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An Israeli leftist believes that right-wing Prime Minister Neyanyahu can bring peace:

“The left wants to make peace but cannot, while the right doesn’t want to but, if forced to, can do it.”

Why can a right-winger make peace, while a left-winger cannot?  There might be many reasons but the one mentioned in this blog must of course draw from Crawford-Sobel’s Strategic Information Transmission which has become the canonical model of the game-theoretic notion Cheap Talk. The key intuition was identified by Cukierman and Tommasi in their AER paper “Why does it take a Nixon to go to China?” (working paper version).

Suppose an elected politician knows the true chances for peace but also has a bias against peace and for war.  The the median voter hears his message and decides whether to re-elect him or appoint a challenger.  Given the politician’s bias, he may falsely claim there is a good case for war even if it is not true.  It is hard for a politician biased towards war to credibly make the case for war.  He risks losing the election.  But if he makes the case for peace, it is credible: Why would a hawk prosecute for peace unless the case for peace is overwhelming?  So the more a politician proposes a policy that is against his natural bias, the higher is the chance he gets re-elected.  If the case for peace is strong, a war-biased politician can either propose war in which case he may not get re-elected and the challenger gets to choose policy.  Or he can propose peace, get re-elected and implement the “right” policy.  In equilibrium, the latter dominates and Nixon is necessary to go China, Mitterand is necessary for privatization etc…

Is this why Netanyahu believes he can make peace?   Maybe he cares about leaving a legacy as a statesman.  This would make him a less credible messenger – via the logic above, he is biased towards peace and any dovish message he sends is unreliable.  Let’s hope that the stories of his strongly his Zionist father and hawkish wife are all true.  And then Hamas should fail to derail the negotiations…And Hezbollah should fail in its efforts… And the other million stars that must align must magically find their place….

Recruit homeless people to run as candidates in an opposing party.  Steve May, Republican party operative in Arizona is recruiting three way-way-outside-the-beltway candidates to run for the Green party in a local election, expecting that Green candidates will siphon votes from Democratic candidates.

“Did I recruit candidates? Yes,” said Mr. May, who is himself a candidate for the State Legislature, on the Republican ticket. “Are they fake candidates? No way.”

To make his point, Mr. May went by Starbucks, the gathering spot of the Mill Rats, as the frequenters of Mill Avenue are known.

“Are you fake, Benjamin?” he yelled out to Mr. Pearcy, who cried out “No,” with an expletive attached.

“Are you fake, Thomas?” Mr. May shouted in the direction of Thomas Meadows, 27, a tarot card reader with less than a dollar to his name who is running for state treasurer. He similarly disagreed.

“Are you fake, Grandpa?” he said to Anthony Goshorn, 53, a candidate for the State Senate whose bushy white beard and paternal manner have earned him that nickname on the streets. “I’m real,” he replied.

That’s the subject of an article in Slate that leads with:

So, a Treasury secretary, a labor union leader, a hedge-fund billionaire, and an heiress walk into a conference call.

You will recall that the estate tax was temporarily repealed and it will come back in full force in 2011 unless some new legislation is passed. I have praised estate taxes before.

Salakot Slap:  gappy3000.

This is Asia:

More here. Why am I posting this?

How often do you and your friends agree?

According to recent work by Winter Mason, Duncan Watts, and myself [Sharad Goel], you probably don’t know them as well as you think. In particular, we found that when friends disagree on a political issue, they are unaware of that disagreement about 60% of the time. Even close friends who discuss politics are typically unaware of their differences in opinions.

You probably can guess my reaction.  (Or at least you think you can.)  Since I am always right, and my friends are right more often than they are wrong, I am right to assume that they agree with me more often than not.

It turns out that my distant friends are right just about as often as my close friends:

people consistently overestimate the likelihood that their friends agree with them on political issues. Notably, even though close friends (so-called strong ties[1]) are in reality more likely to agree with one another than distant friends, people do not appropriately adjust their perceptions. In other words, though we think close and distant friends are about equally likely to agree with us on political issues, in reality we are much more likely to agree with close friends.

I am very interested in this kind of survey work because I think that people do overestimate how similar they are to the rest of the world and I think it has important consequences.  But perhaps for different reasons than these authors are emphasizing.

At the margin people are too reluctant to express themselves because they assume that what they have to say is obvious.  But in fact the obvious thing is exactly what you want to say.  Because the more obvious the thought the more likely it is uniquely yours and the more valuable it is to others.

Obama has two focal options in Afghanistan, “Stay the Course” or “Cut and Run”.  Stay the Course means continuing the current counterinsurgency (COIN) strategy of “winning hearts and minds” of Afghan civilians.  Cut and Run means getting out as soon as possible and leaving the Afghans to deal with their own mess.  In either scenario it is optimal to sack McCrystal.

McCrystal is a strong believer in COIN so if you want to Cut and Run, it s better to replace him with someone else, a true believer in Cut and Run.  If Obama wants to Stay the Course, McCrystal is a possible candidate.  But there is a reputational cost, looking weak, to Obama of retaining McCrystal.  Replacing him carries the risk that the COIN strategy fails.  But Petraeus is the author of COIN so this risk is minimized if Petraeus replaces McCrystal.  So, even if you want to Stay the Course, it is optimal to sack McCrystal.

Pretty simple?

You (the sender) would like someone (the responder) to do you a favor, support some decision you propose or give you some resource you value.  You email the responder, asking him for help.  There is no reply.  Maybe he has an overactive Junk Mail filter or missed the email.  You email the responder again. No reply.  The first time round, you can tell yourself that maybe the responder just missed your request.  The second time, you realize the responder will not help you.  Saying Nothing is the same as saying “No”.

Why not just say No to begin with?  Initially, the responder hopes you do not send the second email.  Then, when the responder reverses roles and asks you for help, you will not hold an explicit No against him.  By the time the second email is sent and received, it is too late – at this point whether you respond or not, there is a “No” on the table and your relationship has taken a hit.  The sender will eventually learn that often no response means “No”.  Sending a second email, while clearing up the possibility the first non-response was an error, may lead to a worsening of the relationship between the two players.  So, the sender will weigh the consequences of the second email carefully and perhaps self-censor and never send it.

Then, Saying Nothing will certainly be better than Saying No for the responder and a communication norm is born.

David Byrne, singer of the Talking Heads, solo artist, and blogger, is suing Charlie Crist for the use of the song “Road to Nowhere” in an advertisement for his Florida Senate campaign.  One of the reasons given is interesting.  Because the law requires that permission be granted:

… use of the song and my voice in a campaign ad implies that I, as writer and singer of the song, might have granted Crist permission to use it, and that I therefore endorse him and/or the Republican Party, of which he was a member until very, very recently. The general public might also think I simply license the use of my songs to anyone who will pay the going rate, but that’s not true either, as I have never licensed a song for use in an ad. I do license songs to commercial films and TV shows (if they pay the going rate), and to dance companies and student filmmakers mostly for free. But not to ads.

Note that if there were no requirement to ask for permission then there would be no such inference.  (Not that it would change things in this case because David Byrne is opposed for other reasons as well.)

My first post on this topic was prompted by reading newspaper stories about Afghanistan and having lunch with Jim Robinson shortly afterwards.  (For example, Karzai is sacking trusty lieutenants and moving to form a coalition with the Taliban and perhaps Pakistan.)  But who has thought deeply about this issue and come up with some interesting insights?  The answer is of course: Roger Myerson.  He has an informal overview of his thoughts on state-building.  To understand his ideas fully, you have to read the overview.  Here are a few insights I pulled out that are most related to my earlier post.

One issue I raised was: How do you ensure political competition is constructive not destructive? Myerson says the key is that the losers in any political competition feel they have the opportunity to win a future competition.   Otherwise, what choice to they have but to compete from outside the political system and trigger conflict?

An alternative might be to install a puppet dictator who faces no competition.  But here I repeat my earlier point: this dictator will be rapacious and steal from his citizens.  To keep him in line, constructive political competition is necessary.

Myerson’s overview has his thoughts on how to build constructive national and local competition.  Again, I recommend you take a look.

Afghan security firms provide armed escorts for NATO convoys.  Some firms lost their employment because of violent incidents where they killed civilians.  But NATO Convoys them suffered greater attacks and the security firms were re-employed.  There is an obvious incentive problem:

“The officials suspect that the security companies may also engage in fake fighting to increase the sense of risk on the roads, and that they may sometimes stage attacks against competitors.

The suspicions raise fundamental questions about the conduct of operations here, since the convoys, and the supplies they deliver, are the lifeblood of the war effort.

“We’re funding both sides of the war,” a NATO official in Kabul said. The official, who spoke on the condition of anonymity because the investigation was incomplete, said he believed millions of dollars were making their way to the Taliban.”

This is a Mafia tactic: To get people to pay from protection, you have to create the demand for protection.  Supply creates its own demand.  There is also a reverse effect:  The security firms sometimes bribe the Taliban to keep away from the convoys.  With this source of steady income, the Taliban have no incentive to disband and may even have an incentive to expand.  Demand creates its own supply.

The second circle seems less pathological than the first.  If we cannot find the Taliban ourselves and kill them or bribe them then to stay away from the convoys, we have to use a local security firm.  The security firm is an intermediary, adding value and generating surplus.  The first circle is destroying surplus, like the Mafia.  It is creating a public bad, a security problem, to generate a transfer.

Beyond punishing anyone who is caught planning a deliberate attack, it is hard to see any simple solution.  Fewer and fewer countries want to be involved in Afghanistan and so using our own troops is difficult.  The Taliban might prefer to be employed in the real economy.  But the main alternative to attacking NATO convoys is growing opium.  Is that any better than attack and theft?

The entire episode signals that Afghanistan is a Mafia state with leaders acting an profit maximizers, destroying surplus to capture a bigger slice of what’s left of the economic pie.   A depressing state of affairs after eight years of war.

Rand Paul, referring to criticism of BP’s handling of the oil spill says

“What I don’t like from the president’s administration is this sort of, ‘I’ll put my boot heel on the throat of BP,'” Paul said in an interview withABC’s “Good Morning America.” “I think that sounds really un-American in his criticism of business.”

“And I think it’s part of this sort of blame-game society in the sense that it’s always got to be somebody’s fault instead of the fact that maybe sometimes accidents happen,” Paul said.

This is symptomatic of the perennial time-inconsistency problem that comes with incentives for good behavior.  The incentives are structured so that when bad outcomes occur, BP will be punished.  If the incentive scheme works then BP acts in good faith and then it is true that bad outcomes are just accidents. The problem is that when the accidents happen it is true that BP was acting in good faith and so they don’t deserve punishment.  And if doling out the punishment requires political will then the political will is not there.  After all, who is going to stand up and demand that BP be punished for an accident?

This is the unraveling of incentives.  Because the incentive worked only because BP expected to get punished whether or not it was an accident. To prevent this, it is the politician’s job to stir up outrage, justified or not, in order to reignite the political will to dole out the punishment.  The blame game is a valuable social convention whether or not you believe there is someone to blame.

Neither the Labour Party nor the Conservative Party has won an absolute majority in the British elections.  Each can try to rule as a minority government. This means roughly that each policy proposal would be voted on in an ad hoc fashion.  If a key vote fails to win majority support, the minority government would fall and there would be another round of jostling for position.  An alternative is to form a coalition with another party to form a government with majority support.  This would mean the large party in the coalition would have to compromise on its ideal policy positions.

Both Labour and the Conservatives need the Liberal Democrats if they are to go the latter route.  The Liberal Democrats suffer under the British electoral system where power is related to seats won in Parliament not total vote won across districts.  Hence, they support “proportional representation”.  Can the Liberal Democrats play the two parties off against each other to win this prize?

The difficulty for the Liberal Democrats is that the other two parties are in an asymmetric situation.  The Conservatives are in better shape for running a minority government than Labour because they won more seats in Parliament.  They are willing to offer less than Labour.  Labour is willing to offer more but even the total number of seats held by the Liberal Democrats and Labour is not enough to form a majority coalition government. Plus it would involve a deal with a party mired in scandal and win a dark, brooding unpopular leader who refuses to step aside.  Neither option looks good.

Hence, the real issue is the next election which may happen in days not years.  The Liberal Democrats had great hopes of breaking out of their third party status and replacing the Labour party as the alternative to the Conservatives.  It seems that in the end, voters were too worried about putting their faith in an unknown unknown.  To break out of this hole,  the Liberal Democrats have to look statesmanlike and work in the national interest not party interest.  If neither party offers them a solid commitment to electoral reform, the Liberal Democrats should stay out of any coalition and maximize influence and publicity in Parliament.  They can support sensible common values policy proposals put forward by the minority government and build themselves up in the eyes of the electorate.  Only if they win significantly more seats in the next election will the Liberal Democrats get electoral reform

What is the point of a big speech outlining your intentions when everybody already knows that when push comes to shove you are just going to do what’s in your interest?  Usually such a speech is all about the reasons for your stated intentions.  If you can change people’s minds about the facts then you can change their minds about your intentions.

But the public facts are already that, public.  There’s no changing minds about those.  At best you can change minds about how you perceive the public facts or about facts that only you know.  But here we are in the realm of private, unverifiable information and any speech about that is pure cheap talk.  You will invent facts to support whatever intentions you would like people to believe.

Except for two wrinkles.

  1. Making up a coherent set of facts that support your case and survive scrutiny is not easy.  On the other hand, the truth is always a coherent set of facts.
  2. You can only say things that you can think of.  That’s a small subset of the set of all things that could possibly be true and the truth is always in that subset.

Together these imply that cheap talk always reveals information.  It reveals that the story you are telling is one of the few coherent stories you could think of.  And if that story is complicated enough it becomes more and more likely that this is the only story that complicated that a) is coherent and b) you could think of.  Since the truth always satisfies a) and b), this makes it ever more likely that what you are saying is the truth.

This is why when we want to change minds we make elaborate speeches full of detail.  It convinces the listener that we are telling the truth.  And this is why when we want to be inscrutable the listener will pepper us with questions in order to require so much detail that only the truth will work.

Obama’s Nuclear Posture Review has been revealed.  The main changes:

(1) We promise not to use nuclear weapons on nations that are in conflict with the U.S. even if they use biological and chemical weapons against us;

(2) Nuclear response is on the table against countries that are nuclear, in violation of the N.P.T., or are trying to acquire nuclear weapons.

This is an attempt to use a carrot and stick strategy to incentivize countries not to pursue nuclear weapons.  But is it any different from the old strategy of “ambiguity” where all options are left on the table and nothing is clarified?  Elementary game theory suggests the answer is “No”.

First, the Nuclear Posture Review is “Cheap Talk”, the game theoretic interpretation of the name of our blog.  We can always ignore the stated policy, go nuclear on nuclear states or non-nuclear on nuclear states – whatever is optimal at the time of decision.  Plenty of people within the government and outside it are going to push the optimal policy so it’s going to be hard to resist it. Then, the words of the review are just that – words.  Contracts we write for private exchange are enforced by the legal system.  For example a carrot and stick contract between an employer and employee, rewarding the employee for high output and punishing him for low output, cannot be violated without legal consequences.  But there is no world government to enforce the Nuclear Posture Review so it is Cheap Talk.

If our targets know our preferences, they can forecast our actions whatever we say or do not say, so-called backward induction.  So, there is no difference between the ambiguous regime and the clear regime.

What if our targets do not know our preferences?  Do they learn anything about our preferences by the posture we have adopted? Perhaps they learn we are “nice guys”?  But even bad guys have an incentive to pretend they are nice guys before they get you.  Hitler hid his ambitions behind the facade of friendliness while he advanced his agenda.  So, whether you are a good guy or bad guy, you are going to send the same message, the message that minimizes the probability that your opponent is aggressive.  This is a more sophisticated version of backward induction. So, your target is not going to believe your silver-tongued oratory.

We are left with the conclusion that a game theoretic analysis of the Nuclear Posture Review says it seems little different from the old policy of ambiguity.

President Obama has used the Congressional recess to appoint Paul Krugman as Vice Chairman of the Federal Reserve system.

Obama spent the first year in office wooing centrists like Olympia Snowe.  That strategy slowed down his reform agenda and did not pay off.  The President had to rely on old hardball Chicago politics to pass healthcare reform.  He has realized his hope of appealing to the center of the political spectrum is futile.  And in any case, it’s the diehard party faithful that decide midterm elections.  What better way to energize the base than by appointing their hero, the self-styled conscience of liberalism and economics Nobel Prize winner, Paul Krugman, to the Federal Reserve?

Krugman stands no chance of getting the 60 votes required to survive the usual Senate confirmation process.  As his appointment has no direct impact on the budget, the arcane procedure known as “reconciliation”, that requires only a simple majority, cannot be used to give him an up and down confirmation vote. Ironically, Krugman will have a huge impact on the budget as he favors expansionary monetary and fiscal policy in recessions.  A perpetually gloomy forecaster, Krugman almost always believes a recession is round the corner and for all practical purposes favors large budget deficits all the time.  Even if reconciliation could be used, with moderate Democrats against him, it is not clear that Krugman could draw 50 votes.  So,  a recess appointment was the only possible strategy for Obama.

This is obviously a dangerous move for the President.   He is used to hiding his liberal agenda behind the fig-leaf of bipartisanship.  With the leaf removed, he feels naked and vulnerable.  Obama has gambled that the extreme left must be brought out to retain the Democrats’ hold on Congress.  With the Krugman appointment as a flashpoint, Obama risks losing moderates and perversely provoking the extreme right to turn out and vote.

The benefits and risks for Obama are clear but what’s in it for Krugman?  He has long wanted to get his hands on the levers of economic policy.  But at what cost?  He will have to step down from his sinecure as a Times’ columnist.  He will have to mothball his textbook, as Ben Bernanke did before him.  Most of all, he may regret the demise of the speaking engagements that have helped to bankroll his many houses and apartments in America and beyond.  A favorite of the Hollywood glitterati – Ben Affleck is a close friend – Krugman will now have to give up the organic-chicken-and-chardonnay circuit and attend regular Fed meetings in Washington D.C. A dream for a regular economist but perhaps a letdown for a media star like Krugman.  Of course as a recess appointee, Krugman can only serve until the next Congress is seated – maybe that is just the right amount of time for him to substitute Ben Bernanke for Ben Affleck in his speed dial.

All in all, an intriguing appointment for all parties concerned.

It is apparently the Democrats’ intention to use the budget reconciliation process to finalize the health care overhaul.  By means of this process, a plain majority of 51 Senators will be required to pass the compromise bill, rather than the 60 that would be required to fight off a Republican filibuster.  An arcane Senate rule plays center stage:

So if reconciliation is such a powerful tool, why didn’t the Democrats use it earlier? Because of another restriction, known as the Byrd rule — named for West Virginia Senator Robert Byrd , who introduced it in 1974. The Byrd rule allows the minority party to block the use of reconciliation if a bill isn’t tied strongly enough to the budget process. The full health care bill the Senate passed in December would have violated the rule (and possibly jeopardized support from many centrist Democrats hoping to avoid controversy).

But, because Democrats passed a full health reform bill in December with 60 votes and are only proposing to make changes to that through reconciliation, it’s easier for them to argue that those changes are simply about making the bill fit the overall budget.

The rule is well-defined, apparently, but nevertheless open to intepretation.  The spirit is to prevent reconciliation, a normally technical phase of the budget process, from being used to enact new legislation.  The Republicans are clearly right to complain that pushing the health care bill through reconciliation violates that spirit.  (Although Democrats counter that Republicans have used it more often in the past.)

But there is a big difference between fair play within the conventions of the Senate and fair play in the eyes of the public.  And in fact, bright line rules like the Byrd rule have more powerful rhetorical value in the broader public debate than he said-Reid said sniping about the cryptic, often unwritten, norms of the Senate.  As the quoted paragraph above points out, despite a flagrant violation of the spirit of the reconciliation process, passing health care in this way is probably within the letter of the Byrd rule.

And that will be ceremoniously confirmed on the floor of the Senate when Republicans raise the question and the Senate parliamentarian gives a ruling.  (By the way, the presiding member of the Senate can ignore the Parliamentarian, and the Parliamentarian can even be replaced by the Senate Majority Leader, but presumably it would not come to that.)  No matter how much Republicans cry foul, ironically the Byrd rule will essentially certify a maneuver it was intended to prevent.

Karen Tumulty at the Time blog Swampland perceptively writes:

“the easiest choice for endangered Democrats in swing districts is to vote against the bill–but only if it passes. That’s because they need two things to happen to get re-elected this fall. They need to win independent voters (who in most recent polls, such as this one by Ipsos/McClatchy, are deeply divided on the bill). But they also need the Democratic base in their districts to be energized enough to turn out in force–something that is far less likely to happen if Barack Obama’s signature domestic initiative goes down in flames.”

Tumulty compares the scenario to an earlier vote in 1993 on the Clinton economic plan:

“It was the night of August 5, 1993, and Bill Clinton was one vote short of what he needed to get his economic plan through the House–a vote he got, when freshman Marjorie Margolies-Mezvinsky switched hers. The other side of the Chamber seemed to explode. Republicans pulled out their hankies and started waving them at her, chanting: “Bye-bye, Margie.”

Margolies-Mezvinsky learned the hard way that they were right. Her Main Line Philadelphia district was the most Republican-leaning of any represented by a Democrat in Congress. She had sealed her fate:

During her campaign, she had promised not to raise taxes, and the budget proposed a hike in federal taxes, including a gasoline tax. On the day of the vote, she appeared on television and told her constituents that she was against the budget. Minutes before the vote, however, on August 5, 1993, President Clinton called to ask Margolies-Mezvinsky to support the measure. She told him that only if it was the deciding vote—in this case, the 218th yea—would she support the measure. “I wasn’t going to do it at 217. I wasn’t going to do it at 219. Only at 218, or I was voting against it,” she recalled.11 She also extracted a promise from Clinton that if she did have to vote for the budget package, that he would attend a conference in her district dedicated to reducing the budget deficit. He agreed (and later fulfilled the pledge). Nevertheless, Margolies-Mezvinsky told Clinton “I think I’m falling on a political sword on this one.”

Tumulty suggests the underlying game is the Prisoner’s Dilemma.  Some of her commenters suggest the game is similar to the free-rider problem in provision of public goods.  The free-rider problem is very similar to a Prisoner’s Dilemma so really the commenters are echoing her interpretation though they may not realize it.

I claim the interesting version of the game for Democratic Representatives in conservative districts is Chicken.  Two cars race towards each other on a road.  Each driver can swerve out of the way or drive straight.  If one swerves while the other does not, the former loses and the latter wins.  If neither swerves, there is a terrible crash.  If both swerve, both lose. A variant on this game is immortalized in the James Dean movie  “Rebel without a Cause”.

According to Tumulty, Democratic Representatives in conservative districts want to have their cake and eat it: they need healthcare reform to pass to get Democratic turnout but they want to vote against it to keep independents happy.  The strategic incentives are easy to figure out in two scenarios.  First, suppose the bill is going down however the Rep votes as it does not have enough votes.  Then, this Rep should vote against it – at least they get the independents in their district.  Second, suppose the bill is going to pass however the Rep votes – they should vote against via the Tumulty logic.

The third scenario is ambiguous.  Suppose a Rep’s vote is pivotal so the reform passes if and only if she votes for it.  At the present count with retiring Reps, Pelosi needs 216 votes to pass the Senate bill in the House so a Rep is pivotal if there are 215 votes and her vote is the only way the bill will pass. Margie M-M was in this position in 1993.  There are two possibilities in the third scenario.  In the first, the Rep wants to vote against the bill even when she is pivotal as she is focused on the independent vote.  This means she has a dominant strategy to vote against it the bill.

This case is strategically uninteresting and, as in the Margie case, it is implausible for all the undecideds to have a dominant strategy of this form.  So let’s turn to the second possibility – many undecideds Rep wants to vote for the bill if they are pivotal.  This generates Chicken.  If none of the conservative Democratic Reps vote for it, the bill goes down and its a disaster as Democratic voters do not turn out.  This is like cars crashing into each other in Chicken. Your ideal though is if someone else votes for it (i.e swerves) in the pivotal scenario and you can sit on the sidelines and vote against it (drive straight).  There is a “free-rider” problem in this game as in the Prisoner’s Dilemma.  But there is a coördination element too – if you are the pivotal voter you do want to vote for the bill.

Chicken has asymmetric equilibria where one player always swerves and the other drives straight. This corresponds to the case where the conservative Democrats know which of them will fall on their swords and vote for the bill and the rest of them can then vote against it.  This is the best equilibrium for Obama as the Senate Bill definitely passes the House.  But there is a symmetric equilibrium where each conservative Rep’s strategy is uncertain.  They might vote for it, they might not.  There is no implicit or explicit coördination among the voters in this equilibrium. This equilibrium is bad for Obama.  Sometimes lots of people vote for the bill and it passes with excess votes.  But sometimes it fails.

There is lots of strategy involved in trying to influence which equilibrium is played.  And there’s lots of strategy among the Reps themselves to generate coordination.  If you can commit not to vote for the bill, Obama and Pelosi are not going to twist your arm and they’ll focus on the lower-hanging fruit.  Commitment is hard.  You can make speeches in your district saying you’ll never vote for the bill.  Margie M-M did this but a call from the President persuaded her to flip anyway.  Republicans are going to emphasize the size of the independent vote to convince the undecideds that they have a dominant strategy to vote against the bill.  And the President is going to hint he’s not going to help you in your re-election campaign if you vote against the bill.  Etc., etc.

So, if the Senate bill is finally voted on, as we creep up to 200 votes or so, we’ll see Chicken played in the House.  We’ll see who lays an egg.

Harold Pollack at the New Republic blog The Treatment has an interesting comparative historical analysis of the current push to include the “public option” in the health bill via reconciliation and a famous vote in 1956 on a House bill to extend federal aid to states to build schools:

The bill would have provided federal aid to the states to build schools. Democrats sponsored the bill, which was popular ten years into the baby boom. For familiar pre-election reasons, Republicans wanted HR7535 to die. They got lucky when Harlem Congressman Adam Clayton Powell dropped a hand grenade into the process by proposed an amendment mandating that grants could only be used by states with schools “open to all children without regard to race in conformity with the requirements of the United States Supreme Court decisions.” Urban liberals could hardly oppose this amendment. Yet its inclusion would doom the final bill by driving away critical southern Democratic votes.

The inclusion of the Powell amendment killed the whole bill.  Pollack thinks that the inclusion of the public option would kill the health bill and hence Rockefeller and Obama do not want it included in the reconciliation process.  There are many theories for why Powell offered his amendment.  He could see that it would cause the collapse of the bill. In the process, it would reveal the hypocrisy of the Democratic leadership of the House and that, to him, was a greater goal than building more schools in the short run.  There is no greater goal, like civil rights, at stake in the current health reform so Pollack has a point in suggesting the progressives’ strategy is short-sighted not far-sighted.

India has proposed a new round of talks with Pakistan.  The last meaningful talks in 2007 led to a thawing of relations and real progress till everything was brought to a grinding halt by the terrorist attacks in Mumbai.

What are the payoffs and incentives for the two countries?   David Ignatius ar the Washington Post offers this analysis:

“The India-Pakistan standoff is like one of those game-theory puzzles where both nations would be better off if they could overcome suspicions and cooperate — in this case, by helping the United States to stabilize the tinderbox of Afghanistan. If Indian leaders meet this challenge, they could open a new era in South Asia; if not, they may watch Pakistan and Afghanistan sink deeper into chaos, and pay the price later.”

The quote offers a theory for how India might gain from peace but what about Pakistan?  Pakistan cannot be treated as a unitary actor.  Some part of the elite and perhaps even the general population may gain from an easing of tension and a permanent peace with India.  But the Pakistani military has quite different interests.  The military dominate Pakistan politically and economically.  Their rationale for resources, power and prestige relies on perpetual war not perpetual peace.  Sabotage is a better strategy for them than cooperation with India.  The underlying game is not the Prisoner’s Dilemma.

Military payoffs have to be aligned with economic payoffs to encourage cooperation.  Economic growth can also generate the surplus to bankroll a bigger army.  A poor country needs the threat of war to divert valuable resources into defense.  But a rich country does not.

The Republicans fought like dogs to win the Florida recount in 2000.  Norm Coleman dragged out the election in Minnesota.  George W Bush passed two tax cuts via reconciliation in his first term.  These policies play to Republican partisans but alienate moderates and independents.  Wary of losing the votes of independents,  one loss in Massachusetts has left the Democratic Party reeling and ready to step back from healthcare reform.  Why are there differences between the parties in their focus on partisans vs independents?

Politicians are motivated both by ideology and reelection.  They must take both into account when taking a policy stance.  As party activists can influence the chances of reelection, they can affect the policy stance of the politician.  This logic holds true for both Democrats and Republicans but what differs is the risks extremists in the two parties are willing to take to influence policy.  Right wing activists are willing to decrease the probability of the Republican Party winning the election to increase the probability of having a policy closer to their ideal implemented should the party win.  They are willing to run their own candidate in the Republican primary and risk them losing the general election against the Democrats.  The recent congressional election in New York is an example of this. So, even moderate Republican politicians must take this threat into account and adopt more right wing policies to counteract it.

But left wing activists are not willing to take a similar gamble except in extreme circumstances (e.g. Ned Lamont vs. Lieberman in CT).  So, Democratic lawmakers can afford to woo moderates without losing the support of partisans.

This is part of the story but not all of it.  Most importantly, it relies on an asymmetry between the preferences of right wing vs left wing partisans.  A deeper theory would also explain the asymmetry.

Cute video from Tim Harford on the information economics of office politics.

(My theory is that in fact the managers will get stuck with cleaning coffee pots.  The wage-earners are already held to reservation utility while the managers are likely earning rents. And, as illustrated in the video’s epilogue, there is no fully separating equilibrium in the “threaten to resign” game.)

He is a political scientist at NYU who uses spreadsheets to predict how conflicts will be resolved. He consults for the CIA, earns $50,000 per prediction, and uses his brand of game theory to offer wisdom on questions like “How fully will France participate in the Strategic Defense Initiative?” and “What policy will Beijing adopt toward Taiwan’s role in the Asian Development Bank?”

To predict how leaders will behave in a conflict, Bueno de Mesquita starts with a specific prediction he wants to make, then interviews four or five experts who know the situation well. He identifies the stakeholders who will exert pressure on the outcome (typically 20 or 30 players) and gets the experts to assign values to the stakeholders in four categories: What outcome do the players want? How hard will they work to get it? How much clout can they exert on others? How firm is their resolve? Each value is expressed as a number on its own arbitrary scale, like 0 to 200. (Sometimes Bueno de Mesquita skips the experts, simply reads newspaper and journal articles and generates his own list of players and numbers.) For example, in the case of Iran’s bomb, Bueno de Mesquita set Ahmadinejad’s preferred outcome at 180 and, on a scale of 0 to 100, his desire to get it at 90, his power at 5 and his resolve at 90.

His model is a secret but it seems to be some kind of dynamic coalition formation model.  He has predicted that Iran will not obtain a nuclear weapon owing to the rising power of dissident coalitions.  In August,

He spent that morning looking over his Iranian data, and he generated a new chart predicting how the dissidents’ power would grow over the next few months. In terms of power, one category — students — would surpass Ahmadinejad during the summer, and by September or October their clout would rival that of Khamenei, the supreme leader. “And that’s huge!” Bueno de Mesquita said excitedly. “If that’s right, it’s huge!” He said he believed that Iran’s domestic politics would remain quiet over the summer, then he thought they’d “really perk up again” by the fall.

A long profile appeared in The New York Times Magazine.

Many Senators who support health care reform have made public commitments not to vote for any bill without a public option.  Such pronouncements are not cheap talk.  The pledge can be broken of course but constituents and fellow legislators will hold to account a Senator who breaks it.

And they can be relevant.  A commitment not to vote for the Baucus bill raises the costs of proposing that bill because the pledged Senator would have to be compensated for breaking his pledge if he is going to be brought on board.  In a simple bargaining game, the pledge will be made if and only if the cost of breaking the pledge is higher than the proposer is willing to pay.  In this case the Baucus bill would not be proposed.

But legislative bargaining is not so simple.  Each Senator has only one vote.  A Senator who commits not to vote for the Baucus bill effectively moves the median voter (for that bill) one Senator to the right.  This changes things in three ways by comparison to simple bargaining.

  1. The committed Senator will not be the median voter and so he will not be part of the bargaining.
  2. There is presumably a relatively small gap between the old median and the new so the costs imposed by the pre-commitment are much smaller.
  3. In the event that the gambit fails and the Baucus bill is proposed, it will be a worse bill from the perspective of the gambiteer (it will be farther to the right.)

This means that the commitment is a much less attractive strategy in the legislative setting and it loses much of its relevance.  That is, those who are making this commitment would probably not have been willing to vote for the Baucus bill even without any pledge.

I recently re-read Animal Farm.  I think I last read it in secondary school in English class thirty (!) years ago.  I still remember it (unlike Thomas Hardy’s The Woodlanders) because of the donkey character, Benjamin.   The animals on the farm revolt and get rid of the farmer.  They are led by the pigs.  But the pigs are up to no good and are simply replacing the farmer with their own exploitative regime.  They are very, very clever and can read and write.  Benjamin is also clever and knows what the pigs are doing but he keeps quiet about it.  The pigs succeed at huge cost to the other animals.

This is the thing I found mysterious and incomprehensible when I was twelve – why doesn’t the donkey reveal what the pigs are doing and save the other animals and the farm?  This is the naivete of youth, believing if truth is simply spoken, it will be understood, appreciated and acted upon.  Well, I was twelve.  But I suppose (hope?) that many of us have these sorts of beliefs initially.  As time passes, we act of these beliefs.  Sometimes we succeed and sometimes we fail.

When we fail, we learn from our mistakes realizing what strategies do not work.  Anyone who wants to influence collective decisions has to be subtle and know when to keep their mouth shut.  This seems obvious now but presumably we learn it in school or in our family sometime when we see power trump reason.  This learning process creates wisdom – you know more than before about strategies that fail.  It also creates cynicism as you realize strategies with moral force have no political force.  This is a sense in which cynicism is a form of wisdom.  I didn’t understand Benjamin at all when I was twelve but now I see exactly why he was quiet.  Orwell makes sure we understand the dilemma – Benjamin is alive at the end of the book unlike some animals who spoke out.  I’m older and wiser.

What about successful strategies?  The reverse logic applies to them.  Success leads to optimism.  A sophisticated learner should have contingent beliefs: some strategies he is optimistic about and some pessimistic.  Someone more naive will have an average worldview.  Whether it is cynical or not depends on the same issue that Jeff raised in his entry: are you overoptimistic at the beginning?  If so, the failures will be more striking than the successes.  This will tend to make you cynical.

A few weeks ago, Israeli warships and a nuclear submarine went through the Suez Canal.  Israel is signaling that it can come within firing distance of Iran easily:

Israeli warships have passed through the [Suez] canal in the past but infrequently. The recent concentration of such sailings plainly goes beyond operational considerations into the realm of strategic signalling. To reach the proximity of Iranian waters surreptitiously, Israeli submarines based in the Mediterranean would normally sail around Africa, a voyage that takes weeks. Passage through the Suez could take about a day, albeit on the surface and therefore revealed. The Australian

There is a second signal: (Sunni) Egypt is on board with Israel’s focus on preventing the arrival of a nuclear-armed (Shia) Iran.  Even Saudi Arabia is alarmed by the by the growth in the power and influence of its neighbour:

Egypt and other moderate Arab countries such as Saudi Arabia have formed an unspoken strategic alliance with Israel on the issue of Iran, whose desire for regional hegemony is as troubling to them as it is to the Jewish state. There were reports in the international media that Saudi Arabia had consented to the passage of Israeli warplanes through its air space in the event of an attack on Iran’s nuclear facilities but both Riyadh and Jerusalem have denied it. . The Australian

International politics makes for strange bedfellows.

When groups wanting to establish different political structures compete, who will win? Here is a simple model.    Let’s say one group wants (full) democracy and one group wants a theo-autocracy.  The winner will be determined in large part by the costs these groups are willing to incur.  That is limited by the long run benefit of keeping the winning system in place.

When both groups are strong, the value of democracy is handicapped by the fact that the authoritarians will be granted participation in the process and this will be a constant threat to the system.  By constrast the authoritarians internalize more of the benefits from winning the struggle because it is a defining feature of that system that the supporters of democracy will be excluded.

This means that the incentives of even a small minority of authoritarians may outweigh a majority who seek democracy.

From an excellent article in the Washington Post:

The election results in Iran may reflect the will of the Iranian people. Many experts are claiming that the margin of victory of incumbent President Mahmoud Ahmadinejad was the result of fraud or manipulation, but our nationwide public opinion survey of Iranians three weeks before the vote showed Ahmadinejad leading by a more than 2 to 1 margin — greater than his actual apparent margin of victory in Friday’s election.

The fact that, in the run-up to the election, expectations were low for any change in Iran is also pretty good evidence that what we are seeing is, sadly, less a reflection of majority opinion than a vocal, and highly motivated minority.  The implications are a little scary just weeks after the anniversary of Tiananmen…

The article concludes with some political dangers:

Allegations of fraud and electoral manipulation will serve to further isolate Iran and are likely to increase its belligerence and intransigence against the outside world. Before other countries, including the United States, jump to the conclusion that the Iranian presidential elections were fraudulent, with the grave consequences such charges could bring, they should consider all independent information. The fact may simply be that the reelection of President Ahmadinejad is what the Iranian people wanted.

Update:  There may be reason to remain suspicious even in light of this poll.  See Marciano’s comment below.

Suspicious graph of Ahmadinejad’s vote share? No, says Nate Silver

An excellent analysis from a former National Security Council member.

Where did I find all these? Huffington Post.

I guess I am the Tyrone Slothrop of Northwestern University.  I’ve been doing research on the theory of the “democratic peace” – the finding that democracies rarely attack each other.  This has been called “an empirical law” in international relations.  This idea is famous enough that it is offered as a rationalization for spreading democracy by both left- and right-wing politicians.

Why might democracies be more peaceful?  And how about a regime like Iran?  Fareed Zakaria says : “Iran isn’t a dictatorship. It is certainly not a democracy.”  It is something in the middle.  There are elections but an elite also controls many things such as the appointment of the Supreme Leader who has enormous power.

I have done some research with David Lucca and Tomas Sjostrom where we offer a theory for why these regimes which we call limited democracies might be the most warlike of all.  And the data does suggest that countries like Iran are very warlike, especially when facing a similar limited democracy.

Here is brief attempt to explain the theory informally – it is done using game theory in the paper.  Conflict occurs via combination of greed and fear – two of the causes of war according to the great Greek historian Thucydides.  Each side does not know if the other is motivated by greed or fear.  Greedy leaders are hawkish.  But, even if one side is not greedy, they turn aggressive because the other side may be greedy.  So, both sides become aggressive whether it is because of greed or fear of greed.  We study how political institutions can control greed or stimulate fear.

In fact, the logic above is our model of dictatorship where leaders interact with no thought for the wishes of their citizens.  It is our pure model of greed and fear.  It is inspired by the famous logic of the “reciprocal fear of surprise attack” due to Thomas Schelling.

In a democracy, the voters may punish a leader who starts a war unnecessarily. As leaders want to stay in power, this controls greed.  But the voters may also punish a leader who is weak in the face of aggression.  This unleashes fear as democratic leaders are aggressive in case they are too dovish in an aggressive environment. So, democracies can be peaceful against each other as dovish voters control their leaders.  But they can turn aggressive very rapidly if they are concerned their opponent will be aggressive.  In a dictatorship, the leader does not fear losing power but no-one controls his greed.

Now, suppose the leader can survive in power if he pleases the voters or if he satisfies a hawkish minority who favor war.  This regime has some properties of  a democracy – the leader survives in power in the same scenarios as the leader of a full democracy.  But he also survives if he starts an unnecessary war – just like a dictator would.  The leader only loses power if he is dovish in the face of aggression.  Then, neither the average citizen nor the hawks support him.  This type of regime which we call a limited democracy is the most aggressive of all.  The leader fears losing power and the voters cannot control his greed.  So, a little democracy can make things worse if it leads to a regime like this.

The theory leads to a bunch of predictions which we try to confirm in data.  I took a shot at explaining the ideas in a talk I gave to Kellogg MBAs.  The video is here in case you’re interested (you need Real Player to view it).  The article is here (you need Adobe Acrobat to view it).

Greg Mankiw is trying to make a reductio ad absurdum critique of the objective of income redistribution.  He has written a paper with Matthew Weinzierl which shows that optimal taxation will typically involve taxing all kinds of characteristics that seem patently unfair and unacceptable.  He concludes from this that it is the goal of income redistribution that entails these absurdities.

But there is a prominent guy who lives at a nice home at 1600 Pennsylvania Avenue who wants to “spread the wealth around.” The moral and political philosophy used to justify such income redistribution is most often a form of Utilitarianism. For example, the work on optimal tax theory by Emmanuel Saez, the most recent winner of the John Bates Clark award, is essentially Utilitarian in its approach.

The point of our paper is this: If you are going to take that philosophy seriously, you have to take all of the implications seriously. And one of those implications is the optimality of taxing height and other exogenous personal characteristics correlated with income-producing abilities.

This argument fails because the objectionable policies implied by optimal taxation in his model have nothing to do with income redistribution or utilitarianism.  Indeed they would be optimal under the weaker and unassailable welfare standard of Pareto efficiency which I would assume Mankiw embraces.

Let me summarize.  Optimal taxation involves minimizing the distortionary effect on output from raising some required level of revenue.  It does not matter what that revenue is being used for.  It could be for redistribution but it could also be for producing public goods that will benefit everyone.  Whatever revenue is required, the optimal taxation policy generates this revenue with minimal cost in terms of reduced incentives for private production.    Taxing exogenous and observable characteristics that are correlated with productivity is a way of generating revenue without distorting incentives.

If we tax income (a direct measure of productivity) you can lower your taxes by earning less, that is a distortion.  If we tax your height (known to be correlated with productivity), you cannot avoid these taxes by making yourself shorter.

So the implication that Mankiw wants us to be uncomfortable with is an implication of the way optimal tax theorists conceive the problem of revenue generation and the implication would be present regardless of how we imagine that tax revenue being spent. It has nothing to do with redistribution and we can feel uncomfortable with height taxation without that making us think twice about our desire to redistribute wealth.

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