Posts Tagged ‘self-interest’

An Obama-doctrine that would serve the United States well

January 31, 2013

The first-term foreign policy of Barack Obama and Hillary Clinton was little less than disastrous, viewed entirely from the perspective of the United States.

The U.S. government encouraged revolutions in Libya and Egypt that resulted in the overthrow of leaders then supportive of U.S. interests. In their place, weak Islamic governments have emerged, largely hostile to the United States and supportive of Sharia law.

In Iraq, an indecently speedy withdrawal of U.S. forces has left a weak and pro-Islamist government in place, locked in a disgusting embrace with Iran – a terrorist state. An equally indecent withdrawal from Afghanistan will leave the Taliban well-positioned to regain control over a large swathe of the country, signaling yet another failure of U.S. foreign policy.

Iran has been left unchained to develop nuclear weapons that shortly will create an existential threat to Israel, should the latter nation not degrade those facilities. Syria has been allowed to descend into a vicious civil war with untold consequences for instability throughout the Middle East.

The Obama-doctrine, first term, has been to intervene when there was no U.S. interest in such intervention and to fail to intervene when there was a direct U.S. interest. This has been the politics of disaster.

This is my advice to President Obama for his second term in office: Reverse the first term Obama doctrine. Intervene only when intervention serves direct U.S. interests. And then intervene efficiently, maximizing the policy bang for every buck expended.

A wise Obama doctrine would avoid nation-building as though it were the Black Death. It is extremely costly, largely a waste of time on an unappreciative indigenous population, and totally unsuited to the armed forces. Socialism never works. And using the U.S armed forces as instruments of economic development is equivalent to deploying Marxist-Leninism to develop the USSR, Cuba, and North Korea.

A wise Obama doctrine would intervene to bring down governments hostile to U.S. interests by short sharp interventions, where these can effect results. Use air power to destabilize a hostile government, then withdraw and allow the indigenous populations to rebuild. If they rebuild in a manner hostile to U.S. interests, destabilize again. They will learn their lesson.

A wise Obama doctrine would prop up governments allied to the U.S. by destabilizing any rebel groups. Again, short sharp interventions are the key to successful policy. Human rights abuses should not be condoned. But they do not constitute just cause for U.S. intervention, when such intervention is unambiguously inimical to U.S. economic interests.

Such a doctrine would surely be viewed as selfish. But selfishness is not necessarily a sin. Surely it is less sinful than the international chaos that has resulted from the application of Obama’s first term doctrine.

US politics in 2011: Niccolo Machiavelli defeats Ronald Coase (1)

December 24, 2011

In modern democracies, politicians exert enormous influence – for good or for bad –  over the economic well-being of  those who elect them into office.  Public choice hypothesizes that such politicians are driven largely by narrow self-interest. Campaign funding, personal wealth accumulation, and the vote motive appear center-stage in their individual utility functions. Water, as they say, tends to run downhill for all of us, whatever our station in life.

A key question, in such a political environment, is which side of the self-interest force – the bright or the dark – drives  interactions in the market-place of politics.  Two important economic theorems offer powerful insights into the nature and potential economic consequences of those two competing impulses.

The bright side of the force, advanced by Adam Smith (1776) with respect to private markets, focuses attention on value-adding interactions between self-seeking individuals. In Smith’s judgment, the wealth of a nation depends largely on allowing such value-adding trades to proceed unhindered. 

In 1960, Ronald Coase (University of Virginia) advanced a proposition based on the insight of Adam Smith  that would eventually win for him a Nobel Prize, and that is now referred to as the Coase Theorem:

“It is always possible to modify by transactions on the market the initial legal delimitation of rights.  And, of course, if such market transactions are costless, such a rearrangement of rights will always take place if it would lead to an increase in the value of production.”

Readers should be aware that Ronald Coase did not believe that transaction costs are always zero. A rider to his theorem took the following form:

“These operations (markets) are extremely costly, sufficiently costly at any rate to prevent many transactions that would be carried out in a world in which the pricing system worked without cost.”

In this manner, Ronald Coase left open a role for limited government.  If collective action can lower transaction costs to facilitate wealth-enhancing trades that otherwise would be blocked by high transaction costs, a prima facie  case exists for it so to act.  Note however that Coase here relies on the assumption that the bright side of the force will serve as the driver in political markets much as it typically does in the private market-place.

In 2001, Jack Hirshleifer (University of California at Los Angeles) advanced a counter-theorem also based on the notion that self-interest drives human behavior.  Hirshleifer recognized that there is also a dark side to that same force, in which the self-interest impulse leads individuals into ultimately wealth-destructive interactions, conflictual rather than consentaneous in nature: murder, rape, pillage, violence etc.

Hirshleifer distinguished between the Coase theorem – which in its first form implies that individuals will never pass up an opportunity to cooperate through mutually advantageous trade – and the Machiavelli theorem – which says that no one will ever pass up an opportunity to gain a one-sided advantage to exploit another party.  According to Hirshleifer, neither theorem stands alone. Institutions, nature and culture will determine the actual balance that exists between the bright and the dark side of the force.

At first sight, it may appear that when the dark side of the force dominates, wealth-enhancing trades will not occur. It turns out that such is not always the case.  The window for wealth-enhancing trades surely narrows dramatically, but it does not always completely close.

In my Christmas Day column,  shall explain why the window does not always close completely, why even Ebenezer Scrooge ultimately behaved seemingly more  in accord with the   Coase  than the Machiavelli theorem. 

In subsequent columns I shall demonstrate the extent to which the dark side of the force dominated US politics throughout 2011, and why some albeit fragmentary wealth-enhancing trades nevertheless occurred.


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