Asymmetrical Information

Winterspeak,

Great post. I agree with much of what you say. I do, however, think that Mearsheimer does have a generally good point in his view that there is a state of international anarchy, meaning no global government that can police how states act.

Great post and I am not even sure if I agree with you or not, but I think I do. I definitely like your point about how democracies have to acat differently than dictatorships to maintain themselves. I also disagree with Mearsheimer's view of international anarchy. I don't think of the U.N. as the policeman, but like it or not, the United States is, at least to some extent and the same is true of many regional hegemons as well.

China Law

The idea that "I am the state" makes for increased brinksmanship in foreign policy for a number of reasons. There is the natural element of pride: an affront to the state is a personal affront to the dictator, resulting in "face-saving" behavior that would otherwise be irrational. The pride of the dictator skews incentives inside their governmental bureaucracies. The diplomats and bureaucrats that implement the dictator's foreign policy will do whatever it takes to keep the dictator happy, regardless of the real-world impact of their actions. Dictators conduct a foreign policy that is designed to project strength, knowing that any sign of weakness on the part of the state can be interpreted as weakness on the part of the dictator and lead to internal challenges to their power.

Your point about who controls oil proudcing countries not mattering is simply wrong; that is bad economics. In particular a (sadly all too common) abuse of a perfectly compeittive market model where sellers identities do not matter. Alas, oil is far from a perfectly compeititve market due to the small n number of sellers. Witness OPEC. In so far as actors have preferences rewarding the utility of other agents (ie their utility functions are linked and this is often what two states being allies means) then the identity of the seller may affect their willingness to engage in a cartel and thus matter in a very real way.

Firstly, the risk of war to the leader is different, but the other way round. LBJ and Nixon went home in disgrace but were personally secure. Saddam Hussein will hang. A dictator cannot afford a major defeat.

Secondly, a dictator is not necessarily suceeded by his suns. His successor may equally well be the leader of a successfull coup. It would seem to me that you are confusing democratic with stable. A dynasty ruling for centuries may be as stable as a democratic state. And its policies will not be as affected by the public's sympathies and dislikes.

...not that I care much...

About anti-Semitism?

When it is dangerously resurgent in much of the world?

When demonstrators outside the Israeli embassy in Manhattan last week chanted:

Zionists, Zionists You will pay!
The Wrath of Allah is on its way!
Israeli Zionists You shall pay!
The Wrath of Allah is on its way!
The mushroom cloud is on its way!
The real Holocaust is on its way!

WTF? I cannot figure this Galt/McArdle broad out.

There seems to be a surfeit of cold-blooded "intellectuals" around here.

Smoov: Check out the tagline on the post - this one was written by Winterspeak, not Galt.

Question for Megan: how has Syria allied with the US against Al Qaeda?

Aren't most nations, both historically and currently, some sort of monarchy? If not so much as by "divine right of kings" as ordained by God and his Church, at least as defined by the roots of the language -- mono-archy; one supreme power.

Dictator, king, president-for-life, Generalissimo Supremo, Grand Mufti, Pooh-bah -- Lord High Everything Else, ...

If so, then the "structural realist" theory is about as valid as Newtonian physics -- and should no more be criticized for failing to explain democracy than Newton's Laws should be for failing to analyze viscous fluid flow and friction along inclined planes.

Different problems in different domains.

Winterspeak,
1. Why does anybody think that democracies are MORE rational ? Politicians in democracies sing to different tunes of (ir-)rationality and so do the mobs of democracies. The godfather of the realist school Bismarck did not think so according to his prophet Kissinger, and that most dismal of wars WWI was a war of democratic leaders not of the authocratic Bismarck. It is what the mob can be made to believe that makes democracies go to war, witness the recent past or have you already forgotten Iraq ?
2. As long as oil can be paid for with dollars created by that branch of the Pentagon called Fed, the market can be relied on. Do you really think that a democratic US government can affort not to intervene with aircraft carriers and other hardware the day the dollar supply will not be sufficient to secure the US share of oil ? Do you also think oil is an infinite commodity or that either the price mechanism will somehow create a smooth transition to alternatives or government or corporate wisdom will provide cheap alternatives ? You may believe in economic text books but in Santaclaus ?
3. The state framework is just as useful as the usual models economists use. What makes the leaders jump, is sometimes just as complex and outside the scope as what makes consumers jump. But that does not make the model irrelevant.
4. The US support for Israel is irrational just like most things in life are irrational. If it were a matter of lobies or conspiracies it would be rational. The US supports Israel because of affinity with its people, culture and cause. It is however doubtfull whether to support or not support Israel would make any real long term difference regarding the holy oil supply.

schelfhw,

Your #2 puzzles me. Do you really think that we (US) would go to war over maintaining oil supplies once the price of oil got "too high"? I think that we would drill in the US and mine oil shale and build nuclear power plants before we went to war to conquer an oil possessing country to steal their oil.

Oil is not an infinite commodity, but it is a global commodity, complete with all the economic meaning attached to both "global" and "commodity." I can't imagine what would have to happen for us not to be able to "afford" oil on the global commodity.

Or do you mean something else?

“ 1. Why does anybody think that democracies are MORE rational ?”

Democracies are generally far more rational than their opposites. Infallible? Of course not! Still, the odds are much higher because meritocracy plays a greater role in the selection of leaders voted into office by the hoi polloi citizenry.

I just read through the entire Mearshimer paper that has become so infamous. While I disagree with the broad thrust of the paper as well as most of its premises and conclusions, I did not find it starkly anti-Semitic. Mearshimer goes to great lengths to distinguish between Jews writ large and his sinister 'Lobby'.

That said, he certainly does recycle a lot of old anti-Semitic tropes and replaces 'a sinister cabal of Jews' with 'the Lobby'. Apparently this Lobby controls most of the media, has suspect loyalties to the United States, buys influence with money, starts wars for the sake of others, etc. All of these are old accusations against Jews that have existed for at LEAST over 150 years. I don't know that the repackaging is anti-Semitic, but it certainly makes the scholarship questionable.

That would be an issue of itself, but the paper is riddled with shoddy scholarship. There is rampant use of anecdotal evidence to prove points and little reference to numbers, opposing arguments are turned in to strawmen or dismissed altogether and plenty of statements are just plain wrong. I think these faults in the paper are pretty apparent, but I'll be happy to point them out if anyone feels the need to jump to its defense.

To summarize: it's a bad paper, but probably not anti-Semitic. I wonder if the outcry has been disproportionate to the paper's content.

- Ben

And also, if you follow his train of thought, then every nation from the dawn of history would have just been expanding relentlessly, which is at odds with actual history. Agressive expansionist states are probably the smaller # compared to the states that were stable in size.

From the point of view of a regional hegemon, a new dictatorial ruler of an existing dictatorial state is very nearly a "drop-in" replacement; thus, if the hegemon is capable of overthrowing and replacing a nearby dictator, they will face little unpredictability or risk in doing so. Such in-place substitution was the preferred means for gaining influence, exercised by both US and USSR during the Cold War.

In a democratic state, the preferred foreign policy emerges from the preferences of many actors, and is therefore not easily affected by changing a single ruler.

Thus autocratic states are more tempting targets for regional hegemons intent on protecting or increasing their influence. Autocratic states weak enough to be threatened by the hegemon must either avoid presenting a perceived threat themselves, or must find an outside protector.

I cannot say how difficult or risky it might be to attempt to replace a threatening democracy with a tame dictatorship. I imagine this has also been practiced by both sides in the Cold War, but I don't know what would be considered the canonical examples.

I think the conclusion is that autocracies will generally fall into approximate alignment with some regional hegemon (their own or an outside protector), simply because their "state" (using their own definition) is comparatively fragile.

"Louis XIV (1638-1715) said "L'etat, c'est moi" which I think sums up this point very neatly. Saddam, Kim, and Louis would gamble their entire nation on retaining power, because to them, survival of the state is synonymous with their personal survival."

Good point, but one thing I have to quibble with: Saddam and Kim yes, Louis probably not. In kingdoms with long traditions, most kings had some sense of responsibility to their people and their heirs, and would not detroy their country in a vain attempt at retaining power. The key difference between a king and a dictator is whether or not there is a well-established tradition of peaceful successions, and this lack of tradition allows dictators to be far more selfish. Hitler not only gambled his entire nation on retaining power, but when he realized he could not possibly win, his last orders before committing suicide were intended to destroy what was left of Germany.

Markm,

I suspect part of what you describe is also a function of the bureaucracy that surrounds a dictator or king. A king might have at least a few aging military commanders (or long-term functionaries in his government) who are eager to remind him of his father's fine example, or who might feel a loyalty to something higher than that particular person--the nation, the royal house more broadly, etc.

A brutal dictator who purged all his predecessor's generals and civil servants and replaced them with lackeys is in a different position.

Which is another way of saying that states' internal composition might matter more than the realists want to admit.

Rob, quite right. I think you've identified the carriers and enforcers of tradition (and common sense, when necessary). In the European monarchies at least, they were quite effective and the king was never really free. France managed to keep the country running and the succession unbroken through the 14th Century although two kings were clearly non compos mentos, without deposing them or even formally appointing a regent. France's worst losses in this period were not under the insane kings, but rather under the revered and quite sane (by 14th century standards) Louis XI, who got himself captured at Agincourt. In the war of Stephen and Matilda, a 20-year long Norman-English civil war in the 12th Century, King Stephen actually fell into Matilda's hands once, but she found that it was impossible to execute him and thus end the war; her advisors and generals wouldn't stand for it, and eventually she traded him for prisoners taken by Stephen's wife.

On a per capita basis Israel is the most subsidized nation on earth. 6-8 billion in aide from the US plus another 1-2 billion from the diaspora equas over a $1000 per annum subisidy for each Israeli.
Ask why a nation with a per capita gdp on par with south korea needs that level of subsidy...you are obviously anti-semetic.

Econogeek, your comment on the fact that cartel behavior is optional (and therefore might be motivated by non-economic preferences) makes sense, but to put it in perspective, it's worth considering the extent to which oil producers have been willing to make investments in excess capacity in order to have discretion over prices.

I'd be interested in more details if anyone has kept up with the numbers (to the extent that they are available at all), but my general impression is that (excluding reserves by consuming countries which are designed to provide continuity rather than being cost effective for regular use), only Saudi Arabia has invested in oil infrastructure which could allow them to increase production significantly above its current level on short notice.

That willingness to bear a short run cost in order to have influence on prices is a clear sign that at least the Saudis matter in this regard. So far, other OPEC members if they have constrained supply at all have only done so in less obviously costly ways like not making the marginal investments necessary to increase it in the medium run (although it's difficult to distinguish this behavior from a belief that additional investments would not be cost effective).

The fact that other OPEC members have been reluctant to invest in excess capacity suggests that at least their current leadership might also be reluctant to stop selling existing oil production (since it would be quite a coincidence for each producer to prefer, as a matter of cartel policy, exactly the maximum production allowed by its current infrastructure).

Admittedly, none of this proves that future leadership of OPEC nations other than Saudi Arabia might be more interested in cartel behavior, but it's at least suggestive, since many different national in many different situations have adopted the same policy. The only exception is the country with the largest share of proven world reserves, allowing it to more easily project how long term effects will impact it.

Democracies are less likely to impoverish themselves as a country to enrich their ruling class than dictatorships, so it is better to have oil in democratic hands as this will make them more rational about selling it.

I highly doubt this will hold in practice. You are comparing present democracies that have to rely on their people for income. Oil money allows any form of government to ignore its people and conveniently enrich itself.

I seem to have stirred some reaction.
1. Rationality is a matter of causal consistency between acts and goals, whether a goal can be rational or not is a matter of point of view. Professionals like dictators usually know the tradeoffs, voters usually do not. Individual voters usually are not very rational, as a whole sometimes they are but not guaranteed so, neither WW1 nor Iraq were rational wars, they were democratic irrational wars.
2. yes I do think the US and others would/will resort to force if there were an absolute instead of relative scarcity of oil available. Do you think that POTUS could politically survive the sight of your Humvees standing queuing at the empty pumps ? You may debate at what point relative becomes absolute but imagine a barrel of 100 dollar bills not buying a barrel of oil and you will be close. There is a point that with unaltered demand the demand/supply situation moves from a continuum to a break up, call it rationing or political or force trade. Yes economists, there are historic points possible outside of the model, situations that drop off the smooth graphs of text books.

2. yes I do think the US and others would/will resort to force if there were an absolute instead of relative scarcity of oil available. Do you think that POTUS could politically survive the sight of your Humvees standing queuing at the empty pumps ?

Come on...we already had a taste of that, it was called the embargo. And back then, nearly every car pulling up to the pump drank like an Irishman the morning after the divorce; it was not a habit confined to a handful of obsequious vanity vehicles. That was pretty much a worst-case scenario because unless all the oil reserves in the entire world magically dry up tomorrow morning, this economy will do what all functional world economies have always done in response to scarcity: tap into high-cost reserves that have now become profitable at the new, scarcity-driven price, and begin aggressively shifting infrastructre toward cheaper alternatives.

You may debate at what point relative becomes absolute but imagine a barrel of 100 dollar bills not buying a barrel of oil and you will be close.

If that point comes and anybody still cares, it will only be on account of all significant global energy options having run dry, and at that point the entire world is up the creek regardless. Four-fifths of the population starves to death in the dark and the remainder takes up subsistence-level agriculture or nomadic hunting/gathering.

There is a point that with unaltered demand the demand/supply situation moves from a continuum to a break up, call it rationing or political or force trade. Yes economists, there are historic points possible outside of the model, situations that drop off the smooth graphs of text books.

Maybe you could actually point to some debate-worthy examples then?

anony: I considered some historical examples:

1) In the late 9th Century, the American Navy forcibly opened up Japan...to free trade. 1 point to you.

2) Over several centuries, the British and other western nations repeatedly forced their way through trade restrictions imposed by various Chinese governments, all of whom would have preferred that the foreigners paid for their tea entirely in silver and never set foot on land. British tactics ranged from smuggling opium to taking island bases (Hong Kong) and arming Manchu tribesmen to overthrow the Emperor. And all that was simply to get their traders in. Another point for you.

3) Nazi Germany invaded various countries to steal their oil, factories, and other resources. In the beginning (Czechoslavakia, Poland, Belgium, the Netherlands, and France), they were just stealing factories and farmland because their leaders were street thugs who preferred theft to honest trade. Later in the war they may have been trying to take oil that simply wasn't for sale to them, so maybe there was an economic breakpoint there - but they only got into that situation as all their surviving neighbors reacted to their earlier thuggishness. Let's call this one a wash, and anony-mouse is ahead by two points.

The fundamental fallacy is, "imagine a barrel of 100 dollar bills not buying a barrel of oil". I can imagine the dollar sinking so low that it took a barrel of $100 bills to buy anything - it's happened to other countries - but the constant-dollar value of petroleum as a fuel is never going to rise past twice the current price, except possibly as short term spot prices in response to temporary shortages. If the price of oil is going to go that high and stay there, we'll switch to other fuel sources.

Our whole economy and way of living is built on oil therefore energy-myopia is dangerous:
1. How long would the high-cost alternative extraction methods of oil stretch and how many US and EU citizens will be homeless and carless at that price ?
2. At current technology there is no alternative energy source providing the kind of comfort and affordability of oil.
3. Even if technology invention can find a solution it takes many years to make the necessary investments in new transportation and heating methods. Governments with the force to do so will have to buy time by seizing the oil in the meantime.
4. It is very doubtful the price mechanism will cause the kind of foresight and smooth transition to make the necessary investments in advance. Remember, the alternative energy sources will have a technical disadvantage compared to oil, alternatives will always be clumsier or more dangerous to operate and as long as oil has not ran out it can always temporarily drop in price to wreck any alternative investment making it in adition a very risky investment.
Energy optimism by simply pointing to the recent past completely misses the point: if you want to get close, check on the history of Easter Island.

schelfhw,

I don't think anyone is arguing on the basis that the transition would be easy, or cheap. But you, on the other hand, seem to be arguing on the tacit basis that ALL oil just up and disappears in an astonishingly brief period, which is unlikely except in a doomsday scenario (and as I stated before, in that case we're all toast regardless). The more plausible version of events is a gradual falloff in production capacity, leading to increasing scarcity.

What happens next? In the short term, it IS possible to extract oil from tars, sands, and shales; it is also possible to convert coal into oil (WWII Germany did exactly this in significant volumes). All that is needed is a suitable economic and/or security-related motivation.

One possibility in the longer term is a tidal shift in public perceptions regarding expansion of electrical power capacity, possibly including legislation designed to give NIMBY and anti-nuke protest movements an efficient crib death. Then seawater is electrlyzed in earnest, and a new generation of hydrogen ICE and fuel-cell electric engines begin replacing current forms of fossil-fuel ICE, in cars and in many other places. Similar transitions occur in all other markets where oil currently dominates as an energy source.

Yes, I'm talking in terms of a 10-20y timeframe for all of this to be set in motion, and even longer for the existing Dead Dinosaur consumers to transition, but you had best ALSO be talking in terms of a 10y+ timeframe for oil scarcity to go from "noticeable" to "intolerably severe", else your argument strains credulity.

Then seawater is electrlyzed in earnest, and a new generation of hydrogen ICE and fuel-cell electric engines begin replacing current forms of fossil-fuel ICE

The thing is, the cheapest way to get hydrogen is from...HYDROcarbons, so even the hydrogen economy is likely to prefer oil to water as an input. Especially seawater, which I believe (although I'm no expert) would need to be purified pretty thorougly (a very energy-hungry process) before you could do industrial-scale electrolysis.

On the upside, I suppose, count on fuel cells to give you 2-3 times the efficiency of even a theoretically perfect ICE. (If the price of fuel cells ever comes down)

Bottom line: hydrogen from water is going to be very expensive. We'll be using oil for a good long time.

I read the article you referenced, and I don't think it's anti-Semitic---unless you think that _any criticism of Jews at all_ is anti-Semitic. That said, I do think that while a lot of the support the US gives Israel comes from politicians' desire to please Jewish voters, the majority of this impetus comes from the _evangelicals._ Leaving the evangelicals out of the "Israel Lobby" is like having a roast-beef sandwich without the beef. They're far more widespread and have influence in many areas, and are, if anything, more fanatically pro-Israel than many Jews.

"Yes economists, there are historic points possible outside of the model, situations that drop off the smooth graphs of text books."

schelfhw, the above should be properly remembered and, as well, if not especially, be inclusive of our Wizards of Finance.

Rob,

HYDROcarbons is one to spell it, carboHYDRATES is another. The amount of cellulose being wasted, today, in our Economy, is amazingly large.
try: http://www.carbohydrateeconomy.org/

The thing is, the cheapest way to get hydrogen is from...HYDROcarbons, so even the hydrogen economy is likely to prefer oil to water as an input. Especially seawater, which I believe (although I'm no expert) would need to be purified pretty thorougly (a very energy-hungry process) before you could do industrial-scale electrolysis.

Obviously. That was an example of what kind of structural changes might occur in the economy if oil stocks were declining below consumption levels, gradually driving the price of oil to very high levels.

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