Besides Realism, Liberalism is one of the greatest schools of knowledge in International Relations. Just like Realism, it is not easy to define Liberalism, for liberals come in many shapes and colors. However, I believe we can point to some core characteristics of liberals in International Relations.
One of the difficulties we find when discussing liberalism in International Relations is the same difficulty we have with Liberalism in general. Different from Marxism, for example, Liberalism is a very broad intellectual tradition, with many different thinkers. Sometimes I ask my students “who is the most important Marxist thinker?”. I hope they will answer Marx! And then I ask “who is the most important liberal thinker?”. Besides that, Liberalism went through a major transformation between the 19th and 20th centuries. One of the ways to make a distinction between the old and the new liberalism is to talk of classical liberalism and modern liberalism. Classical liberalism is very similar to what we call conservatism (or even Realism!). Modern Liberalism is often associated with the Democratic Party in the US.
In any case, I believe that the central tenet of liberalism is the defense of liberty. Liberals (especially classical liberals) believe that if individuals are set free from outside constraints, the natural result is progress. In other words, Liberals have great faith in the possibility of change – positive change. This contrasts with the general pessimism of Realists.
In very practical terms, although they agree with Realists that the International System is anarchic, Liberals see more space for cooperation between states towards a more pacific and prosperous World. Where Realists see competition, Liberals see at least the potential for cooperation. One of the ways that states can cooperate with one another is through shared values. These values can be fleshed into international organizations, such as the UN or the WTO.
In sum, liberals agree on a lot with Realists but have much more hope for international cooperation. I must say that I really want them to be right, but think that they are wrong. Realists seem to have a very strong point when they show how much the anarchy in the international system stops greater cooperation. And Liberals themselves are not waiting for a World government that will somehow solve that. I’m not saying that cooperation and progress are impossible or that they are undesirable. I’m just saying that I’m not convinced that they can happen the way Liberal Theory of International Relations describes.
Someone (I don’t remember who) said that International Relations is the academic discipline of disagreement. Internationalists disagree on mostly everything, beginning by how to view their object of study. With that said, the discipline of International Relations has been historically dominated mostly by two theoretical schools, Realism and Liberalism. Some other minor schools, such as Constructivism and the English School also have significant influence. With that in mind, I believe it might be useful to post something here about the theory of International Relations.
Although the chronology is highly disputed, it can be defended that Realism is the first theory of International Relations, going back to Thucydides in Ancient Greece or to Machiavelli in late medieval/early modern Europe. In any case, Realism is arguably the most influential theory of International Relations, partially for its influence in actual statecraft (in opposition to academic thinking). Realists come in many shapes and colors, but I believe that most of them present some core characteristics:
The first thing that most (or in this case, all) Realists believe in is that the international system is anarchic. Actually, this is something that virtually any student of International Relations believes in, because… it is! When we say that the international system is anarchic, we are not saying that it is a mess or a state of permanent war. In international relations, the definition of anarchy is more simple: it means that there is no formal hierarchy of power between countries. Of course, countries have a clear hierarchy of power, with some being much more powerful than others. However, all countries are formally sovereign and independent. Countries recognize themselves as their ultimate authority. Each one of them.
A second thing that Realists believe is that countries (or in the more technical vocabulary, states) are the main actors of the international relations. Although we can speak of international corporations and international institutions, in the end, the actors that really matter are countries, especially great powers. That is so mainly because they have military capabilities. Coca-Cola may have lots of money, but not an army.
Finally, Realists believe that countries have a relationship of competition. They tend to see each other as potential enemies. Maybe not actual enemies, but certainly potential ones. Because of that, countries have to defend themselves against one another.
There are many more characteristics that we could add to this list, but I believe that these are the essential points of realist thinking in International Relations. Realists call themselves realists because they believe they see reality as it is, not in an idealized manner. I tend to agree. I believe that history proves that unfortunately, International Relations work in a realistic way. And this is something that, I believe, is key for at least many realists, and that is too often misunderstood: realists are not saying that international relations should be this way. They are saying that [sadly] they are this way. If you analyze international relations objectively, you will find out that countries (even the ones you like) and politicians (even the ones you believe are so nice) act in very selfish ways.
Realists are accused of leaving little or no room for change. But is this a fair assessment? I wish! But most other schools of International Relations fail to present plausible ways in which the international system could be improved, leading to more peace and prosperity for all.
In my piece over at American Institute for Economic Researchthe other week, I discussed the phenomenon of selling property that one does not (yet) own. I mentioned a left-wing and a right-wing version, but focused my efforts mostly on the right-wing “Fractional-Reserve-Banking-is-Fraud” idea.
My main point was to, by analogy, point to other fiduciary relationship – specifically insurance and airline overbooking – that fulfil the same criteria of double-ownership that is so crucial for the right-wing view. Insofar as this analogy holds, rejecting fractional reserve banking as fraudulent and illegal requires one to similarly reject insurance policies and airlines’ practice of overbooking. Regardless of where one comes down on the legal relationship between a depositor and a bank, I thought the theme interesting to explore.
Unknown to me, in one of Hoppe-Hülsmann-Block’s (HHB) early articles they devoted about two pages to addressing my main points. To HHB, there’s a “fundamental distinction” between property and property titles that render these and other analogies “mistaken”: future vs present goods. Money titles such as fractionally issued bank notes are designated present goods whereas insurance policies, parking permits or flight tickets are considered future goods. Money is the “present good par excellence“ to use Rothbard’s words.
HHB claims that one can legally oversell future goods, but when overselling present goods, one is committing fraud. A narrow distinction, admittedly, and we’ll see that it doesn’t fare so well. Discussing the example of airline overbooking, this distinction does momentarily save HHB from condemning airlines; yes, the airline is selling a flight at a future date, which seems meaningfully different from the instantly-available present goods bank notes ought to be. But the thing about the future is that it inevitably and predictably becomes the present. Once that future arrives, HHB explicitly admits that having more passengers at the gate than they have seats on the plane does amount to fraud. Strangely, however, HHB exonerate airlines since they are “prepared to pay every excess ticket holder off”.
Oh, and fractional reserve banks aren’t?
At this point their already weak defense falls apart. Every instance of historical bank runs include management, shareholders and governments doing precisely that: slowing down the run by paying employees, friends or relatives to deposit funds; acquiring new funding (either debt or equity) to pay off skittish depositors who want their present goods right away; or my own personal favorite, as a good student of Scottish financial history: the Option Clause!
HHB say that airlines are not committing fraud since once at the gate – on the verge of having their oversold future goods transform into present goods – they stand ready to
“repurchase [the passenger’s] ticket at a price (by exchange of another good) that the holder considers more valuable than his present airline seat.”(HHB 1998: 47)
Let’s see what the financially innovative Scots did. Their notes were subject to a legal clause, allowing management to ‘mark’ particular notes when offered up for redemption. That meant deferring the redemption claim for six months, effectively transforming the present good (the money title) into a future good (money title in six months), at the maximum legal rate of interest of 5%. That sounds like a good “the holder considers more valuable”, especially considering that these notes were effortlessly accepted in trade – i.e., the holder could instantly turn around and buy things with this note, its value gradually appreciating as the six-month date arrived. In practice, this deterrent was only used infrequently, and then almost exclusively against English currency speculators.
Humankind’s struggle with moral is of course nothing new, it rather inherent to our nature to revolt against the meaningless world and the manmade system of reason. Furthermore, moral values vary over a specific period of time swinging from rather high moral standards to very low ones. Regarding morality as an abstract compass guiding our thought, goals and behaviour, Economist, in general, are not known for dealing in depth with the metaphysical reason behind our behaviour yet they explore and explain human actions through our surrounding incentives, which also structure and direct our action. Economist such as Daron Acemoglu & James Robinson or William J. Baumol have explored these changes in human behaviour through changing incentive structures thoroughgoingly.
However, folks mourning the moral decline of today’s west often fail to provide concrete evidence for their argument. They either cherry-pick events or legislatures to infer a macro trend inductively or they lose themselves in difficult language trying to somehow save their argument by making it incomprehensible. I cannot help feeling that mourning the moral decay of the west has somehow become a shibboleth for eloquently expressing the “Things used to be way better back then” narrative. However, I admit that there were probably a couple of sociological papers who have covered this issue very well which I am unaware of. Contrary, the public debate was dominated by a few grumpy intellectuals holding the above-named attitude. I was recently provided with a very concrete set of indicators to measure moral decline while digging through Samuel P. Huntington’s infamous classic “The clash of civilization” from 1996. He states that there are five main criteria which indicate the ongoing decline of moral values in the West. [1]
After being provided with a concrete framework to quantify the moral decline of the west, I was keen to see how the moral decline of the west has developed in the 20 years since the book has first been published in 1996. Although I also take issue with some of these indicators to measure moral decline, I avoid any normative judgement in the first part and just look at their development over time. Furthermore, since Samuelson himself mostly takes data from the USA representing the West, I might as well do so too for the sake of simplicity. So, let’s see what happened to moral values in the West in the last years by checking each of Huntington’s indicator one by one.
1. Increasing antisocial behaviour such as acts of crime, drug use and general violence
Apart from the global long-term trend of declining homicides, we can also observe a recent downward trend in the reported violent crime rate since 1990 in the USA. Scholars agree that the crime rate is in an extreme decline. Expanding the realm towards Europe, you will see similar results (see here).
Despite these trends, the public (as well as some intellectuals as well I assume) vastly still holds a distorted perception of the crime rate. The sharp decline in actual crimes strongly contradicts the fact that a majority of the people still uphold the myth of increasing crime rates.
2. Decay of the family resulting in increasing divorce rates, teenage motherhood and single parents
It is hard to measure the “Decay of the family” itself. Luckily, Huntington further concretizes his claim by naming some of the measurable effects. There is nothing much to do to refute these statement except for looking at the following graphs.
a) Firstly, the divorce rate is sharply declining.
I often take issue when (especially conservative) scholars mourn the declining importance of family. Even if there are certain indicators which would back up Huntington’s claims, he does not name them himself. While it is indeed true that “family” as an institution is undergoing changes, there is no evidence (at least named by Huntington) to back up the claim of a decline of its importance.
3. Declining “social capital” and voluntarism leading to less trust.
It is indeed true, that the adult volunteering rate declined from early 2000 to 2016 from 27.4% to 24.9%. Interestingly, it recently bounced back to a new high in 2018, hitting the 30% target. Really the only point where one must agree to Huntington’s claim is the decrease of interpersonal trust as well as trust in public institutions. This trend is indeed very worrisome considering that trust is a major factor for flourishing societies.
4. The decline in work ethic
The research here is a little bit tricky and points in both directions. Although there has been wide academic coverage of the millennial work ethic scholars could not find a consensus on this issue. Its is especially difficult to extract the generational influence from other key determinants of work ethic, such as position or age. Academics warn to mistake the ever-ongoing conflict between young vs. old with the Boomer vs. Millenial conflict. I haven’t settled my opinion on this one. These Articles from Harvard Business Review and Psychology Today provide a good overview of both sides of the medal.
5. Less general interest in Education
This indicator is particularly interesting for me because as a member of the 90’ generation, I have experienced quite the opposite in Germany. But let’s have a look at the data.
Despite ranking only in the middle in a global country comparison, the US students still made a huge leap in terms of maths and reading proficiency, which only slowed down in 2015:
As you can see, there is little to no evidence to empirically back up the claim of western moral decay. Furthermore, while many case studies have shown that lack of interpersonal trust, lack of education or a declining work ethic can pose a great threat to society, I refuse to see a connection (a no known to me study disproves me here) between (recreational) drugs consumption, alternative family models, increasing hedonism and moral decline. Thus I believe that many advocates of the moral decay theory regard it as an opportunity to despise developments they personally do not like. I do not imply that everyone arguing for the moral decline of the west is unaware of the global macro-trends which heavily improved our life, but I highly doubt their assumption, that we are currently in a short-to-medium term “moral recession”. Even when one upholds the very conservative statements such as drug consumption adding to moral decline, is hard to argue that we are currently witnessing a moral decay of the west. Contrary, It may be true that Huntington has observed something different in the period before publishing “The clash of civilization” in 1996. Of course, I myself witness the ongoing battle against norms on the increasing hostility towards the intellectual enemy in the west, but one should always keep in mind the bigger picture. Our world is getting better – in the long- and in the short-run; There is no such thing as a moral decline of the West.
[1] Huntington, Samuel P. (2011): Kampf der Kulturen. Die Neugestaltung der Weltpolitik im 21. Jahrhundert. Vollst. Taschenbuchausg., 8. Aufl. München: Goldmann (Goldmann, 15190). P. 500
Another school funding case is knocking at the U.S. Supreme Court’s door. This case, Espinoza v. Walborn, hales from Montana, where the state’s fledgling school-choice program was killed moments after it left the crib. The Court now has a chance to revive it and land a major victory for educational choice across the country.
Montana’s first school-choice law, passed in 2015, took the form of a tax-credit scholarship program. If a taxpayer donated to an approved scholarship organization, she could claim up to $150 of the donation as a tax credit. The scholarship organizations then dished out scholarships to help parents afford to put their kids through private school.
Then the Montana Department of Revenue gutted it. The Department promulgated a rule that none of that scholarship money could go to religious private schools. This basically killed the program, since the vast majority of private schools in Montana–and in most states–are religious schools.
The Department claimed that the state constitution prohibited the scholarship dollars from going to religious schools because of the state ban on indirect public aid to religious schools. This is an absurd argument. The scholarship funds are privately donated dollars–they never touch a public coffer. The fact that someone can claim a tax credit hardly means that the donation becomes “public funds” because of diverted revenue. Such an argument, extended to its logical conclusion, would mean that all money is the government’s, and when it graciously declines to tax us, that extra money of ours is in fact part of the public fisc.
Nonetheless, the government prevailed at the Montana Supreme Court. In fact, the Court did the state one better–they just invalidated the whole tax-credit program, even for the few parents who might use a scholarship to send their kids to a secular school.
It’s a terrible blow to parents in Montana trying to find some genuine variety in education. But it also gives the Supreme Court a chance to right a wrong that has been festering in education policy for well over a century. The Supreme Court should hold that barring religious schools from accessing a neutral and generally available funding program violates the Free Exercise Clause and the Equal Protection Clause of the U.S. Constitution.
The portion of Montana’s state constitution that laid the tax-credit program in an early grave is known as a Blaine Amendment, named after 19th-century Congressman James Blaine. In 1875, Blaine proposed a federal constitutional amendment that would, among other things, prohibit states from funding “sectarian” schools with public money. Blaine’s federal amendment failed, but many states passed state-level amendments to the same effect, and Congress managed to make inclusion of such amendments a condition of statehood for new states entering the union.
The history is clear that these amendments are rooted in anti-Catholic bigotry. As the United States transitioned to a public school system, public schools had a distinctly Protestant flavor (often state-endorsed or even state-forced). Catholic migrants therefore began forming and attending private religious schools of their own. The backlash was fierce, and anti-Catholic sentiment often expressed itself in hostility to Catholic schools. James Blaine’s proposed amendment was a key manifestation of this bigotry.
And the bigotry lives on today. Ironically, however, now opponents of genuine choice in education have retrofitted Blaine Amendments as a partisan weapon to combat vouchers, tax credits, and education savings accounts. Montana’s law is only the most recent victim. If the Supreme Court doesn’t grant this case and strike down these state laws rooted in religious bigotry, it won’t be the last.
Property is the basis for every right and ounce of autonomy we have. James Madison called property “that dominion which one claims and exercises over the external things of the world, in exclusion of every other individual.” Madison went on to argue that basically every right we enjoy is reducible to a property right. We have property in our opinions, in the free use of our faculties, in the safety and liberty of our body, and so on. He believed that “Government is instituted to protect property of every sort” and a government can only be just if it “impartially secures to every man, whatever is his own.”
But government has not remained impartial in this endeavor. It has become a massive property owner in its own right. It has also become a gatekeeper, setting the terms for individuals’ uses of their own property. It has also become a broker and redistributor of property. And finally, it has =become a creator of property in the form of entitlements–what Charles Reich famously called “new property.” It’s this last role that I’d like to discuss here.
Government’s role as a creator of property has muddled and watered down the strength of property rights. The problem began when U.S. courts started grappling with claims that individuals had been deprived of a constitutional right when government stripped them of a government-created entitlement, such as social security.
Courts confronted with this problem basically held that while constitutional rights do attach to entitlements, the government has an increased authority to limit the rights to those entitlements. Essentially, since the government created the entitlement, the government can define the scope and terms of that entitlement.
This “new property” doctrine then became entangled with a different idea altogether. The United States Constitution protects against deprivations of life, liberty, and property without due process of law. The Constitution, however, does not define property. Courts have held instead that state law defines property , and the Constitution then protects rights to that property.
That does not mean, however, that all property can be whisked away at a whim as if it is all “new property.” Rather, even though state law may establish what property is, states do not have the power to mutate and redefine all property rights on a whim. In essence, there is “new property” and then there is “old property.”
“Old property” is a bundle of long-recognized property rights rooted in common law. But just because those rights have arisen from common law courts over the centuries does not mean that these are property rights created by government in the same sense as less-protected “new property.” There is a fundamental difference, for constitutional purposes, between government recognizing a boundary line and creating a food stamp program. In some sense, this difference strikes a deeper philosophical chord, one that distinguishes between positive law and natural law–or fundamental rights that are acknowledged and respected by government, and entitlements that are created and controlled by government.
What are these fundamental property rights? Most are intuitive and understood by babies as soon as their hands are capable of grasping. They include the right to exclude others (the first property right understood by all children everywhere), the right to quiet enjoyment, the right dispose of the property by sale or lease, the right to develop and improve the property, etc. That right extends to chattel and land–things the government does not create but simply exist and are brought under human ownership through a first-in-time rule or a transfer.
The idea that “new property” deserves lesser protection because government dictates its bounds has bled over into the “old property” rights. This stems from confusion between government recognizing the existence of a fundamental right and government creating an entitlement. Extensive permitting regimes have only exacerbated this confusion. When local governments demand a permit before a property owner can do something with their land, the government looks upon that permit as an entitlement–a privilege and not a right. Thus, “new property” ideas come to overlay and suffocate “old property.” As permitting regimes expand, the world of “old property” retracts. But that permit is not a “new property” entitlement–it’s a condition placed upon a fundamental background right–an intruder upon natural law. When a permitting authority tries to strip away or deny a permit, that denial should be subjected to the full rigor of constitutional scrutiny offered to “old property,” not the weak sauce protections for entitlements.
If a government is only just if it limits itself to protecting what is ours, as Madison believed, then we don’t have many just governments left to us. Courts could help by establishing a clearer distinction between the old and the new forms of property so that governments can’t get away with redefining or stripping away fundamental property rights.
Bryan Caplan is an optimist. He thinks that economists do many errors in estimating GDP (overall well-being). He is right in the sense that we are missing many dimensions of welfare improvements in the last half-century (see here, here and here). These errors in measurements lead us to hold incorrectly pessimistic views (such as those of Robert Gordon). However, Prof. Caplan seems to argue (I may be wrong) that all measurements problems and errors are greater than zero. In other words, they all cut in favor of omitting things. There are no reasons to believe this. Many measurement problems with GDP data cut the other way – in favor of adding too much (so that the true figures are lower than the reported ones).
Here are two errors of importance (which are in no way exhaustive): household output and adjustments for household size.
Household Output
From the 1910s to the 1940s, married women began to enter moderately the workforce. This trickle became a deluge thereafter. National GDP statistics are really good at capturing the extra output they were hired to produce. However, national GDP statistics cannot net out the production that was foregone: household output.
A married woman in 1940 did produce something: child-rearing, house chores, cooking, allowing the husband to specialize in his work. That output had a value. Once offered the chance to work, married women thought the utility generated from producing “home outputs” was inferior to the utility generated from “market work”. However, the output that is measured is only related to market work. Women entered the labor force and everything they produced was considered a net addition to GDP. In reality, any economist worth his salt is aware that the true improvement in well-being is equal to the increased market output minus the forsaken house output. Thus, in a transition from a “male-labor force” to a “mixed labor force”, you are bound to overestimate output increases.
How big of an issue is this? Well, consider this paper from 1996 in Feminist Economics. In that paper, Barnet Wagman and Nancy Folbre calculate output in both the “household” and “market” sectors. They find that even very small changes in the relative size of these sectors alter growth rates by substantial margins. Another example, which I discussed in this blog post based on articles in the Review of Income and Wealth, is that when you make the adjustment over four decades of available Canadian data, you can find that one quarter of the increase in living standards is eliminated by the proper netting out of the value of non-market output. These are sizable measurement errors that cut in the opposite direction as the one hypothesized by prof. Caplan (and in favor of people like prof. Gordon).
Household Size
Changes in household sizes also create overestimation problems. Larger households have more economies of scale to exploit than smaller households so that an income of $10,000 per capita in a household of six members is superior in purchasing power than an income of $10,000 per capita in a single-person household. If, over time, you move from large households to small households, you will overestimate economic growth. In an article in the Scottish Journal of Political Economy, I showed that making adjustments for household sizes over time yields important changes in growth rates between 1890 and 2000. Notice, in the table below, that GDP per adult equivalent (i.e. GDP per capita adjusted for household size) is massively different than GDP per capita. Indeed, the adjusted growth rates are reduced by close to two-fifths of their original values over the 1945-2000 period and by a third over the 1890 to 2000 period. This is a massive overestimation of actual improvements in well-being.
A large overestimation
If you assemble these two factors together, I hazard a guess that growth rates would be roughly halved (there is some overlap between the two so that we cannot simply sum them up as errors to correct for – hence my “guess”). This is not negligible. True, there are things that we are not counting as Prof. Caplan notes. We ought to find a way to account for them. However, if they simply wash out the overestimation, the sum of errors may equal zero. If so, those who are pessimistic about the future (and recent past) of economic growth have a pretty sound case. Thus, I find myself unable to share Prof. Caplan’s optimism.
Robert Frost’s lovely poem, “Mending Wall,” says something profound about the importance of the institution of property. The poem is about Frost and his neighbor meeting together to piece together a crumbling wall between their two properties. Frost pokes fun at the tradition; without a wall, will Frost’s apple trees sneak across the property line and gobble up the cones piled up beneath the neighbors’ pines? As the two walk the line, replacing a stone here and a stone there, the neighbor, in an almost ritualistic mantra, responds to Frost’s skepticism with the well-worn line, “Good fences make good neighbours.”
Some can and have interpreted Frost’s poem as a gentle argument against erecting barriers that separate us. I think that’s a mistake. Of course, I admit to overlaying my own political and philosophical views atop his writing. But with that in mind, the poem tells me to that clear property lines do indeed make good neighbors. In fact, this wall is what draws Frost and his neighbor together in a valuable social ritual. Even in the absence of an obvious need for the wall, the tradition stokes good will.
In a broader and more directly political sense, property does indeed make good neighbors. Where property rules are unclear or have not been established, social strife and distrust tend to proliferate. Where they are established by law or custom, parties have a neutral arbiter whose presence alone allows them to avoid dispute and uncertainty.
This seems to hold true on small and large scales. Parents of young children have all learned that allowing kids common ownership of toys is a recipe for constant conflict. If parents establish clear ownership of childrens’ possessions, then order settles in and kids can learn important social values like sharing–a virtue that will never arise if property rules are unclear or non-existent. Truly, in a home of common ownership, children only learn to cling desperately to everything and not give an inch.
The same appears true for communities and nations. Where countries do not have established customs and laws governing property, strife, distrust, and corruption fester (Russia is, unfortunately, a prime example of this problem). A similar phenomenon seems to have played its role in the rapid demise of the various utopian communal arrangements that cropped up during the Second Great Awakening in 19th century America.
Frost’s repeated refrain throughout his poem is: “Something there is that doesn’t love a wall.” I think Frost’s neighbor had the right of it–communities survive and thrive thanks to walls. We should take time to mend them.
The last few weeks were quite a blast for me: I’ve interned at the German embassy in Rome. A new job in a new city. I thought to process the experiences I made here in one (or a few?) articles.
It’s been quite a rough month for Germany’s Foreign Affairs department. First, Daniel Kriener, the German ambassador in Venezuela, was forced to leave the country after welcoming Interim President Guiadó at the airport of Caracas. Interestingly, although plenty of other diplomats joined him, he was the only one to be declared a “persona non grata” for interfering in Venezuela’s internal affairs. A few weeks later, a deputy speaker of the German Bundestag (who is also a member of the liberal party) demands to expel the US ambassador Grenell for the same offence. Prior, the US diplomat has criticized Germany’s plan to break their promise of contributing more to NATO’s defence budget. Albeit I politically agree with both actions of the diplomats in these cases, they delineate the ongoing structural changes in the diplomacy sector. To illustrate this, I will first provide a theoretical framework to analyze ongoing diplomatic challenges before trying to examine the role of diplomacy in the future.
Principal-Agent Theory and decreasing relevance
I conceive diplomacy as mostly a principal-agent based problem. I believe that many problems in diplomatic negotiations can be traced back to the classic effects of asymmetric information. Since two principals, in this case two states, cannot negotiate with each other directly in most cases, these arbitrations are carried out between various agents. Those agents are of course not always the ambassadors. In a broad meaning, one can apply the principal-agent paradigm to diplomacy by every negotiating process initiated by the state.
Through the lens of the principal-agent paradigm, I perceive the main task of diplomacy to achieve a good negotiating position, for example through an informational advantage. However, due to globalization, state-to-state diplomacy has been drastically weakened. The negotiating game is now mostly carried out within other institutions with lower transactions costs. Two countries want a new trade deal? Just orientate on WTO Rules. Sue another country? Call the International Criminal Court. A few voices made reasonable arguments even for abolishing unnecessary embassies and only keeping the crucial ones. The Trump administration, for example, seems not eagerly committed to fill the around 18 vacant ambassador positions hastily.
Certainly, the globalization combined with the expansion of robust institutions leaves little space for traditional diplomacy as a driving force in interstate relations. This is not necessarily a bad development: As Paul W. Meerts points out, this can be a huge chance for weaker states since negotiating in multilateral rather than bilateral constellations tends to weaken the position of stronger states. Thus, playing out the trump cards in negotiations will be harder for the hegemon. We can currently witness this in the Brexit debate: Even though the strong states, Germany and France, have a vast repertoire of power resources to use as leverage against GB in the negotiations, the can hardly deploy them through EU’s multipolar negotiating structure.
Contrary, there are also recent examples of deploying bilateral traditional diplomacy measures successfully. China’s initiation of Italy’s accession to the Belt Road Initiative (see Tridivesh Singh Maini’s great article here for a quick overview) is a prime example for this. But no other case shows the weaknesses of bilateral diplomacy in a more drastic way: China was able to transpose their tremendous power resources into a deal which heavily favours the Chinese economy. The very ambiguous agreement laid down a strategy of “closer economic collaboration.” The oppositional criticism of the deal coming from the very left and the right is based on economic nationalism and thus misses the important point. Chinese government exerts immense influence on key enterprises like Tencent, Alibaba, and Badoo: Digital fundamental research topics such as AI were distributed to the firms not through competition but through the state ( I highly recommend Amy Webb’s EconTalk if you want to dig deeper into this.). Once they build sufficient digital infrastructure here in Europe, network effects and technological advantage will come into effect and engender high entry barriers and exit costs. This makes it easy for China to enforce its regulation rather than obeying European ones. Although it is hard to finally determine if multilateral negotiations would have secured a politically better deal, I favour higher short-term transaction cost of multilateral negotiations over the long-term threat showed above.
Embassies as service provider
Of course, taking care of a good interstate negotiation position is not the only task of an embassy. A popular counterargument is that the principal-agent perspective neglects the vital daily business of embassies to help their citizens abroad. Speaking of large and prestigious Embassies though, I estimate that their role as service provider for abroad living citizens will further decline. Most of their maintenance work for citizens living abroad will be redundant due to technological process and further institutionalization. Renewing a Passport, issuing visas and transporting back coffins (yep) are a frequent task, but easy to “source out” to private actors in the future.
But what is the role for ambassadors and embassies then?
This question is where it gets interesting in my opinion. Deeply rooted in international conventions and international customary law, discreet and silent work has been prerequisite for an ambassador. Carefully collecting small pieces of information and building bridges to local actors were the key for a good negotiating position. But as elaborated above, international institutions do the job more efficiently. A new role of ambassadors as advocates for concrete policy measures would be diametrically opposed to international conventions. Based upon the “legality creates legitimacy” premises, a further politicization of diplomacy seems not at present having a majority and thus is unlikely to be buttressed by legal means.
However, if we fall back into a narrative of nationalism, bilateral diplomacy will regain relevance. Otherwise, it will continue to slowly lose importance and eventually wane. Hence, the main challenge nowadays is to look for the right niche for traditional diplomacy – and it seems that it has not been found yet.
Over the last two decades online services have transformed from a product of a multitude of enterprises to being dominated by a handful of corporate-owned platforms such as Apple, Microsoft, Facebook, Google and Amazon. They specialize in connecting media producers to users. These are often mutual interactions with users both producing and consuming content. These platforms play an increasing role governing commercial exchange, as well as civil discussion, with plausibly pernicious implications for liberal democracy. As I propose in a recent paper ‘Markets for Rules’, blockchains offer a promising solution to this danger by helping to displace corporate ownership in favor of common platforms sustained by users themselves.
Corporate concentration has produced enormous efficiencies and innovations, improving user experiences and boosting investment in hardware and infrastructure. But it has also had several bad consequences. These enterprises face extremely low marginal costs and network effects whereby additional users add value to an existing user-base. Some of these effects are explained by these platforms’ business models of collecting personal data to target advertising more effectively at customers. The more interactions on a single platform users have with each other, the more useful the data for advertisers. The result is overwhelming returns to scale and a winner-takes-all competition for profits.
This has troubling implications for economic inequality, especially if we end up with a handful of corporations taking a bite out of every conceivable transaction. Of greater concern is the way owners exert control over who can join and what people are allowed to do on their platforms. Content producers can be demonetized or banned, effectively denying them access to a user-base or revenue. Online sellers can find themselves frozen out of a platform payment system without legal remedies. Controversial or unpopular producers survive at the whim of executives or, at best, a patchily enforced official policy.
This reliance on private governance is a problem for consumers, producers and ultimately citizens. But it is also a challenge for executives who find themselves mediating acrimonious personal disputes and political debate. With all the data in the world, they struggle to judge consistently what belongs on their platforms. The fact that these corporations have ended up functioning as unofficial censors and wielders of sanctions has led some commentators to propose regulating these platforms as public utilities or, more radically, nationalizing them so that access to them is decided democratically. These solutions have their own perils because any centralized system of monopoly control, whatever the underlying democratic credentials, can produce authoritarian outcomes. Liberal democracies up until now have been sustained by an independent civil society constituted by overlapping and competing spheres of governance, not the monopoly of either democratic or corporate government.
The prosecution of the CEO and founders of Backpage, who failed to exclude sex workers from their platform, illustrates the reliance of these private enterprises on government support on controversial policy issues even in relatively free societies. The combination of privately-developed data-collecting networks with over-arching state control is arguably reaching a nadir in China which is rolling out an unaccountable surveillance system of ‘social credit’ that can identify political dissidents and automatically exclude them from significant spheres of civil society.
Is there a way that blockchains can help navigate around the centralising and authoritarian impetus of technology-facilitated governance? Blockchains emerged from two pre-existing technologies – public ledgers and asymmetric cryptography – to produce a way of sharing data across a network that is resistant to manipulation by unauthorized actors. Initially conceived as offering alternatives to state-backed currencies, blockchains are now used to build decentralized autonomous organizations (DAOs) and dapps (decentralized apps). They can supply similar functions as corporate platforms but without an overall owner.
These systems are sustained by rewarding network participants with tokens (through completing intensive computing processes called mining). Tokens are convertible into ordinary currency, albeit currently at volatile rates. The entrepreneurs that build these platforms typically reward themselves and investors a large stake in those tokens but once the network is launched, they do not have control over how it is utilized. The rules of each network are self-enforcing. These rules can be changed, either through the original (or new) developers launching a rule-set that others may choose to switch over to (a fork). Alternatively, the rule-sets might contain provision for amendment. Such amendment schemes are, of course, open to manipulation as is the case for all political processes. Nevertheless, what these schemes offer is a way of interacting and exchanging at large distances without an overarching ruler. Instead, conduct is permitted on the basis of fixed rules enforced mechanically by people’s decisions to participate in the system. One way of looking at these schemes is that they have decentralized properties of communal norms, combined with the possibility of more deliberate design and experimentation of more formal rules and institutions. I call this common government.
The implications of this new technology and kind of governance might turn out to be very far-reaching, approaching that of the development of the Internet itself or even the printing press. But what could it mean for familiar Internet platforms in the medium-term? First, participating in mutual platforms might better align the incentives of users and platform designers. Right now, platform owners rely on squeezing as much data out of users as possible in order to sell it on to advertisers and to sell additional services. Mutual platforms, without responsibilities to shareholders, can experiment with different funding models. Individual users might elect to sell access to their profile to advertisers but the data itself can be made more secure as it will be a property of an encrypted network rather than a profile stored in a central private database. Privacy can be better assured than private management with public regulation.
Second, the networks can be more robust both to natural and political perturbations. Under decentralized protocols, ordinary users help store and serve content to each other. With the addition of blockchains, these users can be compensated for making their idle computer resources available for network use. This means that data doesn’t have to travel so far as is currently the case from host to user and the network as a whole can better cope with outages from particular nodes without data loss. Without a central controller, there is no particular agent that a government can coerce or punish for allowing specific interactions over a platform. Governments would then face the more difficult choice of permitting or prohibiting Internet communications altogether. It is thus more robust against arbitrary government censorship and manipulation of trade.
The relationship between users on a platform is mutual. The relationship between users and platform owners, however, is presently hierarchical – a private dynamic that government agencies can exploit. What blockchains may eventually permit is the provision of relatively efficient networks reliant neither on a single public agency nor private owner.
I recently had a paper rejected in Political Analysis. I fully expected a rejection given the journal’s high ranking and had submitted it for the sake of feedback. As I’m sure academic readers know, getting someone to read our papers can be hard. Unsurprisingly I got a rejection notice earlier today.
Surprisingly, all reviews were actually constructive feedback and, while critical, kind. To add strangeness to the whole ordeal, the process took less than a month from submission.
Since I have no way to contact the anonymous reviewers, I post my thanks here. Thank you anonymous reviewers. I wish reviewer #2, and here too I’m sure academics know the type I am referring to, should be more like you.
Brexit isn’t the only ridiculous thing happening in the United Kingdom. In April, the British government is rolling out statutory adult verification for pornography websites and content platforms. This requires all adult content providers to have proof of age or identity for all their users, whether a passport or a credit card (or more ludicrously a ‘porn pass’ that Brits wishing to browse anonymously will have to buy from local newsagents). The government plans to require internet service providers to block pornography websites that are not in compliance with adult verification once the system is in place. For those with university institutional access, Pandora Blake has written a timely explanation and critique published in Porn Studies: ‘Age verification for online porn: more harm than good?’.
Technical challenges with rolling out the system have led the dominant pornography search platform owner, MindGeek, to develop proprietary solution, AgeID, in cooperation with regulators. This cooperation between the dominant commercial pornography platform supplier and a Conservative government publicly intent on restricting access to pornography might appear surprising. However, it can be explained by a particular pattern of regulatory capture identified in public choice theory as a Bootlegger and Baptist coalition. Bruce Yandle observed that throughout the 20th century, evangelical Christians in the United States agitated for local restrictions on the sale of alcohol with the avowed aim of reducing consumption but with the secondary effect of increasing demand for alcohol for illegal bootleggers. Hence both interest groups, apparently opposed in moral principle came to benefit in practice. We now have a classic British case study. In this case, MindGeek is not acting as a literal bootlegger. It intends to be fully legally compliant with the filtering regime. However, the law will block all non-compliant competitors without a comparable verification system. They can gain a competitive advantage with a proprietary technical solution to the barrier introduced by the government.
Introducing identity verification systems has high fixed costs and low marginal costs. It is costly to develop or implement but easy to scale once integrated. The larger the pornography enterprise, the more easily these costs can be absorbed without the risk that it will not be worthwhile to serve the British market. For many smaller international pornography websites, without in-house legal advice or technical expertise, it might prove uneconomical to serve British users directly. So MindGeek’s platforms could become the least-cost legal gatekeeper between small enterprises producing pornographic content and the British public. The government is raising transaction costs to accessing pornography in a way that impacts larger and smaller platforms asymmetrically and favors one dominant platform in particular.
Both the premise of this policy and its likely impact on the market for pornography is unpromising. At its most benign, this could be a characterized as a ‘nudge’ against the consumption of pornography and reducing access of inappropriate content to minors. But these limited benefits have costs for both producers and consumers. On the consumption side, it increases risks to data security and privacy because it will plausibly tie records of pornographic access to verified identities, with a clear likelihood of being to infer an individual’s sexuality from private browsing. This could represent a particular vulnerability for LGBTQ identifying individuals who live in communities where there is still stigma attached to minority sexual orientations.
On the supplier side, it takes what already appears to be a market with strong tendencies towards a winner-takes-all model, and then augments it so that a dominant platform has a legally enforceable competitive advantage over potential rivals in the market. Ultimately, it threatens to further strengthen the bargaining position of a single corporate pornography platform against the sex workers who supply their content.
But as abstract ideas go, pollution taxes are pretty appealing. Holding constant lots of things that we can’t really hold constant, it means replacing the inefficiency resulting from poorly defined/enforced property rights with a world where prices more accurately reflect the costs of one’s decisions.
Let me come back to the things we’re “holding” constant in a bit. Why do I want to throw my weight behind shifting public perceptions in favor of pollution taxes?
Which is not to say a carbon tax isn’t overrated by the median policy wonk. There are a ton of important caveats, but on balance, as a policy for use in the next 50 years, I think they’re a useful tool to enhance efficiency or replace worse tools.
Again, there are no panaceas. I’m also not a huge fan of the “Economists’ Statement on Carbon Dividends” as written (for reasons I’ve hopefully mostly addressed). I suspect the best case scenario for my preferred carbon tax policy would be a modest improvement. I think the bulk of the gain would be a cultural shift away from “let’s regulate our problems!” to “let’s leverage incentives to address our problems!” Not Earth shattering, but a step in the right direction.
So let me state my position, then we can dig into criticisms and caveats.
Let’s make marginal shifts away from taxing investment and towards taxing negative externalities. As we go, let’s spend a lot of effort trying to study the impacts and adjust accordingly. Let’s heavily agument that with abatement policies rather than trying to return to some pre-industrial climate target.
Okay, let’s dig into criticisms and caveats.
Public choice considerations
Geoengineering and other alternatives
Cost
Coordination
Uncertainty
1-Public choice considerations
A Green New Deal will be a rent-seeking bonanza. Pollution taxes will face the same sorts of problems that plague the tax code in general. There will be intentional loop-holes and accidental screw ups.
We have to continue to push for reducing the complexity of tax codes in general. But I can’t deny that a carbon tax would be a step back on this margin.
Minus a hundred points for my position.
2-What about geoengineering?
Geoengineering sounds like a possible panacea. Maybe it is. But I’m not willing to flip a switch and find out the hard way all at once.
First off, geoengineering is scary. The climate is a complex system and complex systems are difficult-impossible to manage well. And that’s especially concerning if it means that anyone with a few million bucks can try to fiddle with Earth’s thermostat.
But it seems like a plausible tool that might be used to address climate change. Similar to my take on a carbon tax, I think the way to go is baby-steps plus research.
What about subsidizing “green _____”
Personally, I’m skeptical. Solar sounds appealing, and I (personally) think windmills are beautiful. But I don’t think the government will do a good job of picking winners and losers. Pollution taxes are appealing to me because they don’t require bureaucrats to choose. Again, I think the way to go is to use pollution taxes to offset other taxes–while continuing to advocate for reduced size/scope of government and a return to federalism.
Plus five points for my position.
3-Cost
We should also remember that GDP is an imperfect measure of well being. The current figures aren’t directly comparable to the figures we’d get in a post-carbon-tax world. A one-time fall in GDP doesn’t (necessarily) mean we’ve screwed things up.
Still, it’s worth remembering that a) we can go too far with a carbon tax, and b) we don’t have access to a silver-bullet solution. So let’s start small and gradually increase carbon taxes till we get close to (our best estimate of) the optimal level.
Plus epsilon points for my position.
4-Coordination
The basic idea of a carbon tax is that we’re dealing with a global-scale externality problem. But small scale taxes are unlikely to do much beyond shifting where pollution happens. A fully effective tax would require multi-lateral coordination. And, as a country, we aren’t very good at that.
Trying to create a tax on imported carbon-intensive goods that didn’t face a tax at home seems a) sensible at first blush, and b) a massive opportunity for public choice problems.
On the other hand, we could justify a tax commensurate with the local impacts (something like 10% of the global impact). This fits nicely with my idea of starting small and adjusting at the margin.
But even within the U.S. there are coordination issues. Long Island will likely face net costs from climate change, but other areas will benefit from a longer growing season.
Plus 10 points for my position, but also minus 10 points.
5-Uncertainty
Uncertainty cuts both ways: we’re currently accidentally manipulating the climate and that could turn out to be catastrophic. Trying to intentionally manipulate it in the other direction is also dangerous. Again, the appropriate focus is on marginal tinkering [much as it clashes with my non-interventionist priors] rather than ambitious global engineering [which grabs my priors by the lapels and knees them in the groin].
When I teach externalities, I draw a graph like this:
Negative externalities when we magically know their magnitude.
In this market, we end up with an equilibrium quantity defined by the point where Marginal Private Cost equals Marginal Social Benefit (MPC = MSB). But the Marginal Social Cost (MSC) is greater, so we get a deadweight loss equal to the triangle I’ve shaded in red and purple.
It’s important to note: we don’t actually know where the MSC curve is. It’s somewhere above MPC, but we’re basically in the position of trying to eliminate a subsidy we don’t know the size of.
The relevant models–climate models and economic models–are filled with uncertainty that we simply cannot resolve without real life experience.
What does the economic way of thinking tell us? Act on the margin. Setting a tax that pushes supply (MPC) up to the green line doesn’t fully address the problem (as I’ve assumed it to be in this graph), but it’s an improvement.
Even better, it’s an improvement where the biggest returns are experienced up front. This modest tax fails to get rid of the red deadweight loss (DWL) area, but it eliminated 3/4 of the total DWL.
Plus X points for my position where X is a random variable with an unknown distribution, positive first derivative, and negative second derivative.
tl;dr:
At my friend’s behest I’ve been looking at Bob Murphy’s critique of carbon taxes. I find it’s shifted the magnitude of my prior opinion, but not the direction. I still think carbon/pollution taxes are a good idea, but I no longer think they’re a great idea. My take away from Murphy’s work is that the optimal carbon tax is fairly modest. My response is to advocate for getting a very modest carbon tax on the books, then gradually shift tax policy in that direction.
For climate change (and any other problem) we ought to be pluralists. A mix of approaches is ideal. Part of the appeal of Pigouvian taxes is that they allow and encourage a wide range of responses. The best pollution abatement scheme isn’t something we can look up in a binder. We have to discover it, and crowdsourcing is the appropriate way to do that.
But carbon taxes are only one part. We should also advocate for changes that will ameliorate harm. I am more bullish on these policies than I am on a carbon tax:
Make it easier for the world’s poorest people to move to rich countries that will be better able to cope with climate change.
Quit subsidizing flood insurance.
Quit subsidizing polluting industries (and other industries).
Even though geoengineering scares me, we should try to learn more. Ditto for any other possible tools that come along.
Neomi Rao, nominee to the D.C. Circuit Court of Appeals, has fallen victim to an old fissure–conservative and libertarian disagreement over unenumerated rights. At the hint that she believes that rights exist outside the express text of the Constitution, conservatives have pounced, concerned that Rao will betray conservatives on abortion issues. On both political and legal dimensions, this concern is silly.
As a general matter, it’s beyond clear that Rao is qualified. Conservatives shouldn’t cripple a great candidate over a minor issue. The Supreme Court has many times confirmed that unenumerated rights exist. Rao is bound by those precedents, including Roe, and whether she agrees with those precedents or not is immaterial to the job she’s nominated to do. The chance that Rao will even have a chance to expand the existing list of recognized unenumerated rights is exceedingly low. It just doesn’t come up that often, and the courts already have tests for assessing whether a right should be recognized.
But perhaps more importantly, non-enumerated rights don’t lean toward one side of the ideological spectrum or the other. The Supreme Court of the early twentieth century recognized, for instance, liberty of contract as a constitutionally protected right–though unenumerated. Progressive jurists bent on defending Roosevelt’s New Deal did so in part by opposing the enforcement of unenumerated rights. Unenumerated rights also include other “conservative” causes such as the right to earn a living. And, of course, unenumerated rights have also favored “liberal” values such as a broad right to privacy. In short, it is unclear why Rao’s alleged support for the enforcement of unenumerated rights should enter into the partisan calculus.
And then there’s the simple fact that unenumerated rights do in fact exist and deserve constitutional protection. The history and passage of the Ninth Amendment, which says enumeration of rights shouldn’t detract from those retained by the people, make this clear. The founding generation didn’t see rights as reserved to a fixed set of especially important activities. In fact, many feared that the enumeration of certain rights would imply that the unenumerated ones shouldn’t be recognized. That fear has turned to be prescient, despite the inclusion of the Ninth Amendment, which was written to make clear that the enumerated rights shouldn’t be seen as implying that unenumerated rights should go unprotected.
In short, not only would Rao be right to recognize such rights–though the scope of those rights is always a matter of intense debate–she has to recognize them under binding law, and her thoughts on the matter are unlikely to make much difference to her job. If she gets nominated to the Supreme Court later down the road, the concern may have more relevance. For now, just get her confirmed.
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Notes On Liberty 