Trump’s personal game might work in China

In spite of all the economic and strategic differences between the US and China, personal relationships play an important role in bilateral relations between Washington DC and Beijing.

Trump’s Ambassador to China 

One of the first appointments made by US President Donald Trump was that of Terry Branstad as US Ambassador to China. The key reason was Branstad’s personal rapport with Chinese President Xi Jinping. This began in 1985, when Branstad was Governor of Iowa, while Xi Jinping an official from Hebei was visiting Iowa. In 2011, Branstad visited Beijing, and met with Xi at the Great Hall of the People. In February 2012, when he was vice-president, Xi stopped in Muscatine, Iowa, where he met not just with Branstad but with big industrialists and farmers from the states.

The US President, commenting on the reason for appointing Branstad, stated:

Governor Branstad’s decades of experience in public service and long- time relationship with President Xi Jinping and other Chinese leaders make him the ideal choice to serve as America’s ambassador to China.

During US President’s China visit in November 2017, Branstad, who shares a good rapport with Trump, did the groundwork for the visit. While in recent weeks tensions between both countries have escalated, with Trump imposing tariffs on Chinese goods worth $60 billion, the American president was delighted with the welcome he had received during his trip and had even told the Chinese President: “My feeling towards you is incredibly warm.”

It would be pertinent to point out that Trump’s decision to appoint Branstad as Ambassador to China (December 2016) came as a relief to the Chinese, given the fact that the US President took Taiwanese President Tsai-Ing Wen’s phone call, much to the chagrin of Beijing (since this went against established US policy).

If one were to look beyond the role of personal relationships in the very complex but important Beijing-Washington relationship, China lays a lot of emphasis on experience (educational, professional) in the US. If one were to examine the credentials of some of the top officials in Xi Jinping’s administration, US education as well as experience in dealing with economic issues pertaining to the US, has played a key role in some of the Chinese President’s appointments.

For instance, Liu He, whom Xi Jinping has appointed as a Vice Premier for overseeing the economy and financial sector, is US educated. Liu, who speaks fluent English, obtained a master’s degree in public administration from the Kennedy School of Government (Harvard University) in 1995. Apart from his in-depth understanding of the Chinese economy, Liu has also been involved in important discussions with US leaders.

Another significant appointment by Xi Jinping is that of Yi Gang, who has been named as Governor of the People’s Bank of China (PBOC). Yi obtained a business degree from the Hamline University in St. Paul, Minnesota, and a Ph.D. in economics at the University of Illinois, before moving to Indiana University at Indianapolis as a professor in 1986. He taught later at the Peking University in Beijing, before moving to the PBOC in 1997.

While economic and strategic issues are too complex to be driven by personal relationships or chemistry (though Trump seems to be a keen believer in personal chemistry given the emphasis he lays on individual ties) alone, an in-depth  understanding of the culture, politics, and economics of one’s interloctutors is especially handy. Given the current tensions between both countries over tariffs, this dynamic may prove to be especially useful.

Nightcap

  1. A question about Israel for a Bleeding Heart Libertarian Irfan Khawaja, Policy of Truth
  2. How Putin has changed, and subjugated, Russia Christian Esch, der Spiegel
  3. Russia’s bite is not nearly as powerful as its bark Daniel DePetris, the Skeptics
  4. Who cares about Washington anymore? Parag Khanna, Politico

India’s near-abroad: Iran’s regional moves

Close attention was paid by sections of India’s strategic community (and understandably so) to the statement of Iranian Minister of Foreign Affairs, Dr Javad Zarif, during his visit to Pakistan, in which he extended an invitation to Pakistan to join the ambitious Chabahar Project (about 70 kilometres from China’s ambitious Gwadar Project).

Zarif, while delivering a lecture at the Institute of Strategic Studies Islamabad (ISSI), stated:

We offered to participate in the China-Pakistan Economic Corridor (CPEC). We have also offered Pakistan and China to participate in Chahbahar

He further went on to state that Iran’s ties with India were not in any way targeted at Pakistan, just as Islamabad’s ties with Riyadh were not against Iran.

Surprise in India

This invitation surprised many in India, given the fact that it has provided financial assistance for Phase 1 of the project and will operate two berths. During Iranian President Hassan Rouhani’s visit in February 2018, one of the tangible outcomes was the lease contract signed by IPGL (Indian Port Global Limited) and Iran’s Port and Maritime Organization, for operating Phase 1 (Shahid Beheshti Port) over an 18-month period. The joint statement also made a clear reference to India’s unwavering commitment to the Chabahar-Zahedan Rail Line, which will enable transportation of goods all the way up to the Afghan border. The Indian side also stated that it would like to see Chabahar as part of the INSTC (International North South Transport Corridor). The INSTC will help in connecting India to Russia and Europe, via Iran.

Chabahar as India’s answer to Gwadar

Many in India have looked at Chabahar as India’s answer to the Gwadar Project, and of course its gateway to Afghanistan and Central Asia. The project is especially important to New Delhi because it enables India to bypass Pakistan, which has flatly refused to give India access to Afghanistan and Central Asia. In 2016, during Indian Prime Minister Narenda Modi’s visit to Iran, India, Iran, and Afghanistan had signed a three nation transport and transit corridor pact to enhance connecitivity. While leaders of all three countries spoke about the relevance of this agreement in the context of connectivity, the Iranian President had made it clear that it was not targeted at anyone. Said Rouhani:

[This pact is] not against any other country […] it is beneficial to the entire region.

India also sent a consignment of wheat (15,000 tonnes) to Afghanistan through the Chabahar Port in 2017. The shipment was dispatched from Kandla (Gujarat, India) and reached Chabahar in Iran. From Chabahar it was transported by road to Nimroz Province in Afghanistan.

India’s response

Replying to Zarif’s statements in a press briefing, India’s Spokesman Raveesh Kumar stated that:

[It is the] prerogative of the government of the Islamic Republic of Iran to choose its partners for the development of infrastructure facilities there.

Kumar also explained the strategic relevance of the project given its geo-political importance.

India-Iran ties beyond the Chabahar Port

Ever since the signing of the nuclear agreement in 2015 between Iran and the P5+1 countries, business linkages – and not just the Chabahar Project – between Iran and India have gotten a fillip. In 2017, India’s oil imports from Iran went up to 4.37 million barrel per day, even though there was a dip between April-December 2017 due to tensions between both countries on the Farzand B gas field. (Iran was supposed to award the gas field to India, but there have been differences on terms and conditions.) During Rouhani’s visit, both countries decided to address the obstacles related to banking and taxation, in order to bring about closer economic linkages.

Iran has thus emerged as an important strategic and trade partner for India.

What may have surprised sections of Indian government, along with its strategic thinkers, would be the Iranian invitation given to Pakistan, in spite of bilateral tensions between the two. In May 2017, for example, the Iranian Army Chief, Major General Mohammad Bagheri, had threatened to strike terror camps in Baluchistan (Pakistan) after the killing of ten Iranian guards by Jaish-Al-Adl in the Sistan-Baluchestan province. Said Baqeri:

[…] unless Pakistan control[s] the borders, arrest[s] the terrorist[s] and shut[s] down their bases […] we will hit their safe havens and cells wherever they are.

Since then tensions between the United States and Iran have also risen, and the latter has a close relationship with China. This has reshaped the Pakistan-Iran dynamic.

New Delhi’s real challenge

The real challenge for India in the near future is the hawkish stand of US President Donald Trump’s most recent appointee: Michael Pompeo (who was earlier head of the CIA, a main American intelligence agency). Trump is also likely to replace his current National Security Advisor, HR Mcmaster, and one possible replacement is John Bolton (former US Ambassador to the United Nations), a known hawk on Iran.

Pompeo would go along with Trump, and have no qualms in scrapping the Iran Nuclear Deal in May 2018, the next date when the issue comes up for consideration.

Pompeo’s predecessor, Rex Tillerson, had differed with Trump on this issue on more than one occasion. During the election campaign, Trump had criticized the Nuclear Agreement. He had dubbed the agreement a ‘disaster’ and ‘the worst deal ever negotiated’. In an address to a Pro-Israel Lobby group, AIPAC, the US President had gone to the extent of stating that dismantling the deal would be his first priority.

Tillerson, no dove on Iran by any stretch of imagination, had categorically stated that dismantling the deal was not in US interests, though the US President disagreed. Commenting on their disagreements about Iran, Trump had stated:

When you look at the Iran deal, I think it’s terrible […] it was okay. I wanted to either break it or do something, and he felt a little bit differently. So we were not really thinking the same.

Tillerson was closely working with European countries to rework the deal, and address some of the Trump administration’s concerns.

The Chair of the Senate Foreign Relations Committee, Bob Corker, has also predicted that Trump will walk out of the Deal: “The Iran deal will be another issue that’s coming up in May, and right now it doesn’t feel like it’s going to be extended.”

More aggressive Saudi Arabia

Saudi Arabia is likely to become more aggressive after the exit of Tillerson. In fact, on the eve of Saudi Crown Prince Mohammed Bin Salman’s arrival in the US, the Saudi Foreign Minister, Adel al-Jubeir, criticized the Iran Nuclear deal. Said the Saudi Foreign Minister:

Our view of the nuclear deal is that it’s a flawed agreement.

During the Saudi Prince’s visit, Trump too did not miss out on an opportunity to lambast the Iran nuclear agreement. While commenting on the future of the deal, the US President stated:

The Iran deal is coming up soon and you will see what will happen […] Iran hasn’t been treating that part of the world, or the world appropriately.

According to the Arab News it was also decided that the United Arab Emirates, Saudi Arabia, and the US would set up a trilateral security forum which would look not just at issues pertaining to Middle East and Iran, but also South Asia.

Conclusion

India would be advised to be cautious, and while some sections the Right have been ecstatic with Trump’s stance vis-à-vis Pakistan (not to mention China), New Delhi needs to be prepared for some turbulence as a consequence of the recent changes within the Trump Administration. New Delhi needs to articulate its strategic and economic interests in Iran, not just to the US, but also to Saudi Arabia. In the past, the US has not objected to Iran’s close ties with India, but it remains to be seen whether or not Trump and his team will exhibit flexibility and pragmatism vis-à-vis Iran.

New Delhi has a myriad of foreign policy challenges, and Trump’s rigidity towards Iran is likely to be a major one in the near future.

Nightcap

  1. Unconventional Trump successful in Korea Jung Woo Lee, New Statesman
  2. Iran’s mullahs are out of answers Ali Safavi, RealClearWorld
  3. Cultural costs of high housing prices in England Chris Dillow, Stumbling and Mumbling
  4. The new challenge to ObamaCare Randy Barnett, Volokh Conspiracy

Are voting ages still democratic?

Rather par for the course, our current gun debate, initiated after the school shooting in Parkland, has been dominated by children — only this time, literally.

I’m using “children” only in the sense that they are not legally adults, hovering just under the age of eighteen. They are not children in a sense of being necessarily mentally underdeveloped, or necessarily inexperienced, or even very young. They are, from a semantics standpoint, still teenagers, but they are not necessarily short-sighted or reckless or uneducated.

Our category “children” is somewhat fuzzy. And so are our judgments about their political participation. For instance, we consider ourselves, roughly, a democracy, but we do not let children vote. Is restricting children from voting still democratic?

With this new group of Marjory Stoneman Douglas high school students organizing for political change (rapidly accelerated to the upper echelons of media coverage and interviews), there has been widespread discussion about letting children vote. A lot of this is so much motivated reasoning: extending suffrage to the younger demographic would counter the current proliferation of older folks, who often vote on the opposite side of the aisle for different values. Young people tend to be more progressive; change the demographics, change the regime. Yet the conversation clearly need not be partisan, since there exist Republican- and Democrat-minded children, and suffrage doesn’t discriminate. (Moreover, conservative religious groups that favor large families, like Mormons, could simply start pumping out more kids to compete.)

A plethora of arguments exist that do propose pushing the voting age lower — 13, and quite a bit for 16 (ex. Jason Brennan) — and avoid partisanship. My gripe about these arguments is that, in acknowledging the logic or utility of a lowered voting age, they fail to validate a voting age at all. Which is not to say that there should not be a voting age in place (I am unconvinced in either direction); it’s just to say that we might want to start thinking of ourselves as rather undemocratic so long as we have one.

An interesting thing to observe when looking at suffrage for children is that Americans do not consider a voting age incompatible with democracy. If Americans do not think of America as a democracy, it is because our office of the President is not directly elected by majority vote (or they think of it as an oligarchy or something); it is not undemocratic just because children cannot vote. The fact that we deny under-eighteen year olds the vote does not even cross their minds when criticizing what many see as an unequal political playing field. For instance, in eminent political scientist Robert Dahl’s work How Democratic is the American Constitution? the loci of criticism are primarily on the electoral college and bicameral legislature. In popular parlance these are considered undemocratic, conflicting with the equal representation of voters.

Dahl notes that systems with unequal representation contrast to the principle of “one person, one vote.” Those with suffrage have one or more votes (as in nineteenth-century Prussia where voters were classified by their property taxes) while those without have less than one. Beginning his attack on the Senate, he states “As the American democratic credo continued episodically to exert its effects on political life, the most blatant forms of unequal representation were in due time rejected. Yet, one monumental though largely unnoticed form of unequal representation continues today and may well continue indefinitely. This results from the famous Connecticut Compromise that guarantees two senators from each state” (p. 48).

I quote Dahl because his book is zealously committed to majoritarian rule, rejecting Toqueville’s qualms about the tyranny of the majority. Indeed, Dahl says he believes “that the legitimacy of the Constitution ought to derive solely from its utility as an instrument of democratic government” (39). And yet, in the middle of criticizing undemocratic American federal law, the voting age and status of children are not once brought up. These factors appear to be invisible. In our ordinary life, when the voting age is brought up, it is nearly always in juxtaposition to other laws, e.g., “We let eighteen year olds vote and smoke, but they have to be 21 to buy a beer,” or, on the topic of gun control, “If you can serve in the military at 18, and you can vote at 18, then what is the problem, exactly, with buying a gun?”

What is the explanation for this? We include the march for democracy as one progressive aspect of modernity. We see ourselves as more democratic than our origin story, having extended suffrage to non-whites, women and people without property. We see America under the Constitution as a more developed rule-of-the-people than Athens under Cleisthenes. So, we admit to degrees of political democracy — have we really reached the end of the road? Isn’t it more accurate that we are but one law away from its full realization? And of course, even if we are more of a representative republic, this is still under the banner of democracy — we still think of ourselves as abiding by “one person, one vote” (Dahl, 179-183).

In response, it is said that children are not properly citizens. This allows us to consider ourselves democratic, even while restricting direct political power from a huge subset of the population while inflicting our laws on them.

This line of thought doesn’t cut it. The arguments for children as non- or only partial-citizens are riddled with imprecisely-targeted elitism. “Children can be brainwashed. Children do not understand their own best interests. Children are uninterested in politics. Children are not informed enough. Children are not rational. Children are not smart enough to make decisions that affect the entire planet.”

Although these all might apply, on the average, to some age group — one which is much younger than seventeen, I would think — they also apply to all sorts of individuals distributed throughout every age. A man gets into a car wreck and severely damages his frontal lobe. In most states there is no law prohibiting him from dropping a name in the ballot, even though his judgment is dramatically impaired, perhaps analogous to an infant. A nomad, who eschews modern industrial living for the happy life of travel and pleasure, is allowed to vote in his country of citizenship — even though his knowledge of political life may be no greater than someone from the 16th century. Similarly, adults can be brainwashed, adults can be stupid, adults can be totally clueless about which means will lead to the satisfaction of their preferred ends.

I venture that all Americans do not want uninformed, short-sighted, dumb, or brainwashable people voting, but they will not admit to it on their own. Children are a proxy group to try to limit the amount of these people that are allowed in on our political process. And is banning people based on any of these criteria compatible with democracy and equality?

Preventing “stupid” people from voting is subjective and elitist; preventing “brainwashable” people from voting is arbitrary; preventing “short-sighted” people from voting is subjective and elitist, and the same for “uninformed” people. We come to the category of persons with severe mental handicaps, be their brain underdeveloped from the normal process of youth, or injury, or various congenital neurodiversities. Regrettably, at first glance it seems reasonable to prevent people with severe mental defects from voting. Because, it is thought, they really can’t know their interests, and if they are to have a voting right, it should be placed in a benefactor who is familiar with their genuine interests. But now, this still feels like elitism, and it doesn’t even touch on the problem of how to gauge this mental defect — it seems all too easy for tests to impose a sort of subjective bias.

Indeed, there is evidence that this is what happens. Laws which assign voting rights to guardians are too crude to discriminate between mental disabilities which prevent voting and other miscellaneous mental problems, and make it overly burdensome to exercise voting rights even if one is competent. It is hard to see how disenfranchising populations can be done on objective grounds. If we extended suffrage from its initial minority group to all other human beings above the age of eighteen, the fact that we prolong extending it to children is only a function of elitism, and consequently it is undemocratic.

To clarify, I don’t think it is “ageist” to oppose extending the vote to children, in the way that it is sexist to restrict the vote for women. Just because the categories are blurry doesn’t mean there aren’t substantial differences, on average, between children and adults. But our reasoning is crude. We are not anti-children’s suffrage because of the category “children,” but because of the collective disjunction of characteristics we associate underneath this umbrella. It seems like Americans would just as easily disenfranchise even larger portions of the population, were we able to pass it off as democratic in the way that it has been normalized for children.

Further, it is not impossible to extend absolute suffrage. Children so young that they literally cannot vote — infants — could have their new voting rights bestowed upon their caretakers, since insofar as infants have interests, they almost certainly align with their daily providers. This results in parents having an additional vote per child which transfers to their children whenever they request them in court. (Again, I’m not endorsing this policy, just pointing out that it is possible.) The undemocratic and elitist nature of a voting age cannot be dismissed on the grounds that universal suffrage is “impossible.”

It is still perfectly fine to say “Well, I don’t want the boobgeoisie voting about what I can do anyway, so a fortiori I oppose children’s suffrage,” because this argument asserts some autocracy anyway (so long as we assume voting as an institutional background). The point is that the reason Americans oppose enfranchising children is because of elitism, and that the disenfranchising of children is undemocratic.

In How Democratic is the American Constitution? the closest Robert Dahl gets to discussing children is adding the Twenty-Six Amendment to the march for democratic progress, stating that lowering the voting age to eighteen made our electorate more inclusive (p. 28). I fail to see why lowering it even further would not also qualify as making us more inclusive.

In conclusion, our system is not democratic at all,
Because a person’s a person no matter how small.

 

Lessons from the Stamp Act

That’s the subject of my latest over at RealClearHistory. Peep game:

The refusal of the colonies to pay for the war they initiated also led to the flare up of a simmering tension between elites on both sides of the British Atlantic: representation. The colonists wanted to send representatives to London and have them participate as full members of the body politic. The elite on the islands, however, were openly disdainful of American elites and probably did not want to disperse their power even more thinly by admitting new seats. Adam Smith was especially prescient on this matter, actually arguing that London could avoid most of its trouble by simply admitting American representatives to parliament.

Please, read the whole thing.

Nightcap

  1. The long fight for equal liberty David Lowenthal, History Today
  2. Gun seizures have already led to too many abuses James Bovard, the Hill
  3. Turkish questions, Kurdish responses Amberin Zaman, Al-Monitor
  4. How American students are unlearning liberty David French, National Review

Electricity in Quebec before Nationalization (1919 to 1939)

A few weeks ago, I mentioned that  I am generally skeptical of “accepted wisdom” on many topics. “Accepted wisdom” is a construction of a stylized fact by a party with intense preferences that is gradually able to remove nuances over time to solidify its preferred narrative. The example I gave a few weeks ago concerned antitrust laws. There are many more. One of those concerns a research agenda that I laid claim to in a recent article in Atlantic Economic Journal (co-authored with my dear friend Germain Belzile): the nationalization of electricity in Quebec.

My home province of Quebec is basically one giant network of rivers well-suited for the production of hydro-electricity – a potential that was noticed in the late 19th century and led to a rapid expansion of the network. Historians (and some economists) have depicted the early electrical industry in Quebec as a “trust” (a cartel) that gouged consumers and could only be resolved, as witnessed by the neighboring province of Ontario, by nationalization (which occurred in two waves – one in 1944 and one in 1962).

In the article I published with Belzile, I argue that this narration is largely incorrect. First, before nationalization prices in Quebec were falling and were low by North American standards (see figures below). Second, production was expanding rapidly. This is in spite of the fact that taxes imposed on the electrical industry grew rapidly over time from less than 10% of total expenditures to close to 30%.  Moreover, we point out that looking at residential prices is bound to yield bad comparisons (if we can call those made above as “bad”) if there is price discrimination. The industry price discriminated and offered incredibly low prices for industrial customers (large power) than in Ontario or anywhere else in Canada  (in spite of the taxes it was operating under and the fact that Ontario subsidized its own).

We also point out that there was a dynamics of interventionism problem. The neighboring province of Ontario (more populous and richer than Quebec) nationalized its industry and set prices well below the market level which is an implicit subsidy. However, at the subsidized rate, Ontario could not supply its own demand and had to buy at the market price in Quebec. Its over-equilibrium quantity of energy demanded was transferred on the freer Quebec market, thus increasing prices on that market.

We also argue that there was wide heterogeneity of rates in Quebec that relate to the structure of municipal regulation (the level at which electricity was regulated pre-1935). The price differences depended on the political games involving rent-seeking firms and politicians (best exemplified by the case of Quebec City). Cities with high prices were places where the electrical market was heavily politicized and franchises (i.e. the contracts fixing rate schedules over long periods of time to recoup capital investment) were short and subject to holdups.

This latter point is meant for us (me and Germain) to stake a claim on future research to document the nationalization and regulation process at the municipal level and see what the effects on prices and outputs were. In a certain way, I am trying to establish a research agenda extending the skepticism of “accepted wisdom” that has emerged with the economic history of antitrust in the United States to the case of electricity trusts in Quebec. This first article is, I believe, a promising start for such an inclusion.

 

Figure2Electricity

Figure4Electricity

 

Nightcap

  1. What would “lesser Mexico” look like? Noel Maurer, The Power and the Money
  2. Picasso’s nudist streak Fiammetta Rocco, 1843
  3. In Asia, the copy is the original Byung-Chul Han, Aeon
  4. Pakistan’s Deadly Game with the U.S. Anthony Loyd, New Statesman

Rosenbloom on the Colonial American Economy

Joshua Rosenbloom is an economic historian worth following if you are interested in American economic history during the colonial era. He has recently published what appears to be an overview article of the topic (probably for a book or an invited symposium) which perfectly summarizes the current state of the research. I believe that this should be widely read by interested parties.  Here are key excerpts for some of the topics he discusses. I provide some comments to enrich his contribution, but these should be understood as complements rather than substitutes to this excellent overview of the American economy during the colonial era.

On Economic Growth 

Mancall and Weiss (…) concluded that likely rates of per capita GDP growth could not have been higher than 0.1 percent per year and were likely closer to zero. In subsequent work, Mancall, Rosenbloom and Weiss (2004) and Rosenbloom and Weiss (2014) have constructed similar estimates for the colonies and states of the Lower South and the Mid-Atlantic regions, respectively. Applying the method of controlled conjectures at a regional level allowed them to incorporate additional, region-specific, evidence about agricultural  productivity and exports, and reinforced the finding that there was little if any growth in GDP per capita during the eighteenth century. Lindert and Williamson (2016b) have also attempted to backcast their estimates of colonial incomes. Their estimates rely in part on the regional estimates of Mancall, Rosenbloom and Weiss, but the independent evidence they present is consistent with the view that economic growth was quite slow during the eighteenth century.

This is still a contentious point (see notably this article by McCusker), but I believe that they are correct. In my own work, using both wages and incomes, I have found similar results for Canada and Leticia Arroyo Abad and Jan Luiten Van Zanden have found something roughly similar for the Latin American economies (Mexico and Peru).

It is also consistent with even simplistic accounts of the neoclassical growth model. The New World was an economy of abundant land input whose outputs (agricultural produce) were mostly meant for local consumption. If one wanted to increase his income, all he had to do was use more inputs at really low costs. There is very little in this situation to invest in increasing total factor productivity and incomes would only increase at the dis-aggregated level (following the same region over time) as we are capturing the extent of inputs included over time (e.g. the long-settled farmer has a high income because he has had the time to build his farm, but the short-settled farmer brings the average down because he is just starting that process).

On Monetary History and Monetary Puzzles

In lieu of specie, the colonists relied heavily on barter for local exchange. In the Chesapeake transactions were often denominated in weights of tobacco. However, tobacco was not used as a medium of exchange. Rather merchants might advance credit to planters for the purchase of imported items, to be repaid at harvest with the specified quantity of tobacco. Elsewhere book credit accounts helped to facilitate transactions and reduce the need for currency. The colonists regularly complained about the shortage of specie, but as Perkins (1988, p. 165) observed, the long run history of prices does not suggest any tendency of prices to fall, as would be expected if the money supply was too small. (…) With only a few exceptions the colonies issuance of these notes did not give rise to inflationary pressures. There is by now a large literature that has analyzed the relationship between note issuance and prices, and finds little evidence of any correlation between the series (Weiss 1970, 1974; Wicker 1985; Smith 1985; Grubb 2016. As Grubb (2016) has argued, this suggests that while the circulation of bills of credit may have facilitated exchange by substituting for book credit or other forms of barter, they did not assume the role of currency.

In this, Rosenbloom summarizes a puzzle which has been the subject of debates since the 1970s (starting with West in 1978 in this Economic Inquiry article). In many instances (like South Carolina and Pennsylvania), the large issues of paper money had no measurable effect on prices.  This is a puzzle given the quantity theory of the price level. The proposition to solve the puzzle is that as the paper money printed by colonies tended to be backed by future assets, they were securities that could circulate as a medium of exchange. If properly backed and redeemed, people would form expectations that these injections were temporary injections and there would be no effect on the price level all else being equal. Inflation would only occur if redemption promises were not held or were believed to be humbug. This proposition has been heavily contested given the limited information we hold for the stock of other media of exchange and trade balances. I have my own take on this debate on which I weigh using a similar Canadian monetary experiment (see here), but this is a serious debate. Basically, it is a historical battleground between the proponents of the fiscal theory of the price level (see notably the classical Sargent and Wallace article) and the proponents of the quantity theory of the price level.  Anyone interested in the wider macroeconomic debate should really focus on these colonial experiments because they really are the perfect testing grounds (which Rosenbloom summarizes efficiently).

On Mercantilism, the Navigation Acts and American Living Standards

The requirement that major colonial exports pass through England on their way to continental markets and that manufactures be imported from England was the equivalent of imposing a tax on this trade. The resulting price wedge reduced the volume of trade and shifted some of the producer and consumer surplus to the providers of shipping and merchant services. A number of cliometric studies have attempted to estimate the magnitude of these effects to determine whether they played a role in encouraging the movement for independence (Harper 1939; Thomas 1968; Ransom 1968; McClelland 1969). The major difference in these studies arises from different approaches to formulating a counterfactual estimate of how large trade would have been in the absence of the Navigation Acts. In general, the estimates suggest that the cost to the colonists was relatively modest, in the range of 1-3 percent of annual income. Moreover, this figure needs to be set against the benefits of membership in the empire, which included the protection the British Navy afforded colonial merchants and military protection from hostile natives and other European powers.

The Navigation Acts were often cited as a burden that the colonists despised, but many economic historians have gone over their impact and they appear to have been minimal. It does not mean that they were insignificant to political events (rent-seeking coalitions tend to include small parties with intense preferences). However, it does imply that the action lies elsewhere if someone wants to explain the root causes of the revolution or that one must consider distributional effects (see notably this article here).

These are the sections that I found the most interesting (as they relate to some of my research agendas), but the entire article provides an effective summary for anyone interested in initiating research on the topic of American economic history during the colonial era. I really recommend reading it even if all that you seek is an overview for general culture.

The populist right in India, and the US

All eyes in India have understandably been on some important political developments over the past few days.

First, the by-election results of 3 parliamentary seats and 2 legislative seats were made more interesting by fact that BJP (Bharatiya Janata Party, a Hindu nationalist party, and India’s largest) had to face a surprising rout in the strongholds (Gorakhpur, Phulpur) of Uttar Pradesh’s Chief Minister (Yogi Adityanath) and Deputy Chief Minister (Keshav Prasad Maurya).

Second, there has been talk of other regional parties joining hands and forming an Anti-Congress Front. Two days after the election results, the exit of the Telugu Desam Party (TDP) from the BJP-led National Democratic Alliance (NDA) and its decision to pass a no confidence motion (which BJP is likely to win) has certainly made the fight for 2019 more interesting.

While it remains to be seen whether the opposition parties in 2019 can give the BJP a run for its money, those interested in US politics will have closely followed the result of a Congressional by-election (18th District) where Democrat candidate Connor Lamb (a 33 year old Marine) defeated Republican Candidate Rick Saccone in a close contest. This is a significant win after the triumph of Senator Douglas Jones in Alabama. Jones became the first Democrat to win a Senate Seat in Alabama (a Republican stronghold referred to as “Ruby Red”) since 1997.

The US President, who is quick to comment on virtually every issue, on Twitter, remained silent on the result of the 18th District.

The US President did state, at a private fundraiser for Missouri Senate candidate Josh Hawley, that the Democrat candidate’s stance on key economic issues was akin to that of Trump:

The young man last night that ran, he said, ‘Oh, I’m like Trump. Second Amendment, everything. I love the tax cuts, everything.’ He ran on that basis, Trump said. He ran on a campaign that said very nice things about me. I said, ‘Is he a Republican?’ He sounds like a Republican to me.

Lamb conservative on social and economic issues?

Trump’s views were echoed by a number of other Republicans. House Speaker Paul Ryan called Lamb a “pro-gun, anti-Nancy Pelosi conservative.”

While Republican Representative Chris Collins of New York said that he doesn’t “think you’ll see another candidate like Lamb,” another representative from the state of Pennsylvania, Mike Kelly, argued that Lamb was “more like a Republican.”

There is some truth in the President’s assertions, because Lamb did support the President’s imposition of tariffs on aluminium and steel imports. Said Lamb: “we have to take some action to level the playing field.” Even on issues like gun control and abortion, his views were to the right of conventional Democrats, though not absolutely in sync with the Republicans.

Why Trump can not ignore this defeat

Irrespective of what US President Donald Trump may say, the fact is that he had won the state by 20 points in the US Presidential election of 2016, and his economic agenda had found strong resonance. Trump, along with Vice President Mike Pence, had also campaigned for Saccone.

Significantly, in the last two Congressional elections, Democrats had not even bothered to field candidates in PA 18.

The announcement to impose tariffs on aluminium and steel had been made one week before the election, clearly with an eye on reaching out to large sections of ‘blue collar workers’. The US President calculated that he would be able to regain his popularity, but the results clearly show that Trump’s ‘ultra nationalism’ and economically inward looking policies by themselves will not suffice. He will also need to change his style of functioning and not continuously sack individuals.

Republican Speaker Paul Ryan himself had dubbed this verdict as a ‘wake up call’. Other Republicans have been forthright in their analysis of the defeat and blame Trump’s approval ratings for the same.

Doug Heye, a Republican strategist and former spokesman for the Republican National Committee, said:

There is a very real problem facing Republicans in the months ahead and that problem is Donald Trump’s approval rating.

What does Lamb’s win mean for the Democrats

Lamb’s victory may also result in some changes within the Democrats. Lamb has been pitching for a change in leadership and does not get along particularly well with Nancy Pelosi, Minority Leader of the US House of Representatives:

I have said, and I continue to say, that I think we need new leadership at the top of both parties in the House.

Pelosi however was quick to deny that Lamb’s criticism of her had anything to do with the outcome:

I don’t think that that really had that much impact on the race […] He won. If we hadn’t won, you might have a question, but we won — the ‘D’ next to his name was very significant.

The electoral verdicts in India and US have one common message: ‘economic insularity’,  and the whipping up of ultra-nationalist emotions can not make up for vacuous policies.

There are messages for the opposition in both the US and India; in spite of right wing nationalism having failed to address substantive issues, the voter is looking for new options — leaders with imaginative ideas outside of the cozy club .

If one were to specifically look at India, the fence sitters may not be particularly happy with the existing order, but does that imply that they will automatically tilt towards the opposition? The politics of doles and sops will not work. A progressive social agenda, which is in sync with the diverse ethos of this country, has to be complemented by a pro-reform economic agenda (which is of course inclusive, and sensitive to the concerns of the poorest).

Conclusion

What is clear however is that Trump’s re-election in 2020 and Modi’s in 2019, are not a done deal. One would have to say though, that in spite of the recent UP verdict, there is a higher probability of Modi being re-elected than Trump.

It remains to be seen whether the current populist right narrative, which is a lethal cocktail of inward looking economic thinking and conservative social policies, can be countered effectively, and defeated at the hustings, by a progressive, forward looking agenda. Will India and the US take the lead in challenging this narrative?

Nightcap

  1. The ponchos of Chiapas and globalization Virginia Postrel, Reason
  2. Why are prices so high in the Pacific? Stephen Howes, DevPolicy
  3. The problem of democracy…in 1848 Pamela Nogales, JHIBlog
  4. Management vs. Managerialism Chris Dillow, Stumbling & Mumbling

Nightcap

  1. Islam and the European Enlightenment the Economist
  2. Tales of a female bomber Lincoln Krause, War on the Rocks
  3. Christianity in China is uncrushable Charles Horner, Claremont Review of Books
  4. What would the ideal introduction to Catholicism look like? Paul J. Griffiths, Commonweal

World War I destroyed Christianity

That’s the argument I put forth in this week’s RealClearHistory column. As usual I frame the argument in the form of a “Top10,” and in this case I used battles. An excerpt:

6. Battle of Asiago: May 15 – June 10, 1916. Another nasty battle fought along the Austro-Italian Front, Asiago is considered a victory for Italy even though it lost more men than the Austro-Hungarians. Altogether, the surprise attack launched by the Hapsburgs inflicted severe casualties on the Italians, with the latter losing 140,000 men and the aggressor losing 100,000. The surprise did not work for the Hapsburgs, either, as their armies were turned back and the position continued to be held by the Italians. There is a beautiful war memorial dedicated to both sides in Asiago today, and there are no crosses to be found for the dead there.

Please, read the rest.

Nightcap

  1. Dutch Jews face tough, age-old questions Bruce Clark, Erasmus
  2. Elections signal the end of an era in Italy Joel Weickgenant, RealClearWorld
  3. Hamas dips its toes in regional politics Adnan Abu Amer, Al-Monitor
  4. Stunningly beautiful photos of art from Tibet Joshua Daugherty, JHIBlog