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Wednesday, April 30, 2008

 

Zimbabwe - Recipe for disaster

Zimbabwe is currently in an economic crisis. According to the CIA World Factbook, inflation in the private sector rages well above 100,000%. The country is suffering from a -6% growth rate, 80% unemployment, and 68% of the population is below the poverty line. “Botswana built electric fences and South Africa has placed military along the border to stem the flow of thousands of Zimbabweans fleeing to find work and escape political persecution (CIA World Factbook).” How did Zimbabweans find themselves in this mess?

Robert Mugabe has been the president of Zimbabwe since it declared independence from Great Britain in 1980. Under his leadership, Mugabe has turned the country into the poster child for political and economic upheaval. Beginning in 2002, Mugabe forced thousands of white farmers off their land and gave the farms to his party leaders and cronies. Unfortunately, the new land lords were uneducated in farming. The resulting crop failures lead to severe food shortages. This seizure of land is only one example of the president’s property and human rights violations. Beyond this, Mugabe continues to print more money to pay off the national debt which only fans the flame of inflation. In spite of the economic turmoil, Mugabe has held his position of power through government-backed violence and rigged election.

In his book Power and Prosperity, Mancur Olson outlines his research on the conditions required for a nation to be prosperous. Among his major themes is the idea that economic prosperity is nearly impossible in the presence of corruption, government predation, and lack of private property rights. Clearly, Zimbabwe’s President Mugabe blatantly practices corruption, government-backed violence and predation, and disregards all private property rights. Is it any wonder that Zimbabwe is in such dire economic straits?

 

The Incentives of War

Olson offers powerful insights on why it is sometimes necessary to go to war in order to exhibit our military might – for that exhibition of strength and military dominance may help to keep others in line. We must occasionally prove that we can “organize the greatest capacity for violence” in order to maintain our status as a world superpower (11). I can appreciate the fact that we must carry a “big stick” so that others will not pick on us, but I question whether or not it is truly necessary for us to spend almost as much as the rest of the world combined to protect our nation. According to the Stockholm International Peace Research Institute, in 2005 “the USA was responsible for 48 percent of the world total” military expenditures, and was “distantly followed by the UK, France, Japan and China with 4–5 percent each”. This leads me to believe that there may be something wrong with the financial incentives that are built into the system. http://yearbook2006.sipri.org/chap8/chap8

After reading Olson I have a greater understanding as to why we go to war even when it seems that there is more opposition to war than support. His Logic of Collective Action provides powerful insights into this issue. The forces that advocate going to war are much stronger and well organized than those who oppose the war, and they certainly have a lot to gain individually since the multi-billion dollar defense contracts are spread over such a small number of corporations. Professor Eubanks is always pointing out that it all boils down to incentives, and the incentives for these multi-billion corporations are certainly stacked in favor of war. In the 2005 documentary “Why We Fight,” Chalmers Johnson points out “the defense budget is ¾ of a trillion dollars. When war becomes that profitable you are going to see more of it.” War certainly has been extremely profitable for a few, and those few sure seem to carry a lot of weight in Washington. http://www.sonyclassics.com/whywefight/

I believe the excessive expenditure of our taxpayer dollars is due to major flaws with the incentive system. These corporations have little to gain in times of peace, especially if there is no perceived threat to our national security. The vast majority of us find peace to be more profitable than war (in the form of lower taxes), but unfortunately this is not the case for the defense contractors who have greater profits to gain in times of war and therefore, more incentives to promote war. Until we solve the incentive issue it seems likely that a small segment of the population will advocate war even if is it not in the best interest of our country…and you and I will end up paying for it.

 

Anarchy: The Nonexistent State

I’ve been considering Alex’s contention that Olson is wrong to simply assume banditry is to occur, or exists as some sort of necessary evil. At the time this argument was written off with the assurance that Olson understood the reality of the situation, which is that bandits will naturally crop up. However, in giving more thought to the idea I’ve realized Olson’s theories could well be applied to the question of anarchy, and explain why no stable anarchist state has ever existed or is likely too.

Let’s begin with the basics which Olson explicitly covered. The starting point which he theorizes is akin to Hobbes’s state of nature, or a sort of dog eat dog world for those unfamiliar with the philosopher. In this world there might well be productive activity going on, but there’s also a large amount of stealing because, for many, taking from another represents a way to better themselves in an easier fashion then actual production. What’s more, since there’s no entity that exists to discourage the bad behavior, there’s no real reason not to act on these impulses, assuming the thieves, or roving bandits, believe they can overpower or in some way sneak by the person currently in the position of having.

From this the supposition is that some person, or perhaps group of people, is going to realize they have more power then than their neighbors and stand to consolidate even greater power if they flex a little muscle and do a little taking to finance themselves as stationary bandits, who continue to take from their particular area of power. Now, of course, these stationary bandits have an interest in protecting those under their swath of influence from other bandits, and governments, or at the very least protection rings, begin to form.

I think this is where Alex parts ways and seems to believe one of two things, either people need not accept these bandit kings and would prefer to be without them, or the consolidation of power doesn’t necessarily have to happen at all, and some form of a permanent anarchy state would be possible.

In regards to the first, I would have to disagree. People seem to like security of some fashion, and supposing a world where at least roving bandits abound, the average person seems more likely to prefer the stationary one. I think this is actually to better ensure the process of production. If the possibility exists of being wiped out at any given moment, and could occur any number of times it would have a freezing effect on most productive activity, because activities of this nature occur only because people believe themselves likely to reap the rewards. Thus a stationary bandit, who takes a portion of your production, but leaves you at least some of it, as well as protecting you from the threat of having none due to roving bandits, while perhaps not ideal, seems infinitely preferable to the likely alternative.

In terms of the permanent anarchist state, in order for it to exist, it would require individuals to be able to protect themselves from the bandits. But in order to do this that individual, or perhaps group of individuals working together, would need to display power greater then the bandits in order to scare them off. Where does this power come from, and how is it nurtured and maintained? More then likely through a process similar to that described above, because no individual could stand for long against the combined force of an opposing group of bandits, and any commonwealth formed to fight the bandits would require some sort of tax or wage garnishing (a form of banditry) enforced by the threat of the fighting power itself in order to avoid free riders. One may ask, why the need to avoid the free rider problem? The answer is because your opponents have avoided it, and are that much more powerful because of it. Unless you can face them on somewhat equal terms you’ve consigned yourself to failure.

Thus far I’ve avoided discussion of a world without bandits entirely, roaming or stationary, as well as the idea of an benevolent power that exists solely to fight the bandits. This is because imagining it ignores the incentives of human nature. Bandits exist because it is often easier to take then to produce, as discussed earlier, and moral conundrums about it just don’t enter the equation for every member of society. A benevolent power, that does not take, but fights the enemies may well exist for some period of time, but would be unlikely to last for the same reason there are bandits. Eventually those in charge are going to want to use the power to take because the incentives for it are strong, and they have the power to do so.

 

Legalize Marijuana

In class a few weeks ago we discussed the importance to distinguish self enforcing purchases from the ones enforced by the government. I think the main problem that lies with this is the illegal sector of the economy. The "black market" has to be self enforcing because they cannot rely on the government to uphold a sale, as they are all illegal. I think this fact has led to a lot of violence in this market, especially on the drug trade. People are getting injured and killed on a regular basis due to the fact they must enforce their own sales. The people who get caught selling these drugs are sent to prison where they have to become more violent just to survive. Something needs to change here. I am not suggesting legalizing all drugs, but I do think that legalizing marijuana would be a good idea as I think it would help reduce the amount of violence that goes on in the streets. The less illegal self enforcing sales there are the less violent of a society we will be.

Tuesday, April 29, 2008

 

A Question to Ask

Last week I was talking to a colleague/friend and I asked him what he thought our government was for. His response, though I was a little surprised, seemed par for what I would assume most Americans think what our government is for- "I think the governments responsibility is to make us more well off, to better our lives". Maybe a good experiment for this weeks discussion would be for you to ask as many people you know to tell you what they think our governments role should be in our daily lives.

A side note: he in turn asked me what I thought. When I told him that I thought the governments role was to protect our liberties and freedoms and to stay out of our lives, especially our economic ones, it was if he had never heard that before. Interesting.

Monday, April 28, 2008

 

I Suppose it Only Takes One

I have had this nagging question: in a nut shell, how can we trust the police? We have been discussing now for some time about how power comes about. My question has been if there was a revolution, per say, or a march on our Capital, what would keep the security (the ones with the power) from not joining the cause- what keeps a policeman loyal?

This article is about how the police are essentially corrupt, killing whenever they wish. I suppose it only takes one. Let's consider Olson and what we have learned. Assume that one cop ignores the rule of law and shoots, say a child rapist, and is concealed from the crime with help from his direct supervisor. This would definitely give the policeman incentives to continue taking the law into his own hands. Pretty soon, the entire force would be in a group that is able to do anything they want, seeing that they would have the greatest capacity for violence. I assume this is a way to see how the stationary bandit comes to power.

Maybe, the stationary bandit already has some power, like a supervisor, but does not have to show his force, but let those under him get away with using violence, while he lets it occur. If enough subordinates felt the supervisor would "ignore" there forceful evils, they would give the supervisor more power, creating a stationary bandit, if the supervisor asked them to do his "dirty work".

I wonder if this is consistent with what we have learned. I suggest that the stationary bandit(SB) does not use force himself, but by allowing it to happen, he becomes more powerful. I wonder, though, what would happen if the SB never showed force (i.e. killing someone) if one of the subordinates would "challenge" him with force. Or, maybe more simply, can an OZ really exist- does it take only one?

 

What Really Happens with Forecloseure

I just skimmed an article that talked about why I should be concerned if my neighbors house forecloses. Though I just skimmed the article, the just was that when a house becomes foreclosed, there is a spike in crime and drugs in the neighborhood. I suppose this may be true for most, but I think it is a fallacy to generalize for all. Here is how I think it should be.

Now, most of you know me by now and know I am the furthest from a socialist. However, I think this "housing mess" could be handled in a different way. The press sees this crisis as a cause for government intervention- how wrong. I suppose that we could think of the other homeowners in the area as a group. They all have a stake in the conditions of the houses around them- one house is trashy, property values decline. So in order for their property values to stay up, I would think that homeowners (in a non-covenant setting) in a neighborhood would look out for each other. When they would see a homeowner in trouble, they would help him out, not a government bailout! And if the house is foreclosed upon, helping keep up basic upkeep and keeping an eye out on the house would help to prevent drugs and crime from setting into the house.

I have a friend who is in such a situation and he keeps an eye on the foreclosed house. This, I think, shows how neighbors, and not government, can work together to bring prosperity to everyone in the neighborhood.

Sunday, April 27, 2008

 

The Russian Oil Taxes…… Ouch!

"It's never easy to find $1 trillion in investment capital, but the Russian government has made it hard for its oil industry to attract even a small part of that capital. The Kremlin has structured taxes so that most of the extraordinary rise in oil prices flows into government coffers, not oil-company profits.
When oil rises above $27 a barrel, the Russian government takes 80% of any additional revenue in taxes. That means at $67 a barrel, an oil company gets just $8 more a barrel in revenue than at $27. If the price climbs to $107 a barrel, the oil company's revenue increases by just $16 a barrel from what it was at $27 a barrel.
That may delight U.S. consumers who believe oil companies are making obscene windfall profits from soaring oil prices, but it hasn't made companies eager to sink their money into developing new oil in Russia.
The production decline in Russia would be serious enough if it were an isolated problem. But it's not. The same conjunction of geology and geopolitics is crimping production in Nigeria and Mexico."

the link to full article
http://articles.moneycentral.msn.com/Investing/JubaksJournal/WhyOilCouldHit180DollarsABarrel.aspx

This was an excerpt from a recent article link on the MSN website. Jubak was talking about how oil will go to $180 a barrel and most likely stay there. The most interesting part of the article I thought was this part. It’s hard to imagine that the Russian government has the tax system setup this way to really suck the life out of the oil industry not to mention the potential investors. Looking at it from a Power and Prosperity point of view we can clearly see the predation by the government. How will the oil industry grow and prosper with a government that takes 80% of the revenue? Most of the “greenies” here in America talk about getting off the dependence of oil. Over there the people should be talking about getting the government off the dependence of oil for revenue!

Add the money they bring in from the oil industry predation to the corruption and you get the Russian government. Wow, it’s so easy to see what Olson is talking about in Power and Prosperity. This could be one place the Russian government could fix to increase oil production and revenue for the firms and also increase investment. If the Russian government takes this amount in taxes from the oil industry, imagine what it takes in other industries. We do hear of the Russian come back, but imagine what it could do without this predation by the government.

 

Those Free Riding ______!

During time in between classes last week we had a discussion about how America is always fighting wars somewhat alone. It seems as though there is not really all that much involvement in conflicts by other countries that are a part of the “functioning core” as Barnett calls them. We see that American forces are stepping in to conflicts but we don’t here too much of France, Germany, Spain or Italy hoping on to the bandwagon to help out. Professor Eubanks had the idea that the number of soldiers in these countries probably have declined over the years because of the logic of collective action.
I took a look at the number of soldiers in the German army over the 90’s and early part of the 21’st century and found that there was a decline in the number of soldiers. At the beginning of the 90’s there were over 255,000 soldiers and by 2000 there were only 230,000.
Applying the logic of collective action to the number of soldiers seems to be proven true that the numbers would go down, but why? Well the answer is: they are free riding. Think of it this way, each country is part of a group of countries. As the number of countries in this group grows it becomes a large group. Well we all know that large groups do not function unless they offer selective incentives or have an element of coercion to force the countries to do things. Well if there are no selective incentives which there are none and each country cannot force another country to help out, then you will get free riders. I think that is what is happening now, America is stuck doing all the work well the free riding jerks are just sitting back and watching. There are a number of countries that could help out with rebuilding Iraq but no, you don’t hear of them really putting the large number of soldiers out there. All they do is complain about what we do. This is why their numbers have fallen, because they think America can do the work. Why have so many soldiers when it’s not going to match the numbers or power of the American forces? The logic of collective action rings true again. Large groups don’t work, and free riders always cruse along for the ride.

 

More Likely, Not Less

Recently MAX BOOT CONSIDERS comments on Admiral Fallon:
"What Fallon (and Barnett) don't seem to understand is that Fallon's very public assurances that America has no plans to use force against Iran embolden the mullahs to continue developing nuclear weapons and supporting terrorist groups that are killing American soldiers in Iraq and Afghanistan. It is highly improbable that, as the profile implies, the president had any secret plans to bomb Iran that Fallon put a stop to. But there is no doubt that the president wants to maintain pressure on Iran, and that's what Fallon has been undermining.

By irresponsibly taking the option of force off the table, Fallon makes it more likely, not less, that there will ultimately be an armed confrontation with Iran."
Considering Olson's Power & Prosperity what is your view of this assertion that Admiral Fallon made armed confrontation more likely, not less likely?

Thursday, April 17, 2008

 

Why are wages declining?

In thinking about Economic Policy Analysis, I found an interesting link.

http://www.newschool.edu/cepa/

Considering CEPA stands for Center for Economic Policy Analysis, I think I've struck gold!

In reading through some of the abstracts, I found an article:

Increasing Earnings Inequality and Unemployment in Developed Countries: Markets, Institutions and the ‘Unified Theory’
by David R. Howell (CEPA)

“Fundamentally, the demand for less-skilled workers appears to be declining faster than the number of less-skilled workers, and their wages are therefore drawn downward.”

OECD, OECD Jobs Study, Evidence and Explanations, Part I: (Paris:OECD, 1994), 30.

So what does this mean? Well, it's a question that will lead to my exploration and thus final paper, writing an actual policy analysis, but what I think it implies at this point is simply this. One side of the argument might argue that unskilled labor ought to be protected through policy and justified by this policy analysis. The other side might argue that through specialization, markets may emerge, causing shifts of those who are unskilled labor to actually develop a skill that would allow them to attain better prosperity.

Though aggregation is a dangerous thing to do, the logic of collective action suggests that people will voluntarily align with others to form a group, thus making aggregation justified. In this vein, if those in a position to emphasize certain points of agenda decide to move towards unskilled labor industries, then they may actually be causing harm; whereas if they were to offer incentives to the 'group' to specialize and work as skilled labor, they may actually prevent harm from occurring.

We've spoken of roving and stationary bandits in terms of government and power and prosperity, but what about in terms of international power and prosperity? Considering that we won't move to one single over-seeing power in the world, we have economics to help us understand that power and prosperity is a dynamic phenomenon and that through paying attention to trends, we might understand what policy to implement. If "demand for unskilled labor" is going down, then wouldn't it make sense to get involved in some sort of specialized skill so as to avoid the repurcussions of declining demand? At individual levels, this makes perfect sense and it is assumed (by many) that this is how economics are applied on the small scale. But at larger levels, where collective action occurs, where government policy is influenced by special interest, then how could the argument to protect unskilled labor prevail in lue of this analysis?

Perhaps this has something to do with predatory governments and limited liberties of the governed.

 

Corruption



Since corruption was part of our readings this week I thought you might be interested in the "corruption perceptions index." In checking out the map above you can guess that the darkest shade of read represents lots of corruption.

TRANSPARENCY INTERNATIONAL is the organization that puts together the corruption index.

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