Dynamism and Enemies of Capitalism

Another excellent podcast this week at EconTalk. Russ Roberts has no guest this week, but instead delivers a monologue explaining why most of the popular criticisms of capitalism are quite wrong.

One thing that Robert's does not go into here is how individuals can be worse off due to creative destruction. Their children and grandchildren will almost certainly be better off, but in the short-run lots of people suffer due to trade.

Say tomorrow, the job of economist is made obsolete and replaced with a machine (stupid example). Those people who are employed in economists right now are doing it because it is the best that they can do right now and the profession they seem to enjoy the most. The former economists will all have to find other employment as journalists, bankers, retailers, etc. They’ll be alright and society will be better, but probably their lives would have been better without the economics machine.

Of course, most opponents of trade do not realize that their jobs were created in the first place because of trade, and new and better jobs will be created by the expansion of the market. They don’t know or they don’t care. The children of the previous generation of innovators often curse today's entrepreneurs and want to preserve the status quo. The same goes for lower level workers in mature industries. Saddle-makers did not like early autoworkers. Short-term losers in a capitalist economy are rationally (although selfishly) fearful of the dynamism of capitalism. So, a basic problem with capitalism is that it is constantly creating an opposition to itself. This is Schumpeter’s idea, and I agree with it. To paraphrase Milton Friedman, capitalism would be long gone if it weren’t so much and so obviously better for society especially in the long-run.

Democratic Debate and American Democracy

Mark Thoma, Brad DeLong, and many others published a signed letter today rightfully criticizing the Democratic 'debate' on ABC from a couple days ago. The signers argue "The debate was a revolting descent into tabloid journalism and a gross disservice to Americans concerned about the great issues facing the nation and the world… The questions asked by Mr. Stephanopoulos and Mr. Gibson were a disgrace, and the subsequent attempts to justify them by claiming that they reflect citizens' interest are an insult to the intelligence of those citizens and ABC's viewers."

This seems like a continuation of the McArdle-Greenwald debate… The signers are certainly right that the debate was frivolous and reflected poorly on American Democracy. I also agree that the debate was an insult to the intelligence of U.S. citizens and ABC viewers.

However, when I see something I don't like provided, my first thought isn't necessarily to blame the supplier. The ultimate cause of drugs on the street, prostitution, soap operas, and E! is the large group of people who demand them. Demand (and the preferences of the ABC audience) was responsible for the direction of this debate. The pseudo-intellectual journalists who run the major media in the U.S. do not report about 'tabloid' stories because this is what they really care about. They do so, because this is what they American people care about. Alex Tabarrok rightly points out the revealed preference of Americans who after a week of especially tabloid-like politics made this debate the most watched of the campaign.

I suppose, the debate moderators could be more paternalistic, and steer the debate towards the EITC, gains from trade, Federal Reserve policy, or other such fascinating topics. Of course, fewer people would watch, and those who would, likely have already long made up their minds. The number of us who would enjoy a good policy debate is small, and the number who would be influenced by it is extremely small (Alternatively, a stupid policy debate about anti-gay, anti-immigrant, and anti-trade candidates might be popular but not particularly healthy). But, most voters do seem to care about the personal backgrounds of candidates. My impression is that this is especially true for marginal (usually uninformed) voters, who are the people the candidates most want to reach.

Remember, the candidates aren't innocent would-be public policy wonks. Personal background is what all three major candidates run on – hope, military, and political experience right? So, not surprisingly, the theme of the debate was personal issues. But, this isn't ultimately the candidates fault either. They respond to incentives and we tend to get the candidates we deserve running the types of campaigns that influence us (or at least the 'marginal voters' amongst us). The people who do care about the issues almost certainly know who they're going to vote for. And I honestly doubt they are watching for a stimulating policy discussion (who would want to listen to politicians for that?). They too are mostly just watching for that 'gotcha' moment that will change the campaign.

So, this is not a great situation and the writers of this letter are rightfully upset. I personally would like the Presidential debates to sound like some sort of Friedman-Galbraith debate. But unfortunately the incentives are not there in our democracy for candidates to campaign that way, and it is not really the media's fault that they are not. Blame the American people who seem to enjoy and are influenced by this stuff. But in the end, remember, we've got a better system than pretty much every other country.

Meet the New Boss

I couldn't have said it better.

Campaigning on the message that he had so much more to do that he had not already done in his previous three governments, Silvio Berlusconi was swept back into power this week in Italy. Interestingly, the media, which happens to be about 90% controlled by Berlusconi, appears to have agreed. His new government, Italians are promised, will: cut taxes, increase spending, and balance the budget. Call me a mean-spirited cynic, but I'm skeptical. But, he's a politician and that's how politicians talk.

Actions are more important. Silvio Berlusconi has promised a lot and delivered very little in his career. The new government will be dependent on some odd anti-immigrant and separatist parties, but Italy should have a working right-wing majority. So, Burlusconi will have there opportunity to make so major changes. Here's what he should do:

- Fix the bizarre Italian tax system. Step up enforcement and rationalize the system. Berlusconi has argued that the crackdown on tax evasion is like a tax increase. He's right – step up enforcement and cut rates, so the system does not reward those who evade the law.
- Set up a program to reduce the ridiculous national debt. Reforming the government's massive entitlement programs is the most important step.
- End the talk of withdrawing from the Euro. The benefits of the stable currency and eliminated currency risk in trade with European countries far outweighs not being able to make national monetary policy.
- Sidestep the Naples garbage collectors union, and restore service to that city (Think Reagan with the Airtraffic controllers, or Thatcher with the coal miners – Who runs Italy?)
- Ease regulations. Berlusconi actually has a pretty good record on getting rid of red tape, and with a solid majority they should be able to push further.
- Don't menace immigrants.
- Liberalize international trade- Most importantly, Italy needs a massive program to crack down on corruption. This is the item which is least likely to occur with the new right-leaning government. They depend on the mafia and corrupt system too much to turn on it.

Moskos in the Hood

Will Wilkinson and Peter Moskos have a conversation up on Bloggingheads discussing Moskos' book Cop in the Hood. Moskos is an Ivy Leaguer who spent two years as a Baltimore policeman (before The Wire came out) as a field study. The views Moskos gives basically agree with my a priori views about the drug problem in inner cities (and probably agree with his a prioris as well).

The big problem, of course, is that we have products (the various illegal drugs) which have a large customer base but are illegal. Short of the type of draconian tactics you see in Singapore, there will always be a market for these illegal drugs. Since selling drugs is heavily prosecuted, the market is completely ceded to criminals. The combination of the great amount of money and the culture than seems to exists amongst drug dealers leads to a lot of violence. This is a big problem in inner cities and I think it may be the biggest social problem in the United States. Moskos and I agree that the solution in to legalize drugs, which is politically unpalatable. So, we have the drug war which screws up our cities and also creates big problems abroad - like in Columbia and Afghanistan ...Of course, it may be politicaly impossible for those countries to consider legalization as well.

- Moskos has a blog for the book on Amazon.com which has some interesting posts.

A Reason to Support McCain

This post is a little late as Iowa and thus ethanol are irrelevant for a while. But, the issue will be back in the general election as Iowa is a swing state. Ethanol subsidies are one of the least reasonable policy ideas around.

Corn-based ethanol uses up as much energy as can be gotten from it, pollutes more than gasoline, and is much more expensive. There's also little prospect of it being made anywhere near as efficient as gasoline or other sources of energy. The policy would be laughed off if not for two things: 1.) To the uninformed (>95% of voters), it sounds like a good idea to get energy from crops, and sounds like it wouldn't pollute much; 2.) A lot of people, who live in states who will benefit from subsidies, happen to agree that it is a good idea, and will vote based on it.

So, this seems like a great example of an issue where the relatively honest politician could tell the truth and the sleazier politician will go along.

- Barack Obama, who often seems to be a relatively honest politician, has changed his mind and now supports ethanol subsidies (but also restrictions against importing sugar-based ethanol from Brazil).
- John McCain has consistently opposed ethanol subsidies, even though it appears to have hurt him politically in both of his Presidential campaigns.

I'm generally skeptical of the idea that politicians do something because they think it's right, but perhaps McCain is doing just that here. Or perhaps I'm a sucker.

Jefferson Memorial Protest

Here are Megan McArdle and Peter Suderman on the group of libertarians who were arrested for dancing at the Jefferson Memorial to iPod music for the 3rd President's birthday.

They were arrested for "causing a disturbance" which seems like a rather dubious charge seeing as they weren't making any noise and weren't directly bothering anyone else, only moving around. Theis seems like a classic example of a charge used by the police against people they just don't like, be they poor minorities or annoying college age libertarians (Perhaps the two biggest threats in the typical cop mind) - We could call it the seatbelt law of the federal memorial.

Needless to say, I encourage anyone and everyone to dance at the Jefferson Memorial in protest of this injustice. Jefferson would be annoyed, and perhaps Hamilton would also. I don't think Adams (our current greatest Founding Father) would be though.

Here's the arrest:

The Relevance of Labor Unions

There is a tendency of progressive to assume that unions, instead of being self-interest monopolies, are beneficial to society simply because they are composed of many members. I would argue that unions are much more of a reactionary and destructive institution similar to medieval guilds. Unions function in a similar way to other monopolies – They seek to restrain supply (workers) in order to extract a higher return. They restrain competition, harm consumers and other workers (to the extent they use coercion and the law). Furthermore they distort the economy by making labor costs for their particular industry too high, thus encouraging employers to make their production unnecessarily more capital and less labor intensive. Anyway you do the math this is a net harm to society and by definition to the people who make up it. In the short-run it can be advantageous to the workers who are able to join the union. Typically they are able to extract unnaturally high returns from their employers for a while. In the long run, you would expect unionized businesses to become less and less efficient and, in a competitive market, run out of business.

Look at the industries in the United States that are most heavily unionized – Domestic Automakers, Steel, Airlines, Education, and Other Government. If you were to make a list of the most dysfunctional industries/institutions of U.S. society, these all would be quickly mentioned.

Let’s examine more closely the example of the U.S. Auto Industry. For a long time, the Big Three were able to get by with unionized workforces. They paid unnaturally high wages to their employees, with restricted access to the jobs; they were able to do this because competition between the Big Three was quite gentlemanly (to be polite). This collapsed when foreign competition became much more intense. The U.S. companies were exposed as lumbering inefficient oligopolists. Some might argue that everything was better with limited competition – some workers were able to receive too high wages and the American companies did well. Those points are true, but only if you recognize that the oligopolies and unionized workers did well at the expense of all other Americans. One of the reasons this has been allowed to persist is it is difficult to see the costs. We drive much better cars than we did 30 years ago, and we would have even better, cheaper, more efficient cars available if this weird market distortion was not allowed to persist for so long. This is a definite cost we have all paid for this arrangement.


This is really the classic problem of concentrated benefits and diffuse costs. Even though the costs are significantly larger than the benefits. The workers and the companies don’t care very much that their benefits come at the expense of everyone else. However, they do notice quickly when a similar situation in the steel industry directly harms them.

Milton Friedman on Greed

Milton Friedman does an excellent job of refuting the claim that capitalism is a system built on greed in this brief clip from 1979. The answer is that sure human actions are motivated by greed/avarice/self-interest (broadly defined) under capitalism as they are in every other conceivable system. Capitalist systems just do by far the best at pretty much everything of all tried systems of economic organization.

I would point out that in addition to the great innovations (which ultimately serve very humanitarian purposes), the great humanitarian movements have sprung out of capitalist societies.

Capitalism and Jews

As a separate follow-up on Muller’s book, I wanted to briefly mention the frequent link in Western history between anti-capitalism and anti-Semitism. An unfortunate but repeating theme throughout the book is the close relationship between capitalism and the European Jewish population. Frequently this was a tactic used by enemies of the market to delegitimize capitalism by identifying it with a long-disliked minority. But, there is some fact behind the connection - Medieval Jews were excluded from the guilds and more respected trades. Also, the fear of having it expropriated caused them to shy away from owning land. Thus, the safest available professions became trading and lending (as the Church often prohibited Christians charging interest).

Being early beneficiaries of capitalism, European Jews improved their own lot, but at the expense of being further stigmatized. Many pogroms were half motivated by Christian borrowers who simply wanted to cancel their debts. To quote The Road to Serfdom “It is the old story of the alien race’s being admitted only to the less respected trades and then being hated still more for practicing them.” Sadly, Jews received despicable treatment from not only the simple-minded but also many of the intellectuals sited here, who served to legitimize such views. You have to hope that such views are on permanent decline, but the author points out that the are still espoused by not only Middle Eastern extremists but also from people like Mohammed Mahathir of Malaysia.

One of the frequent and nearly universal criticisms of capitalism is that economic freedom empowers disliked minority ethnic groups. The best example of this is the Jews in Europe, but there are also blacks in the American South and South Africa, the Untouchables in India, Chinese minorities in South-East Asia, and many other groups. In all of these contexts, we have seen illiberal regimes place restrictions on the market to limit the progress of the disliked group. But, in the long-run, things tend to get better and I would argue that capitalism is the main reason. When people are forced by economics to interact with people they don’t like, they’re likely to stop viewing the world in as much a racialist mindset. Within the dominant ethnic group, those who make the best business decisions instead of racially motivated decisions will tend to be the most prosperous and the racist holdouts will tend to lose out. In the long run, others will see that the more liberal tend to be the more prosperous, which will encourage them examine their own views and tend to move away from the racist mindset. A simple way of looking at it is that people are encouraged by a free market to view others by their individual ‘merits’, and this tends to lead to a decline of racism. Progress can be slow, but it definitely happens.

Review: The Mind and the Market

‘The Mind and The Market: Capitalism in Western Thought’ by Jerry Z. Muller

In The Mind and The Market, Jerry Muller attempts to give an overview of Western views about the ‘market’ driven economy from Antiquity through the 20th Century. I found this book to be an excellent overview of the debates over capitalism (a term that Marx popularized), and significant views on the “moral implications and ramifications of the market”. Muller fairly presents liberal views on the benefit of the market along with Marxist, nationalist, conservative, and romantic critiques. Each view is presented within its context, but Muller finds that many of the same concerns continue to repeat throughout history, alternatively as benefits or downsides of capitalism.

Muller places a particular emphasis on German intellectuals, an intellectual history that is the author’s specialty. Perhaps the strongest section is Muller’s discussion of German intellectuals of the pre-World War I and interwar years. In the Austro-German context, capitalism went from precarious ascendance at the turn of the century to being almost universally viewed with hostility after the first war.

This book is not so much a discussion of the history of economic theory as a history of philosophy of the market. As a result, Keynes surprising only gets half of a chapter. Almost all the intellectuals mentioned in this book admit that capitalism had greatly increased the material well being of society. But, what has most worried thinkers throughout history has been the effects of the market on moral, cultural, and political values. People have long agonized over the effect of the market on institutions like the church, family and the nation. Modern commentators have a tendency to reinvent these concerns and overrate the novelty of modern problems. The arguments of Justus Möser fighting the decline of feudal society, and the breakdown of the traditional order, don’t sound that far off from a modern trade unionist. There is little popular romance about capitalism, so its driving force has always had to be that it is the most efficient system. Schumpeter would point out that capitalism is always breaking down and rebuilding society. This is certainly for the long-term material good of about everyone, but in the short term it creates constant enemies of those who are on the wrong side of “creative destruction”.

8/10 – Recommended

Iraqi Debt

Tyler Cowen posts a reader email today pointing out the recent rally of Iraqi government debt. At a time where developing nation debt has been hurt by increasing risk aversion, Iraqi five-year credit default swaps have fallen to 520 basis points from around 635 bps at the start of the year.

Here are some other developing nation swaps for comparison from Bloomberg:
282 bps - Average developing nation debt
145 bps - Brazil
611 bps - Venezuela
520 bps - Iraq

This is partially a statement of how bad things are looking for holders of Venezuelan debt, which is trading much worse that Mexican, Peruvian, Panamanian, and other comparable debt. The sad situation in Venezuala asside, Cowen points out that Iraqi debt may be improving due to rising Republican prospects in the Presidential election; Republicans being more likely to continue a large troop presense in Iraq and (if you're optomist) create a stable country that five years from now will be able to pay off it's debt. Intrade shows evedence that could support this view. The odds of a Republican winning the 2008 election have increased from low 30s to about 41% this year.


Debt prices are, of course, affected by many factors. Most likely this price reflects the combination of recent developments in Iraqi reconstruction, likelihood of Republican victory in November, the perceived success of the Surge, events in other risky developing nations, and many addition smaller factors - factors that are not all moving in the same direction. Overall, I think it’s a good sign for Iraq but not enough to make me, at least, bullish about the country.

Favorite Founding Father

Radley Balko asks who's your favorite founding father. The current popular pick for the greatest founding father is John Adams, due to the David McCullough book and HBO miniseries... My opinion is that probably the key guy in the Revolution was George Washington, and this he is the most important father. However, I'm tempted to agree with Ron Chernow, and gave my vote to Alexander Hamilton as my favorite.

Hamilton:
- Was the force behind the Federalist Papers and getting the Constitution ratified.
- Set up the banking system.
- Federalized all state debt, giving the national government much more legitimacy.
- Strengthened property rights by preventing the U.S. from defaulting on its bonds and paying speculators rather than those who had already sold their bonds at low prices (as Jefferson favored).
- Set up a functioning tax system. Sure, he used tariffs which were not efficient taxes, but these were some of the few taxes Congress would allow. To fund the rest of the bufget, he established excise taxes well before Pigou was born.
- Set up the Coast Guard to these enforce taxes.
- Also campaigned against slavery, which ultimately didn't go anywhere; and helped establish Hamilton College to educate Native Americans in upstate New York (Two things that didn't have as much effect on the country, but were very decent things to and well ahead of their time).

He did more than anyone to create a functioning federal government, put it on sound financial footing, and set the U.S. up for long-term prosperity. Of course, he couldn't have done any of this if Washington didn't allow him.

Jefferson, who I am not a huge fan of, is winning the poll.

Manhattan Congestion Pricing

Generally I favor fewer less complicated taxes. However, on tax I do favor is congestion pricing. Such a tax already exists in Central London and I support mayor Bloomberg's perhaps quixotic campaign to bring one to Manhattan. The plan is for a simple tax on all cars that drive south of 60th Street between 6 and 6 on weekdays. The congestion tax is a textbook Pigouvian Tax. The basic idea of Pigouvian taxes is that there are certain things that we do where we impose a small cost on everyone. Our own share of this cost is infentesimal and this has no effect on our own behavior. When everyone imposes small costs on everyone else the result adds up. But, since everyone only controls a very small marginal cost there is little incentive for them to modify their behavior.

When anyone drives they impose a negative externality on everyone else - Congestion (in addition to pollution). No one car (except for that damn Florida driver) is the cause of congestion, so individual drivers cannot control whether or not there is congestion. However, together they create it, and impose a a burden on all drivers - traffic jams. The best way to lower the amount of cars on the road is to increase the price of driving. In the short term people will drive less and in the long run housing will be built closer to places of employment. The result is fewer drivers on the road, and better conditions for those who drive. So, the tax also creates a benefit for society, and pays the government's bills. This is an efficient tax policy. In general taxes like this should be used for things like congestion and pollution, and be offset by reduction in less efficient tax policies.

If you agree with this, look into Greg Mankiw's Pigou Club.

The Office Returns

Thankfully back from the writers strike (why do screenwriters have a union?) and hopefully not yet beyond the shark. If you haven't seen it, you must. Catch the new epiose Thursday night.

Planning Democracy

Econtalk's Podcast this week with Christopher Coyne was particularly interesting. Coyne, an Austrian economist, gives an economic view of the inherent problems of using foreign intervention to build a liberal democracy. He makes the important point that it really isn't that difficult to create a democracy - all you need is elections. Iran, Egypt, Zimbabwe, and Venezuela are all democracies. What is great about Western Civilization is not democracy but the liberal institutions like the free market economy, freedom of speech, a functioning free press, and the rule of law. These, of course, take a very long time to build, and are near impossible to impose through military intervention.

Japan and Germany both had much of the foundation for liberal democracy and when their respective illiberal regimes were removed, liberals were the obvious group to take over. Iraq certainly doesn't have the institutions. It has a society splintered along various ethnic and religious groups, with poisoned relations between each other. Coyne points out some mistakes the occupiers made in Iraq, but it's unlikely that even without these mistakes a liberal democracy could be established.

Yet, I'm not certain that military intervention cannot be beneficial to a society and help establish liberal democracy even in a developing nation. Japan and Germany are bad examples because of their wealth and level of human capital in 1945. But, what about Korea? U.S. intervention stopped a takeover from the Stalinist North, which would have been a tragedy. South Korea had no history of democracy before World War II, and was underdeveloped economically. As an occupoier, the United States created a democracy and imposed it's favored leaders. Korea's politics have had some bumps, but it has developed into one of the most stable liberal democracies in Asia, with Japan. Likewise, it's standard of living would now qualify it as a developed nation.

Certainly ethnic homogeneity and the outside threat of communism were benefits for stability and development as they were for Germany and Japan. But, this still indicates to me that an international coalition may be able to further liberalism in a country through intervention. Unfortunately, Iraq appears to have too many complications for foreign intervention to improve things. Hopefully, the Iraq of 2040 will prove us wrong.

Fall of Ceauşescu

This clip is from Nicolae Ceauşescu last public speech and the beginning of the Romanian Revolution of 1989 which overthrew his Stalinist regime. The violence of the Romanian Revolution was terrible and should have been avoidable. Nonetheless, this clip raises my view of humanity a little. The state-run media, cult of personality, and totalitarian economy were not enough to keep everyone in line. The government, of course, was not able to control every element of people's lives, and Romanians did know what was happening in the outside world in 1989. Although the bulk of the people probably only had a vague idea of liberal democracy, they knew they wanted change, westernization, and greater freedom. One hopes that today's authoritarians have not advanced too far beyond the Soviet Sphere in their ability to suppress all their citizens knowledge of the outside.

More Zimbabwe

Zimbabwe is on the front lines with relative good and liberal guys versus very bad and vicious authoritarians. It looks rather obvious that 28-year incumbent President (originally, but now certainly dictator) Robert Mugabe has lost the Presidential election by a significant margin. After seeming indecision during the week it now looks as if he is going forward with a plan to maintain power by any possible method. The government is withholding the results for the presidential election without reason, and looks set to reverse the opposition's win in the legislative election. Aiming to distract the populace, Mugabe is now having his cronies seize much of the property of the remaining tiny white minority. He is vowing to defend Zimbabwe from a "White invasion".

Here's some numbers from the Times on this aspect of the current situation

Mugabe's land grab

— 4,000 white-owned farms have been taken over since 2000

— 18 white farmers have been killed since the farm invasions began

— In 2007 one of the last remaining white farmers was strangled by intruders in what campaigners called a “political hit”

— An estimated 400 white farmers remain in Zimbabwe

— 44 per cent of land seized was being cultivated in 2005 and the remainder was lying fallow

— Maize production fell by 74 per cent between 1999 and 2004

Naturally, this is a bad policy and extremely unfair and racist towards the remaining whites in the country. But of course, the vast bulk of the harm of these policies is inflicted on the ordinary Zimbabweans of African descent. Mugabe's plan seems to be to paint any opposition to him as tools of the white extreme-minority or the liberal international community. This is an extremely (Isn't everything extreme in Zimbabwe now) unproductive long term strategy, as it will further destabilize the economy.

But, of course, Mugabe needs to keep his cronies loyal. That is his short-term goal, and giving them more land is a way to do this. Racism is a convenient and perhaps popular cover. He needs the military and veterans on his side if he wants to maintain his regime, as he certainly has limited public support now. As long as he keeps the guys with the guns on his side, he'll probably be able to maintain himself in office for a while longer. Fortunately, it appears there may be a little splintering of the remaining support for him. Also, local police do not seem to be very supportive, after the hyperinflation destroyed their wages (Land is a much better inflation hedge).

So, there are two ways I see this ending soon with Mugabe loosing power:
1. Mugabe's cronies turn against him, probably reacting to the popular opposition to him and the threat continued support poses to them in the long term. After all, he's just about a dead horse for them.
2. South Africa puts pressure on Mugabe to not crack down on the opposition. Sadly under Mbeki, South Africa has practiced disappointing realpolitik, and thus far has been supportive of Mugabe. However, if events continue to move in the direction they appear to be going, this position may become untenable for the government.

Obama and Race

I think this is hilarious, but maybe it’s just because of my bizarre love of bad 1970s and 80s movies.

On a sadder note, I was originally fairly optimist about the Obama campaign. I think he is a very strong candidate – He has always been the smartest person in the race, progressive, and advocates market-based solutions. Although I may not agree with them, they’re generally much more rational that Hillary’s policies, which generally are just poorly designed handouts to various interest groups. On top of it, I admit I am fairly enthusiastic about the prospect of a black President. That hopefully would help put a lot of the U.S.s racial history behind us. Also, I think a President Obama would have added strength on foreign affairs, dealing with a Hugo Chavez type for example.

But increasingly I’m worried this election will only increase racial tension. I do think Hillary’s campaign has tried to divide the Democratic party along racial lings to defeat Obama and it hasn’t been as successful as she needed. I consider Obama the presumptive nominee.

Now, John McCain doesn’t seem to have a racist bone in his body. I strongly doubt he will try to play the race card as Hillary has. But no doubt, some people affiliated or not at all affiliated with the McCain campaign will say some regrettable or just not well thought out things. But even if they don’t, Obama supporters will no doubt think they see racism. Witness

Northern Ireland

This is Ian Paisley, the First Minister of Northern Ireland. It's typically not a good sign for a country to elect a leader who calls the Pope the Antichrist (Although, he does make John Paul II look pretty cool).



Of course, the second largest party that governs in coalition is Sinn Féin the political wing of the IRA, arguably a terrorist group. Again, this is not necessarily a sign of a healthy democracy.

That viedo is twenty years old; Paisley is now retiring. Things have definitely been improving in Northern Ireland over the last decade. The country is relatively stable and these formerly more extreme groups have been drug into the mainstream. I would argue that a big reason for this improvement in the governance of Northern Ireland is the tremendous prosperity in the Republic of Ireland over the last three decades. When the people Northern Irish saw the success of the neighboring Celtic Tiger, it became increasingly apparent what a waste the Troubles had been. The Republic attracted business with its very low 12% corporate tax, and as a result has become one of the wealthiest countries in Europe. You now longer hear much talk about the special Irish culture and lack of work ethic that would always hold the country back. Ireland is a success story that economists can point to for capitalism (The country’s heavy reliance on biotech may be a little unstable, but that’s an inherent problem for a small country).

While the rest of the island was pursuing intelligent pro-growth policies, Ulster was fighting over the events of 90 years ago. I don’t think I have to post the music video for Zombie to explain how sad this is. As a result (after the pure human life cost) the North was unstable, reliant on declining industries, and poorer than its neighbor. An honest assessment of their situation in 1997 would cause a rational Nationalist or Unionist to sober up. There have been other causes of the calming of the last decade, but no doubt a desire to catch up has been an underlying. Northern Ireland has even made noise of lowering its taxes to compete with the South. Competition between countries (like most types of competition) tends to better policies. One theory of why Europe was able to get such an early lead in development is the competition and wars between all the different independent states spurred changes and relative good pro growth policies. I think we’re seeing that in Ireland and that essentially a good thing.