October 2, 2016

The Brothers Gracchi – Lies – Extra History

Filed under: Europe, History — Tags: , , — Nicholas @ 02:00

Published on 24 Sep 2016

James talks about our mistakes, and adds additional stories, for the Brothers Gracchi!

September 21, 2016

Gracchus the Elder – Prequel: In His Footsteps – Extra History

Filed under: Europe, History — Tags: , , — Nicholas @ 02:00

Published on 10 Sep 2016

Special thanks to Mike Duncan for writing this episode! Check out his History of Rome podcast: http://thehistoryofrome.typepad.com/
Before Tiberius and Gracchus got famous, their father led such a break-out political career that it must have seemed impossible to live up to his legacy. Yet, his success set the stage for their falls…

Tiberius Gracchus the Elder has been overshadowed by his sons, but in his lifetime he had the most successful political career imaginable. Born just as the Second Punic War came to a close, he arrived on the political stage just in time to befriend the Scipio family during the Seleucid War. He secured a route of safe passage for their soldiers which led them to catch and defeat King Antiochus. The Scipios planted themselves in the east, dealing with the spoils of war and enriching themselves in the process. Upon their return to Rome, they were charged with corruption for accepting bribes, but Tiberius Gracchus the Elder had just been elected tribune of the plebs, and he voted their trial entirely. Scipio Africanus rewarded him by giving him the hand of Cornelia, his daughter and an amazing woman in her own right. Tiberius Gracchus went on the be elected aedile, and threw such lavish public games that the Senate passed a law restricting future games. It worked for him, though: he won his next election and became a praetor assigned to nearer Spain, where he launched a fierce and successful military campaign buffered by a land redistribution effort. In that way, he solved the underlying problems of poverty among the Celtiberians and secured peace for 25 years. For his success, he received a triumph and was elected consul, two of the highest honors in Roman politics. But here he played a dangerous game. Already allied with the Scipiones, he served as consul alongside their family’s biggest rival: a Claudius. He won the game and formed a relationship that would later provide his sons with important allies. Next he went to Sardinia to protect against rebellious tribes, and again he succeeded. The Gracchi name was now honored in both Spain and Sardinia, a legacy his sons would rely upon. This won him a second triumph and a role as censor, after which he joined a traveling embassy of senators to assess Rome’s client kingdoms. Tiberius Gracchus used this opportunity to forge friendships with foreign kings, like the King of Pergamum who would one day form a key part of Tiberius’s efforts to redistribute land. Finally, he won a second consulship, but here he made the mistake of screwing over a man whose son would one day lead the assault that killed Tiberius in the forum. At the end of his days, Tiberius Gracchus the Elder wasn’t just a prominent senator, but one of the most powerful men in Rome. It was the duty of a son to surpass the fame of his father, which must have seemed impossible… but Tiberius and Gracchus, building on the legacy he left, did exactly that.

P.S. If you’ve read this far, we think it’s only fair we tell you that Mike Duncan is aware the proper Latin name for the Scipio family is “Scipiones” but he allowed us to shorten it to “Scipios” to make it easier for non-Latin speakers to understand. Cheers!

September 17, 2016

The Brothers Gracchi – V: The Final Fall – Extra History

Filed under: History — Tags: , , — Nicholas @ 03:00

Published on 3 Sep 2016

The Senate stole credit for all Gaius’s proposals, and stole his popular support. Once he failed to win re-election for tribune, the Senate repealed his reforms. Gaius organized a protest, but the Senate brought it down with armed force and killed Gaius. Not a century later, the Republic would fall.

Gaius made a series of proposals to ease the strains on the poor people in Rome, such as new Roman colonies to ease overcrowding or renting public land to the people. The Senate, led by a man named Livius Drusus, decried him for pandering, only to implement those ideas themselves, take all the credit, and make sure that Gaius got to have no involvement with the administration of these popular public programs. Public support drained from Gaius, and he struggled to find a comeback. When he ran for a third term as tribune, he lost. With Gaius no longer a threat, the Senate started repealing all of the forms he’d fought for. Gaius organized a mob to protest these repeals, but one of his supporters got in a fight with a Senatorial supporter and killed him. The Senate seized this opportunity to declare martial law the next day. In response, Gaius planned a peaceful occupation of the Aventine Hill. The Senate sent representatives to negotiate with him, but they demanded Gaius and his closest supporters give themselves up, and his supporters refused. With no resolution in sight, the Senatorial faction had archers begin to fire into the crowd. Gaius and his supporters fled, but he did not escape: Gaus was caught and captured, his head taken for a bounty and his body thrown into to the Tiber River. The Senate congratulation itself for defeating him by building a temple to Concord, but an anonymous citizen graffiti tagged it as “The Work of Mad Discord.” A deep rift had been opened, and the Republic never managed to close it. The reforms proposed by the Gracchi were right and necessary, but extreme factions, fearmongering, a rhetoric of violence, and abuse of the letter of the law all deteriorated the democracy that held Rome together. Less than a century after Gaius falls, so does the Roman Republic.

September 14, 2016

The Brothers Gracchi – IV: Enter Gaius – Extra History

Filed under: Europe, History — Tags: , , , — Nicholas @ 03:00

Published on 27 Aug 2016

Gaius Gracchus took up the mantle of his dead brother, overcoming resistance from the Senate and the elites to win the election for tribune. Although he had a hot temper, he shared his brother’s charisma and talent, so he built a powerful base of popularity by creating programs for the poor, the army, and the middle class.
With Tiberius dead, it fell to his brother Gaius to take up his mantle. Both brothers were talented and charismatic, but Gaius had a much more fiery temper that made the Senate wary. During his political post, as a quaestor assigned to Sardinia, they tried to bind him to his post to prevent him from running in another election. Gaius broke tradition and defied the Senate’s orders, but when they put him on trial, he brought the citizens over to his side and walked away freely. As they had feared, he ran for tribune: the same office his brother had held. Despite heavy opposition from his enemies, he won. Support for him both in and outside Rome had grown so large that people flooded the city just to vote for him. In his first act, he passed a law which applied retroactively to punish Popilius Laena, the man who had banished Tiberius’s supporters after his death. Popilius fled rather than face the law. Over the remainder of his term, Gaius proved extremely active and efficient: he passed new laws and implemented programs to help the poor, the soldiers, and the middle class through measures like the grain dole. At the end of his term, he planned to step down from politics for a while, but there weren’t enough people who won the election for tribune that year so he was reinstated by default. Now he had what his brother had died for: a second term as tribune.

September 8, 2016

The Brothers Gracchi – III: Ochlocracy – Extra History

Filed under: Europe, History — Tags: , , , — Nicholas @ 02:00

Published on 20 Aug 2016

To protect himself from retaliation for his populist policies, Tiberius Gracchus ran for tribune a second time. On election day, he sought protection from the crowd among rumors that wealthy elites planned to assassinate him, but accidentally sent a message that he wished to be not elected, but crowned as king. A Senator formed an opposing mob that killed Tiberius and 300 of his supporters on the spot.

Tiberius looked to shore his support as many people questioned the way he’d stripped Octavius of office. His chance came when the King of Pergamum died, and left his kingdom and all its land to Rome in his will. Tiberius stepped in to tell the Senate he would draft a bill to deal with this new land and submit it directly to the people. This outraged the Senate: foreign policy had always been their domain, and even those who had been silent during his squabble with Octavius now spoke against Tiberius. Fearing retribution, Tiberius ran for tribune a second time: an unprecedented political act that would make his person sacrosanct. On Election Day, Tiberius received a warning that the wealthy elites of Rome planned to assassinate him and stop his re-election. He tried to indicate to his supporters that his life was in danger, but since they couldn’t hear him above the din, he did so by pointing at his head. One onlooker interpreted this as him asking for a crown, and brought this news to the Senate. They called upon the consul to stop it, but he said he would just nullify the vote if that happened. One Senator did not accept this response. He gathered his own mob to take things into his own hands. They caught Tiberius and killed him, along with 300 of his followers. Many who escaped were later executed or exiled, and Gaius – the brother of Tiberius – was refused when he asked for his brother’s body back to hold funeral rites. It was the first great act of political violence in Rome, and it set the stage for a new age of violent upheaval. After all, harming a tribune was supposed to be not only illegal but a sin before the gods, so if this mob had done just that and escaped without punishment, what other laws could not be broken? Into this troubled stage stepped Gaius Gracchus, already known for his fiery disposition and now determined to take up his dead brother’s cause.

September 4, 2016

QotD: Polybius on Roman incorruptibility

Filed under: Europe, History, Quotations — Tags: , , , — Nicholas @ 01:00

Again, the laws and customs relating to the acquisition of wealth are better in Rome than at Carthage. At Carthage nothing which results in profit is regarded as disgraceful; at Rome nothing is considered more so than to accept bribes and seek gain from improper channels. For no less strong than their approval of money-making is their condemnation of unscrupulous gain from forbidden sources. A proof of this is that at Carthage candidates for office practise open bribery, whereas at Rome death is the penalty for it. Therefore as the rewards offered to merit are the opposite in the two cases, it is natural that the steps taken to gain them should also be dissimilar.

But the quality in which the Roman commonwealth is most distinctly superior is in my opinion the nature of their religious convictions. I believe that it is the very thing which among other peoples is an object of reproach, I mean superstition, which maintains the cohesion of the Roman State. These matters are clothed in such pomp and introduced to such an extent into their public and private life that nothing could exceed it, a fact which will surprise many. My own opinion at least is that they have adopted this course for the sake of the common people. It is a course which perhaps would not have been necessary had it been possible to form a state composed of wise men, 11 but as every multitude is fickle, full of lawless desires, unreasoned passion, and violent anger, the multitude must be held in by invisible terrors and suchlike pageantry. For this reason I think, not that the ancients acted rashly and at haphazard in introducing among the people notions concerning the gods and beliefs in the terrors of hell, but that the moderns are most rash and foolish in banishing such beliefs. The consequence is that among the Greeks, apart from other things, members of the government, if they are entrusted with no more than a talent, though they have ten copyists and as many seals and twice as many witnesses, cannot keep their faith; whereas among the Romans those who as magistrates and legates are dealing with large sums of money maintain correct conduct just because they have pledged their faith by oath. Whereas elsewhere it is a rare thing to find a man who keeps his hands off public money, and whose record is clean in this respect, among the Romans one rarely comes across a man who has been detected in such conduct…

Polybius, Histories VI, 56.

August 30, 2016

The Brothers Gracchi – II: Populares – Extra History

Filed under: Europe, History — Tags: , , — Nicholas @ 02:00

Published on 13 Aug 2016

Tiberius Gracchus took up the cause of land reform, determined to restore property rights to the average citizen and curtail the abuses of the rich. But another tribune vetoed his proposed law, so Tiberius began to fight back with his own veto and ground the government to a halt. At last, he held a special vote to remove his opponent from office so that his land reform bill could pass. ____________

Tiberius Gracchus returned from war to find a Rome where soldiers reaped no rewards for their service, and the rich worked all the farmland with slaves who were the spoils of war. Determined to fix this, he took up the cause of land reform. His first goal: to restore the ager publicus, or “public land.” Tradition held that some of the land won in war would always be set aside and distributed to the citizens, with no one allowed to hold more than 500 acres of it, but the rich had ignored that law so long that no one even tried to enforce it. Tiberius got himself electrd as tribune and wrote a law that didn’t punish the rich, just asked them to surrender their illegally held land after the state paid them for it. Nevertheless, the richest of the rich accused him of trying to foment a revolution. They tried and failed to turn the people against Tiberius, but when his law passed anyway, they recruited one of his fellow tribunes to veto the law. Tiberius responded by drafting another, harsher version of the law – only to see this one vetoed also. He began using his own veto in retaliation, refusing to let any other law pass and stopping the senate from withdrawing money from the treasury. Government ground to a halt. Roman government had always relied on the responsible use of powers that were now being abused, and the snowball began to roll downhill. Tiberius took the unprecedented measure of holding a special vote to get his opponent, Octavius, removed from office by popular vote. Despite Octavius’s efforts to hold out, the people voted with Tiberius: Octavius was stripped from office and barely escaped from the Campus Martius with his life after an angry crowd turned on him. But at last, with no more opposition from Octavius, the agrarian reform law proposed by Tiberius Gracchus passed.

August 21, 2016

QotD: Price controls and other forms of rationing

Filed under: Economics, Quotations — Tags: , , , , , — Nicholas @ 01:00

Of the numerous and occasionally contradictory techniques used to ration demand and supply [when monetary prices are not used], perhaps the most common is past behavior: persons already in apartments are given preference under rent control, or past acreage determines current allotments under agricultural price support programs. Another common technique is queuing or first come – first served: taxicabs, theater tickets, medical services, and many other goods and services are rationed in this way when their prices are controlled. Of course, discrimination and nepotism are also widely used; the best way to get a rent-controlled apartment is to have a (friendly) relative own a controlled building. Other criteria are productivity – the least productive workers are made unemployed by minimum wage laws;…. collateral – borrowers with little collateral cannot receive legal loans when effective ceilings are placed on interest rates.

Each rationing technique benefits certain groups at the expense of other groups relative to their situation in a free market. Price controls are almost always rationalized, at least in part, as a desire to help the poor, yet it is remarkable how frequently they harm the poor.

Gary Becker, Economic Theory, 1971.

August 16, 2016

QotD: The real danger of expanding the power of the state

Filed under: Government, Quotations — Tags: , , — Nicholas @ 01:00

Every expansion of the state incites more people to compete – and to compete more intensely – to possess the power over others that that expansion brings. From each individual’s perspective, it’s better to be in the group that exercises power rather than in the groups against whom the power is exercised. Unlike competition in markets, competition for power wastes material resources and human time and energy (rent-seeking wastes); such competition is never win-win but, rather, win-lose. But also unlike competition in markets, competition for power results in the worst form of inequality – indeed, the only form of inequality that warrants legitimate concern – namely, inequality of power. Those with state power, regardless of how they acquire it, can command those without state power. Those with state power use force to override the choices of those without state power. Those with state power do the choosing; those without state power do the obeying.

Unlike market-enabled differences in monetary incomes and wealth, this species of inequality – inequality of power – is inhumane and destructive, and it results from humans’ most primitive impulses.

Don Boudreaux, “Quotation of the Day…”, Café Hayek, 2016-07-25.

July 14, 2016

Mary Wollstonecraft’s influence on Jane Austen

Filed under: Books, Britain, Liberty — Tags: , , — Nicholas @ 02:00

Sarah Skwire loves the recent adaptation of Jane Austen’s novella Lady Susan, and believes that Austen was heavily influenced in this particular work by Mary Wollstonecraft’s A Vindication of the Rights of Women:

Wollstonecraft argues that the women of her time — and Austen’s time — were “weak, artificial beings, raised above the common wants and affections of their race, in a premature unnatural manner, [who] undermine the very foundation of virtue, and spread corruption through the whole mass of society.”

Their corrupting influence, though, is not due to some sort of original sin handed down from Eve after the Garden of Eden. It is the result of the conscious and intentional educating of women out of natural virtue and into habituated weakness, dependence, and immorality.

She continues:

    Women are, in fact, so much degraded by mistaken notions of female excellence, that I do not mean to add a paradox when I assert, that this artificial weakness produces a propensity to tyrannize, and gives birth to cunning, the natural opponent of strength, which leads them to play off those contemptible infantine airs that undermine esteem even whilst they excite desire.

This is Lady Susan in a nutshell. Her tyrannical hold over her daughter’s future, her constant deceptions in matters large and small, and her pretended helplessness and innocence, which her male acquaintances interpret as charm — these are all hallmarks of her character.

Even more a propos is Wollstonecraft’s description of women who have been educated in this fashion and who are then left, as is Lady Susan, widowed and with a family to care for.

    But supposing, no very improbable conjecture, that a being only taught to please must still find her happiness in pleasing; — what an example of folly, not to say vice, will she be to her innocent daughters! The mother will be lost in the coquette, and, instead of making friends of her daughters, view them with eyes askance, for they are rivals — rivals more cruel than any other, for they invite a comparison, and drive her from the throne of beauty, who has never thought of a seat on the bench of reason.

Wollstonecraft adds that it doesn’t take a literary genius to imagine the “domestic miseries and petty vices” occasioned by such a mother.

A world without real education for women, a world without legal equality for women — this is a world that is rife with Lady Susans.

But in Austen’s imagining of Lady Susan, we have precisely that — a literary genius turning her considerable talents (though in early days) to delineating a portrait of a woman who has become precisely what she has been educated to be. In that way, Lady Susan becomes a powerful adjunct to Wollstonecraft’s Vindication. A world without real education for women, a world without legal equality for women — this is a world that is rife with Lady Susans, grappling for power and money in the marriage market and in the gray market of sexual favors, because that is the only sphere open to women with ambition.

Update, 18 July: Arnie Perlstein suggested a recent post at the Sharp Elves Society discussing this topic in rather greater depth.

June 2, 2016

Fat Leonard and the corruption of the US Navy’s Seventh Fleet

Filed under: Asia, Military, USA — Tags: , , , — Nicholas @ 02:00

An amazing story in the Washington Post details how a Malaysian defence contractor got his claws into the senior officers of the US Navy’s Seventh Fleet:

A 51-year-old Malaysian citizen, Francis has since pleaded guilty to fraud and bribery charges. His firm, Glenn Defense Marine Asia, is financially ruined.

But his arrest exposed something else that is still emerging three years later: a staggering degree of corruption within the Navy itself.

Much more than a contracting scandal, the investigation has revealed how Francis seduced the Navy’s storied 7th Fleet, long a proving ground for admirals given its strategic role in patrolling the Pacific and Indian oceans.

In perhaps the worst national-security breach of its kind to hit the Navy since the end of the Cold War, Francis doled out sex and money to a shocking number of people in uniform who fed him classified material about U.S. warship and submarine movements. Some also leaked him confidential contracting information and even files about active law enforcement investigations into his company.

He exploited the intelligence for illicit profit, brazenly ordering his moles to redirect aircraft carriers to ports he controlled in Southeast Asia so he could more easily bilk the Navy for fuel, tugboats, barges, food, water and sewage removal.

Over at least a decade, according to documents filed by prosecutors, Glenn Defense ripped off the Navy with little fear of getting caught because Francis had so thoroughly infiltrated the ranks.


In his dealings with the Americans, Francis went to great lengths to ingratiate himself with senior officers, recognizing that they often cared more about high-quality service than how the bill would be paid.

Whenever a Navy vessel arrived in port, the odds were high that Francis would be waiting at the pier. Like a five-star concierge, he would arrange for shopping trips, sightseeing tours and concert tickets. A limousine and driver would be reserved for the ship’s commander.

Select sailors would be invited to an extravagant banquet, featuring cognac and whiskey, Cohiba cigars from Cuba, and platters of Spanish suckling pig and Kobe beef. Francis would sometimes fly in a band of pole dancers, which he called his Elite Thai SEAL Team, for X-rated shows, court records show.

In another display of panache, he purchased an aging, decommissioned British warship, the RFA Sir Lancelot. He refurbished and renamed it the Glenn Braveheart.

The vessel became the flagship of his fleet, and it would often deploy alongside the USS Blue Ridge, the 7th Fleet’s flagship. When in port, Francis would sometimes turn the Braveheart into a giant party boat, with prostitutes in the wardroom to entertain U.S. officers, according to court records and interviews.

June 1, 2016

The “Trump as scary autocrat” scenario

Filed under: History, Politics, USA — Tags: , , , — Nicholas @ 02:00

Last week, Megan McArdle responded to a “my hair is on fire” diatribe from The New Yorker about a Donald Trump presidency being the end of America as we know it. She’s not convinced:

There are two stages to becoming a scary autocrat. First, you have to get into a position to seize power. The most traditional routes are the military (a task for which Donald Trump’s bone spurs left him tragically disqualified), or winning elected office to abolish or corrupt the electoral process. The former route has its risks, but once you’ve safely arrived in the presidential palace, it’s pretty easy to dispense with democracy, since you have all the guns. The latter route means you need the rest of government, including all the folks with guns, to go along with you.

This certainly does happen, even in countries that have been practicing democracies for a while. But it’s by no means a given. Franklin D. Roosevelt took a certain amount of constitutional liberty with his wackier notions, and when the courts pushed back, he hit on the scary idea of basically throwing out some Supreme Court justices and replacing them with others who would rubber-stamp his policies. (The phrasing was nicer than that, but this was the basic idea, and just the sort of first step that dictators like to take toward cementing themselves as Autocrat for Life). FDR’s own party rebelled, but the Supreme Court began cooperating, too.

There were also civil liberties violations under FDR, notably the internment of the West Coast Japanese population. But while these were appalling abuses, and a stain on the national honor, they are within the (unfortunately) normal range of government behavior in your ordinary, middling-decent democracy of the era.

So the question is not just whether Trump wants to be a dictator, but what the other branches of government will do if he tries to actually become one. I don’t just mean Congress and the courts; I mean “will the bureaucrats of the civil service follow his orders, and will the people with guns agree to go out and arrest his enemies?”

There’s clearly a portion of the electorate that thrills to the more authoritarian and violent parts of his message, and presumably some of those folks are in the military and the civil service. But I’m still fairly confident that the FBI is not, say, going to start tapping journalists’ phones to find out if they’re making fun of President Trump’s comb-over, or disappearing the ones who do.

I worry more about Silvio Berlusconi-style corruption and abuse of regulatory agencies, an impulsive foreign policy that could lead us into open conflict with a nuclear-armed power, and executive-power overreach. I also worry about simple incompetence, given how uninterested Trump seems to be in policy. All-out dictatorship is pretty low on the list, because American institutions do not seem weak enough to allow it.

March 25, 2016

QotD: The infrastructure problem in America

[David Cay] Johnston’s piece is titled America should be more like Disneyland but instead of thinking seriously about what this means he fumbles on the 20 yard line and concludes that what makes Disneyland different is… happy thoughts. If only we were more like W.D., he says, “we could make America into a happy place.”

No, what makes Disney invest in infrastructure is not happy thoughts. Johnston is in fact clear about this:

    The Walt Disney Co. invests in infrastructure because it makes the company money.

The problem with America is that our public infrastructure has been turned over to a fickle political process that is not governed by a rational calculation of cost and benefit, market test and experimentation but by a pursuit of power, glory and advantage that only rarely coincides with the public interest.

America should be more like Disneyland and to do that we need to develop institutions that allow more infrastructure to built by the private sector. Most ambitiously we need more cities as hotels, more proprietary cities. As Rajagopolan and I wrote in our study of India (in Cities and Private Planning):

    The lesson of Gurgaon, Walt Disney World, and Jamshedpur is that a system of proprietary, competitive cities can combine the initiative and drive of private development with the planning and foresight characteristic of the best urban planning. A proprietary city will build infrastructure to attract residents and revenues. A handful of proprietary cities built within a single region will create a competitive system of proprietary cities that build, compete, innovate, and experiment.

Alex Tabarrok “How to make America more like Disneyland”, Marginal Revolution, 2014-12-17.

February 6, 2016

The most likely explanation for politicians doing what they do

Filed under: Economics, Government, Politics — Tags: — Nicholas @ 03:00

In his weekly column for USA Today, Glenn Reynolds distills down the essence of public choice theory:

The explanation for why politicians don’t do all sorts of reasonable-sounding things usually boils down to “insufficient opportunities for graft.” And, conversely, the reason why politicians choose to do many of the things that they do is … you guessed it, sufficient opportunities for graft.

That graft may come in the form of bags of cash, or shady real-estate deals, or “consulting” gigs for a brother-in-law or child, but it may also come in broader terms of political support and even in opportunities for politicians to feel superior or to humiliate their enemies. What all these things have in common, though, is that they’re not about making life better for voters. They’re about making life better for politicians.

This doesn’t sound much like the traditional view of politics, as embodied in, say, the Schoolhouse RockI’m Just A Bill” video. But it’s a view of politics that explains an awful lot.

And there’s a whole field of economics based on this view, called “Public Choice Economics.” Nobel prize winning economist James Buchanan referred to public choice economics as “politics without romance.” Instead of being selfless civil servants motivated solely by the public good, public choice economics assumes that politicians are, like other human beings, heavily influenced by self-interest.

Public choice economists say that groups don’t make decisions, individuals do. And individuals mostly do what they think will be best for them, not for the “public.” Public choices, thus, are like private choices. You pick a car because it’s the best car for you that you can afford. Politicians pick policies because they’re the best policies — for them — that they can achieve.

How do they get away with this? First, most voters are “rationally ignorant.” That is, they realize that their vote isn’t likely to make much of a difference, so it’s not rational to learn all the ins and outs of policy or of what political leaders are doing. Second, the entire system is designed — by politicians, naturally — to make it harder for voters to keep track of what politicians are doing. The people who have a bigger stake in things — the real estate developers or construction unions — have an incentive to keep track of things, and to influence them, that ordinary voters don’t.

Can we eliminate this problem? Nope. But we can make it worse, or better. The more the government does and the more decisions that are relegated to bureaucrats, “guidance” and other forms of decisionmaking that are far from the public eye, the more freedom politicians have to pursue their own interest at the expense of the public — all while, of course, claiming to do just the opposite. Meanwhile, if we do the opposite — give the government less power and demand more accountability — politicians can get away with less. But they’ll always get away with as much as they can.

November 27, 2015

Wealth, inequality, and billionaires

Filed under: Economics, Government, Politics — Tags: , , , — Nicholas @ 04:00

Several months ago, the Washington Post reported on a new study of wealth and inequality that tracked how many billionaires got rich through competition in the market and how many got rich through political “connections”:

The researchers found that wealth inequality was growing over time: Wealth inequality increased in 17 of the 23 countries they measured between 1987 and 2002, and fell in only six, Bagchi says. They also found that their measure of wealth inequality corresponded with a negative effect on economic growth. In other words, the higher the proportion of billionaire wealth in a country, the slower that country’s growth. In contrast, they found that income inequality and poverty had little effect on growth.

The most fascinating finding came from the next step in their research, when they looked at the connection between wealth, growth and political connections.

The researchers argue that past studies have looked at the level of inequality in a country, but not why inequality occurs — whether it’s a product of structural inequality, like political power or racism, or simply a product of some people or companies faring better than others in the market. For example, Indonesia and the United Kingdom actually score similarly on a common measure of inequality called the Gini coefficient, say the authors. Yet clearly the political and business environments in those countries are very different.

So Bagchi and Svejnar carefully went through the lists of all the Forbes billionaires, and divided them into those who had acquired their wealth due to political connections, and those who had not. This is kind of a slippery slope — almost all billionaires have probably benefited from government connections at one time or another. But the researchers used a very conservative standard for classifying people as politically connected, only assigning billionaires to this group when it was clear that their wealth was a product of government connections. Just benefiting from a government that was pro-business, like those in Singapore and Hong Kong, wasn’t enough. Rather, the researchers were looking for a situation like Indonesia under Suharto, where political connections were usually needed to secure import licenses, or Russia in the mid-1990s, when some state employees made fortunes overnight as the state privatized assets.

The researchers found that some countries had a much higher proportion of billionaire wealth that was due to political connections than others did. As the graph below, which ranks only countries that appeared in all four of the Forbes billionaire lists they analyzed, shows, Colombia, India, Australia and Indonesia ranked high on the list, while the U.S. and U.K. ranked very low.

Wealth and political connections

Looking at all the data, the researchers found that Russia, Argentina, Colombia, Malaysia, India, Australia, Indonesia, Thailand, South Korea and Italy had relatively more politically connected wealth. Hong Kong, the Netherlands, Singapore, Sweden, Switzerland and the U.K. all had zero politically connected billionaires. The U.S. also had very low levels of politically connected wealth inequality, falling just outside the top 10 at number 11.

When the researchers compared these figures to economic growth, the findings were clear: These politically connected billionaires weighed on economic growth. In fact, wealth inequality that came from political connections was responsible for nearly all the negative effect on economic growth that the researchers had observed from wealth inequality overall. Wealth inequality that wasn’t due to political connections, income inequality and poverty all had little effect on growth.

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