Relevant and even prescient commentary on news, politics and the economy.

Three guesses on where chaining the CPI came from

It’s history lesson time again.

An awful lot of talk and writing about the chained CPI has been focused on the results of its implementation on Social Security. Using this formula for figuring the cost of living ends up reducing the money citizens will receive in their SS checks. One of our commenters, Denis Drew labeled it the Cascading CPI. That’s pretty much how I see it because the formula is all about suggesting that accounting for people substituting lower priced items (lower price includes technical improvements) for the higher priced items (higher price includes earlier versions in a products history) they used to purchase means their quality of life has not changed. The only way to make such an argument seem reasonable is if the concept of “quality” has no meaning in the market place. However, if “quality” accounts for something when purchasing a specified level of living, then the accounting is not of inflation but of deflation, and deflation now has to be considered to float on either side of the zero, being positive or negative. There is no concept of inflation in economics anymore.
What I’m suggesting here is that the chained CPI reasoning is a massive amount of conflation. When I start seeing concepts and perceptions being conflated, I get suspicious and start asking questions. Usually the first question is what’s behind the promotion of the conflation. What’s the history and in that possibly will I find the intention? And, as I taught my daughter, life is intention.
Using Mr. Peabody’s WABAC machine we set the dial for 1995. Ever heard of the Boskin Commission?  Its formal name: “Advisory Commission to Study the Consumer Price Index”. It was created on the order of the Senate Finance Committee. The Senate majority leader then was: Bob Dole followed by Trent Lott. William V Roth Jr. was the chair of the committee. 
This was the time of Newt Gingrich and the “Contract with America”.  The contract included social security reform. It also included welfare reform. (Clinton gave them that part of the contract.) Both were under the Fiscal Responsibility Act. You know, balance the budget rhetoric. Specifically:  An amendment to the Constitution that would require a balanced budget unless sanctioned by a three-fifths vote in both houses of Congress…

Gee, 3/5 of congress or 60 votes, what’s the difference now?

Boskin is Michael Boskin. He is this man. Rather accomplished. Held and holds some very influential positions.
He is also this man.

In 1993, Bill Clinton enacted an economic program centered around some public investment, coupled with deficit reduction with higher taxes on the rich. Boskin was very, very sure it would fail. In a Journal op-ed entered into the Congressional Record by grateful Republicans, he accused Clinton’s administration of “fundamental distrust of free enterprise.” He made a series of predictions: “The new spending programs will grow more than projected, revenue growth will be disappointing, the economy will slow, and the program will reduce the deficit much less than expected.”
Boskin repeated his prophecies of doom in a summerlong media blitz. Boskin labeled Clinton’s plan “clearly contractionary,” insisted the projected revenue would only raise 30 percent as much as forecast by dampening the incentive of the rich, insisted it would “take an economy that might have grown at 3 or 4 percent and cause it to grow more slowly,” and insisted anybody who believed in it would “Flunk Economics 101.”
With that setting here is some history by way of Fredrick Sheehan by way of The Big Picture blog: 
In the early 1990s, Senator Patrick Moynihan from New York warned his fellow legislators about rising social security commitments. Then the worm crawled out of his hole, so to speak. Federal Reserve Chairman Alan Greenspan testified before the Senate and House Budget Committee on January 10, 1995. He told the Committee the inflation rate was probably overestimated by 0.5% to 1.5%.
If Greenspan was correct, this was a godsend. Social security payments are increased each year at an inflation rate calculated by the federal government: the change in the Consumer Price Index (CPI). If the CPI could be increased at a lower rate in the future, benefits would rise more slowly, without Congressional action. This would reduce government spending and delight politicians, who knew of the looming crisis in social security but did not want to imperil their careers by reducing benefits, or, in this case, by cutting the rate at which social security benefits were raised each year.

The Boskin Commission was duly formed. Michael Boskin was the right man for the job. He had served as chairman of the President’s Council of Economic Advisers (CEA) from 1989 to 1993, a post previously held by such government functionaries as Arthur Burns and Alan Greenspan.
I’m starting to get a feeling here. “The fix is in” kind of feeling. Mr. Sheehan offers this quote: Greg Mankiw, chairman of George W. Bush’s Council of Economic Advisers from 2001-2003, said at the time “the debate about the CPI was really a political debate about how, and by how much, to cut real entitlements.”
From an article in the Atlantic, 1997 by Thomas L. Palley titled: How to Rewrite Economic History.
The commission is itself a delicious example of such bias: All its members were on record prior to the establishment of the commission as believing the CPI to be overstated. At the same time, the commission took no evidence from such well-known economists as Janet Norwood, a former head of the Bureau of Labor Statistics, and Dean Baker, of the Economic Policy Institute, who believe that the CPI provides a reasonable reading of inflation. In effect, the commission took account of all the evidence of overstatement of inflation by the CPI and downplayed the evidence of potential understatement.
I would say the fix was in. It has just been a matter of time and timing as to when the final promise made in the Contract with America would find its way into policy. The Democrats implemented the welfare the Republicans wanted and now they are going to give them the Social Security. All of it can be summed up in the Contract ultimate goal: An amendment to the Constitution that would require a balanced budget unless sanctioned by a three-fifths vote in both houses of Congress…
The article, besides being a good review of the commission’s report points out the ramifications of accepting an argument that the CPI has been miscalculated for years (similar to Dean Baker’s points).
If cost-of-living inflation has been overstated, then the growth of the economy and real wages has been much higher than previously reported. The commission has thus solved the problem of stagnating wages, which is now revealed to be a mere fiction. Far from experiencing a “silent depression,” the commission implicitly claims, American families have never had it so good.
If inflation, wages, and income have all been misstated, years of research have been conducted using incorrect data. Thus much of this research, which purportedly confirmed the profession’s theoretical claims, is no longer valid.
Lowering the CPI inflation rate would therefore affect income-tax exemptions and push many middle-class families into higher tax brackets. Adopting the Boskin Commission’s findings would be tantamount to imposing a tax hike that would particularly affect lower- and middle-income families.
Both Democrats and Republicans have been keen to see its recommendations adopted, because they provide a potentially uncontroversial way to achieve deficit reduction. Raising taxes is unpopular, and little discretionary government spending is left to be cut. Restating the CPI as a measure of cost-of-living inflation offers an easy way to lower Social Security payments through reduced COLAs and raise tax revenues through reduced exemptions. The hope is that the CPI can be presented as an apolitical and boring technical issue that voters won’t notice.
Revising the CPI would get the Republicans off the hook of deficit reduction, while simultaneously advancing the interests of business. This, however, would occur at the expense of working Americans and the elderly. Revising the CPI would get the Democrats off the same hook, but at the cost of another shameful desertion of the constituencies they claim to represent.
I told you there is no concept known as inflation in economics anymore.
What we have been living with Obama is very clear now. There is only the conservative ideology in play within our government. It’s just a matter of degree and time in setting up the play as to when a given policy  will be implemented to achieve another phase of the goal.  Right now, it looks pretty much like the official implementation of chained CPI pretty much puts the final cog in the conservative economic machine of social order.
I asked in 2008 if Obama’s appointment of Jason Furman was a qid pro quo for the DLC/Clinton et al keeping the money issues while Obama gets to be president.  We have our answer for sure. There is no need to ask anymore as to the reasoning behind the policies and offers in negotiations that is Obama. It is what he wants. We are living the continual implementation of the conservative economic and thus social ideology that came in with Reagan and fully came out with Gingrich and The Contract with America. 
And that my dear readers is where the idea for chaining the CPI came from; yesterday and today.
It is not just the pain that will be experienced by all of us (you’ll get old too) with the chained CPI, it is the fact that voting away from conservative economics has not lead us away from conservative economics since Reagan.  Regardless of the party of the president or the majority of congress, the nation has not been able to achieve an ideological shift.  That is a true signal of a problem with our form of democracy.

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An opinion on University Small Business Political Survey

I was forwarded an early look at a survey that was produced by George Washington University’s School of Political Management in conjunction with As some readers know, I am an honest to goodness small business owner. Two business actually and they are as different as say a private practice physician and a florist. So…………I guess this is what has lead to a request of me to opine on this survey’s results.
I googled I had never heard of them. There is some controversy out their regarding their business model. Yet, claims 250K users. The survey was of 6000 plus of their members. They have taken some steps to assure their sampling represents the distribution of small business throughout the nation. I’m going to trust that GW’s school knows how to do and produce a scientifically valid survey. had teamed up with Ewing Marion Kauffman Foundation early this year. This work attempted to come up with a ranking of business friendliness based on the experiences of small business within a given state.
The headline, take away finding is presented as follows:
40% of all small business owners nationwide rate the economy and jobs as the most important factor in choosing a president. Ethics, honesty, and corruption in government is the second-most important factor for small businesses.
Considering ethics, honesty and corruption came in at 15% and the next item to be ranked the top issue was so ranked by 6% with the percentages becoming smaller to 2% for the issue of foreign policy I would say 40%ranking the economy and jobs the number one issue is kind of an intuitively expected finding because every other issue considered in the survey fell so far behind.  After all, we are talking business owners.

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Economists don’t endorse candidates, because elections don’t matter…a note from Italy

Lifted from Robert’s Stochaistic thoughts is a post that comments on Italian political/economists and government policy.  There are some ‘in the know’ names for US readers:

Simon Wren-Lewis asks. I answer. In real authentic East of the English Channel Europe, economists don’t endorse candidates, because elections don’t matter.
Neither do they endorse gymnasts, because our Democracy is about as decorative as the Olympics.

Quick pop quiz explain the policy differences between the Berlusconi government and the Center left governments ? If your answer is that Berlusconi’s governments try to eliminate the independence of the magistratura (judiciary plus prosecutors) I say “Bicamerale.” If your answer is that Berlusconi will ignore any law and any court rather than take frequencies from Berlusconi I say “La Sette.” If you argue that Seniore Bunga Bunga has no respect for fiscal restraint or rectitude, I say Tremonti.

The fact is that Italian public policy has been based on the twin principles that the very rich are above the law and that budgets must be (roughly) balanced, since I arrived here in 1989 (or at least since 1992). There was, in theory, an historic election (the second in a row) in 1996 when the new majority included the Communists (not just the ex Communists but the proudly still Communists). It was so radical that the budget was communicated to the cabinet responsible to this majority a few days before they made it public. It was written by civil servants at the Treasury Ministry and included no significant changes.

Wren-Lewis knows how to identify the policy making establishment in Europe (also including the UK). He notes that the establishment is New Keynesian because central banks use New Keynesian models. Note that he doesn’t claim that candidates for elective office use such models. Because they don’t matter much.
OK. over there (West of the Channel) the last election made a difference. Also maybe maybe it will matter that for the first time in human history that French Socialists have a President and an absolute majority in both houses of Parliament (not that the Communists held Mitterand back much — but that was long ago).
I think that over in the USA the very serious villager consensus is powerful. But over here it is just about everything. Sacrificing one’s reputation in order to have a tiny possible effect on an election is absurd here. European economists don’t do anything that disreputable, because policy influence is based on reputation and not anything done by vulgar voters.

This has its advantages. Europe doesn’t dive into huge unnecessary deficits because of an election. Policy doesn’t depend on butterfly ballots and hanging chads.

But the second recession in 4 years hitting before 2008 real GDP is surpassed has no noticeable effect on the policy debate either.

It was decided in the 1990s that reducing budget deficits was, is, and always will be the paramount aim of public policy.

Democracy is messy, but a sober, disciplined well ordered march over a cliff isn’t ideal either.

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Significant economic indicators were showing weakness, Wall Street Rally continues

These two articles were juxtaposed in the NYT today.  At a casual glance they look contradictory, and in my experience in my personal sphere no one has asked for this to be explained in the political arena.  Maybe because I have a porcupine sort of personality.  We are apt to discuss parts more deeply but not so much connections.  If you were running for office how would you develop the narrative?

Fed Officials’ Comments Underscore Divisions Over Action
Eric S. Rosengren, president of the Boston Fed, said significant economic indicators were showing weakness, reinforcing the need for the Fed to expand its holdings.

Wall Street Rally Continues
The markets rose Monday, a day without any economic news and with investors still feeling optimistic after last week’s reports on jobs.

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Third party efficacy

Yves Smith posted a call to action.

If you want this country to be different, you can’t just wish for it or expect voting to effect change. You need to be part of making it happen. And that was perhaps the greatest of Obama’s deceptions, that by listening to his seductive rhetoric, your passivity made you part of something greater and was tantamount to supporting change. That’s true only in the spiritual realm, not in the imperfect arena of here and now. Glenn Greenwald warned (emphasis his):

Obama is still a highly effective politician capable of this level of exploitation: exploiting people’s hopes and desires. When you combine that with the desire to believe — to feel once again that he will uplift people’s lives and that the hope one placed in him was justified and not misguided: nobody wants to feel like they were successfully defrauded — it’s an easy trick to repeat…that it’s a grand Manichean battle between Our Great Leader and Their Evil Villain — and there will be plenty of endorphins pumping through people’s brains. There will be enough to drown a large country.

Groups that have has a lasting impact on the social order – the Populists, the original Progressives, suffragettes, labor, blacks –organized outside the party system; indeed, when they were brought in the tent, they became less effective. The public has been told, again and again, the only choice is to hold your nose and select one of the two parties. It’s time we recognize that that myth no longer serves us.

Those of us who care about decency, the rule of law, constraints on corporate power, civil rights, and economic protections for the downtrodden have become complacent, and we are now reaping the bitter harvest of our neglect. Many of these protections seemed so fundamental that there has been a tremendous amount of denial over the speed at which they are being stripped from us. But these gains were not granted freely or easily by those in authority. They came about as a result of long, persistent, difficult campaigns. If we want to preserve the rights previous generations fought hard to win, we have to make this battle our own.

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Small Business=Fraud, Countercyclical Planning, MMT, and Other Economics Catch-up

Note:This was going to be short pieces about things I missed during a week of illness. It turned into a Very Long Piece riffing on two posts from Capital Gains and Games. And that’s without even mentioning the bravura work Stan Collender is doing there: see, for instance, this note that a deficit reduction bill with tax increases is very possible if you just ignore John Boehner.

  1. Small Businesses exist in the United States solely as a vehicle for people to commit tax fraud more easily.

    I don’t see any other realistic conclusion from this piece by Pete Davis. He tries to hide it, putting an idiotic suggestion with an Order of Magnitude’s less value fist, and mostly got people in comments to talk about COLAs, because economists are stupid that way. But the big number—$2,900,000,000,000—remains the big number.

    The only proper conclusion from the entries after the first two would be that Pete Davis can’t do mathis very fond of negative-NPV solutions. You could conclude from this that Pete is really stupid, but we know better. Besides, Len Berman of Forbes already went there, concluding, “Pete, you know better, and you’re just enabling them.” The integrity of posters at CG&G doesn’t usually get questioned so directly in the mainstream.

  2. And there’s good reason for that. Andrew Samwick has argued for years that stealing from the Greenspan Commission’s “making Social Security solvent for future generations” fund, and I expect him to continue to do so, just as I will continue to argue that everything in the Greenspan Commission documents says that was not the idea. But Andrew has me worried—possibly in a good way—about his idea of how to combine economics and family:

    Actually, the government should budget the way families should. It’s just not clear that families actually do what they should. Both families and the government should budget countercyclically — their savings rates should be higher during periods of growth than during periods of economic decline, so that their consumption can remain steady across booms and busts. The problem that both the government and families are having today is that neither one saved enough during the most recent boom, and so both are having to cut back more than would be ideal during this protracted downturn.

    Now Andrew—who is younger and cuter than I—is starting to sound like the old man telling us to get off his lawn. Either that or he has just discovered that Lifecycle Theory of Economics doesn’t work so smoothly in reality as in the standard models. Or both. So it’s probably safest if I use that paragraph as a springboard to talk about Countercyclical Policy, Rational Expectations, and MMT (below the fold).

The glory of Accounting Identities is that they must be true; the truth of them, though, is that there are many ways to get there. (“What do you want it to be?” is not just a joke; see Point One above.) So let’s start from an Accounting Identity:

Y = C + I + G + NX

Now, Andrew might have argued—and I might have agree conceptually—that transfer payments such as Unemployment Insurance, Social Security, Disability Insurance payments, and Medicare/caid Prescription Drug Coverage should be counted as C, not G. But since Andrew insists that Social Security benefits can be cut without Social Security payments being reduced, he’s clearly treating those payments as part of G, not C.* So I will too.

Now, MMT people—as I think of them, the ones who make certain that only Kevin McHale can “spike” the punchbowl**—argue for Nominal GDP targeting. This would keep the overall risk-free rate (r) relatively stable*** since the components of r combined— π + ie —pretty much has to equal “5” at all times.

Given that, the expectation should that the nominal Yt+1 should equal about 1.05Yt on an annual basis.

Several of you are looking up and saying, “Nu?” So let’s go back, then, to Andrew’s “all should budget countercyclically” claim and see what happens in a stable-NGDP, possibly-MMT, world.****

Let’s make one more assumption (not necessary, just easier for maths): at stable equilibrium,***** π and ie are both equal to 2.5: that is, 2.5% growth, 2.5% inflation. So, all else equal, half of the return on savings is going to be taken by inflation and half of the cost of debt is inflation. In an environment with no tax distortions and in which all lending is done sensibly and prudently (I’d like a pony, too), this is pure realisation of Modigliani-Miller: businesses should be indifferent between raising capital and borrowing, either of which is an Investment (I).

So assume that the growth rate for the economy—as a reminder, that’s the π portion—is expected to be three percent this year (it’s a good year). MMT would tell us that, to stay stable, we have to reduce inflation expectations to 2%. This means draining money from the system to reduce Isl (supply of loans) in the financial system.

(As noted above, at equilibrium, there is just enough loan money to go around. Since this is above equilibrium, profits will be reduced and businesses will have to raise I through capital, not loans.

Andrew would tell us that people in good times want to save more. This means that C should go down, relatively, which means that Isc (supply of capital) goes up.

Since—again, an identity—Is = Isc + Isl, MMT demands that personal savings rise to cover the tighter monetary policy. Just as Andrew wants. And just as is more possible in growth times than tight times.*******

So, ideally, I remains constant, if dIs = dIc. Not my favorite assumption, but a working one.

So far, in the boon environment, C is down and I is, at best, neutral. What about G?

Well, in Andrew-world, government is “saving for a rainy day.” Which means on balance that it’s trying to make more and spend less, just like the family. Which means there are two forces at work—(1) monetary policy, as the interest rate is tightened to control demand and/or reduce inflation, and either (2a) tax rates or (2b) spending cuts in some manner—that are working in the market.

I doubt 2a (tax increases) is the desired method of slowing growth (if you’re MMT-inclined) or stabilizing to equilibrium (which I assume to be Andrew’s goal). So let’s assume spending cuts.

Here those transfer payments come in. As the economy grows, UI costs are reduced. Let’s assume similar, smaller gains in other areas and stipulate that G declines in an above-equilibrium state due to a reduced need for spending—not “spending cuts” per se, but rather people being employed as growth comes.********* Best case scenario, fewer UI payments are made, debt is repurchased with those funds, future liabilities is reduced, and more revenue comes in as business expands—which is used to pay down debt so borrowing can be done more easily (read: at a relatively lower rate) during a downturn.

G declines. As Andrew would want, for good and proper reasons.

Which leaves NX. An expectation of 3% real growth is higher than the market had expected. Currency appreciates; exports become more expensive to buyers, who buy fewer. Imports become less expensive, relatively. dNX is negative (dX=0).

So with moderately higher growth, C, G, and NX all decline, while I either (a) increases slightly (in the absence of the need for and use of monetary policy, and not greater than C declines) or (b) declines (if monetary policy is used to reduce loan demand, since that pesky C0 rather ensures that dIsc |).

If you don’t use monetary policy to drain funds from the system, in which case (C + I) remains relatively stable or rises slightly, NX is more ambiguous (effectively=0), and G still realizes those spending cuts (paying down debt—more tax revenues at the same rate as business expands—which cet. par. increases the spread between r and equity investment and means some of that Is becomes Ic, but that’s a side discussion).

The implications here, and for a downturn example and the full cycle model, are left to the next post.

*This should make it clear that this point was not opened with an ad hominem attack, so anyone who suggests so in comments—even on the basis of “well, I didn’t read below the fold”—will see that comment deleted. Assuming, of course, that I read the comments on a regular basis, so you’re probably safe, if warned.

**Glee, not old NBA, reference.

***Still some uncertainty and timing issues, but a relatively flat but upward sloping yield curve would be a perpetual result.

***The coolest thing about working with everything in Nominal terms is that we can basically eschew calculus and natural logs. The worst thing about working with everything in Nominal terms is…

*****You’re driving down a dessert highway in a two-seater. By the side of the road, miles from the nearest water source, you see A Gorgeous Blond(e), Santa Claus, and an old, tired-looking Stable Equilibrium. Which one do you offer a ride?

A: The Gorgeous Blond(e). The other two are figments of your imagination.******

******Yes, think joke works better with “a brilliant violist.” But this is an economics blog, so live with it.

*******I would quibble Andrew’s statement that people borrowed too much for two reasons: one is that market transactions where the borrower is the one most subject to getting a poorer deal due to issues of asymmetric information hardly call to mind the borrower’s irrationality. Second is that many of those transactions were people “trading up” without clearly taking on a greater burden. (That is, $200K in equity on a NYC 1BR became a $200K down payment toward a home whose costs would be similar or lower, cet. par. The household balance sheet was not necessarily expanded on purchases. (That those purchases were at a higher direct cost than the available OERs is a separate, significant issue.) Similarly, HELOC borrowings that were invested into the property—all those effing marble kitchens for people who don’t know how to cook—are only negative to the balance sheet to the extent that they don’t have a reasonable ROI in the first place. That is, the deadweight loss is probably 30% or less on any portions of HELOCs that were used for Home Improvement projects.

Collaterally, if the HELOC was used in place of savings or 401(k) borrowings or other assets (for those who have same)—or even a higher-interest rate “bank” loan—as the method of buying a new car or other necessity, the fault lies not with the borrower, who made the rational (ex ante) choice to stay invested in “the market” and/or maintain Investments (savings).

In short, since all mortgages and HELOCs have been getting tarred with the same brush, we cannot be certain the extent to which “bad borrowing” was actually bad borrowing, or whether it was just borrowing based on the expectation that jobs and income would remain fairly stable—not drop the f*ck off the cliff and be reduced in even nominal terms for the survivors—concurrent with “investment” values dropping into an abyss.

Anyway, since C0 is still essentially constant (“sticky”) even as income first declines, it is intuitive that saving is easier (consider the effect on S = Income – [C0 + Cchoice] as Income approaches C0) in more prosperous times, on balance, for most of society, distributional effects being constant (or changing incrementally).

*********In such an environment, monetary policy may not be used so proactively. This should be fine for all, given that 5% NGDP is the target, not the absolute. Over time, it will smooth. I guess.

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These jokers have no idea what they’re doing

by Rebecca Wilder

What do you want to wager that the IMF’s a bit overly optimistic on the outlook for Greek nominal GDP?

Monday, June 27, 2011


These jokers have no idea what they’re doing.
The IMF has overshot the ex-post path of Greek nominal GDP in each and every one of their World Economic Outlook forecasts since April 2009. What do you want to wager that they’re wrong about 2011, too? And now they want more fiscal austerity…

The French are devising a plan to compel bondholers to rollover Greek debt by enhancing the bonds. The new bond rate would be equal to Greece’s current borrowing rate on the EU/IMF/EFSF programs plus a variable factor linked to ‘an indicator such as GDP’.
Just amazing.
Rebecca Wilder

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Is the President Reading Angry Bear?

AB, late Thursday:

If you want to stop a dictator from killing his people, freeze any of his personal assets that are held out of the country.

In cases where the dictator is likely to fall, it sends a clear signal to other countries. (In cases where the dictator is likely to succeed, the worst case scenario is that banking relationships will be damaged, a consideration that the domestic government would have considered before making the decision to freeze the assets in the first place.)

The purpose of financial in lieu of military intervention is to balance the tradeoff. A dictator whose funds will remain unencumbered no matter how many of his people he kills will not change his behavior. A dictator who stands to lose a large (and increasing) portion of $70 billion faces a scenario where extending his time in office may well appear too costly.

Treasury, Friday night:

On Friday evening, President Obama took decisive steps to hold the Qadhafi regime accountable for its continued use of violence against unarmed civilians and its human rights abuses and to safeguard the assets of the people of Libya.

The President issued an Executive Order freezing the assets of Muammar Qadhafi and four of his children, as well as the Government of Libya and its agencies, including the Central Bank of Libya and the Libyan Investment Authority – the country’s sovereign wealth fund.

I report. You decide.

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What IR can learn from the NHL

Both Gary and Rebecca cited Marc Lynch recommending “intervening” in Libya:

The appropriate comparison is Bosnia or Kosovo, or even Rwanda where a massacre is unfolding on live television and the world is challenged to act. It is time for the United States, NATO, the United Nations and the Arab League to act forcefully to try to prevent the already bloody situation from degenerating into something much worse.

I petulantly asked whether Mark Lynch had ever seen an intervention he didn’t like.

The answer, of course, is yes, which a moment’s thought about pseudonyms would have made clear. My social radar remains a perfect contraindicator.

But that leaves several questions, not the least of which is “with what Army”? Certainly not the U.S. one, which is overextended in battles of—let us be polite&dubious optimal cost.

NATO and The United Nations suffer similar issues, along with “institutional inertia” (unlike the U.S., they do not jump into wars without a strategy, a purpose, and a plan).

This leaves the Arab League, which has several members—Egypt, Lebanon, Somalia, Bahrain, Iraq, Libya (being the issue at hand), Yemen, the Sudan, Tunisia, and possibly Saudi Arabia and Jordan come immediately to mind—that are rather preoccupied themselves.

It’s not just that the very sharp Mr. Lynch conflates genocides with civil war; it’s that he chooses the wrong strategy for ending the process.

Watch NHL fights. Here’s a good example (fight starts ca. 0:55):

Note that the fight isn’t ended until half a minute later. The referees (especially the one on the left side of the screen) are paying attention the entire time—fallen gloves get picked up or kicked out of the way—but they don’t even attempt an intervention until the players are on the ice.

The corrolary is that as soon as a player falls to the ice, they intervene.

The question for those advocating military action should be seen in that light: how can we quickly and efficiently get the battle to the point where intervention does not involve getting in the middle of two moving targets.

This is an economics blog, so, yes, you can bet that my answer will be economics-related.

If you want to stop a dictator from killing his people, freeze any of his personal assets that are held out of the country.

In cases where the dictator is likely to fall, it sends a clear signal to other countries. (In cases where the dictator is likely to succeed, the worst case scenario is that banking relationships will be damaged, a consideration that the domestic government would have considered before making the decision to freeze the assets in the first place.)

The purpose of financial in lieu of military intervention is to balance the tradeoff. A dictator whose funds will remain unencumbered no matter how many of his people he kills will not change his behavior. A dictator who stands to lose a large (and increasing) portion of $70 billion faces a scenario where extending his time in office may well appear too costly.

(There is the added signalling benefit of the proliferation of asset-freezings that occur. Since each country and institution that freezes the assets is weighing their decision based on political outcomes, the more places that freeze his assets, the more clear it becomes that his efforts are not expected to succeed.)

Again, I premise this on the idea that Tom Friedman’s basic premise is correct: that economic activity mitigates the chance of military activity. But the idea here is much easier to implement uni-, bi-, or multilaterally than managing the logistics of moving soldiers, machinery, and rations to an area that may have ended activities by the time you can start to have an effect. (Even ignoring if the effect will be negative.)

IR recommendations should follow the lead of NHL referees: make it as easy as possible for the fighters to be separated, but don’t put your body between them until then.

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