Dick Cheney vs Francis Fukuyama on Nation Building

The Iraq War turned into a disasterous experiment in Nation Building.  As such, it may be no surprise that famed intellectual Francis Fukuyama, author of The End of History, has said it didn't go according to his plan.  He may have a point, as explained in this incredible essay by Bill Barnes.

http://crookedtimber.org/2013/03/17/bush-did-not-simply-lie-in-the-run-up-to-the-iraq-war/#comment-458369

This is not to say that Fukuyama's plan was any good either.

Court reversing precedents to destroy government

Here's a description of the recent Appeals Court decision which invalidated Obama's recess appointments to the National Labor Relations Board.

Appointing government officials during intra-session recess is a practice going back to Andrew Johnson.  Every one of the previous 5 presidents has used this technique, with over 300 appointments having been made this way.

But now, a highly partisan Court of Appeals reverses over 100 years of established practice with the claim that the Constitution did not intend to allow recess appointments within a congressional session. 

Keynesianism and Ricardo

In an amazing essay on "fat tails", British banker Daniel Davies declares Keynesianism proven and the only proven economics:

 I think people are underestimating quite how well-tested Keynesian theory is, by now, in the Popperian sense. It not only works, as shown in dozens of recession cases, it’s also seemingly the only thing that works, also demonstrated by many of the same cases.

Down in the comments section, someone asks if Keynesianism wasn't disproven by the Stagflation of the 1970's.   One other posted seconded that.  Davies only answered that Keynesianism passed that test too.  But sadly no details are given.  So as much as I am inclined to believe this is correct, I can't forward the argument.

Oh wait, here's an introduction to the new Review of Keynesian Economics, a new free online journal.  This is worth following.  In this introduction Palley et al echo what Davies says about stagflation.  While stagflation was indeed used by the opponents of Keynesianism to discredit it, they were wrong.  A good accounting of stagflation is given by Keynesian theories of conflict inflation.

Now at the same time, Davies links to an interesting argument he had on twitter.

I need to read this argument some more.  But my current assessment in that Ricardo's Comparative Advantage argument taken at face value is worse than useless in designing trade policies.  Primarily because it takes so many things as given which are in fact should be variables affected by the model.  The bottom line for me is that comparative advantage is only a fleeting state.  If a country builds up its industrial capabilities through a protectionist regime, that may be best for it's long term advantage, as it may develop a comparative advantage it originally lacked.  Or, through misguided free trade policy, it may loose what comparative advantage it earlier had.  The first of these arguments is well developed by Ha-Joon Chang in his book Bad Samaritans.  The second to my mind immediately follows.  This effect is amplified by free capital flows, another variable not considered by Ricardo.

James K Galbraith also presents a series of problems with Comparative Advantage in his book Predator State.  He concludes with a simple summary: Ricardo was wrong.  I also go with his critiques and summary.  IIRC the core of his primary critique is that Comparative Advantage ignores the developmental effects I mentioned above, notably ignoring changes that can occur as a result of improved division of labor and producer network effects.  I believe there is also an argument that Ricardo's mathematics only works for two trade items.  When you add a third trade item, it fails.

But this is an area where Krugman's old neoclassical side won't entirely let go.  He of course cut his professional teeth on trade (albeit "domestic trade").  Krugman continues to insist that Ricardo was right.  That commentary by Krugman is now fairly old, and he now makes allowances for the liquidity trap now when writing about trade in his blog.  But the problem is not with the qualifications, the very notion of Comparative Advantage itself is fundamentally wrong in many ways.  Comparative advantage is not something you just have, it's something you try to build up and try to hold on to, and those things may require regulation of trade and investment.  Meanwhile, the utility which is maximized through Ricardian Comparative Advantage is not something that people make goals to attain, it's something they are willing to give up to hold onto comparative advantage.

In most other matters, BTW, Krugman is spot on and I read his blog and editorials first thing every day.  Krugman the blogger and editorialist is a great Keynesian.  Krugman the professional economist is (or at least used to be) an equilibrium modeler, and equilibrium modeling is simply apologia for plutocracy.

Posted to Krugman's counterclaim to Stiglitz

I see a problem with Krugman's argument that savings is global.  Since the 1980's those outside the US have been doing our saving for us, for their security and marketing reasons.  Although savings appears low for US citizens, in the global economy as a whole, there is a savings glut, so no surprise that a global depression results.

A second problem is that rich people in the USA may choose to buy assets such as mansions and yachts, and also corporate stocks, another form of asset therefore not savings, which form a large portion of the wealth of wealthy in the USA.  Corporations are themselves international and may have assets and valuable networks in other countries, with their savings, if any, serving more as a defensive buffer.

Dean Baker has emphasized the "wealth effect" that sustained consumer spending even in the presence of falling relative wages and savings.  This argument is seconded by Matais Vernengo at TripleCrisis.


Inequality is different.  If you look at the world as a whole, the average may show decreasing inequality (often not considering local alternatives) and from an invalid averaging effect and tendency to discount or ignore non-monetary losses.  Within each nation or region there is a small group 1% to 0.01% that becomes super wealthy from trading derivatives of capital and labor across countries, but meanwhile their locals may become temporarily richer but ultimately poorer in health, freedom, and access to natural resources such as water and clean air under the crushing weight of the invisible foot of capitalism, ever more unmitigated by the race to the bottom created by free capital mobility and lack of world standards.

Solow dissing neoclassical microfoundations

The great economist Robert Solow disses neoclassical microfoundations in the 2003 speech posted by Mark Thoma.  It is worth reading the speech and the comments.

He points out the very weakness I note, the "representative agent".  Clearly we need at least two types of agents.

Critically reviewing neoclassical economics

Here's an excerpt from a great book of history of economic thought, which also debunks the ideas and methods of neoclassical economics.

Staggering 31 wedges required now

In 2004, Pascala and Socolow determined that 19 wedges (the term they coined for linear increases in CO2 emissions avoidance that ultimately reach 1 Gigaton of CO2 emissions avoided per year) to stabilize the earth's climate at 2 degrees of temperature increase, an imperfect if respectable goal requiring a peak of 500 ppm CO2 and ultimate phaseout of CO2 emissions before the end of the 21st century.

The latest research by Davis et al concludes that as a result of 8 years of mostly delay in starting to build these wedges, 31 wedges are now required.  Their conclusion is that:

Filling this many wedges while sustaining global economic growth would mean deploying tens of terawatts of carbon-free energy in the next few decades. Doing so would entail a fundamental and disruptive overhaul of the global energy system, as the global energy infrastructure is replaced with new infrastructure that provides equivalent amounts of energy but does not emit CO₂. Current technologies and systems cannot provide the amounts of carbon-free energy needed soon enough or affordably enough to achieve this transformation. An integrated and aggressive set of policies and programs is urgently needed to support energy technology innovation across all stages of research, development, demonstration, and commercialization. No matter the number required, wedges can still simplify and quantify the challenge. But the problem was never easy.

An integrated and aggressive set of policies indeed.  Pretty unimaginable from where world politics are now.  And meanwhile, some are claiming that something like the millenium is upon us thanks to unconventional fossil fuel energy.  Looking at and gleefully extrapolating from a recent bump in US oil and gas production from fracking (an environmentally dangerous technique I feel should be outlawed everywhere) conclude that the very notion of peak oil is quaint now, just wait until the world deploys tracking.  It was very depressing to see the new cornicopeans and peakers slug it out in this interesting Oil Drum discussion.  I still believe the peakers ultimately have the unassailable case, but continuing the ramp up of unconventional fossil energy production as we are doing, with the attitude that this is the answer, is very dangerous.  As the saying goes, the higher they fly, the greater the crash.  If there is additional energy available now, and I'd gladly abandon all the new unconventional fossil sources in an instant even to meet this goal, we should be investing all of that energy we possibly can into the construction of renewable energy systems and sustainable electric transport systems.  That is the only way to avoid a huge environmentally forced human population crash before 2200 if not 2100.  Instead, we are investing the harvest of unconventional fossil sources into...more unconventional fossil sources, more useless wars, repression, and costly factory moving, and a fossil fueled denialist and cornicopean politics, all of which are carpeting our path straight over the cliff to the quickest beat.