Holiday advice from Dr. Angus

If you must listen to Christmas music (and I really don’t recommend it), you could do a lot worse that the collected Christmas works of Sufjan Stevens. Dude really loves Christmas and has put out a ton of Sufjan-ized holiday music. You can get a lot of it on the u-tubes right here.

For Non-Christmas Sufjan, I highly recommend, Greetings from Michigan, Come on feel the Illinoise, and his latest, Carrie & Lowell.

 

Broken Branches, Peruvian Edition

The executive and legislative branches of the Peruvian government appear to be heading for a showdown. Longtime CG friend and awesome economist Cesar Martinelli breaks it down for us in this guest post:

 

PRESIDENT VS CONGRESS IN PERU

by

CESAR MARTINELLI

Forget about the soccer war of the 1960s. Peru’s current government may collapse apparently because of disputes about the organization of the Pan American games in 2019. President Pedro Pablo Kuczynski of Peru—or PPK as he is known in Peru—was sworn in merely four months ago, receiving high marks from both domestic public opinion and the international press. A typical profile of PPK in the media like this one written by my colleague at George Mason University, Tyler Cowen, would extoll PPK’s impressive experience as a policy-maker and as a private banker, his connections with international organizations, and his academic pedigree. One of the best-received initial decisions of PPK was to include in his first cabinet the Minister of Education of the previous administration, Jaime Saavedra. With impeccable credentials of his own as a policymaker and academic, including a PhD in economics at Columbia University, Jaime Saavedra has pushed successfully for a revamping of education in Peru, around the recognition of the importance of evaluation and incentives—two themes that are central to the economic view of policy making. Saavedra’s popularity has been cemented by his ability as administrator and his obvious enthusiasm and knowledge of the field, even if there remains in Peru like elsewhere widely different views about the proper role of the state in the education sector, some at odds with Saavedra’s mildly interventionist stance regarding guaranteeing the quality of college education.
These coming weeks, PPK’s government is bound to appear again in the news, and the apparent reason is Minister of Education Saavedra. Yesterday, Saavedra was required to appear in Peru’s Congress to answer a list of questions posed by the majority in Congress, conformed by the followers of Keiko Fujimori, still smarting from the lost of the presidential runoff against PPK, and minor allies. The list of questions, unfortunately, has nothing to do with discussing the direction of the education reform, and reads more like a laundry list of assorted complaints, mainly about the organization of the Pan American games. The debate yesterday in Congress has not been an edifying spectacle, with the spokesperson for the majority roundly declaring that Peru’s recent improvements in the PISA evaluations were the result of some sort of conspiracy promoted by the Peruvian government. We live in a post-truth world, I guess. Absent any real policy disagreement, the only reason the majority in Congress may be moving toward the dismissal of Saavedra is precisely because he is successful and, as such, an asset to the government. A successful administration by PPK would delay or endanger Fujimoristas’ anxiously awaited return to the control of the executive, where most political rents can be generated.

This is what follows next. Fujimoristas have announced that will move toward censoring Saavedra in the coming days. According to the Peruvian constitution, Saavedra will have three days to resign. The executive can reply by promoting a question of confidence regarding the whole cabinet. If the Congress insists, then the whole cabinet must resign, and the President will be forced to form a new cabinet. This may be less daunting than it sounds since the President can in principle reshuffle the cabinet and propose it to Congress as a new cabinet, for instance promoting Saavedra to Prime Minister. And here starts a chicken game. If the Congress rejects the new cabinet or in any other way fails to approve a question of confidence, the President has the ability to dissolve the Congress and call new elections. Therein lies a wonderful irony. The current constitution dates from 1993, and was approved in a referendum promoted by the President Alberto Fujimori, father of Keiko, after illegally seizing power following disputes with Congress. One of the purposes of the constitution of 1993 was precisely to make it easier for the President to legally dismiss Congress.

 

One can imagine two alternative scenarios. In one scenario, the PPK government caves in, trying to appease Fujimoristas. We have seen that movie before; PPK himself wrote in 1977 a great book describing the economics and politics of Peru in the 1960s, when a reformist and generally well-meaning president was trapped in a tug of conflict with an opposition-controlled Congress. Things did not go very well, and representative democracy gave room to a military takeover. Much has changed in the Peruvian economy and society since then; sadly, rent-seeking and irresponsible behavior by political hacks has not. In the other scenario, PPK promotes a question of confidence and lets Congress inch towards a legal dissolution. This requires something new from PPK, beyond all the highs and lows of his extensive vita—true political leadership.

Notes from a red planet

On my last couple of visits to the River Wind Casino, I’ve heard a lot of talk about Trump. And people, the talk has been overwhelmingly positive. Even folks that I know did not vote for him are impressed.

The Carrier deal? Aces.

The proposed tariff on firms who move production abroad? Even better.

Talking to Taiwan on the phone was highly rated as well.

Here are some more or less quotes:

China can kiss our ass if they don’t like it.

The president of the US can talk to whoever he wants on the phone.

Trump is our only chance for change.

35% is ok but you know what would be better? 100%!

Trump is the only one trying to help.

We are crazy to let China sent their stuff here.

I hope he makes more companies keep jobs here.

While Trump’s trade and industrial policies are horrible economics, attitudes on the red planet (aka Oklahoma) have changed from simply anti-Hillary (Benghazi!! Lock her up!!!) to very pro Trump based on his actions over the last month.

Whatever our own attitude toward the dude is, I think we should understand that, for a pretty large chunk of America, he’s winning them over.

No wonder I hear so much talk from my progressive friends about getting rid of the electoral college.

And don’t think the folks at the casino don’t have an opinion about what that is code for: allowing politics to go back to ignoring them and their interests.

 

The long lasting effects of trade

In The Long Process of Development: Building Markets and States in Pre-industrial England, Spain and their Colonies, my co-author and I show that smugglers in New Spain (current Mexico plus much more) conducted virtually all trade with Europe in the 1600s, including much of the exportation of silver.  In fact, it is estimated that in some decades over 50% of the silver sent to Europe was shipped illegally from Mexico.  Because this trade was illegal, it didn’t bring about a growing system of laws, rules, & regulations enforceable in a judicial system.

As Douglass North wrote, it is important to have property rights that are internalized in people’s consciousness and unconsciousness, embodied in multi-volume codes of laws and regulations, and enforced by impartial courts and professional bureaucracies. That Mexico did not have because of its smugglers ’ economy.

In principle, the de facto legalization of trade between Mexican ports and the United States during the war with France should have been highly beneficial to the development of a commercial culture in Mexico. It was, in fact, advantageous, but the benefits were limited by the fact that Mexico had few ships on the East coast to use in trade with either the US or anyone else.

An excellent new working paper shows that perhaps illegal trading wasn’t so bad after all, even if it didn’t give rise to good institutions.  Daphne Alvarez Villa and Jenny Guarded, in “The Long-Run Influence of Institutions Governing Trade: The Case of Colonial and Pirates’ Ports in Mexico,” show that:

“The presence of trade, either in its legal or illegal form, leads to significantly better development outcomes compared to neighboring areas where such activities were absent.”

They note that conventional wisdom would assume that “smuggling may be detrimental for long-run economic growth and development for numerous reasons: first, by fostering a culture of informality and illegality in detriment of revenue collection; second, the weaker presence of the state may make it difficult to enforce contracts and protect property rights thus depressing economic activity; and finally, colonial smuggling was at times accompanied by piracy and these ports were often subject to armed attacks and pillage, particularly during the 16th and 17th century.”

However, “smuggling during colonial times may have created the necessary conditions to benefit from trade liberalization in the late 18th century (comercio libre) and after independence (1821). For instance, merchants with the “know-how” and experience of clandestine networks had an advantage in the business once trade restrictions were lifted. Such an early start in commercial activities (either legal or illegal) may have compensated for the damaging effects of a weak state presence and supports an emphasis on increasing returns to scale mechanisms.”

The paper is quite good and well worth reading in full.