Archive | Institutions

Why Government Fails to Adopt Painless Solutions to the Nation’s Problems

The conventional wisdom is that the nation faces difficult economic choices, and that we cannot make progress on our collective challenges without imposing losses on someone. But in a provocative New York Times column, Cornell University economist Robert H. Frank argues that many important problems can be solved “without requiring painful sacrifices from anyone.”

Frank gives the example of highway congestion. Roads are crowded because they are generally free. Yet many Americans would gladly pay to avoid horrendous traffic delays. As Frank points out “A modest congestion fee, administered with E-ZPass-style technology, would raise needed revenue and provide an incentive to use crowded roads only when the benefits outweigh the social costs.” The congestion fee would be a burden for low-income households. But, Frank suggests, “because the gains far exceed their price, we can redistribute them so that everyone comes out ahead.” The more general point is that there are many potential reforms where the winners could compensate the losers and still be better off. Yet such “painless” solutions often fail to generate political support. Why not? Frank observes that the reforms may upset some ideologues and lobbyists, but that is at best a partial explanation.

Several years ago, Yale political scientist Alan Gerber and I invited leading scholars to contribute to an edited volume (Promoting the General Welfare: New Perspectives on Government Performance) on the failure of government as an institution to solve collective problems. Factors that our colleagues nominated for consideration included: the tendency of political competition by cohesive, differentiated parties to raise the political stakes in policy debates and inhibit the search for pragmatic solutions (Morris Fiorina); the failure of the federal system to function as a true “laboratory of democracy” that develops and spreads effective policy innovations across jurisdictions (Mark Rom); the failure to devise congressional rules and procedures that encourage the adoption of socially efficient laws (Sarah Binder); the elimination of analytic research bureaus like the Office of Technology Assessment (Eugene Bardach); and the tendency for electoral incentives to detour lawmakers “into small-bore distributive politics and feckless position taking” (David Mayhew).

To this list of factors, Gerber and I added another: developing novel solutions to promote the public good can be politically risky, because it requires a policy innovator to shift public opinion. This effort at persuasion is akin to making a risky investment, which can generate rewards for the investor or go sour. In a commercial setting, such an investment often enjoys legal protections such as patents and trademarks. But in politics, there is nothing to stop an opportunistic opponent who observes the changes in public opinion produced by his political rival’s effort to build support for a new policy from developing a similar proposal of his own.  If this copy-cat behavior is successful, the policy innovator will, at best, capture a small share of the credit for the result of his efforts, reducing the incentive to develop the policy innovation in the first place.

Gerber and I coined the phrase “Zero Credit Policymaking” to capture this political failure. As we wrote, “If problem solving is an unintended by-product of political competition rather than something pursued for its own sake, and if politicians are motivated to do what wins elections, a tension exists in our system of collective choice. From the standpoint of social welfare, a policy should be adopted if the benefits are greater than the costs, whereas from the standpoint of a politician, a policy should be adopted if the political benefits to the politician are greater than the political costs. Good policies that have large social but small political benefits may not find a political sponsor.”

Can anything be done? Focusing on Congress’s role, Yale University political scientist David Mayhew came up with a thoughtful list of reforms: streamline legislation (no more 1,000 page omnibus bills!) to help citizens better understand what their government is doing; open up congressional primaries to all voters regardless of party; encourage members to raise at least half their campaign contributions in their states or districts; package C-SPAN coverage in small segments that voters and the media can digest; and cripple partisan gerrymandering. All good ideas to promote the general welfare, but unfortunately they have not gained much traction.

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Credible commitments and the Federal Reserve

Political scientists, so far as I know, aren’t typically on the guest list for the Kansas City Fed’s economic symposium in Jackson Hole.   (But honestly, who in their right mind would give up a trip to New Orleans in a hurricane for a weekend in the Grand Tetons?)   Coverage of this year’s conference though reminds me that more attention could be paid to the political and institutional constraints under which the Fed makes monetary policy.   I was struck in particular by coverage of a paper delivered in Jackson Hole by economist Michael Woodford.  The paper assessed the effectiveness of alternative monetary policy choices for stimulating the economy, concluding that the Fed’s asset purchases and commitments to keeping inflation low through 2014 are largely ineffective (if not counter-productive in jump-starting and sustaining economic growth).

What struck me about Woodford’s paper was his call for the Fed to change the way it communicates about its future policies.  The most recent statement from the Federal Open Market Committee (FOMC) states that the FOMC expects that economic conditions are “likely to warrant exceptionally low levels of the federal funds rate at least through late 2014.”  Woodford and others criticize the Fed’s reliance on so-called “lift-off” dates for raising rates, arguing instead that when interest rates are already effectively zero, the Fed should commit to a particular policy path until after the economy has recovered.  Many economists in this vein recommend that the Fed target nominal gross domestic product (NGDP), meaning that the Fed would keep rates low even after markets might otherwise expect the Fed to begin to tighten on the grounds of preventing inflation.  Let the economy gather steam before raising rates, Woodford and many others argue, even if that entails allowing inflation to rise above the Fed’s self-imposed 2 percent target.  A credible commitment to act differently in the future is said to be essential for jump-starting economic growth today.

Economists (and political scientists) have certainly written a great deal about the difficulty policy makers face in making credible commitments.  In short, if policy makers have discretion to reneg on their commitments, no one will take their policy commitments seriously in the first place—undermining policy makers’ ability to create incentives for behaviors that they favor.  But I’m struck that in all the recent discussion of the macroeconomic value of NGDP targeting (or other “results-based” monetary policy options) that the political and institutional feasibility of such action has been given short-shrift.

What constraints would the Fed face in credibly committing to something akin to NGDP targeting?  Here is a partial list:

1. Bernanke might not still be chairman of the Fed’s Board of Governors come February 2014.  Would a different Obama-appointed or a Romney-appointed Fed chair feel pre-committed to continuing the previous chair’s policy?  Woodford argues that  the FOMC publicly stating a commitment would make it “embarrassing for policymakers to simply ignore the existence of the commitment when making decisions at a later time.”   I’m somewhat skeptical that central bankers would feel constrained by a previous Fed’s policy commitment if (for example) they believed it was ineffective or otherwise undesirable going forward.

2.  Even if Obama is re-elected and Bernanke agrees to serve a third term, there is no guarantee that a Bernanke committed to NGDP targeting could secure confirmation again.  Certainly a GOP-led Senate would have second thoughts about confirming a nominee committed to allow a little inflation to generate growth, and a Democratic-Senate might be unable to secure sixty votes on confirmation.  At 70 votes for confirmation in 2010, Bernanke would not have a lot of votes to spare.

3. The federal structure of the Fed all but guarantees a diversity of hawks and doves on its monetary policy committee.   And given turnover in the presidencies of the Fed’s regional banks and the rotating scheme by which the bank presidents alternate as voting members of the FOMC, the continuity in membership necessary for sustaining a credible commitment to a certain policy course might well unravel—assuming it could be cobbled in the first place.

4.  More problematic, as many economists have noted, the Fed’s reputation today has been built on its success fighting inflation over the past thirty years.   That same reputation makes it harder to credibly commit to allow inflation to rise above a level at which alarm bells would normally ring for the Fed to begin tightening.  We might think of this as the Fed’s path-dependence problem: Past policies raise the cost of changing course in the future—making some policy alternatives far more costly and thus less likely than others.  NGDP targeting- or other results- based targeting—seems likely to entail such reputational costs that the Fed might be unwilling to bear.

5.  Finally, the Fed is ultimately a creature of Congress.  As such, the Fed would be unlikely to adopt a policy if it threatened to raise the wrath of one party’s congressional overseers.  Even if many Democrats might welcome more aggressive stimulus from the Fed, a policy commitment to target economic growth would surely raise GOP hackles on the Hill—where Republicans have already voted for more invasive monetary policy audits and called for abolishing the Fed’s dual mandate.  To be sure, partisan polarization might preclude legislative agreement to limit the Fed’s discretion.  But polarized parties also make the Fed’s job harder, since critics outside the Fed help to amplify dissent within the FOMC.

Maybe NGDP targeting is going nowhere, and thus consideration of the Fed’s political or institutional capacity to embark down such a path is besides the point.  But some Fed watchers detect movement in the FOMC towards tying monetary policy more closely to improvements in the economy, while others note that such policy prescriptions are now “very close to the center of the profession of monetary policy.”  Whether the Fed will have the institutional and political capacity to embark convincingly down and stay on such a path remains an open question.

 

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The Key to Surviving Natural Disasters

Hurricane Isaac, which made landfall in Louisiana last night, has not only disrupted the Republican National Convention but also brought back painful memories of Hurricane Katrina, which devastated the Gulf Coast seven years ago this week.
In August 2005, my wife and our small children and I evacuated to Houston just before the storm destroyed the New Orleans home we had moved into six weeks earlier. We took with us just a bag of toys and a suitcase. We applied for federal aid, but especially in the immediate aftermath, it was family, friends and friends-of-friends who came through for us.
As a political scientist (I taught at Tulane at the time), I decided to study how communities respond to natural disasters. I’ve concluded that the density and strength of social networks are the most important variables — not wealth, education or culture — in determining their resilience in the face of catastrophe.

That is Daniel Aldrich, writing in the New York Times.  His new book is Building Resilience: Social Capital in Post-Disaster Recovery.  Here are our previous posts on his work.

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Using defaults to induce a charitable contribution

We all know about the power of defaults in everyday behavior and even in science.

Here’s a fun example. The following appeared in my inbox the other day:

Dear Dr. Gelman,

*** greatly appreciates your service as a member of the ad hoc Committee that considered the appointment of ***. In recognition of your contribution, *** offers an honorarium of $500.

In order for me to begin processing this payment, I need to request your social security number as well as your tax reporting address (often this is your home address). Attached to this email, please find a W-9 form for you to fill out. You may scan this form once it has been signed and email it back to me, or you may fax it to my attention to ***.

I understand that these are sensitive pieces of information and not to be exchanged lightly. Please let me know if you are not interested in receiving this payment, or if you would like this payment donated to the organization of your choice, it would be greatly appreciated.

Indeed, by the time I got to the end of these paragraphs, I was thinking: yeah, taking the money would be a real pain, filling out forms. We give money each year to charity anyway, so why not just have that organization donate the money directly. That would save me from the trouble or writing a check, keeping track for my taxes, etc. So I followed their suggestion and asked them to donate.

The default—and my being aware of donation as a default behavior—made all the difference. And it did make a difference. Our charitable contributions are sporadic, we don’t really keep track, so in expectation I suspect this represents a real transfer of $500 to Hospitalito Atitlán.

P.S. As is often the case on this blog, I have no idea what category to place this post. “Institutions” was the best fit I could find.

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Economic Inequality and Political Power (Part 2 of 3)

In my previous post I discussed the lack of government responsiveness to the middle-class and the poor, when their policy preferences diverge from those of the affluent. This inequality is pervasive: I found no circumstances during the decades I examined in which the middle-class had as much influence as the well-off, or the poor as much influence as the middle-class. Although pervasive, representational inequality does fluctuate. When the balance of power between the two major parties is close and when presidential elections loom, policy corresponds more closely to the preferences of the public, and more equally to the preferences of the more- and less-advantaged.

The hopeful side of this observation is that democratic institutions do work, to an extent, to discipline policymakers and bring policy outcomes more in line with the public’s desires. But these periods of heightened responsiveness are the exception, not the rule, and it appears that policies “forced” on decision makers by political circumstances fare less well over time than those adopted under less “coercive” conditions. Although policies adopted during presidential election years are more consistent with public preferences, they are also more likely to lose funding over time than are policies adopted in other years of the quadrennial election cycle (thanks to Will Howell for supplying these data on funding levels).


The power of partisan competition to produce policy that is more consistent with public preferences leads to some unexpected patterns. For example, the strong Democratic party dominance of the Johnson years did not result in policies that were, on the whole, consistent with the preferences of any income group. True, some of the central and vitally important components of the Great Society, such as Medicare and federal aid to education, were extremely popular among lower income Americans and only modestly less so among the affluent. But Americans strongly opposed other domestic policies including much of the war on poverty, immigration reform, and the Vietnam war tax surcharge (not to mention the declining support for the administrations’ escalation of the war itself).

In contrast, the close election in 2000 and the even partisan division in congress during the first years of GW Bush’s administration brought policymaking that was unusually consistent with public preferences. The Medicare drug benefit, the No Child Left Behind education reforms, Bush’s “faith based initiative,” and the income and estate tax reductions were all quite popular among low and high income Americans alike, as were the early years of the Afghan and Iraq wars. Public support for some of these policies may have rested on misinformation (e.g., the Iraq war) or poor judgment, but as I argue in Affluence & Influence, Americans were not, for the most part, duped into wildly inaccurate beliefs about these policies.

Early Bush administration policies fit well with public preferences, but when the Republicans gained unified control of the federal government in 2004 (for the first time in more than 50 years) policy responsiveness to the public plummeted. Neither affluent nor poor Americans had any more influence over policy outcomes during 2005 and 2006 than they did during the period of dominant Democratic control in the mid-1960s.

This pattern of policy responsiveness fits well with the view of political parties as policy maximizers (e.g., Cohen, et al.). Both parties, when they have the ability, cater to their core constituencies and key interest groups, essentially ignoring the preferences of the public. But when political conditions threaten too high a price for pursuing unpopular polices, the parties cleave more closely to the preferences of the public and more equally to the preferences of lower as well as higher income Americans.

In my final post tomorrow I’ll write about why government policy disproportionately reflects the preferences of the affluent and what might be done to increase the responsiveness of policymakers to the preferences of all Americans.

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Never too late to reform the Senate filibuster


Wonkblog reports that Olympia Snowe (R-Maine) has been researching potential fixes for the Senate filibuster:
“I’m doing some research on how cloture has been used” since it was put into effect in 1917, she explains. In classic Snowe form, her hope is to try to find a procedural fix that would also be a compromise between the minority and the majority — “so that neither gets the upper hand,” she explains.

To aid her efforts, I offer a link to the Senate Rules Committee’s publication of its 2010 series of hearings on reforming the filibuster.  These hearings formed the basis of several Democratic senators’ failed efforts to push the Senate to alter its Rule 22 at the start of the 112th Congress (January 2011).
The print edition of the 2010 series of six hearings, “Examining the Filibuster,” has been published by the Government Printing Office on behalf of the Senate Committee on Rules and Administration. The volume contains full transcripts of each hearing, expert testimony from 23 witnesses, and submitted material from scholars, non-profit organizations and others.

The ranks of reformers are thin these days.  So generating new interest in finding solutions to the Senate’s procedural morass is always a good development, even if Senator Snowe now has one foot out the door on her way home to Maine.  (Given the weather in D.C. this morning, I might go with her.)  To state the obvious though, it’s unfortunate that Senator Snowe is only now turning her attention to reform of the filibuster.  Her vote when reform-minded Democrats pushed the Senate to debate and vote on reform of the cloture rule last year would have been important (here, for example).   To be sure, her support from across the aisle wouldn’t have been sufficient to secure change in the Senate’s filibuster rule, but historically such support has always been necessary.

 

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Is Bernanke’s Fed poised to do more for the economy?

Oddly enough, the Federal Reserve’s FOMC and UVA’s Board of Visitors have something in common:  They make decisions in secret, and they don’t explain themselves very well.  Watching Bernanke’s press conference this afternoon at the close of the FOMC’s June meeting, I couldn’t help but wonder how economists could be so sure that more aggressive Fed action is just around the corner.  As one prominent economist tweeted, “I read the Fed as saying: ‘One more bad jobs report, and we’ll do more.’”   But it struck me after watching Bernanke and scanning today’s FOMC’s projections that the barrier to more aggressive easing by the Fed might remain high—even as FOMC participants today downgraded their own forecasts for growth and inflation over the next three years.

So, with the caveat that I’m a political scientist (not an economist or a seasoned Fed watcher) who thinks about the Fed as a political institution, a few thoughts on the Fed and its seemingly timid response to a still ailing economy:

First, thanks to the Fed’s new communication policy, we now have three meetings-worth of FOMC projections, which include the individual views of FOMC members about the appropriate timing for the Fed to start ramping up the federal funds rate.  I’ve arrayed together the January, April, and June projections to give a sense of the incremental shift underway on the FOMC:



The size of the FOMC’s hawkish flank (blue and red bars favoring rate increases in 2012 or 2013) has not changed (nor presumably its makeup).  But the dovish flank of the FOMC (green, purple and teal bars favoring rate increases only in 2014 or later) has grown.  Granted, the FOMC in June was finally at full strength, with two new governors (Stein and Powell) adding their projections to the mix.  We don’t know of course whether Powell and/or Stein joined the 2015 group, or whether one or two of the April 2014 voters changed their views.  Either way, the expanding dovish wing of the FOMC conceptually makes it easier for Bernanke to lead the FOMC to do more at a future meeting.  Still, the internal opposition to further and longer policy easing remains entrenched on the FOMC.  Outnumbered, to be sure, but it’s been outnumbered all year.   Either that flank constrains Bernanke from doing more, or he just isn’t yet convinced that the data warrant a more aggressive policy response.   (If the latter, the size of the dovish wing might not matter.)  Still, neither interpretation suggests that a more assertive Fed is just around the corner—even if Bernanke promised today that “if we don’t see continued improvement in the labor market, we will be prepared to take additional steps if appropriate.”

Second, Bernanke’s promise that the Fed is prepared to do more (“if appropriate”…) in face of a weakening labor market would run the Fed straight into a collision course with the fall presidential campaign.  The next scheduled meeting ends on August 1, followed by mid September and late October meetings.  Bernanke strenuously (and appropriately) insists that the Fed is non-partisan.  But it strikes me as putting the Fed on tenuous ground if it moves aggressively in the run up to a presidential election that will be fought over the state of the economy.  To be sure, acting in that electoral context would show the Fed’s mettle, a signal that it won’t be cowed by partisan critics on the right who would surely object to more asset purchases or other unconventional policies.   But it strikes me as potentially too damaging to the Fed’s reputation if it moved to juice the economy in the run up to an election.   John Cassidy from The New Yorker argued today that the Fed is “destined to become an important player in the election, and quite possibly a lightning rod.”   Perhaps true, but the Fed’s credibility relies on its reputation for independence—which would be challenged all over again if it adopts aggressive easing policies this summer or fall. That said, the six month extension of Operation Twist conveniently runs out after the election—perhaps allowing the Fed to dodge partisan critics until after the electoral dust has settled.

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Death Star? No thank you.

I wish to address the most important policy question of the millenium: should we build a Death Star?  This debate picked up this year after some Lehigh University students estimated that just the steel for a Death Star would cost $852 quadrillion, or 13,000 times the current GDP of the Earth. Kevin Drum suggests this cost estimate is too low but, in the context of a galactic economy, a Death Star is perfectly affordable and “totally worth it.” Seth Masket and Jamelle Bouie highlight the military downside of the Death Star, suggesting that more people might rebel against the wholesale genocide of the Empire, and that the Death Star would be the prime target of any rebellion. I have two thoughts to add. First, the Death Star is a bit misunderstood. It is primarily a tool of domestic politics rather than warfare, and should be compared to alternative means of suppressing the population of a galaxy. Second, as a weapon of war, it should be compared to alternative uses of scarce defense resources. Understood properly, the Death Star is not worth it.

The Death Star and the Dictator’s Dilemma

The classic problem of representative democracy is that citizens must delegate power to leaders, and then ensure that leaders do not use that power to serve their own interests. As James Madison states, “In framing a government which is to be administered by men over men, the great difficulty lies in this: you must first enable the government to control the governed; and in the next place oblige it to control itself.” Dictators suffer a similar problem of delegation, but in reverse. Dictators must delegate the tasks of subduing and taxing the population to internal security forces, and of maintaining external security to subordinate governors and generals.  Any delegated power, however, could be used to displace the dictator. Internal security forces can assassinate the dictator or join in palace coups. Military leaders can use their forces to rebel against the dictator or secede from the dictator’s realm with a slice of territory. So the dictator must carefully design her security apparatus to maintain control of the population without empowering potential rivals. This challenge grows acute the more dispersed the dictator’s realm and the greater the number of external threats. (For more on the strategy of dictatorship, see here. Political scientists, feel free to add citations in the comments section).

I see the Death Star (DS) as the Emperor’s solution to the dictator’s dilemma.  First, note that its construction precedes the Rebel Alliance; the plans are first developed by the Separatists in Episode 2 and, by the time it is completed, the Rebel Alliance has just won its “first victory.” While it may have some use as a deterrent against possible invaders, the DS is primarily a tool of domestic politics. Prior to its completion, the Emperor is compelled to keep the Imperial Senate around, presumably to maintain the semblance of popular consent. But the Senate imposes some inefficiency—meddling in military strategy, perhaps, or directing spending to some favored planets. Once the DS is operational, the Emperor can disband the Senate and, instead, empower Imperial governors to suppress the local population and extract revenue.  Here’s the critical scene:

But how can the Emperor guard against rebellion by one of these governors? Or revolt by a local planet’s population? The answer is simple: he can zip around in the baddest weapon in the galaxy, destroying his foes with the push of a button. No foe could fight back, and the DS is mobile enough to respond to multiple threats in short order.

Note that this scheme provides an easy answer to the question, “how can we afford a Death Star?” If the scheme works, the Death Star will pay for itself dozens of times in the additional tax revenue from fearful planets, and by the money not spent by the military putting down revolts with conventional weapons.

But will it work?  Only if it induces cooperation through fear. Every planet blown up represents a tremendous loss of potential future revenue, so like nuclear weapons today, the actual use of the DS is a calamity. Moreover, like nuclear weapons, they only work as a deterrent if they are used judiciously. citizens throughout the galaxy must believe that failure to pay their taxes and comply with their Imperial masters will lead to detonation, but also that compliance will save them. The fact that the DS was used against Alderaan, however, would likely have had the opposite effect. Alderaan is “peaceful” and “has no weapons.” It was detonated because its teenage senator was secretly aiding the Rebel Alliance and waited too long to give up Dantoonie. To me, that’s a little too Caligula to induce rational compliance. One imagines the conversations on other planets:

Peasant 1: Did you hear the Empire blew up Alderaan?  What kind of government blows up one of the richest planets in the galaxy because of one smack-talking teenager? It could be any of us next.


Peasant Windu: Enough is enough! I have had it with these [redacted] emperors on their [redacted] Death Star!


If the net effect of the DS is to make every person in the galaxy think their planet could be the next one arbitrarily destroyed, it actually mobilizes them to join the rebellion.

If the DS is an uncertain solution to the problem of internal security, what are the alternatives?

1) Democracy? Unacceptable to the seeker of unlimited power. Your faith in your friends is your weakness.

2) A Sith Academy? During the Old Republic the Jedi did a good job of providing internal security at a very low price. Why not repeal the limitation on Siths and create a small, powerful, and cheap guard of Sith lords?

This is also unacceptable. An army of Siths, however small, would be a large pool of potential rivals and assassins, all angling to seize the throne. In the end, just having one other Sith around was the Emperor’s undoing; dozens of Sith would lead to anarchy.

For this reasons, dictators have favored delegation to minions who are ineligible to replace them, such as eunuchs, lower-class citizens, foreign bodyguards, or captives from an underprivileged social group. This leads me to:

3) Upgrading the internal security apparatus.

A) Clones. The Emperor already has a military force of clones. Why not a bureaucracy of clones? They could be designed to be smart, honest, and unambitious, and they would be relatively cheap. This would help with the knotty problems of tax collection and law enforcement.


B) Domination of planetary elites. There are tried-and-true methods for gaining compliance without having to pay for massive armies or float around the galaxy in a planet-killing machine. The emperor could compel the political and economic elites of each planet to send their children (as hostages) to Imperial schools, where they will learn about all the great things the Empire is doing. Second, the Emperor could assign Imperial bodyguards to the elite of every planet to protect those who are loyal, report on those who are not, and eliminate the worst. If the Emperor followed this approach, the Organa family would be sleeping with the fishes and Alderaan would still be paying taxes.


C) Imperial takeover of rebellious planets. Again, destroying a planet is a tremendous loss for the Imperial treasury. It would be far more profitable for the Emperor to seize rebellious planets (once subdued by his new and improved army – see below), imprison the rebels, and bring in settlers and Imperial workers to keep the planet’s economy humming.


Upgrading the internal security apparatus is a far more cost-effective option than a DS for the next Sith dictator.

The Death Star as Super-Weapon? 

When I watch Star Wars films now, I often find the battles simplistic because there is little tactical thinking. How would people actually use and respond to these futuristic weapons? The best exception to this pattern is the Rebels’ attack on the Death Star in Episode IV. Instead of attempting a large-scale frontal assault with their strongest ships (the anticipated response) they sent small ships armed with an asymmetric advantage: blueprints of the DS revealing a womp rat-sized weakness.

That is what the Rebels should have done. When I was a Congressional staffer working on defense policy in the 1990s, one of the most insightful essays I read was Richard K. Betts’ “The Downside of the Cutting Edge” (National Interest, 1996) which makes this point: once one has a force that can beat anyone in a fair fight, no one will want to fight fair. Even if the Empire eventually built a DS without a design flaw, its enemies would find some way to fight it indirectly. For example, when its not destroying planets, the DS also likes to grab passing ships in its tractor beam, drag them inside, and then scan them for bad guys. It would be simple to rig a decoy ship as a massive bomb, piloted by a robot with orders to detonate the ship once it’s inside the DS.

The Emperor should not expect, therefore, that a single super-weapon will vanquish all foes. As Seth Masket notes, the same money could be used to make some much-needed, lower-risk investments in the Imperial military. Some examples:

1) Information Security. Wouldn’t it be nice if some too-dumb-to-talk 30 year old bucket of bolts couldn’t hack into the DS’s computer system in a few seconds? I would think so.

2) Troop Transportation. How does the U.S. military get around in the desert? Humvees and Bradley fighting vehicles. How do elite scouts of the future get around? On overgrown lizards:

It’s just embarrassing.

3) More robots, please. I get it: the “Clone Wars” featured Republic clones vs. the robot armies of the separatists, and the clones won. Still, though, some of those robots would be really useful in tactical situations, perhaps guided by clones on the ground.

4) More probe droids, please. After the Yavin debacle, the Empire sent out probe droids to scan remote systems. Why not keep a few loitering on every planet on a permanent basis? Then it would be lot harder for any rebellion to hide.

5) Practice, Practice, Practice. An entire legion of the Emperor’s best troops was defeated by a village of teddy bears fighting with sticks and stones. It’s just embarrassing. Clearly they needed better training in tactics, marksmanship, and hand-to-paw combat.

Again, it is my belief that a rational dictator could make better use of the resources that would be used to build Death Stars.

So, in conclusion: the Death Star is bad for internal security and a misallocation of military resources. No thank you!

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All together now: Monetary policy making by committee

The big news out of today’s Bernanke presser will undoubtedly be the Krugman-Bernanke-Krugman not-so-close encounter over the Fed’s stand pat stance in face of a still sluggish economy and high unemployment.  Krugman assailed Bernanke for forgetting the lessons he taught as a professor about aggressive central banking, Bernanke maintained that he’s been entirely consistent, and Krugman elevated the fight by painting Bernanke as having been assimilated by a Trekkie-inspired Fed Borg.   Since Fed reporters rarely get to show their pop culture bona fides, these must be fun days for the Fed’s press corps.

Believe it or not, though, the boring stuff at the Fed presser was still pretty interesting.  Before reporters tossed the Krugman bait to Bernanke, they challenged Bernanke on the discrepancies between the Fed’s FOMC statement and the economic projections that followed.   On the one hand, the Fed statement notes that the FOMC decided to hold short-term interest rates near zero, at least through late 2014.  On the other hand, the economic projections released after the statement indicate that a majority of the FOMC expects to raise interest rates by the end of 2014.  As Ryan Avant of the Economist tweeted: “Mr Bernanke, your forecasts are inconsistent with projected policy actions. Which one are you screwing up?”

Chairman Bernanke’s answer was not surprising.  At his presser this afternoon, he urged reporters to remember the difference between the officials who vote on the Fed statement (currently, the five sitting governors and five Federal Reserve bank presidents) and the larger FOMC (which includes the remaining seven bank presidents who do not have a vote on policy this year).  As Bernanke explained, “There’s certainly a range of views around the table … These projections are inputs into a committee process.”  This is a seemingly innocuous comment about collective decision-making. But I think it’s revealing for a number of reasons:

First, I think it’s important to remember that for all the criticism directed at Bernanke, he is to some degree (albeit tough to measure) constrained by the views of the (largely) privately appointed reserve bank presidents.  The influence of the bank presidents in fact is slightly increased in recent years given the two vacancies on the Fed’s Board of Governors. (If filled, those two governors would presumably give Bernanke two more supportive votes.)   And as the economic projections suggest, the FOMC as a whole is more hawkish than the voting members of the committee this year.  Bernanke today justified the Fed’s reluctance to do more for the economy on macroeconomic grounds. But the political scientist in me suspects that Bernanke is reluctant to push the Fed to do more on its employment mandate given the risk of a more vocal dissent from within the FOMC.  That in turn would raise doubts about the Fed’s future policy stance.  All that said, Bernanke also argued that the committee would consider efforts to seek higher inflation so as to more quickly lower unemployment “very reckless.”  In doing so, he clipped the wings of any FOMC doves who might have favored such easing.

Second, the disparity between the economic projections and Fed’s policy guidance raises questions about Bernanke’s priority of making the Fed more transparent.  As the NYT’s Binyamin Appelbaum argued this week, one of Bernanke’s goals is likely to mollify the Fed’s Capitol Hill critics.  But the combination of a more transparent Fed and a monetary policy committee with a byzantine governance structure might in fact prove to be counter-productive.  Rather than shining light on the Fed’s intentions (thus signaling Fed policy more clearly to markets and perhaps disarming the Fed’s political critics), the Fed’s new transparency might instead be increasing uncertainty about the Fed’s policy intentions.  And unfortunately for the Fed and Bernanke’s good intentions, transparency moves are hard to undo, even if they fall flat.  Long after Bernanke has returned to Princeton (or the Enterprise), future Fed chairs will likely still be grappling with the challenge of transparency.

Beam me up, Scotty.

p.s.  In commenting today on his efforts to make the Fed more transparent, Bernanke noted that he had recently taught some classes “at a local university.”  So much for product placement!

 

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Ben Bernanke comes to GW

Ben Bernanke came to GW today, giving the first of his four lectures this month to a group of thirty lucky  undergrads enrolled in a GW course about the Federal Reserve and its place in the modern political economy.  Bernanke has been eager to demystify the Fed, and in doing so, to bolster the Fed’s public image and to defend the institution from its many ardent congressional and other critics.

I had the good fortune of sitting in on the class today, since I’m co-teaching the course with Bernanke.   Well, “co-teaching”, I suppose, in a very loose sorta way.  Does it matter that we’ll never be at the lecturn on the same day at the same time?  Does it matter that I’ll attend his lectures, but he won’t attend mine?  Does it matter that he’s unlikely  to look at the rest of the syllabus?  Minor technicalities.   I’m c0-teaching with the man whose words can crash markets around the world.

So what’s it like being in class with Big Ben?  For loyal Monkey Cage readers, an insider’s view of Bernanke’s return to the classroom:

1. With the exception of the bomb-sniffing dog who greets you at the door, our lectures are an awful lot alike.  Bernanke likes to use Frank Capra movies starring Jimmy Stewart to illustrate his points.  Today, he referenced It’s a Wonderful Life, even though no one under age 21 in the classroom seems to ever seen it.  I too only reference Frank Capra movies staring Jimmy Stewart, though I’m more likely to use Mr. Smith Goes to Washington.

 

 

 

 

 

 

 

 

2. When Bernanke teaches at GW, the president of the university introduces him, the students clap when he walks in, and his staff has already set up the Powerpoint.  When I teach at GW, I have to introduce myself, no one claps, and I often have to call over to Academic Technologies to ask them to swing by with the missing VGA cable.

3.  Not surprisingly, Bernanke comes to class prepared with a very polished set of slides.  He even provides copyright information and obtains requisite reproduction permission when he illustrates his slides.  A little dodgy screen shot usually suffices for me.

 

4.  When Bernanke speaks, the students sit at rapt attention taking notes (even during March Madness).  And with the aid of name placards, Bernanke calls on students by their first name when taking their questions.  He compliments students—“Well, that’s a great question”—and he relishes the opportunity to pound away at the economic folly of the gold standard.   I suspect that Bernanke wasn’t used to lecturing in a business suit and tie.  But I got the sense by the end of the class that he was truly enjoying his blast back to his past.  “I’ll see you Thursday,” he said, as he smiled and left the classroom.  I hope his staff remembered to take out his flash drive.

 

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