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Tuesday, November 30, 2010

 

Unmet Expectations

In the opinion section about the nation on yahoo.com is an article titled “Obama’s Failures…and Ours” written by Eric Alterman. Alterman is recalling what Obama stood for as a presidential candidate and also what those who voted for him expected from him as a president. Alterman explains why he believes that both the voters and the president are to blame for not achieving that which was expected. Obama promised to be a transformational president focused on hope and change. Instead of adapting those promises to his presidency it seems that he has gone along with maintaining the status quo and is behaving like a typical politician. Alterman points out that his call for change was rooted in a few main values, one of which was equality. Alterman examines some of the other values and voter expectations but what I would like to focus on is the equality aspect in relation to Mancur Olson’s theory.
Applying what Olson believes government’s role is in relation to a country’s prosperity I do not see where equality fits in. Olson explains that strict enforcement of private property and personal liberty are important characteristics for government to have in order for a country to prosper and grow. Equality is not something that government should be concerned with nor can it truly obtain it. This pursuit of equality would only increase rent seeking and fuel the growth of special interest groups. President Obama’s promises and voter expectations are heated issues and can be analyzed in great detail. However, I believe that a simple bottom line is that it is easy to see how voter expectations and presidential promises can be left unmet when government is expected to be a bigger part of our lives than it should be.

 

Voting Blindly or Not voting at all???

I recently read a blog dedicated to the question: "Is it better to vote blindly, or not vote at all." Here area few of the responses. "Tough one Terri. My view is the folks who don’t vote at all are worse. Some assume that their candidate is going to get in no problem & one vote won’t sway it. If a number of people think that way then there is a huge problem.
Those who don’t vote better not complain. They are doing themselves and the country a huge injustice by not voting." Here is another, "Being an Army veteran I take our duty to vote very seriously. I hear so many people complain but when I ask them if they voted in the last election, usually the answer is no. I tell them that if they didn’t bother to vote, then, they have no right to complain about what they get. I would rather you do your patriotic duty, as I see it (i.e. it’s the least 1 can do to live in the freest nation in the world), and vote whether you understand all the issues or not. At least it shows you care and understand part of what makes this Nation Great." It seems after reading these posts that people feel two things. They believe that there are a certain percentage of people who believe their individual vote will do nothing to get an official elected. They also believe that there is a certain obligation of being a citizen that should increase the number of those voting. I feel that while some people feel it is better to vote blindly than not at all, I think that the government would have a better chance at accomplishing something if the officials placed in office were placed there because people took the time to educate themselves on the issues. Olson calls this behavior rational ignorance, and I believe our system of government would be more apt at handling issues if they were elected and held accountable for their decisions while in office, but it is hard to do so if people are unwilling to educate themselves on the promises of each individual candidate.

 

North Korea’s Stationary Bandit

North Korea is again making headlines in international news, this time for its shelling of the South Korean island of Yeonpyeong. This incident comes amid a somewhat uncertain time for the Korean peninsula as Kim Jong Il, North Korea’s current leader, or Stationary Bandit as Olson might call him, just recently named one of his sons, Kim Jong Un, as next in line for the post of Stationary Bandit. Some think that the artillery shelling of the South was a move by the North Koreans to build up some credentials for the new heir and to warn the South against interfering in the process of handing over power to the next bandit.

In Power and Prosperity, Olson says that “dynastic succession” benefits everyone in a society because it extends the planning horizon of the subjects ruled and encourages them to plan for long term investments and income. Having a clear line of succession may also be beneficial to a society because it reduces the likelihood of a succession crisis that would throw a society into chaos.

However, this might not be the situation in the case of North Korea as some have interpreted both the recent sinking of the South Korean warship and the shelling of the South Korean island as independent acts of dissent amongst some in the North Korean military. They may be opposed to Kim Jong Il appointing one of his sons as the next leader of Korea. Some have even predicted that when the elder Kim dies there will be a fight amongst many in his government over who succeeds him despite his naming of his son as heir. We will just have to wait and see if Kim Jong Un is able to consolidate his position and support for his rule in time to avert a succession fight when his father finally does die; some experts say he may not have long.

http://english.chosun.com/site/data/html_dir/2010/12/01/2010120100496.html

http://english.chosun.com/site/data/html_dir/2010/11/24/2010112401039.html


 

Bush Tax Cuts

A lot of people are under the impression that the Bush tax cuts are only going to effect the top two federal income tax brackets, but this of course is not the case. Unless Congress and the President take action, taxes will go up for everyone.. Not just the wealthy. While right now under the Bush tax cuts, the tax scale is 10%-35%, this would be raised to 15%-39.6% which would be hundreds or thousands of dollars for individuals and families. In a nutshell, Republicans are wanting tax cut extensions for all tax brackets, while Democrats only want the tax breaks for individual earning up to $150,00 and married couples up to $200,000. This just seems strange to me because we are paying taxes for public goods/services, right? Well then why should someone who is earning a lot more and, therefore probably working much harder, have to pay so much more than me for the same amount of public goods? That just doesn't seem very fair to me...

 

One Adaptation of the Stalin Method

Steven Levitt briefly discusses Nicolae Ceauşescu, the former Communist dictator of Romania, in chapter four of his famous book, Freakonomics. In 1966, Ceauşescu declared abortion to be illegal in Romania, stating that, “The fetus is the property of the entire society… Anyone who avoids having children is a deserter who abandons the laws of national continuity” (115). He implied that it was a person’s responsibility to have children—that he or she owed it to the country. Further, “all contraception and sex education was banned. Government agents regularly rounded up women in their workplaces to administer pregnancy tests. If a woman repeatedly failed to conceive, she was forced to pay a steep ‘celibacy tax’” (116).

The Romanian government strongly coerced citizens into having children, and Ceauşescu gave an… interesting… moral incentive for people to do so. His incentive for coercing people, though, was purely a material one. Most people in Romania at the time were extremely poor, while Ceauşescu and other government officials (40 of whom were members of his family) were quite wealthy—Levitt mentions that Ceauşescu’s wife had 40 homes! To maintain such an extravagant lifestyle, Ceauşescu needed more and more resources. So, it seems he figured, if the population was larger, there would be more people to tax, thus more to steal.

Stalin may have been Ceauşescu’s inspiration. In chapter 7 of Power and Prosperity, Olson describes methods Stalin used to increase his “tax theft.” He said, “Stalin’s innovation was to confiscate for his own purposes almost the total natural and tangible capital stock of the country and then use these resources to produce…[what he] wanted” (114). I’m not familiar with any of Ceauşescu’s other policies, but considering his policy on abortion, it seems he just employed a cruder version of Stalin’s tax collection policies—he claimed all fetuses as the government’s property, thus made it so there would be more people to steal from in the future. The birth rate of Romania doubled within one year of the abortion ban (Levitt 116), so Ceauşescu got his wish in that sense. However, perhaps it’s worth mentioning that Romania’s infant mortality rate dropped fairly suddenly in 1989, when the abortion ban was lifted (and Ceauşescu and his wife were executed).

 

Desperation and the Autocrat

From the comfort of my partially-taxpayer funded university library, I am fortunate to be able to ponder the meaning of "power" and its implications over my life. This week, however, I've given some thought to an Orwellian world that seems to be the creation of psychologially unbalanced movie script writers. Yet that world truly existed for 29 years under the autocratic rule of Ioseb Jughashvili, soon to be known to all as Josef Stalin. As I read Mancur Olson's analysis of the most successful autocracy in modern history, I aksed myself over and over, how did the 5'5" son of a cobbler from rural Georgia incentivize enough individuals to willingly support and maintain a system which murdered many millions of farmers, military(!) and ethnic minorities, then take the possessions of all who remained?

It turns out that Stalin the stationary bandit had quite a criminal pedigree before the Revolution as a literal bank robber, protection racketeer, kidnapper for ransom and counterfeiter with some fellow Bolsheviks. Tellingly, he temporarily quit the Bolshevik party over its ban on bank robberies. There is some debate whether tsarist oppression drove Stalin to such activity or whether it merely provided good opportunities for violent behavior, but his aggressiveness and ruthlessness were notable before he turned 20. To the extent that humans act on incentives, and that all action is based upon the desire to remove some dissatisfaction, Stalin's situation must have been horribly unsatisfactory, and only control of others by force satisfied him. Here, though, was the man at the end of the revolution with the greatest capacity for violence.

Apparently there was very little resistance within the Politburo or upper eschelons of the Red Army, which encouraged Josef Stalin to continue a reign of terror that culminated in full "state" control and decades of fear and poverty. With so little wealth available, his approval of funds for the construction of hospitals, factories and roads provided representative members of the Congress of Soviets with a little pork to send back to their starving constituency. Through an unprecedented propanda effort, the citizenry were led to believe that Stalin's efforts kept them safe from a reemergence of old imperialists or another invasion from any European power. Without access to any other source of information, and with the threat of imprisonment or death always overshadowing the urge to speak freely, there was little opportunity to upset this tighly-run extortion racket. And with any perception of disloyalty, Stalin successfully incentivized those immediately below him to remove the threat violently. In this context, I suspect that Russians and other nationalities in the former USSR still have a far greater understanding than we Americans do of how power can be wielded against, though in the name of, the people.

 

Football Coaches or Roving Bandits

Olson’s theory on roving and stationary bandits proves to be true in numerous situations. One situation including football coaches of all levels. It is rare to see a coach stick with one team for an entire coaching career. Coaches often bounce from team to team and from league to league in the search of the best possible coaching situations for themselves. When a coach is looking for a job they don’t look for the team that needs the most improvement, they look for a well-developed team they can take control over to bring themselves personal success. Take the current Seattle Seahawks coach Pete Carroll for instance. After working as an assistant coach for various college teams he eventually made it as a defensive back coach for the Buffalo Bills in the NFL. After a season of that he got offered a better position as defensive coordinator for another team. He used these various positions to gain enough reputation so he could finally become a head coach in 1997 for the New England Patriots, however he realized the team wasn’t championship caliber and left after just three seasons. The status and experience gained from being an NFL coach allowed him to step into a coaching job for the University of Southern California. Though some would think of this as a demotion moving from the professional level to the college, the team he would coach at USC had championship capability. Coach Carroll made the move to better himself at anyone’s expense. After numerous championship appearances including two victories rumors surface that Coach Carroll was using illegal bribery techniques to get players to play for him at the school. The NCAA punished the University of Southern California football team by declaring them un-eligible to appear in a championship for two years and cut scholarships for the school. The success he gained at the school was enough to catch the attention of the Seattle Seahawks and when Coach Carroll realized his reputation and career was over at USC he made the move back to professional coaching. There are numerous of other cases where coaches make questionable decisions when their jobs are on the line. Perhaps Coach Carroll will one day find or make a successful team and become a stationary bandit like Bill Belichick.


 

Privatizing Social Security is still better than nothing!

I just got done reading an article on the CNN Money website saying that Social Security privatization is a bad idea. The writer (Allan Sloan) was saying that the people retiring should not have to invest there money in the stock market. Allan Sloan said that the people are gambling that the market will be high when they retire. This is much better than giving your money to the government so it can give it to people that are retiring right now.
The problem is that the current system is a Ponzi scheme. A Ponzi scheme is a system where people invest in a company and see high return rates. The investors that have been with the company for a long time would get the money from the people that are starting to invest. Madoff was recently arrested for using a Ponzi scheme. Why are we not holding our Government responsible for stealing money from us to give to others. I have a feeling that by the time I retire I will not see the money that I was forced to put in the system with a promise that I would get it back when I retire. The Government should give me a choice to let me invest my own money into something that I can control.
How can the Government get away with this?
The answer is simple the Government has the biggest stick and will arrest you for avoiding paying the money to the social security system (not paying taxes). There is no opting out of this system where the Government redistributes the retirement funds of the young to the old. The Government dipped into the fund one too many times. This is why we need to have something different than the current system I would rather gamble my retirement money than give it away

 

Wealth?

Olson dismisses the idea that differences in resource endowments, especially human capital or technology explain persistent poverty. Rather he argues that the institutions and economic policies – attributes that are mainly defined by national boundaries, affect the ability of the poor and others to “pick up their own big bills.” Olson took the debate a bit further concerning whether government was part of the solution or part of the problem. He asked what kind of government or what kind of arrangements of government led to economic growth. What types of services do governments provide to promote growth? What types of governments provide these more consistently?

There are two legal traditions in Western society: the Common Law tradition such as in the United States and the United Kingdom and the Civil Law tradition such as France. In using Olson’s questions above, I want to compare these two traditions, and see if one is better than the other in promoting growth and providing consistency.

Legal and political institutions are responsible for the growth in society. It seems as if Common Law is more successful than Civil Law in society in terms of economic growth. Compared to Civil Law, Common Law enables society to grow, provides political stability, secures private property and contract rights, and provides protection for these rights. Therefore, Common Law tradition can be considered is better than Civil Law tradition. There are significant differences in societal costs and benefits in comparing the two traditions. Common Law provides stronger property rights and contract rights which promotes economic activity and growth in society. Although there are costs in enforcing these rights, it gives society long term benefits and security in acquiring property and making investments. Civil Law has many societal costs in terms of economic growth. The law is unpredictable with property and contract rights, which makes society reluctant to acquire property and invest, unlike Common Law. This slows economic activity and growth and even lowers the standard of living. The two legal traditions in Western society of Common Law and Civil Law are quite different from each other. In a Common Law system, government and the Legislative and Executive branches have limited power. In a Civil Law system, the government is centralized and the Legislative and Executive branches have enough power to favor special interests. These political structures differ in that society will reap the benefits and costs imposed by government, and these costs and benefits are distinctly different from each other as explained above.

Olson says we know that an economy will generate its maximum income only if there is a high rate of investment and that much of the return on long term investments is received long after the investments are made. He also says that to reach the maximum income attainable at a given tax rate, a society must enforce contracts (including those involving long term loans) impartially, but the full gains are again reaped only in the long run. In Olson’s argument, Common Law also seems to satisfy these criteria as it helps society invest and has contract and property rights.

The mystery of wealth is not answered in the differences in the natural resource endowments of a nation, although it may have some impact. Rather, economic growth is affected by the political and legal institutions implemented in a nation. When political stability and secure private property rights exist, members of society will make long term investments and over time, the country will experience a higher standard of living.

 

Fiction to Fact 50 years in the making...

It was by mere chance that I began to read Atlas Shrugged by Ayn Rand for my first time during the course of the fall 2010 semester. I am a little over half way through the novel and if you haven’t had the opportunity to read it I would highly recommend that you do. It’s as if Mancur Olson and Leo Tolstoy had a literary love child and out popped Ayn Rand. Part of the novel read as if it was taken straight out of an Economics’ text book with prevalent themes of Power and Prosperity and more so the Rise and Decline of Nations. It has it all, distributional coalitions, rent seeking, roving bandits, stationary bandits (called looters in the book), protectionim and so on.
The book’s underlying premises is that the we’ve has become a dystopian nation where the ruling bodies take, through force and rule of law the production of the industrialists and the nation’s top producers. They do it in the name of social justice and in reality it is little more than the redistribution of wealth and the nationalization of production and invention. The situation becomes so extreme and the regulations so convoluted that almost no action that is capitalistic as we know it can be taken without it being deemed either illegal or otherwise ill favored.
The book takes rent seeking to the extreme so much so that it bypasses what we referred to in class as the natural rate of ‘life-sucking’ from the citizenry to the point where the motivation to produce is lost. Without giving away too much of the plot and storyline here for those who want to read it I took a very interesting point away from the book, as a manifestation, although be it in fiction of the compounding effects of regulation in a market based economy. This is something we’ve discussed in class but I will mention it here again. One regulation, minor in itself is introduced, and then another then another eventually until an underlying framework can be set for a fully controlled economy. The situation in the book is definitely one of extremisms but many elements of it ring true today, over 50 years after it was written.
Parts of the book are written to be theatrical in nature but all in all it would be a worthy text to have an entire economics’ class dedicated to it in my opinion, then again we sort of already do in Power and Prosperity. I am very interested to see how the book all pans out. But it is an interesting though to consider… what if everyone who produced and had that production taxed or otherwise taken from them merely stopped and walked away…

Monday, November 29, 2010

 

Some Thoughts on Media and Olson

In the fifth chapter of Olson's Power and Prosperity, he briefly comments on media outlets and news sources, stating, "when the news is, by contrast, largely an alternative to other forms of diversion or entertainment for most people, intriguing oddities and human-interest items are in demand." He continues, commenting on how this situation may cause majorities to lose focus on that which truly is in their best interest. Although I have, for some time now, been very skeptical concerning most of what I hear and see on my television, some of the stories in our past few news cycles have surprised me.

Over the week of Thanksgiving, the Transportation Security Administration (TSA) was hammered by media outlets for their changes to screening policies, in some cases being accused of overly aggressive pat-downs that violated individual rights to privacy. Most polls later in the week revealed that the issue was, at least in some cases or accounts, blown out of proportion. This week, WikiLeaks is back at the forefront, having leaked more classified information regarding Iranian regional influence and potential US support for an attack against Iran. We will have to wait and see how this cycle pans out: it just started up on Monday. However, the one issue that has been circling the information drain lately involves the START treaty between US and Russia. Many claims regarding the amendments to the treaty have been made, one of which involves the GOP's stonewalling of the treaty for political motivations. Regardless of opinion or possible interpretation, not a single person mentioned any of the claims that special interests might have been behind the media explosion related to the TSA scandal, which was slightly mentioned by The Nation.

The particular thing about these stories is how, for the past week, I have heard from multiple sources a slew of positions regarding these subjects. However, in almost every single instance, one thing was apparently missing: a substantive understanding of the topics themselves. Whether on the radio, over a phone conversation, or family discussions over a meal, those who seemed the most opinionated and in some cases vitriolic were those who could not fundamentally communicate the issue(s) at hand. In some cases, those on the attack weren't even sure exactly what the START treaty is, where the TSA originated, or how WikiLeaks is getting the information that they leak into public discourse.

As Olson seems to imply, if society cannot discern proper information from "spin" intended to persuade or entertain, it becomes easy to lose sight on what is or should be more important. Those who would banter or work towards a goal fueled by special interest intentions or for self-interested political motivations could very easily provide us with partial information or work our news cycles in order to divert our attention from something similar to what we have tried to keep our focus upon for a majority of the semester: a sort of bottom line. The bottom line seems quite difficult to find when individuals simply accept what they are told by talking heads and politicians with no intention of vetting or verifying the information itself. The easier it becomes for us to be misinformed or led astray, the harder it becomes to figure out if lobbyists and special interest groups are actually behind the TSA scandal or if the blocking of amendments to the START treaty is truly intended to simply harm the political capital of President Obama. And that's just two of the issues we are surrounded by thanks to present media coverage... not to mention the multitude of problems we are still experiencing in terms of unemployment, job growth, and economic stability.

Just more evidence that rational ignorance is commonplace and easy to find, I suppose. And with the exponential growth of communication technologies such as computers and smart phones, I feel that we will have to be even more diligent in our efforts to determine what is "newsworthy" and what is garbage.

Reference:

http://www.washingtonpost.com/wp-dyn/content/article/2010/11/29/AR2010112905827.html

http://www.thenation.com/article/156647/tsastroturf-washington-lobbyists-and-koch-funded-libertarians-behind-tsa-scandal

 

Time is of the essence

The market wizards, the Government and all news agencies continue to debate the need for the extension of the Bush tax cuts. In reality the tax system needs to be revamped. A flat tax of 15% across all incomes sounds better to me. It will generate more revenues for the Federal Government, by allowing those millionaires and billionaires to finally pay taxes. The current system allows for tax shelters which the wealthy will gladly take advantage of. The flat tax would prohibit those loopholes. Could it be that this elite small group has some sort of advantage over the majority. Imagine a small group that has lobbying power for their agenda. Sounds like the basis of Mancur Olsons theory.

It is unforunate that our Government policies revolve around a hidden agenda. But that is understandable because we have been a stable society for some time. The elites will continue to dictate on their behalf until they break the system, and why would they care, they have reaped and invested for that demise.

Main street must come to its sences and realize they do have the power to create a new agenda. Olson identifies this opportunity through a revolution or a overtaking of an existing government, neither of these can occur in the United States. Main street must be as clever as the current system. The passage of time is realized as the greatest element for control by the Olson. In this instance, if main street can realize, the next two years will be of the utmost importance to emphasize the need for change that benefits the majority. If the Tea Party is to be that impressive party that can create change, the agenda for the election that benefits main street must be amplified now. If the future candidates ran on the following changes the U.S. would change for the future of its people not the future of the government. Flat tax of 15%, Dissolve the Department of Education, Energy, and Transportation, The Federal Reserve must be transaparent or dissolve it, repeal the health care bill, immigration reform/protect our borders, and finally become a nation once again, that will use its capacity for violence when we or our borders are threatened.

I believe this would be an excellent way to motivate mainstreet and dictate an agenda for the people. People have rights not the government.

 

Auto Unions and Power

The message the original buyout of GM sends has been vigorously debated by many sources. The story today that is not adequately being told is who is receiving the majority of the benefits from the GM stock sales. In the 2009 bankruptcy settlement the United Auto Workers Union secured a substantial portion of stock in the new General Motors.

The U.S. Treasury and the Union have both begun to sell of the shares they obtained, effectively privatizing part of the company. Both groups have sold off a third of their shares thus far. The United Auto Workers will break even when they sell the remaining two-thirds of their shares. The taxpayers of the United States, however, will need shares to rise in value from their current 33 dollars to an amount between 52 dollars and 103 dollars to breakeven, according to The Washington Times. The investors in the original General Motors, unlike the union, will receive nothing due to the declaration of bankruptcy. How is it that through the changes in General Motors due to bankruptcy the United Auto Workers have come out ahead of common investors and taxpayers?

The Union was somehow able to grab benefits that investors missed out on. Patrice Hill says that GM went through the “courts in a way that consistently put the interests of the union ahead of many suppliers, dealers, and investors- stakeholders that ordinarily would have fared as well or better under bankruptcy laws.” The power of the United Auto Workers to organize and use force to grab a collective benefit, stocks to pay off their health care and pension plans, faster than taxpayers is supported by the conclusions of Mancur Olson. The union was already organized and already had power at hand. Taxpayers, on the other hand, would have had to dedicate time that could receive better returns if spent elsewhere to follow the court. Most taxpayers made a rational decision to remain ignorant about what specifically occurred in the GM bankruptcy. Taxpayers that did not remain ignorant, such as concerned investors, had an additional motive to pay attention, but they did not have the time to organize or any type of force to compel people to organize.

With these hindrances to keep other groups from organizing, the union was free to use its power to grab a bigger share of the pie for its members. As Olson predicts, the United Auto Workers, with their narrow interest, chose to grab more of the available wealth rather than making the country as a whole more productive.

References

Hill, Patrice. “GM’s Union Recovering After Stock Sale.” The Washington Times. November 25, 2010. Web.

Olson, Mancur. Power and Prosperity: Outgrowing Communist and Capitalist Dictatorships. USA: Basic Books, 2000. Print.

Saturday, November 27, 2010

 

NFL - The New SEIU?

As I was watching the morning news and the talking heads, my mind was blown to hear a commentator speaking right out of The Logic of Collective Action in reference to the possible 2011 season cancellation for the NFL. There were even ad hominem attacks going on! It was great!

Now let me begin by saying that I know NOTHING about the NFL..In fact, I am not even sure I know what NFL stands for! But the beauty of Olsen is that the logic seems to apply universally and I don't need to know the NFL to see the logic at work in this situation.

I went to ESPN.com and read an article on the current situation and it seems to me to be the Logic playing out right before our eyes. The players vs. the owners..does this remind anyone else of the workers vs. the business owners during the early years of union existence? Just like the unions, one side is going to the government, in this particular case, the individual state governors, and asking for their backing to use the governments force to prevent a lock out. They are trying to make it into an economic argument by stating that the stadiums are in fact a public good because the stadiums are built on the back of the tax payer (this situation created by a special interest seeking to redistribute to its own members by influencing politicians to allow tax money to be used to fund the building) , but the truth is laid bare by the Logic....one side wants the power, and they only way to gain the upper hand, is to get the backing of the government behind them to force the opposition into submission. ( I could insert a few paragraphs here on the efficacy of small groups and their propensity to act and how the players are acting as small federated groups in each state... etc..but if we can't see this by now...really what have we been learning all semester? :))

And yet on another talking head show, they were discussing private property rights and the plight of the common. When the Pilgrims settled America, they had an agreement to avoid private property and individual ownership for 7 years. Each colonist would be supplied from the common stock. The results? Near starvation. According to Olsen, this is the ONLY outcome we could expect from this scenario because people are incentivized to be free riders!

As so, I must say, if Prof Eubanks plan by the end of this class was for us to have a whole set of foundations for how we evaluate the world and what we hear and read based on the Logic and Olsen's theories, he has succeeded. It is fascinating to watch the news and automatically think in terms of "what's really going on here?" and have a set of fundamental principles with which to evaluate the world around us. Even not knowing anything about the NFL..I can see what is happening through the prism of Olsen's writings.

Sunday, November 21, 2010

 

"The Greatest Capacity for Violence" in Northern Mexico

The article “Northern Mexico's State of Anarchy,” which discusses the violence and war in northern Mexico, seems especially relevant to our current Mancur Olson book, Power and Prosperity. The article sights many instances of drug wars that are ravaging the northern cities. Many individuals have fled; those who remain live in constant fear.

As Olson’s theory would predict, northern Mexico has lost much productivity due to the creation of new incentives. “Anarchy not only involves loss of life but also increases the incentives to steal and defend against theft, and thereby reduces the incentive to produce” (Power and Prosperity 64). According to Wall Street Journal’s article, oil fields and farms have been abandoned due to the chaos.

Why are the drug cartel groups so prominent in Mexico? Part of their prominence stems from the country’s instability. Small groups (such as cartels) arise quickly. In areas of instability such as Mexico, small groups are more likely to rise than large ones which need time to become established.

In addition, Olson points out the fact that not all contracts are voluntary; power is also involved. Whoever has the greatest capacity for violence will be the ruler. It seems that the Mexican government is unable to control the drug wars and protect its citizens. Who now has the greatest capacity for violence? The answer is unclear. Multiple drug cartels are warring. Perhaps, one will subdue the others and become the ruler since it will have shown the greatest capacity for violence.

One solution to the problem is for the Mexican government to display the greatest capacity for violence by using its military to exert force over the cartels. However, this requires an even greater amount of violence. Surely there is another solution. Perhaps the government could change the circumstances that allow the cartels to grow, such as targeting those who consume drugs. New incentives would arise and the drug cartels would weaken. Does any one else have ideas?

Friday, November 19, 2010

 

Bernanke needs to read Rise and Decline

Read this article and you will see lots of the same ideas drawn up by Olsen in R+D. In the second paragraph Bernanke is paraphrased as saying that nations need to work together because countries are recovering at uneven rates. And then he goes on to say that teamwork is struggling because a "sense of common purpose" has waned. Well if we think about this from an economists standpoint, and the prisoner dilemma theory, this sort of "world rebuilding" project falls apart. Every country has their own best interests in mind. If your a US company then you (should) want the US to recover quickly, and if Swaziland isn't keeping up, then thats too bad. The idea that each country is wanting every other country in the world to get better is not our nature. As for the prisoner's dilemma application, imagine every country in the world as a prisoner. They can all get better treatment if they all seal their lips and cooperate. Chances are, a few of the prisoners doubt another prisoner's ability to shut up, so they take it upon themselves to rat out the other ones. This country be applied to a group of countries willingness to help out other countries.

Bernanke also says that there are challenges to face when dealing with recovering nations that are growing at different rates. As we know, the emerging markets are growing faster than the established ones, but Bernanke in this article does not point out to what exactly those challenges may be. I cannot think of any at this time, any of you reading chime in with your opinion!!!

And lastly, Bernanke said that tensions over economic policies have been growing and that a global solution has been jeopordized. This goes back to Logic. Of course the United States has a larger interest in the recovery of trading partners like Japan, but a small country like Swaziland is not gonna have much incentive to go along with these plans because their future individual benefit is small. Although Swaziland may not be involved in these talks of economic policies, it is very hard for me to understand the rationality in trying to come up with a "one-world plan" and how we need to think about the global economy after reading Olsen's books. Just a thought!

Thursday, November 04, 2010

 

The Hope for Democracy in Iraq

The status of Iraq was brought up today in class while comparing the successes of countries that the United States has waged war with like Germany and Japan. Although there is a measure of uncertainty to how the whole situation will end up, there are a few things that could tell us how this one is gonna go.

When the US military rolled through the sandbox in March of 2003 on their way to Baghdad, they showed extreme capacity for violence. Not only did the Iraqis know we had the capacity but we showed that we had the willingness by turning all opposing factions of the country into a "parking lot" as so amazingly stated today in class. As soon as all the true fighting died down and news reporters started to file in to get their juicy TV coverage the brutality required to keep a histile crowd in check had to be scaled down. Instead of being allowed to act as they should have, our soldiers were handcuffed by all these rules made by politicians in DC. The US military then became a group with a large capacity for violence, but with very little willingness. Any wrong move could hav put a young PFC in a court martial, opened an article 15, or even worse, on Kitchen Patrol (KP). At this time the roving bandits saw this and realized that they had a chance to take something from the situation so that is when the "insurgency" began.

Someone said something interesting in class today that got me going. They said that people all respond to the same incentives. This is 100% false. People at different age groups in the same culture respond differently to incentives, much less a completely different culture. What incentive does the US military have in Iraq because they know they will not be there forever? So in essence the US is a roving bandit along with all other warlords/druglords/political leaders. The culture is completely different, which changes how they react to incentives. There is not separation of church and state, with the church practically ruling everything. Just as the United States is not used to dictatorship, the Iraqis are not used to freedom. Imagine the upheaval if the US tried erasing 225 years of democracy and turned to dictatorship tomorrow. The US citizens wouldn't want that, and would definitely have a hard time adjusting. Now imagine a region that has been accustomed to having dictatorships for thousands of years (the Middle East) suddenly switching to democracy. Another thing that I didn't want to bring up in class was the teachings of Islam affecting the people's desire for freedom. Freedom and liberty may not be as welcomed in an Islamic country because all the freedoms could be seen as distractions from oneness with Allah. This is confusing for many western minds, but anything that gets in the way of being in one with Allah is looked down upon, hence the complete covering of women in public.

These are just some thoughts on our discussion in class today. Just keep in mind that many citizens in Iraq do not want us there. Even though we are dumping money, resources, and lives into the rebuilding they can still hate the US. Everything is not inherently good or motivated by normal incentives. Let me know what you guys think.

 

GDP Charts

You can see some illustrations of per capita GDP by country over time by following this link.

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