The Austrian Economists

Freeexchange on Chris Coyne

The Economist blog, freeexchange, writes on a new paper by Chris on exporting democracy:

WEST VIRGINIA UNIVERSITY economist Chris Coyne, author of the forthcoming After War: The Political Economy of Exporting Democracy, has a fascinating new working paper online [pdf] that deploys public choice guru Gordon Tullock's account of bureaucracy to explain why the failure of post-war reconstruction in Iraq is no surprise.

As this excerpt from freeexchange notes, Chris' paper considers a theme discussed at greater length in his book, After War, which comes out in November. Those who have not read Chris' work on this subject need to do so. His argument is among the most important on the question of exporting democracy and offers a powerful critique of the idea that we can simply democratize undemocratic nations at our pleasure.

What have I been up to?

Well, I have been out of touch for over a month.  The first part of that was due to basketball.   But I have since returned to economics work with writing and lecturing.

Last week I made my annual trip to lecture at the Foundation for Economic Education in the Advanced Seminar in Austrian Economics.  I first made a trip to FEE in 1980 and I returned to FEE often since then as a student and then as a faculty.  There is something very special about the place.  For many years the "specialness" of FEE was in reality little more than a memory of student days and the excitement of wrestling with the ideas of economic freedom for the first time.  But Richard and Anna Ebeling have done an amazing job at FEE.  Students from around the world migrate to FEE and have a wonderful educational experience.  Richard is an amazing intellect --- deep historical knowledge, great passion for the truth, and a commitment to Austrian economics and liberalism that is awe inspiring.  Anna is an amazing hostess and a feisty intellect in her own right.  She matches Richard's commitment to the ideas of political and economic liberty.  It is always fantastic to be in their company and they have created an educational reality at FEE that for the current generation of students far surpasses the experience I had in 1980.  I just am amazed with the work they have done, and continue to do, at FEE.

Falling Dominoes?

I have a new paper, co-authored with Andrea Dean, that empirically investigates the democratic "domino theory." Here's the abstract:

The “domino theory” has a long and impressive history guiding global foreign policy. According to this theory, increases or decreases in democracy in one country spread and “infect” neighboring countries, increasing or decreasing their democracy in turn. Using panel data that covers over 130 countries between 1900 and 2000, this paper empirically investigates the domino theory. We find that democratic dominoes do in fact fall, as the theory contends. However, these dominoes fall significantly “lighter” than the historical importance of this model suggests. Countries consistently “catch” only about 11 percent of the increases or decreases in their average geographic neighbors’ increases or decreases in democracy. We also explore whether U.S. military intervention is capable of spreading democracy, as policymakers reasoning according to the domino theory have argued. Our results are mixed. Post-WWII occupation of Austria successfully spread democracy to its neighbors. More recent occupations in Haiti and the Dominican Republic failed to do so.

You can download the full paper here.

Liberal Economics in the Heart of Europe (Guest Post by Dan Klein)

The following is from Dan Klein.

I recently participated in a week seminar in the Czech Republic, “European and American Liberalism,” organized by the leaders of Liberal Institute and the Prague University Economics program.

Really remarkable.  I know about the scenes in the US, UK, and Sweden.  It is different in CZ:

The Shaky Foundations of Competition Law

Some of you may be interested in my latest publication in the New Zealand Law Journal (Download NZLJ_CompetitionLaw_Sautet.pdf ). It’s a concise view of competition law and its limits, and it is especially written in the context of the New Zealand Commerce Act. The act regulates competition down under and is one of the best pieces of competition law ever written, but it still comes short of being useful to “regulate” markets in my view. There is nothing in the paper that Austrian economists don’t know about (many have written on the subject since Hayek’s seminal work in the 1930s), but it presents a concise view of what policy makers wanting to regulate competition should keep in mind.

More Booty for Leeson

Tim Harford discusses Pete's work on pirates in the Financial Times.

Leeson’s message is that pirate crews faced a serious challenge of governance. Without any possible appeal to a higher legal body, pirates were forced to create their own organisations, constitutions and checks on executive power. Traditionally, a ship’s captain had absolute authority over the crew; the resulting abuses of power in the official navies and merchant navies were so appalling that they served as recruiting tools for the pirates.

Pirate captains adopted a different approach. They retained authority over strategy, tactics and navigation, but delegated discipline, rations and punishments to the quartermaster, who was elected by the crew. Leeson, following a tradition of libertarian economic thinking, argues that this form of private-sector piratical governance was far more effective than the official state-sponsored version.

Peter Leeson in The New Yorker

James Surowiecki's latest article in The New Yorker, "The Pirate's Code," draws heavily on the work of co-blogger Pete Leeson.  From the article:

Leeson is fascinated by pirates because they flourished outside the state—and, therefore, outside the law. They could not count on higher authorities to insure that people would live up to promises or obey rules. Unlike the Mafia, pirates were not bound by ethnic or family ties; crews were as remarkably diverse as in the “Pirates of the Caribbean” films. Nor were they held together primarily by violence; while pirates did conscript some crew members, many volunteered. More strikingly, pirate ships were governed by what amounted to simple constitutions that, in greater or lesser detail, laid out the rights and duties of crewmen, rules for the handling of disputes, and incentive and insurance payments to insure that crewmen would act bravely in battle...The Pirates’ Code mentioned in the “Caribbean” series was not, in that sense, a myth, although in effect each ship had its own code.

Pete's papers on this topic are available (here, here and here).

Congratulations to our very own salty sea dog, Captain Leeson.

Nauti(cal) by Nature

I've written a new paper on revolution, which in keeping with my nautical theme of pirate papers' past deals with mutiny aboard 18th-century merchant ships. The paper is entitled, "Rational Choice, Round Robin, and Rebellion: An Institutional Solution to the Problems of Revolution." Here's the abstract:

Two collective action problems plague successful revolution. On the one hand, would-be revolutionaries confront a “participation problem” whereby no rationally self-interested individual has an incentive to participate in rebellion. On the other hand, individuals face a “first-mover problem” whereby no rationally self-interested individual has an incentive to lead rebellion. This paper argues that 18th-century merchant sailors devised an institutional solution to these problems to facilitate maritime revolution and overthrow abusive captains. This institution was called a “Round Robin.” Round Robins solved both the “participation problem” and the “first-mover problem” by aligning the interests of individual sailors desiring mutiny and restructuring the payoffs of leading vs. following maritime rebellion.

Download  the full paper here.

Media as a Mechanism of Institutional Change

Chris and I have a new paper that investigates the role of mass media as a mechanism of institutional change. Here's the abstract:

A large literature establishes the connection between institutions and economic performance. Comparatively little work, however, explores the process of institutional change. How do development-enhancing institutions emerge where they do not already exist? This paper investigates this question by examining the role of mass media as a mechanism of institutional change. Our analysis considers three case studies: Mexico, Russia, and Poland. We find that a free media facilitates institutional change in the direction of liberal economic and political institutions. In contrast, where government owns or controls the media, media’s ability to facilitate such change is constrained.

This research is part of a series of papers we have written on the role of media in economic development, such as "Read All About It!", "Manipulating the Media", "The Reformers' Dilemma", "Inside the Black Box", and "Culture, Common Knowledge and Post-Conflict Reconstruction".

The themes taken up in these papers are also considered in a book we're working on entitled, Media, Development, and Institutional Change. Read a draft of the first chapter, which lays out the book's tentative contents, here.

Bill Easterly on Bono and Africa

Bill Easterly's latest piece, in today's Los Angeles Times, is motivated by the Africa issue of Vanity Fair.  Easterly notes:

...the international development establishment is rigging the game to make Africa — which is, of course, still very poor — look even worse than it really is. It announces, for instance, that Africa is the only region that is failing to meet the Millennium Development Goals (MDGs in aid-speak) set out by the United Nations. Well, it takes extraordinary growth to cut extreme poverty rates in half by 2015 (the first goal) when a near-majority of the population is poor, as is the case in Africa. (Latin America, by contrast, requires only modest growth to halve its extreme poverty rate from 10% to 5%.)

And on motivations:

Why do aid organizations and their celebrity backers want to make African successes look like failures? One can only speculate, but it certainly helps aid agencies get more publicity and more money if problems seem greater than they are. As for the stars — well, could Africa be saving celebrity careers more than celebrities are saving Africa?

Thanks to Claire Morgan for the pointer.