Monday, March 23, 2009

Democracy - a counterexample

Back a few entries where I was discussing democracy, the general assumption is that many people who are able to independently check policy before voting on it will more likely get the right decision than a particular individual or expert could.

The corollary is that the more democracy and the more direct the democracy, the better general decisions will be made.

A counter-example to this corollary is immigration and trade policy. Democracies have a notorious habit of restricting immigration and trade when the economy deteriorates. Even though the concept is that as citizens, we have the right to make bad choices, and pay for them, democracies continue to make the wrong call due to the primacy of perception over facts in the political game. The causal relationship between restricting trade/immigration and a worsening economy is ignored over a very strong human instict to blame externalities over any systemic internal cause.

Thus people continue to promote fallacies such as "reducing immigration helps our unemployment rate" and "restricting imports helps our unemployment rate".

Maybe I am wrong. Maybe democratic countries will leave tariffs and immigration quotas untouched, while autocratic countries will clamp down on trade/immigration during the current downturn. I would be surprised.

28 comments:

Chris Fellows said...

Well, the real comparison is not between autocratic and 'democratic' countries, but between 'democratic' countries with differing degrees of voter participation.

The worst outcomes are likely to be in countries without compulsory voting, where lobby groups with protectionist agendas able to deliver blocs of voters can shout loudly in the ears of 'representatives'.

I think the people are smarter than protectionist lobby groups give them credit for and 'popular' opinion is not as 'populist' as they claim... I would expect there would be 'good' and 'bad' results from a global point of view in more participatory democracies, depending on the self-interest of individuals. In a country where such a lot of people work in export-oriented industries and have brothers-in-law in Beirut, like ours, I think more direct democracy might well give more liberal immigration and trade outcomes than 'representative democracy'. In less export-oriented countries with less of a migration tradition, sure, maybe the people would chose to set up nasty barriers.

Marco said...

It is still a lesson punished but not learnt (voters in countries that increase barriers feel self-satisfied even if their country is suffering for it). Even a land of immigrants with a dependence on trade like Australia, has polls indicating support for higher tariffs and restricted immigrant intakes, especially during financial downturns. It is in fact the counter-lobbyists (exporters fearful of counter-tariffs, employers looking for better value/availability labour) that seem to do the trick to quieten the lobbyists.

Your argument is that a country's inertia in this regard (previous policies dictating future ones) is, if anything, strengthened with direct democracy.

I still imagine there is an expert panel of policy wonks that are immune to short term political gain, and "vote" based on what the long term differential economic growth implications are. After all, voters in Australia tend to look at overall relative growth to see whether we need wholesale government change or not. They may be completely befuddled if the government ignores pleas to reduce immigration, but if unemployment stays low, they will ignore it as a voting issue come the election.

If they could demand referendums and had to vote directly for reductions/increases in quotas/tariffs, Australia could be a lot worse off.

Chris Fellows said...

...many people who are able to independently check policy before voting on it will more likely get the right decision than a particular individual or expert could.

I guess there are two questions:

(a) What is 'the right decision'?

You can only reach 'the right decision' if all voters have the same goals: for many voters, sticking it to the Man or bringing down the Zionist Entity might well trump the less exciting goals of economic growth and a stable international framework. I would say, if those many people share the same goals as the expert does, they are more likely to find 'the right solution'. If they have widely divergent goals, they are more likely to find 'the wrong solution that runs the least risk of plunging the country into civil war.'

and

(b) Should other factors outweigh making a right decision or not?

Even if we are all agreed on a goal, such as 'reducing carbon dioxide emissions to pre-industrial levels', and we come up with a solution that solves this problem optimally in terms of overall economic and human cost, it might involve specific actions which we are not prepared to accept. To save me the trouble of making up a realistic analogy- though I do have something about command economies in times of economic crisis rattling around in the empty 90% of my head... suppose the Cephalopod Overminds of Omicron Ceti Prime offered to trade us an unlimited supply of cPod pocket fusion reactors in return for giving them someone named Eric to torture to death once a year, we might decide not to take the deal, despite the sweet look of the overall cost/benefit analysis.

Marco said...

(a) What is 'the right decision'?

You can only reach 'the right decision' if all voters have the same goals: for many voters, sticking it to the Man or bringing down the Zionist Entity might well trump the less exciting goals of economic growth and a stable international framework. I would say, if those many people share the same goals as the expert does, they are more likely to find 'the right solution'. If they have widely divergent goals, they are more likely to find 'the wrong solution that runs the least risk of plunging the country into civil war.'


The case I am talking about is the common case where the goal is to keep unemployment low (Expert & individual goals coincide) The individual values the tangible jobs saved with specific industries over the intangible but greater job destruction it sets up. Thus a system where satisfaction with unemployment goals being met trumps anecdotal logic about which policy 'ought' to achieve it is the trick.

For instance, I would be surprised if the net migration to Australia in 2009 is less than 2008. The announcement of quota reduction seemed to be designed to appease the lobby groups - but will likely be delayed and possibly ignored if the lobbying dies down. If Australian unemployment defies the OECD average, lobbyists are unlikely to make headway.

(b) Should other factors outweigh making a right decision or not?

Of course, but I don't think these come into play much in the isolated cases of trade especially, and immigration usually.

Chris Fellows said...

I've decided I agree with you.. if you are saying there is no correlation between extent of democratic participation in government and the probability of making decisions on immigration policy that are conducive to long-term economic and social prosperity.

I am, however, going through one of my periodic bouts of total incomprehension of what the hell is going on in the heads of my fellow human beings...

Marco said...

if you are saying there is no correlation between extent of democratic participation in government and the probability of making decisions on immigration policy that are conducive to long-term economic and social prosperity.

I was kind of looking for an inverse correlation perhaps between democracy score and political openness to immigration, but I think that the *no correllation* is easier to argue and demonstrate.

Chris Fellows said...

Isn't it great the way the new more welcoming, multilateralist US foreign policy has led to a bigger NATO involvement in Afghanistan and a change of heart in the former 'Axis of Evil' states? Not to mention an end to Russian and Chinese obstructionism on the security council. A reapprochement with Hugo Chavez. The shunning of Omar Bashir by the Arab League. A unilateral cessation of rocket attacks on Israel by Hamas. And free whisky for everyone, gushing in crystal-clear streams down the side of Big Rock Candy Mountain!

Marco said...

This is something I don't get about you! You know that people think and behave in a group dynamic on a political line of some sort. With politics, almost all "opinions" and anecdotes are correlated with those of their peers on the line. I react by ignoring all opinions based on standard lines of their political peers, and instead seek out opinions, articles and research that are at some sort of tangent. This report from the economist intelligence unit, for instance, is a gem.

You seem to be trapped in a situation where you are struggling to understand logic of what are essentially political sound-bites, that go against both your political leanings and your axiomatic religious-conservative logic. The political pendulum will swing for no apparent reasons back the other way, and will have little proximal cause to change the risks the world faces in the next couple of decades (see link)

Chris Fellows said...

I don't know what it is you don't get about me. I wasn't trying to make any profound point, I was just indulging in a bit of Schadenfreude, as one of the few joys left to me in contemplating the actions of my fellow humans. These idiots have sown the wind, now let them reap the whirlwind.

You seem to be trapped in a situation where you are struggling to understand logic of what are essentially political sound-bites, that go against both your political leanings and your axiomatic religious-conservative logic.

Yes, that's perfectly true- if the vast majority *are* content to argue with sound bites and their utterances are logic-free, I cannot talk with them in any way that will be pleasant or productive. I expect I *could* sway them to my point of view in person, of course, using my resonant speaking voice and command of stirring content-free rhetoric, but that would be neither pleasant nor productive for me.

Marco said...

Schadenfreude, as one of the few joys left to me in contemplating the actions of my fellow humans

Your tone did not sound joyous, nor is there the satisfaction of "I told you so!", when "they" would not usually accept a lot of the premises behind your own "bites".

Is there not joy just in knowing they are wrong? Is there not joy in probing for tangents like asking "So! Is there anything where OWhat's-hisface should have done things differently?"?

Is there not joy in finding things where one *can* make a profound point?

And another link which shows how labour mobility in the US is shrinking. Somewhere long ago you argued it was the one solid thing you could point to that made the US more successful - Will the US's success now subside?

Chris Fellows said...

Is there not joy in finding things where one *can* make a profound point?

Of course- those are the posts one mulls over for years, rehearsing possible responses and counter-responses, which nobody ever comments on when you finally post them :P

I'll have a look at your labour mobility link and get back to you.

Chris Fellows said...

Will the US's success now subside?

Hmm, I don't think so, since my point wasn't related to the fraction of the population that was mobile so much as the size and diversity of the pool they could be mobile in... overall, people with initiative in a decaying manufacturing part of the US are still going to move to Happy Sunbelt Bonanza Valley^TM, whereas people with initiative in a decaying manufacturing part of the former Soviet Republic of ______ will just rot there, since there isn't anywhere non-decaying they can get to without a visa.

So long as undue resources are not diverted in keeping those people who 'can't afford to move' in their houses, they shouldn't be a drag on the economy.

Marco said...

Of course- those are the posts one mulls over for years, rehearsing possible responses and counter-responses, which nobody ever comments on when you finally post them :P

We should list our favourite posts which haven't been commented on and republish them if necessary!

Marco said...

Regarding labour mobility, I must say I do agree with you, and am therefore less worried about huge incentives in Australia to be owner-occupiers, of late.

Chris Fellows said...

We should list our favourite posts which haven't been commented on and republish them if necessary!

You're on! You'll note that I've already tried this one with my posts on Kauffman's origin of life theories. :(

Tangentially, I can't see how the Economist Intelligence Unit report was at a tangent... seems to be pretty mainstream to me, with it (relative) faith in government fiscal stimulus and conventional platitudes about political instability.

Interesting to note that they project a 40% probability of minimum oil prices *below* both the Marco and Clam predictions of last year (p.11)!

I wish the map (p.15) had charted projected change in political instability index, rather than the index- that would be more useful. I expect it would highlight, for instance, the cluster of oil and gas rich states around the Bight of Benin that look relatively tranquil in the current picture.

There is a funny Sinophilic spin in parts, viz., dismissing the long-running bipartisan US complaints about the valuation of the yuan with: 'Timothy Geithner, the US's Treasury secretary, has already accused China of currency manipulation.'
and, 'Even China would struggle to sustain growth rates above 5% in the period.' If OECD nations have zero or negative growth, how is an export-driven economy going to maintain growth anywhere near 5%? This is Polyannaish in the extreme... (of course I am still convinced that Chinese economic data is only marginally more valuable than economic data from other closed societies and their growth rates will turn out to have been more smoke and mirrors than anyone is game to say these days).

There is an essay by Simon Weil I need to find again that talks about the mathematical impossibility of sustainable usury over the long term- eventually, debts *have* to be run down, and if they are not defaulted on the only option is (hyper)inflation. Will have another look...

Marco said...

Tangentially, I can't see how the Economist Intelligence Unit report was at a tangent... seems to be pretty mainstream to me, with it (relative) faith in government fiscal stimulus and conventional platitudes about political instability.

I must respond to this!

In a political continuum sense, this article was well away from the (left-right) line.

A lot of the platitudes and faith are correlated with the peer group of "academic" economists, but the nuances (there are several to do with countries' relative stability) are not. Also the model they have put in my head is of a sequence of dominoes falling, and the different scenarios stated depending where the dominoes stop falling or are halted through combined policy initiatives. This is well away from countless articles with political and economic chatter that I am constantly seeing which follows party lines or populist anti-rich sentiment.

Allowing a large domino effect of BIG bankruptcies, although desirable in a moral hazard sense, may slide civilization into another world war.

Chris Fellows said...

In a political continuum sense, this article was well away from the (left-right) line.

Well, that may be so, but it doesn't mean it is 'tangential', since it seems to the same sort of thing that *everybody* is saying. Giving a high probability that 'government stimulus stabilises the global financial system and restores economic growth during 2010', talking up the risk of instability in subsistence economies where high commodity prices were much more destabilising, warning against protectionism, being Pollyanna-ish about China- this is all exactly the same sort of thing everyone standing chummily together in the Gordon Brown corner is doing. I don't see the 'nuance' moving it significantly out of that corner. Show me the tangentiality!

I also want to see a reasoned analysis of the Merkel position on fiscal stimulus- what is she arguing? Everything I have read/heard is on the level of playground argument: 'Angela doesn't want to do this thing that everyone else does, nyah nyah.' I guess I should go look for something myself, but it is easier to say 'Marco, could you post a link please?' :)

Marco said...

Well, that may be so, but it doesn't mean it is 'tangential', since it seems to the same sort of thing that *everybody* is saying.

All it takes for me is just one new insight in an article and it makes it worth it for me to have read it. I don't look for affirmation of my views, I don't find views that contradict mine to necessarily be interesting either. After reading numerous articles in a row about the crisis which had no new insight, it was refreshing to find a study which in some way objectified the political risk rather than vaguely mentioning it off the cuff. Perhaps tangential is the wrong word, and plenty of the stuff mentioned in this, I had read in other articles which had annoyed me. But they annoyed me because they had nothing new, nothing nuanced along with what is repetitive.

I also want to see a reasoned analysis of the Merkel position on fiscal stimulus- what is she arguing?

Merkel appears to be following the populist line that lack of regulation is the cause, and that therefore, unless we make a whole lot more laws and push them through, and soon, the fiscal stimulus will just get the "crooks" (bank execs etc) off the hook, and taxpayers will pay for it.

She appears to have a greater fear of (hyper)inflation than of a deflationary spiral. At any rate, more rules and global rules, to her, are the solution. Counter-cyclical policy is viewed as good money chasing after bad, and only appropriate for a "normal" recession.

Marco said...

Economist article on state intervention in Germany

I would start here to examine what Germany has actually done so far

Chris Fellows said...

Sounds reasonable to me! It seems another rationale is a German desire to keep strong reserves in case it is necessary to bail out a Euro zone country in danger of imploding completely, say Ireland or Greece later in the year.

Tangentially, I think blaming this on the banks and shoddy lending practices (and shoddy Anglospherican regulation) is soooo wrong... there were always going to be lots of people defaulting on their loans when the Biggest Commodity Bubble Ever^TM finally burst, it is a symptom, not a cause. I have yet to hear one politician or media person of any stripe humbly acknowledge their role in the relentless talking up of this bubble.

Marco said...

Yes it does seem oddly absent as an argument... anywhere. I see plenty of sites along the stripe of "end of big oil" that are still talking up commodity prices.

Chris Fellows said...

D'oh, just had a look at your democracy score link and am disappointed in Kyrgyzstan- I knew that it was the most democratic republic in Central Asia, but I hadn't realised how little space there was between it and the others, or how poor the competition was :(

It would be nice if someone else would come to talk with us. I went to see if I could drum up some interest from Klaus, but his server seems to be down...

Chris Fellows said...

One more thing that struck me re-reading the posts, getting back to the original point: given our national record of maintaining-the-status-quo on referenda, I think direct democracy would make it harder to remove existing tariffs, *and* harder to impose new ones. This might be of benefit at this point in the economic cycle. :)

Marco said...

I don't really think so; but I am trying to find some concrete evidence either way. Both for requesting a referendum, and swaying the results, The anecdotal benefit to particular workers in particular industries is probably even more powerful in direct democracies. Representative democracies like Australia seem to be more able to come up with regulatory delays to buy time for counter-anecdotes.

Chris Fellows said...

Here is a quantification of the referendum argument. Say 10% of the population work in an inefficient and rapidly declining widget producing industry, while 90% of the population suffers from a lack of cheap widgets. Assume most of the widget makers feel strongly (such that it is a major determinant of how they will vote) that widgets should be protected, while the non-widget makers feel less strongly (such that it is relatively unimportant in how they vote) that trade in widgets should be free.

Now, let's assume those 10% of widget makers make up 10% of the voters in the 10% of seats the government needs to keep to stay in power and holds by a margin of less than 10%- don't you think we are going to see the introduction of a tarrif to protect widgets that wouldn't have a snowball's chance in Djibouti in a referendum?

Marco said...

NO!!!

Because a sob story about a poor widget maker is politically powerful, while getting cheaper widgets appears selfish in comparison.

Chris Fellows said...

Pfah, you just think the common people are stupid. :(

So long, and thanks for all the fish...

Marco said...

I have trouble convincing intelligent people that (say) clothing tariffs are bad. It's not so much trying to "fool" people, because there is no need.
To "teach" ordinary people that tariffs are "bad" is difficult. To confuse them and quote economists or other experts that say that they can be good is easy.