses on the growing unpopularity of the two men, and the government mistrust sentiment rising in Russia:
Opinion polls show a drop in both Mr Putin’s and Mr Medvedev’s ratings. An increasing number of Russians say that their country is moving in the wrong direction.(...)A report by the Centre for Strategic Research, a think-tank close to the government, says that people’s mistrust of the system as a whole is growing; that the Kremlin is losing legitimacy; and that a political crisis in Russia is now under way. 

From a description of the report in the Telegraph
The past year has seen an onset of a "political crisis" in Russia as ratings of Mr Medvedev, Mr Putin, and the ruling party United Russia fell by 12, 21, and 18 per cent, respectively, it said. 

Saturday, April 9, 2011

International intervention strategy

I had an interesting discussion with an awesome person about the intervention strategy of westerncountries. All started from this blog post

Just to note that, when you think of what's gone on in Libya and Cote d'Ivoire, the logical consequence of the combination of:
1) There are situations which would warrant our intervention everywhere
and
2) Of course we cannot intervene everywhere
is
3) We can do whatever we like.

Now, let us put this in the words of a model. The fact that western countries cannot intervene everywhere they would like to comes from something like a budget constraint, say they have W to invest in war.
Those countries would like to intervene in all countries where the atrocities committed by the dictator, rebellion forces, etc... are above a certain level. Assume, once again, that you can measure this thing by a number: the western countries want to intervene if the level of atrocities is above a level X. Probably more practically, assume that X is the level above which the UN actually intervenes(i.e. China and Russia abstain, western countries except Germany all vote to intervene)

If you have multiple conflicts, humanitarian catastrophes, etc..., there will not be enough money to cover all the things the western countries want to do. So there's a choice to make.  How do you do it?

One idea is to raise the level of X above which you intervene. You will intervene if the level of atrocities is above Y>X. Now, this means that any dictator aware of that for instance, can raise the level of atrocities.
Another possible strategy is to randomize over all conflicts with atrocities above X. This might be good, because dictators below Y might not want to reach Y, if the marginal gain in raising the level of atrocities is higher than the marginal increase in the probability of intervention. The drawback is that because of the budget constraint, there is also a positive probability that the countries will not intervene in areas where the level of atrocities is really high.

That is, in my opinion, tremendously interesting. One extension of this would be to look at the impact of uncertainty, what if the dictator and the western countries observe the variables with noise? What are the impacts? One could think, for instance, that western countries are more risk averse than old dictators at the end of their term. Think of the consequences of the war in Iraq, or the fact that in a democracy it might be harder to go to war.

Slow blogging period

It is going to be a slow blogging period until Tuesday, but to pass the time, here is a nice and funny ad for the French TV channel Canal +


The others are available via Ads of the World

Friday, April 8, 2011

On Prices

Following yesterday's post, note that
In Spain
 the core inflation rate turned negative to - 0.1% on an annual basis from 0.2% in March.


From Reuters yesterday
Domestically generated inflation in the euro zone is subdued(...) the European Union's executive said that the main reason for the acceleration of headline inflation -- to an annual rate of 2.6 percent in March -- was higher commodity and fuel prices.
 From Clearmoney, a graph of core vs. headline inflation until Feb 2011



Unit Labor costs have been subdued for the last 2 years(see the red line). Data goes to 2010Q4

Kofi Annan

I mentioned that I wanted Kofi Annan's take on the UN intervention in Libya and Cote d'Ivoire. Related to that, I was actually sent a reference to  one statement on March 24th, related to Cote d'Ivoire. I can't see the FT piece from which it is taken from, but the final statement is open to interpretation


National leaders must learn that to provide democratic legitimacy, elections must be free and fair. The international community must understand that every time it turns a blind eye to electoral abuse, it becomes complicit in degrading democracy’s potential. Short-term expediency cannot be allowed to overshadow the longer-term impact on security, development and human rights. We have to raise the costs for those tempted to rig or steal polls.
The bravery of pro-democracy protesters in Tunisia, Egypt, Libya and other countries reminds us of what is at stake. It would be a terrible betrayal if their hopes were to be denied by corrupt or rigged elections later this year. It is time for us all to stand up for the integrity of elections.

Lybian Signalling

I have been unconfortable with the assessment that the UN intervention in Libya with US support would send a signal to other countries and powerful leaders that they should never give up their nuclear programs if they do not want to be attacked. For instance, Mark Sheetz on Stephen Walt'sblog(who both know far more about everything that I do, this must be said) argues
The key lesson that states like Iran, Syria, and Saudi Arabia will draw from the military intervention in Libya is to keep a nuclear development program if you have one and go get one if you do not.
The reason I don't like this argument is that I can also see the other effect: by not doing anything in Libya, we can build a story where the UN is then seen as toothless, so that Iran or North Korea do not have to fear any military intervention, or any strong sanctions, because Russia and/or China would not go along. The passing or resolution 1973 with 10 countries voting in favor and 5 abstaining meant that a sufficiently intense Western world could overcome Russia or China's reluctance to intervene in foreign countries for humanitarian reasons.

One administration official sums up the argument
“You could argue it either way,” said one official who was involved in the Libya debate and spoke on the condition of anonymity. “Maybe it would encourage them to do what they have failed to do for years: come to the negotiating table. But you could also argue that it would play to the hard-liners, who say the only real protection against America and Israel is getting a bomb, and getting it fast.”

So, I welcomed with overwhelming happiness the take of Sandeep Baliga(from whom I got the paragraph above, you should read his blog), where he tried to look at what signalling would be stronger depending on different "parameters". This is a simple story: x has an effect on y through channel 1 and channel 2, when is channel 1 stronger, when is channel 2 stronger? I think everything is there(emphasis mine):
we were trying to signal “If you play ball with us, we play ball with you” (e.g. Libya) but “If you have or might have WMDs, we will get you” (e.g. Iraq).  In addition, our approach to North Korea signals “If you are actually nuclear, we pretty much leave you alone”
So, will all this information at hand, the Iranians can draw a simple graph.  On the x-axis, the mullahs can plot the level of WMD development; on the y-axis the can plot the probability of U.S. intervention.  For high level of WMD development,  the probability of intervention is low (the North Korea example); for medium, the probability of intervention is high (the Iraq example) and for low level of WMDs it is high when circumstances dictate (the Libya example).
So, for the implications on Iran, the impact of the Iranian nuclear program will actually depend on what the US, and probably France, Britain and Germany, think the level of development of the program is, but more importantly, what Iran thinks the western countries think this level is. If they believe that the US thinks their program is at a low level of development, then they can fear retaliation. Interestingly, this would mean that they have an incentive to leak some information on the fact that the program is quite developed.

On the uncertainty about both "players' belief", one can think of what happened when Iran announced in September 2009 the development of a previously unknown nuclear facility at Qum just before Barack Obama announced that their spies found it. A short piece at IntelNews sums up what happened
on the morning of September 25[2009], that is, just hours before US President Barack Obama made the revelation, Iran pre-emptied him with a formal letter to the International Atomic Energy Agency, in which it volunteered the information that it has built a facility inside a mountain near the city of Qum

Yay Middle East News

As you might have heard, the Palestinian Israeli conflict has intensified in the last couple of weeks. There were a couple of articles in today's New York Times that were showing something quite interesting. As always with this topic, of course, everything should be qualified, etc etc...

This being said, the two articles:
  • First, Hamas launched a antitank missile on a school bus. The key paragraphs of the article, for me, were the Israeli assessment of the attack as a targeted attack on the bus
Short-range, inaccurate rockets and mortar shells frequently fall in Israeli territory along the border with Gaza, occasionally hitting houses but more often landing on open ground.
But Israeli security officials said that the Kornet antitank missile fired on Thursday was an advanced and accurate weapon deliberately aimed at the bus. 

  • The second article was on Israel being upset at the potential recognition of a Palestinian state by the UN, in addition to the statement by the IMF that "it viewed the authority as “now able to conduct the sound economic policies expected of a future well-functioning Palestinian state, given its solid track record in reforms and institution-building in the public finance and financial areas.”" The link with the first bullet point is actually the recent op-ed of Richard Goldstone in the Washington Post, arguing that 
 I regret that our fact-finding mission did not have such evidence explaining the circumstances in which we said civilians in Gaza were targeted, because it probably would have influenced our findings about intentionality and war crimes.
The Hamas attack was allegedly a deliberate attack towards civilians. Obviously, that depends on our knowledge(which I don't have) of what the "Kornet antitank missile" is, and its actual precision. From Wikipedia
Since the Kornet homing system has a thermal component, it is reasonable to assume that it hit the rear  of the bus by locking on to the heat of the rear mounted engine.
Meanwhile, the validity of the  Goldstone report's initial statement that Israel deliberately killed civilians in the 2009 Gaza war, is questioned by its main author. Note that a lot of the other criticisms of Israel are maintained: from the NYT piece:
his essay did not condemn or retract most of the report, which accused Israel of misusing certain weapons, improperly attacking hospitals and United Nations buildings and aiming at things like food production and water installations. He also noted that Israel had refused to cooperate with the inquiry.
 Those two news seem important in the quest for legitimacy and moral high ground on both sides.

Thursday, April 7, 2011

FT Tidbits

In the Financial Times today, a couple of things caught my eyes. I can't link to the article due to the paywall, but hopefully, the statements will be clear.
- There was talk of a "two-track" economy in Ireland: the export-sector tens to do well while the domestic economy is facing credit constraints. The part that I found interesting was the introduction:
Garlester has a big order book, but local banks will not stump up the finance. 
Garlester is a "Small or Medium Enterprise"(SME). So this is an example for one firm, and the FT is not really expanding on the "order book" part. We can just read that the SME are credit constrained. You can have a look at the report from the Irish Small and Medium Enterprise Association(ISME), where we see that
  • 25% of respondents had requested a change in their banking facilities, similar to the previous quarter but significantly down on the corresponding period last year. 
  • 48% of companies who applied for funding in the last three months were refused credit by their banks, compared to 33% in the previous quarter.
  •  79% of firms outlined that the banks are making it more difficult for SMEs to access finance, a deterioration on the 68% in the previous quarter.



 The first bullet point seems to contradict the "full order book" story, in the sense that the number of firms asking for credit is low. The credit story is picked up in the second and third point. Still, I am not clear on the first bullet point, in the sense that I am not sure it is explicitly linked to a low demand from firms. What is sure is that the US, the access to credit is fine, but demand is still quite low, though consumption has picked up. I am trying to find more things on this. I'll come back to that later.
- The second issue was about the different central bank behavior on both sides of the Atlantic. A short comment mentions that the Fed and the Bank of England consider that prices are soaring because of temporary shocks on which monetary policy can have no impact, while the ECB and the People's Bank of China consider that loose monetary policy is responsible for the spike in food prices. The journalist says, rather vaguely, that
much of the world still operates as a US dollar block, so emerging economies are indeed affected by monetary decisions in Washington
The conclusion is that "oil is the new interest rate": because the Fed and the BoE are not changing their interest rates, the cyclicality is transfered to commodity prices.

There are a couple of things here, that I'll write quickly, and I'll try to see if I can find data later(so for now, do not take this as my definitive point.). First, unemployment is still high in Europe(though it is at a low point in Germany), and wage growth has not picked up. So a "loose monetary policy" from the ECB would have no large impact on inflation. Second, the article seems to consider import prices for Europe, since he mentions oil and dollarization. However, there is no link to the domestic prices, and given that Europe intra-trade account for 2/3 of the overall European trade, I don't see how the Fed policy could impact European inflation by a lot.
Also, I REALLY don't understand how the ECB and the PoBC can be put in the same basket. It's not like the two are facing the same economy, the same housing market or the same inflation or the same growth

I've always felt that the increase in food prices was driven by the drought in China and Russia, and that the rise in oil prices was due to a rise in demand from developing countries. So I am a bit reluctant to accept the argument made by the FT vaguely above, but I should look into this.
For now, I'll refer to Krugman. First, core inflation is not rising, but headline inflation is. Core inflation is the focus of the Fed, headline inflation is the focus of the ECB. However, there is no clear link between headline inflation and core inflation if the drivers of headline inflation are temporary. For instance:
 other things we buy, even if they seem to have a large commodity component, are actually made mainly out of labor and other sources of value-added.
Krugman follows by showing that wheat accounts for around 12% of the cost of bread.

Second, core inflation is stable:
DESCRIPTION

Data only goes to 2010M12, but I'll try to get data on 2011Q1. Third, I think, wages are not growing. I'll post data on this if i find them. So the sticky prices and wages are not moving. Krugman:
 it's [this] category that is subject to inflation inertia, and therefore where you have to worry that inflation or deflation can get baked into the economy, and become hard to undo.
More precisely

The key thing about these less flexible prices — the insight that got Ned Phelps his Nobel — is that because they aren’t revised very often, they’re set with future inflation in mind. Suppose that I’m setting my price for the next year, and that I expect the overall level of prices — including things like the average price of competing goods — to rise 10 percent over the course of the year. Then I’m probably going to set my price about 5 percent higher than I would if I were only taking current conditions into account.
And that’s not the whole story: because temporarily fixed prices are only revised at intervals, their resets often involve catchup. Again, suppose that I set my prices once a year, and there’s an overall inflation rate of 10 percent. Then at the time I reset my prices, they’ll probably be about 5 percent lower than they “should” be; add that effect to the anticipation of future inflation, and I’ll probably mark up my price by 10 percent — even if supply and demand are more or less balanced right now.
Now imagine an economy in which everyone is doing this. What this tells us is that inflation tends to be self-perpetuating, unless there’s a big excess of either supply or demand. In particular, once expectations of, say, persistent 10 percent inflation have become “embedded” in the economy, it will take a major period of slack — years of high unemployment — to get that rate down. Case in point: the extremely expensive disinflation of the early 1980s.


The bottom line is: I don't buy the impact of the US monetary policy on European inflation

- Finally, there is a nice summary of what's going on in Russia, related to what I talked about yesterday.
In it, Neil Buckley writes
It is clear the starting gun has been fired for presidential elections just under a year from now. (...) Opinion polls show support for both men, still high by western standards, has fallen to its lowest for several years
The journalist sees two possible reasons for the recent skirmishes between the top Russian couple: it is either positioning for the next election(which sounds intuitive), but it could also be "an attempt to stimulate interest among Russians who are wearying of tightly controlled politics(...) The ostling may be an attempt to prevent either figure becoming a lame duck"

Anyway, as I said, it's something to follow, I think.

Wednesday, April 6, 2011

AMA Request

I'd like to see Kofi Annan discuss the two recent conflicts in which the UN got involved. To be sure that it's not just due to Ban Ki-Moon, but really to the responsibility to protect rule and to the risk of civilian deaths in Cote d'Ivoire and Libya.

Dictator Signaling

In the last couple of weeks, I have been surprised at some communication choices made by dictators/ not-real-dictators-but-well-powerful-guys. The more interesting cases were the interviews given by Saif al-Islam Gadhafi and Muammar Gaddafi to Western media. FOr Saif al-Islam, well, he's always on TV. His father is there less frequently, but still gives interviews.

Yesterday, Laurent Gbagbo followed the leader, leader, by giving an awkward phone interview on LCI.




Why would they give interviews to medias in countries where their support is really weak? I cannot see how this could change western opinion, but I am willing to see the arguments for that. A friend mentioned that a more likely story is that they are trying to signal to their inner circle(say, businessmen or political friends), that they are still in charge, that they are still have contacts, and that everything is normal. Following the defections of foreign ambassadors, of ministers and army strongmen last month, and of the foreign minister last week, this makes sense to me in the case of Gaddafi(i.e., there is a risk of defection).  I don't know enough about Cote d'Ivoire to give examples.

This explanation does not account, though, for the interview that the president of Georgia gave to French TV in 2008 when Georgia was at war against Russia over some Northern provinces. I thought he gave one to France 2, but I can't find the link. In any case, he gave another interview to France 24. The interesting thing about the interview I can't find is that he was talking in French. Anyway... The type of conflict was of a different sort, and Saakashvili had a friendly relationship with France and Sarkozy at the time. So the goal of the interview was probably different.

What's going on in Russia?

There have been two interesting datapoints(at least) concerning the Putin-Medvedev relation in Russia. Two datapoints: that makes a line.

The first stop is Russia's behavior on Libya. Medvedev has been unusually harsh in advocating for Russia's position on the UN resolution which had been criticized by Putin. From the article at the link,

Mr. Putin said the United Nations Security Council resolution that authorized the attacks was “deficient and flawed.”(...)In general, it reminds me of a medieval call for a crusade
Medvedev responded(remarks available here):

 It is inadmissible to say anything that could lead to a clash of civilisations, talk of ‘crusades’ and so on.
It is interesting to see that there has been no mention of Putin in Medvedev's remarks, probably for strategic ambiguity, but the comments were pretty clear.

So that's it for the first datapoint. If you want more coverage about the "crusade" in Libya, the gaffe-prone new interior minister in France, Claude Gueant, was proud that Nicolas Sarkozy was

heading the crusade to mobilzie the UN security Council, the Arab League and the African Union


and then explains that he was using the second definition of "crusades" in the french dictionaries. Beautiful




Back to Russia. The second datapoint is the removal of some ministers from the direction of Rosneft. This includes the Deputy Prime Minister. Medvedev's economic aide explains that
In many cases these companies’ boards of directors are led by the deputy prime minister or minister who is responsible for regulating the industry

Interestingly, the Financial Times, in an article published today that I can't find on the intertubes, was saying that this was the first sign of a division between Medvedev and Putin, without referring to Libya. In any case, those two datapoints are, in my opinion, immensely interesting, and I don't understand why it is not more of a big deal in western media. There's something happening!

Tuesday, April 5, 2011

Best budget ever

From Ryan Avent, Best budget ever:

Mr Ryan's plan will bring the unemployment rate down to 6.4% next year, 4.0% in 2015, and 2.8% in 2021.
Ahah

Monday, April 4, 2011

Is Rand Paul awesome?

I had an interesting discussion with a fellow economist friend on Rand Paul and Mike Lee's decision to append an amendment to prevent a President to unilaterally declare military action, related to the discussion on President Obama's legitimacy in the operations in Libya.

The conversation started awesomely, actually, with a video of Anthony Weiner at the Congressional Correspondents' Dinner. Except for a joke about, you guessed it, Rand Paul, I thought the bit was quite good

So after that, I wanted to see Rand Paul's performance. He blew it, though there were some nice jokes.
My friend then linked to this article from firedoglake referring to Senators Rand Paul and Mike Lee's threat to filibuster everything in the Senate until a vote on Barack Obama's 2007 infamous statement was resolved. The  statement is:

The President does not have the power to unilaterally authorize a military attack in a situation that does not involve an actual or imminent threat to the nation.
My first reaction was that the two Senators were a bit hypocritical since a voice vote on a UN-led Libyan intervention had been taken, through Senate Resolution 85. Now, there are a couple of problem with this. The resolution is "non-binding". Also, it's a voice vote resolution. Senators can vote by e-mail.  Still, it was an unanimous consent vote. (A biased review of the process is given by Lawrence O'Donnell in the Last Word of last Friday. Just try not to listen to the bias. O'Donnell is probably worth listening to, given that he's been a legislative aide in the Senate for 7 years and a freaking writer of the West Wing). It seems to me that if the two senators really cared about the issue, they could have voted Nay. The problem is that the Resolution specifically says

Now, therefore, be it Resolved, That the United States Senate (...) (7)urges the United Nations Security Council to take such further action as may be necessary to protect civilians in Libya from attack, including the possible imposition of a no-fly zone over Libyan territory;
which sounds like a pretty good endorsement of Obama's strategy.

Once again, the question is not, for me, whether Rand Paul and Mike Lee have the right of doing what they are doing. I think there is no problem with that. I can even agree that the question is not whether Rand Paul and Mike Lee are hypocrites.

The fact is, I believe that Rand Paul especially means what he is saying. The Pauls are not really fond of war. I think that Rand Paul's action was at the very least counter-productive. Plenty of Democrats were uncomfortable with Obama's decisions on Libya. A review of the process leading to military intervention was maybe possible. Now, with the partisan brinkmanship and the sarcastic inclusion of Obama's quote, I can't see how a legitimate question on the lack of public debate and open discussion on the military intervention can be addressed. That is a shame. A SHAME

Sunday, April 3, 2011

The military goal in Libya is not to topple Gaddafi

The discussion on the goals of the military intervention in Libya have been a bit confusing. The Obama administration, along with its allies on this conflict, have usually mentioned that they want Gaddafi out of power.
However, the Obama administration has also stressed again and again that the goal of the military intervention was not to topple Gaddafi but to protect civilians. One of the most important part of last week's speech was,

while our military mission is narrowly focused on saving lives, we continue to pursue the broader goal of a Libya that belongs not to a dictator but to its people.

 The speed of the UN resolution and of the first French fighters' strikes was driven by the potential massacre of civilians in Benghazi. Interestingly, NATO and the Obama admin were probably making the point clear before the week-end

“We’ve been conveying a message to the rebels that we will be compelled to defend civilians, whether pro-Qaddafi or pro-opposition,” said a senior Obama administration official.
 There has been a lot of talk on the fact that the military intervention meant taking a position in a civil war in Libya, and that that would lead to a long indefinite war there. Though the latter might be true, I think that the premise is wrong: the military intervention is not directly taking side in a civil war. The fact is, the libyan  rebels are not able, and have not threatened, to launch a massacre on the scale Gaddafi promised before throwing his troops at Benghazi, a city of 700000 people. This is also probably a reason for which there are no talk of intervening in other countries of the Arabian peninsula such as Bahrein or Yemen(of course, not the only reason), or in Cote d'Ivoire. Though the events there seem to be quite dramatic, the scale of the crackdowns/civilian deaths, as unfortunate it is to say this, have probably  not outweigh the uncertainty and danger of running a military operation in those countries. If the civil war in Cote d'Ivoire does not come to an end quickly, the recent massacre in Duékoué will probably start changing minds.

Firm Size and the Business Cycle

Recently, a friend of mine has been working on the different behavior of firms depending on their size(at least I think so, I actually only looked at the graphs he used, because reading stuff is exhausting).

Calculated Risk had a nice graph in a post about small businesses' hiring plans. The graph is here. An interesting tidbit is given by Bill McBride in his last paragraph

Small businesses have a larger percentage of real estate and retail related companies than the overall economy. With the high percentage of real estate (including small construction companies), I expect small business hiring to be slow to recover in this cycle. 
The difference in recession types(e.g. 00's construction vs. 90's internet) should provide a "nice" variation to look at the behavior of firms depending on their size. If a recession affects a sector where firms are large, is the recovery stronger and faster? Moreover, if we think that large firms are more linked to the performance of international markets and the health of foreign countries, what is the impact of more globalization(in the sense of a multi-country production process(vertical), or multi-country distribution network(horizontal)) on the shape of the recoveries?

Related, a paper by Pagano and Schivardi looked at firm size by sectors in Europe. Their finding was that


The ranking of sectors is as expected, with light manufacturing, services and construction  characterized by a small average size, chemical, petroleum, finance and transportation equipment at the other extreme and food and trade around the average value.

But


[T]he same sector can be characterized by very different size structures in different countries(...) [W]e find that the sectors that have a most disperse size structure across our set of countries are Hotels & Restaurants, Wood, Construction and Trade. Quite interestingly, all these sectors are non-manufacturing, which suggests that in manufacturing technological factors have a stronger role in determining optimal scale

It's a shame that this paper had no graphs...