Sunday, April 17, 2005
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The difference between economists and political scientists
Sigh..... let's clear up a few misconceptions.
Brad's assertion is that political scientists think that "getting serious" about something is dispatching an ambassador -- as opposed to the economists who want to fix the problem. Actually, to a political scientist -- more specifically, one who studies international relations -- you "get serious" about an issue like the currency when you engage in tactical issue linkage to change other government's policies in such a way as to change the balance of returns and risks facing those buying and selling in foreign exchange markets. If one can arrange for other countries to bear a greater portion of the costs of adjustment from the current set of macroeconomic imbalances, then political scientists will predict that governments will prefer this policy option ten times out of ten -- even if the long-term economic picture would be improved by listening to economists. [Yes, but doesn't this still leave the U.S. with some long-term macroeconomic problems?--ed. I believe it was an economist who pointed out what happens in the long run.]
This leads to Matthew's appropriate question about leverage -- what does the U.S. have to offer? What is the tactical issue linkage that could be put in play here?
Looking at the state of play, here's whats on the bargaining table:
Finally, the reason I said the Bush administration was "getting serious" about the trade deficit after reading the FT article was twofold: a) the administration shifted from talking about the Chinese revaluing their currency to China setting up a floating rate system. That was a shift in their position; and b) Treasury officials spoke about this to the FT in the first place -- to date Treasury officials had been sticking very close to official statements on this issue. My unspoken and unstated assumption in the previous post was that these statements to the FT as a signal that the U.S. had their ducks lined up with the other G-7 countries, and was going to start deploying tactical issue linkage. However, I'm afraid that in the wake of what actually happened, Joseph Britt is correct to point out that, "'getting serious' is not normally so easy to confuse with 'flailing ineffectually.'" So I've gone back and amended the title of the original postposted by Dan on 04.17.05 at 11:18 PM
Option number 2--membership in G7--will contradict the position taken by the US about Chinese membership in Inter American Development Bank. Last week, China was denied membership in IADB because of US objection that China cannot be member of IADB since it still owes money to the World Bank.(Reported in FT last week).posted by: Asif Dowla on 04.17.05 at 11:18 PM [permalink]
Seems to me Delong in his comments exemplifies his illness... his rather consistant disconnect... His reponse to a problem is not to send someone who can actually repair a problem, but to send a Bureaucrat, instead. Delong has yet to understand that such a person is the proximate casue of the problem, not it's cure.
Alas, that Delong isn't alone in this disconnect; it seems to the left.posted by: bithead on 04.17.05 at 11:18 PM [permalink]
While I usually am the first to denigrate political scientists and exalt economists, I was not trying to do so in this case. Did Roosevelt "get serious" about Japan in 1941 when he warned the Japanese government that continued Japanese expansion would trigger an oil embargo, or when he directed Acheson to administer an oil embargo? A political scientist would say the first, an economist would say the second, and I'm genuinely not sure which is the most useful concept...posted by: Brad DeLong on 04.17.05 at 11:18 PM [permalink]
Here, once again, comes a classic illustration; The solution needed, demonstrably, in this case, was not a political one.posted by: bithead on 04.17.05 at 11:18 PM [permalink]
The disconnet may be due to the fact that economists view international economic relations as a postive sum game whereas SOME in international relations view such exchanges as zero sum game. The case in point, US objection to India buidling a pipeline with Iran (a good op-ed in NYT today on this issue).posted by: Asif Dowla on 04.17.05 at 11:18 PM [permalink]
Here, once again, comes a classic illustration; The solution needed, demonstrably, in this case, was not a political one.
What is Bithead talking about?
There was a political solution on the table for the Japanese in 1941: cease your warmongering and behave like a respectable nation. They declined it. Apparently Bithead endorses their choice? If not, please explain.posted by: Anderson on 04.17.05 at 11:18 PM [permalink]
I think the issue is all of your suggested "get tough" possibilities are all cheap talk. They are essentially empty threats. If we could of done them, we would of done them already. Unless we change the fundamentals of our relationship (by changing economic policy) none of those threats will be credible. And to the extent China has full information, once the economic conditions change enough that we can make a creditable threat, they'll react automatically - the threat will not even be necessary.
Right now my guess is these proposed threats are at most backed up by American credibility... we do not want a reputation of threatening and then not doing anything, so when we threaten China might believe we will back it up. But to the extent that's viable, the Chinese also have an interest in not getting a reputation for caving into threats.posted by: wml on 04.17.05 at 11:18 PM [permalink]
There was a political solution on the table for the Japanese in 1941: cease your warmongering and behave like a respectable nation. They declined it. Apparently Bithead endorses their choice?
What I was suggesting was that the political angle didn't work and wouldn't have worked. And so once again, HIstory shows us a leftist whose reponse to a problem is not to send someone who can actually repair the problem, but to send a Bureaucrat, instead.
posted by: Bithead on 04.17.05 at 11:18 PM [permalink]
The political climate in 1941 before Pearl Harbor was such that, if FDR had gone to war, the bitterness that would have resulted would have been five times what we saw with Iraq.
Guess you are neither a economist, political scientist, or a historian.posted by: Appalled Moderate on 04.17.05 at 11:18 PM [permalink]
Bithead: What AM said, plus:
FDR, Tojo, Hirohito, et al. lived in "the past." This particular past is one where Pearl Harbor had not yet been bombed.
Given his lack of prophecy, FDR was limited to working with the tools at his disposal. He probably did not much expect his diplomacy to work. He could not, however, have assigned to it a probability of zero, because it was still possible, in "the past," that it might have worked.
The Leftist in question did not rely on sending diplomats. He also embargoed Japan, thus leaving its warlords little choice between abandoning their conquests or going to war against the U.S. They chose the latter. Had FDR *not* embargoed Japan, it's entirely possible that Japan would not have attacked the U.S., at least for some years, during which FDR would have had a very hard time getting the U.S. into the war against Hitler.
So, however accidentally, the Leftist FDR's response to the Japanese situation was, in the long run, wildly successful.posted by: Anderson on 04.17.05 at 11:18 PM [permalink]
So maybe some economists' "solutions" to problems can be as vapid as Brad Delong accuses political scientists' of being. Convincing China to revalue might help China manage its transition to a market economy, but it won't help the U.S. "solve" its trade deficit problem. The latter is the mirror image of a mismatch between U.S. borrowing and savings. Getting China to move to market exchange rates, and, therefore, to cease currency market intervention would eliminate a huge source of demand for U.S. debt. Much higher U.S. bond yields would help reduce the trade deficit, but a "solution" that brings savings and borrowing into balance by causing a recession can hardly be counted as a a good thing.
Good economists and good political scientists can easily agree that our fiscal policies are irresponsible and a threat to global economic stability. Since the Republicans can't seem to cut spending (witness the agriculture subsidy clown show), then getting serious about the dollar can only mean one thing. Raising taxes!posted by: Aaron Gurwitz on 04.17.05 at 11:18 PM [permalink]
And the middle east that existed under Clinton was a world where the WTC had yet to have a couple planes flown into it. So? Are you really suggesting we should praise FDR for getting us into a war based on a misrepresentation of the situation?
Perhaps true, but the general engrained behavior that I've pointed up remains.posted by: Bithead on 04.17.05 at 11:18 PM [permalink]
What "misrepresentation of the situation"?
What misrepresentation, you ask?
Had FDR *not* embargoed Japan, it's entirely possible that Japan would not have attacked the U.S., at least for some years, during which FDR would have had a very hard time getting the U.S. into the war against Hitler.
So, FDR allowed Japan to build up and attack so as to get us in it with Germany. THAT misrepresentation.posted by: Biithead on 04.17.05 at 11:18 PM [permalink]
Aside from potentially shattering the "tariffs are bad" paradigm that we've worked so hard to establish, how would a tariff on Chinese goods be inferior to an upward revaluation of their currency? A 20% tariff would actually be much more beneficial to us than a 20% devaluation of the dollar against the Yuan.
I'm of the mild opinion that neither is particularly desirable, but a tariff would have obvious advantages...posted by: Atrios on 04.17.05 at 11:18 PM [permalink]
So, FDR allowed Japan to build up and attack so as to get us in it with Germany. THAT misrepresentation.
Are you claiming that is what he did...that it was on purpose and not related in any way, shape, or form to the fact that the American public--not to mention the Congress--wanted nothing to do with the war either in Europe or in the Pacific? FDR was working within political constraints that cannot be ignored...posted by: bp32 on 04.17.05 at 11:18 PM [permalink]
I didn't make the claim.
I don't see the first solution you offer as the political scientist' solution and the second the economist'solution.
It seems that the second one as one that would be advocated by both.
On the contrary, may I add, the economists are the ones who seem to forget political constrains in their pursue of the optimal economic solution.
:)posted by: Nick Kaufman on 04.17.05 at 11:18 PM [permalink]
And I guess we can all see Nick is a diplomat....
I don't get it. Why wouldn't you use both methods?posted by: aaron on 04.17.05 at 11:18 PM [permalink]
to date, the G-7 has called for greater flexibility, and, to my knowledge, the Treasury has been on board with China's notion of a gradual opening of the capital account/ a move toward flexibility -- that was code for steps like widening the band/ a basket peg and other intermediate steps toward floating. A revalued peg is not obviously a step toward more ongoing "flexibility." I just don't see the policy shift there.
the policy shift was to up the rhetorical heat in a big way, and to say that China needs to move now.posted by: brad on 04.17.05 at 11:18 PM [permalink]
Bithead: I didn't make the claim.
You, Bithead, may want to hone your reading skills.posted by: Anderson on 04.17.05 at 11:18 PM [permalink]
You're suggesting that was NOT FDR's intent, for the actions he took?
Careful, there's a thin line between this and Iraq...
posted by: bithead on 04.17.05 at 11:18 PM [permalink]
Anderson uses the word "accidently" in his post.
Historians have been debating whether FDR deliberately goaded Japan into attacking us or not for years.posted by: Appalled Moderate on 04.17.05 at 11:18 PM [permalink]
A tariff imported on Chinese goods will make their imports more expensive here, but do nothing to make our exports cheaper over there. Tariffs are also much easier to sidestep or otherwise evade than floating exchange rates. And finally, tariffs are pretty clearly an aggressive action, and will no doubt provoke some sort of negative response.posted by: Jake McGuire on 04.17.05 at 11:18 PM [permalink]
AM; I'm aware of that.
posted by: Bithead on 04.17.05 at 11:18 PM [permalink]
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