Stanford University Press Blog

A government report released earlier this week confirmed that the American economy will see a recession in 2008. Families across the country are facing foreclosure on their homes, and the dollar is at record lows.  In an article in The Chronicle Review, David Glenn asks why presidential candidates, especially Republicans, still propose tax cuts based on the now-debunked supply-side economic theory:

The hopes of the supply-side theorists of the 1970s, who proposed that revenue would often rise after tax cuts, have been thoroughly dashed by the last 30 years. Federal revenue fell after Ronald Reagan's 1981 tax cuts and again after George W. Bush's 2001 cuts. The vast majority of economists now say that tax cuts must be matched by spending cuts, or deficits will ensue.

For an answer, he turns to The Permanent Tax Revolt: How the Property Tax Transformed American Politics, released this week by Stanford University Press. Author Isaac William Martin argues that “Republican political leaders (falsely but successfully) interpreted Proposition 13's success in California in 1978 as a broad mandate for cutting income taxes as well as property taxes,” a policy that has shaped and symbolized the party every since.

Martin’s showcasing of how the Republican Party came to so deeply associate itself with tax cuts helps us understand why President Bush stands so firmly by his economic policies in the face of economic upheaval. 

Bosnia, Afghanistan and Iraq: Are Reconstruction Projects Worth it?

What is the success (or put it another way, the failure) rate of US-led efforts to export democracy and reconstruction projects in foreign countries? In his new book, After War, Christopher Coyne compares reconstruction projects from West Germany and Japan (after World War II) to more current examples in Haiti, Bosnia, Afghanistan, and Iraq. Coyne's analysis shows that, in general, the odds of failure in these operations have been all too high (without taking account of the obvious differences in political motivations across these projects). Of course, this comes as no surprise to even a casual political observer these days. But what is startling, as Coyne's analysis reveals, is how grim the numbers look. The US success rate is at a mere 28% after five years (roughly the length of the current operation in Iraq). The picture improves only slightly to 39 percent after 15 years (presumably long after direct US involvement in the country's affairs has ended). Tyler Cowen cites these numbers in a discussion of the book on the blog, Marginal Revolution. And writing for the Atlantic, Matthew Yglesias points out that these outcomes should give us pause before we undertake armed democratization projects against countries that are labeled "dubiously democratic" by the U.S. state department.

So how does one alter expectations on the ground to make the reconstruction "game" a cooperative one and at an early stage in operations? Coyne invokes an economic argument to make the point that successful social change requires finding and establishing a set of incentives that would make citizens prefer a liberal democratic order over available alternatives. He remarks "€œoccupying regimes can increase their chances of success if they create a new set of opportunities that were not there prior to the occupation. These opportunities might include the ability to vote, open a business, worship in the church of one'€™s choice, or utilize the legal system, among other possibilities." Professor Coyne will be giving a public lecture on this book at the Cato Institute on November 26th.

 

 

 

 

An Economist Looks at the Politics of Reconstruction

It’s a common observation these days that U.S.-led reconstruction efforts in Iraq and Afghanistan are not going as well as predicted and that the mission is far from accomplished. Are efforts to export democracy by military intervention doomed to failure, i.e., economic failure? If so, should we consider other ways of fostering democratic reforms?

In After War (forthcoming in November 2007) Chris Coyne takes up these questions by bringing an economic mindset to a topic traditionally tackled by historians, policymakers and political scientists.  Economics focuses on how incentives influence human action. According to an economic point of view, successful social change require finding and establishing a set of incentives that would make citizens prefer a liberal democratic order over any available alternatives.  These opportunities might include the ability to vote, open a business, worship freely, or utilize the legal system, among other possibilities. However, in his forthcoming book, Coyne spells out that efforts to foster liberal democracy through foreign intervention--from Haiti to Somalia and Iraq-- have been unsuccessful in large part because of flaws inherent in the politics of such interventions. After War is a fascinating study of the distortions that politics introduces.

For instance, instead of giving incentives to citizens of occupying countries the political process that gets underway puts the bureaucracy (with the competing goals of its various agencies)  and special interests  in charge.   It fosters situations in which corporations that provide the most in campaign contributions receive the largest contracts (yes, think Halliburton).  As a result, ordinary citizens (and their leaders) don't perceive any advantages in cooperating with their "liberators." In a recent discussion in the Economist, Coyne discusses how conflicts between various government agencies compromised the reconstruction program.