The too sane negotiator

Like you, I’ve been watching at a safe distance the bitter wrangles and brinkmanship in Europe over Greek debt. It is horribly reminiscent of August 1914. Could the disaster have been avoided?

Europe’s financial establishment has been complaining that their Greek negotiators are childishly obstinate. Why don’t they just give in to the astonishingly detailed neocolonial prescriptions they have been mailed?

You don’t win a negotiation by being conciliatory. Possibly, the Greeks have been rather too sane. A proper mad negotiator would have threatened not just partial but complete default if forced out of the euro. What would Greece have to lose? Better wipe the slate of odious governmental debt clean, which would reassure new private lenders (cf the Soviet Union in the 1920s, Argentina). To protect German taxpayers, the correct strategy for Berlin and Brussels at this point would then be surrender on the terms already offered. This gets most of what they want and already more than Greek voters can stand.

Either you have the institution of debt bondage or that of bankruptcy. International law does not provide for the former. The attempt by France to enforce Germany’s Versailles reparations in 1923 by occupying the Rhineland did not turn out well, even from the narrow viewpoint of French taxpayers.

It’s true that Grexit would have costs for Greece too. In the short run it would be even worse for Greeks than the austerity hair-shirt, though it offers better prospects for growth a few years ahead. The non-cooperative bad payoffs still look asymmetric. However, my speculation is unrealistic. Tsipras campaigned on a promise to keep Greece in the euro, not to threaten to take it out. So Grexit is up to Germany, not Greece.

More on how museums [under]use their collections

Virginia Postrel (who has engaged the question, “shouldn’t museum holdings be where people can see them?” in the past)  riffs on my Democracy article in Bloomberg View; there was a podcast on Russ Roberts’ EconTalk last month. I’m not sure why this issue seems to ring bells in right-wing circles, but I like the idea that the sort of people likely to turn up at museum trustee meetings are coming upon it.  Maybe they will start to ask the kind of questions tough-minded captains of industry are supposed to be good at, like “how do you expect to run this operation properly if your balance sheet leaves out most of your assets?”

What Coase Actually Believed

It’s remarkable how often people are remembered for believing or doing things that they in fact opposed. Professor David Ball recently passed along this gem from the famous economist Ronald Coase.

The world of zero transaction costs has often been described as a Coasian world. Nothing could be further from the truth. It is the world of modern economic theory, one which I was hoping to persuade economists to leave.

Source: The Firm, the Market and the Law, University of Chicago Press, Chicago, 1988. p.174.

Flea markets

One of the local sports round Perpignan, where we’ve just bought a house, is going to village flea-markets on Sundays. They don’t go in for car boots: trestle stalls are rented cheaply by the organising villages, so the atmosphere is pleasant, even for a reluctant shopper like me. This is Latour-bas-Elne. On a given Sunday, there are half-a-dozen such dos.

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How do flea markets by amateurs match up against the idealised markets of Walras and Arrow? Continue Reading…

The most important book of 2015

I have wrung my hands in the past, in this space and elsewhere, about the collapse of a workable market for digital goods.  I find it hard to get people as excited about this as I am–if I still had enough hair for anyone to notice it would be on fire–but I have some help from Scott Timberg now  so I am going to try again.  Short version: buy this book, Culture Crash, and read it. Now. I believe it is the Piketty of 2015, and the first book I’ve stayed up to read straight through at one sitting–sometimes literally in tears, both of pain and of rage– in years.  It is not just about culture, but about whatever really big issue you lie awake worrying about.

Long post (no, not a substitute for the book; read it), get a cup of coffee  .

Continue Reading…

Sarah Chayes on kleptocracy as a security issue

Now that the teaching quarter is over, I can get to my piled-up “must-read” list.

Sarah Chayes’s Thieves of State is high on that list. My students doing their master’s project on income maintenance in Afghanistan found it invaluable.

Fortunately, today I was treated to the low-cost substitute for reading a whole book: Chayes gave a talk at UCLA. She wasn’t as funny as she was on The Daily Show, but the analysis was pretty damned compelling.

I’ve always made fun of “corruption” as an academic topic because of its excessive focus on relatively minor cash payoffs, to  the exclusion of other forms of rent-seeking. That’s not an objection that anyone could raise to Chaye’s presentation. Even the talk was too complex to be well-summarized in a blog post, but these seemed to be the key points:

1. The idea of corruption as a malfunction in governance due to poor institutional design misses the point with respect to full-on kleptocracy, which is an increasingly widespread form of government (Afghanistan, Iraq, Russia, Ukraine, Pakistan, Nigeria). In a real kleptocracy, stealing isn’t something that happens in the course of governing; rather, governing is a means of stealing, and what look like bugs in the system are in fact features from the viewpoint of the people running it.

2. Insurgency, whether it takes a religious form or not, is often motivated primarily by corruption.

3. Petty extortion always involves insult as well as financial injury, and sometimes involves physical injury. That makes people mad; sometimes mad enough to want to kill a cop. When someone from ISIS or Boko Haram (or, I would have added, Sendero Luminoso) hands such a person a gun and tells him that cop-killing is not only justifiable but is a religious or patriotic duty, he may well take up the suggestion.

4. In a real government, taxes are paid by ordinary people and businesses to the central government, and then sent back down to officials and contractors who do the work and to citizens and businesses in the form of services and benefits. In a kleptocracy, lower-level officials exact bribes and extortion payments from citizens and businesses, and pass the money up the chain.

5. Sometimes there’s a single fount of corruption. Sometimes there are cooperating kleptocratic networks. Sometimes those networks compete rather than cooperating, in which case politics becomes a blood sport.

6. Lots of Westerners shrug and say, “Well, that’s the way business is done over there; it’s in the culture.” But no one Chayes has talked to living under kleptocracy has that viewpoint; they’re all outraged.

7. The free flow of international capital, currency convertibility, and the sale of state assets to private parties have increased the opportunities for, and benefits of, massive corruption. A Soviet official could have a dacha, but not much of a Swiss bank account, since the ruble wasn’t actually worth anything. A Russian kleptocrat can have a bank account in London and a $20 million apartment in New York.

8. Ignoring corruption and governance in order to deal with “security issues” – or, worse, making corrupt payments to kleptocrats to keep them on our side (in Iraq or Afghanistan, for example) gets the causal arrows wrong. Corruption and government are security issues, perhaps the paramount ones.

9. Since the money winds up in the West, Western institutions, including governments, have both culpability for allowing the theft to continue and some capacity to tamp it down.

10. A serious attack on kleptocracy would involved the same sort of careful network diagrams that characterize counter-terrorist work. And it would use visa denial and in rem seizure of assets in the U.S. as systematic techniques.

11. Kleptocracy can happen here.

The talk included lots of interesting historical material (including an analysis of Luther’s 95 Theses as an anti-corruption tract) and several terrific illustrative events. Here’s my favorite. Several months before Boko Haram kidnapped 300 girls, the head of the Nigerian Central Bank – brought in to bail out the banking system in the 2009 financial crisis – discovered that $20 billion had gone missing from the state’s oil revenues. When he announced that he was going to examine banking records to figure out who had stolen the money and where had landed, the President of Nigeria fired him.

Chayes then asked how many in the audience knew about the kidnappings (all of us) and how many about the theft of $20B an the firing of the central banker (three out of about 75, at a law school talk advertised as being about corruption). [No, I wasn't among the three.]

The punchline, from Chayes’s viewpoint: when the President of the United States offered the President of Nigeria sympathy, and aid against Boko Haram, in the wake of the kidnapping, no one asked about the $20 billion, or about who had stolen the money that was supposed to pay for the bullets that the Nigerian soldiers fighting Boko Haram didn’t have. Terrorism is punished, or at least is the source of serious outrage; systemic corruption is shrugged at.

Sounds like a problem we ought to do something about. And – for the first time – I now think that there is something to be done about it, over and above my usual prescription of raising the salaries of cops and other civil servants so they can afford to be honest.

Fidelity investments wrote their own little investment card. Guess what is missing?

Fidelity Investments today tweeted “6 steps to pay off #debt while saving money at the same time.”


These are pretty good rules, nicely presented. Indeed they remind me of something I first posted here at Samefacts:


That index card is probably my most famous contribution to American financial journalism. It was featured all over the place, and has been copied, plagiarized, modified, even translated into Romanian.

Somehow, Fidelity omitted a few items. Consider these two… Continue Reading…

The President was right (though politically clumsy) to go after those luscious 529 college accounts

At the State of the Union, President Obama proposed limiting the tax advantages of 529 college savings accounts. If you’re an affluent college parent, you probably already know this. If you’re not a parent and/or you are not affluent, you probably said “Huh? What is a 529 account?” Which rather exemplifies the problem.

I have 529s for both of my daughters. I recommend these to all my friends with children. These accounts allow you to accumulate tax-free investment gains to help finance your kids’ college. These also provide a good mechanism for relatives to chip in on birthdays and holidays. Given time to accumulate interest, a few hundred dollars a year from Grandma can easily accumulate to cover a whole semester at a state college. 529s provide a convenient nudge to help you save more, too, though the net impact of such tax-advantaged savings vehicles appears to be quite limited.

The president’s proposal produced an entirely-predictable uproar among affluent families and within the industry of financial and college-savings advisors.  Leading Democrats such as Nancy Pelosi and Charles Schumer immediately ran from the proposal.  Political heat was so intense that President Obama was forced to beat a hasty retreat and to abandon the proposal….

Continue Reading…

Mitt Romney Says the Thing That Is

I notice that progressive bloggers and Tweeters are pointing and laughing at poor little Mitt Romney for his sudden outburst of populism. But it seems to me that, as pleasant as laughter is, what’s really called for is a smile of grim satisfaction. He has told the truth – albeit probably insincerely – and there’s every reason to hope that he and his party will come to regret it.

It is among the core Blue-Team beliefs  that the current level of income inequality is unjust, inefficient, and socially destructive, and that public policy should attempt to reduce the degree of inequality.

The Red team – up until today – has believed, or at least said, that market-driven inequality reflects natural differences in economic contribution and is therefore just, while taking from “producers” and “job creators” and giving to the “47%” is unjust, and that the great inequality of outcome maintains incentives and thus contributes to efficiency. They love to criticize redistributive policies as “class warfare” and emphasize the importance of making the pie bigger rather than carving it up more equally, along with (formal) equality of opportunity rather than equality of result.

So when Mitt Romney describes rising levels of disparity – the rich getting richer while the number of poor people increases – as “income inequality getting worse,” he is making a major rhetorical concession to the good-guy side.

Of course he doesn’t really believe it, but hypocrisy is the tribute vice pays to virtue. Once the GOP concedes the claim that, from where we stand now, more equality would be an improvement, I don’t think it’s hard for the Democrats to win the argument about whose policies would do better at moving money from the rich to the middle class and the poor.