Machiavellian Experimentation

YINXI XIE & YANG XIE

JOURNAL OF COMPARATIVE ECONOMICS

Abstract: This paper proposes the following mechanism whereby polarization of beliefs could eliminate political gridlock instead of intensifying disagreement: the expectation of political payoffs from being proven correct by a policy failure could drive decision makers who do not believe in the new policy to agree to policy experimentation, because they are confident that the experiment will fail, thus increasing their political power. We formalize this mechanism in a collective decision making model in the presence of heterogeneous beliefs in which any decision other than the default option requires unanimity. We show that this consideration of political payoffs can eliminate the inefficiency caused by a unanimous consent requirement when beliefs are polarized, but could also create under-experimentation when two actors hold beliefs that differ only slightly from one another. We further show that this under-experimentation can be reduced when the political payoffs become endogenous. We illustrate the empirical relevance of the mechanism in two examples with historical narratives: we focus on the decision making process of the Chinese leadership during the country’s transition starting in the late 1970s, and we further apply the model to the disagreement within the leadership of the Allied Forces on the Western Front of World War II in the autumn of 1944.

Classical Liberalism in Italian Economic Thought, from the Time of Unification

ALBERTO MINGARDI

ECON JOURNAL WATCH, Volume 14, Issue 1

Abstract: Although classical liberalism has not had a profound impact on political institutions in Italy since its unification in the 1860s, the country had a vibrant classical liberal tradition, especially among economists. The Italian scuola di scienza delle finanze played a key role in anticipating the approach later identified with public choice economics, and accordingly it was highly valued and appraised by James M. Buchanan. While many Italian classical liberal thinkers, both in the 19th and in the 20th century, are still by and large ignored outside the boundaries of Italy, several have had an important impact on the ideas of liberals around the world. This paper summarizes the development of classical liberalism in Italy since the 1860s, focusing on liberal economists who took part in public debate. Political realism has been a unifying feature of the Italian liberal tradition, including a strong skepticism toward ‘industrial policy,’ as top-down industrial development has been promoted by government ever since unification. This paper broadly outlines the key thinkers in this tradition: Francesco Ferrara, Vilfredo Pareto, Luigi Einaudi, Bruno Leoni, and Sergio Ricossa.

Open Borders in the European Union and Beyond: Migration Flows and Labor Market Implications

JOHN KENNAN

THE NATIONAL BUREAU OF ECONOMIC RESEARCH

Abstract: In 2004, the European Union admitted 10 new countries, and wages in these countries were generally well below the levels in the existing member countries. Citizens of these newly-admitted countries were subsequently free to take jobs anywhere in the EU, and many did so. In 2015, a large number of refugees from Syria and other broken countries sought to migrate to EU countries (along very dangerous routes), and these refugees were met with fierce resistance, at least in some places. This paper seeks to understand the labor market implications of allowing free migration across borders, with particular reference to the EU. The aim is to quantify the migration flows associated with EU enlargement, and to analyze the extent to which these flows affected equilibrium wages. The main conclusion is that the real wage effects are small, and the gains from open borders are large.

Secular Stagnation? The Effect of Aging on Economic Growth in the Age of Automation

DARON ACEMOGLU & PASCUAL RESTREPO

THE NATIONAL BUREAU OF ECONOMIC RESEARCH

Abstract: Several recent theories emphasize the negative effects of an aging population on economic growth, either because of the lower labor force participation and productivity of older workers or because aging will create an excess of savings over desired investment, leading to secular stagnation. We show that there is no such negative relationship in the data. If anything, countries experiencing more rapid aging have grown more in recent decades. We suggest that this counterintuitive finding might reflect the more rapid adoption of automation technologies in countries undergoing more pronounced demographic changes, and provide evidence and theoretical underpinnings for this argument.

Robust Political Economy Revisited: Response to Critics

MARK PENNINGTON

CRITICAL REVIEW, Volume 28, Issue 3-4

Abstract: Robust political economy is the attempt to theorize about political institutions in such a way as to guard against the knowledge and incentive problems that we can expect will threaten the public good in the real world. An implication of this attempt is the need to reason symmetrically about whether a proposed institution is liable to be as prone to failure due to knowledge and incentive problems as the situations it is designed to address. Another implication is that one should be wary of ad hoc institutional or policy proposals, that is, proposals that are not grounded in systematic tendencies to mitigate the knowledge and incentive problems. With these implications in mind, I am not convinced that the alternative institutions, conceptions of the state, and conceptions of social justice defended by my critics meet the test of robustness that, I maintain, can best be met through decentralization of power down to the level of the individual.

Covenants without the Sword? Comparing Prison Self-Governance Globally

DAVID SKARBEK

AMERICAN POLITICAL SCIENCE REVIEW, Volume 110, Issue 4

Abstract: Why does prison social order vary around the world? While many of the basic characteristics of prisons are similar globally, the extent and form of informal inmate organization varies substantially. This article develops a governance theory of prison social order. Inmates create extralegal governance institutions when official governance is insufficient. The size and demographics of the prison population explain why inmates produce extralegal governance institutions in either decentralized ways, such as ostracism, or through more centralized forms, such as gangs. Comparative analysis of Brazil, Bolivia, England, Scandinavia, and men’s and women’s prisons in California provide empirical support.

Behavioural Economics: A Virginia Political Economy Perspective

STEVEN HORWITZ

Economic Affairs, Volume 36, Issue 3

Abstract: Behavioural economics offers a critique of modern neoclassical economics by providing empirical evidence that the model of rational choice does not accurately describe human decision-making processes. The existence of cognitive biases, what we might term ‘agent failure’, becomes reason to doubt the efficacy of unhampered markets, and is seen by some as a sufficient condition for government intervention. This article offers a critique of this argument from an Austrian and public choice theory comparative institutions perspective. Agent failure arguments are analogous to market failure arguments of the mid-twentieth century and the same kinds of responses made against the latter are applied to the former. Behavioural economics arguments for intervention ignore the cognitive biases of political actors, neglect the comparative perspective that results from such biases, and do not examine the ways in which markets are superior to politics in providing the information and incentives actors need to become aware of their errors and correct them. The existence of imperfectly rational agents, like the existence of imperfect markets, is therefore not a sufficient condition for government intervention into the market.