Wednesday, June 11, 2014

Bergdahl, "moral hazard", modes of analysis, politics and the "unknown unknowns" of foreign policy

I haven't followed the Bergdahl issue much, but a few observations:

1a.) Economists talk about the "moral hazard" problem-- when policy, business or personal choices create incentives for people to put themselves in an undesirable state. The textbook examples involve insurance: once you're insured, the insured-against event becomes less painful and therefore more likely. Nobody wants their house to burn down (except someone *trying* to cash in on the insurance!), but it's a lot different if there is (not) a big check coming from an insurance company after the event.

Economists are really leery of occasions for public policy issues that connect here. Government bailouts create a moral hazard because they encourage businesses to put themselves in a position where they "need" to be bailed out. Unemployment insurance "ensures" unemployment, by lowering the cost of unemployment and encouraging people to be in that state. See also: flood insurance, crop insurance, foreign aid, and so on. Go there if you must, but be aware of the short-run AND long-run consequences.

Bargaining with hostage-takers (a la Bergdahl/Obama) and bailing out deserters are in the same realm. Going down those paths necessarily encourages more of the same. Again, maybe it's the *right* move-- and not just in a cynical, political sense-- but buyer beware.

1b.) Generalizing (a bit or a lot?), those on the Left are typically less concerned about the moral hazard aspects of public policy. (As a seeming counterexample, they don't like bank bailouts, but their dislike stems from the inequity of it, rather than concerns about incentives and behavior.) This is consistent with their worldview and how it plays out over a wide array of issues-- that incentives don't matter all that much. (E.g., high marginal tax rates won't discourage productive activity; a higher minimum wage won't impact employment much.) But why do they believe this?

One answer is that incentives don't matter much for *them*-- and so they assume that they don't matter much for others. (Charles Murray develops this idea in Losing Ground to help explain the way in which the War on Poverty unfolded-- that policy elites imagined how they would respond to welfare, treating it as a safety net rather than as a hammock.) If I became unemployed... And so on.

A second answer is that they're otherwise prone to static (vs. dynamic) analysis. They often prefer simple statistics for complex issues. (See: income inequality as a recent example). They have a penchant for univariate analysis. (See: gun control.) They put more weight in international comparisons, implicitly ignoring (holding constant) a ton of variables. Perhaps they do this as a rhetorical device or an impressive blindness. (Evidence for this would be their selectivity in doing the above. For example, in the above categories, they don't talk about the poverty rate; mental illness and gun-free zones; or an assortment of international comparisons that don't fit their policy preferences.) But my sense is that they really believe that the world works in the manner they're trying to describe.

2.) There are many occasions when policy choices are really bad-- so bad that it's difficult to discern whether the advocacy stems from ignorance (e.g., focusing on short-term, concentrated benefits while ignoring much-larger but long-term or otherwise-subtle costs) or political gain (e.g., all-too-common crony capitalism from both major political parties).

The Bergdahl fiasco is one of those issues where the *politics* look *so* bad-- that the people running our country are really not that bright or there's something else going on, behind the scenes. Obama, if anything, seems relatively attuned to what the public likes to hear. His moves on this issue are something close to inexplicable-- unless there are more variables than we're allowed to see.

More broadly, this is one of the reasons that I don't like to speak much on foreign policy. First, I don't know all that much about it, at least compared to areas in public policy where I have a lot more knowledge. (This reminds me of Donald Rumsfeld's distinction between known unknowns and unknown unknowns and Errol Morris' awesome essay.) But in the context of foreign policy in general and the Bergdahl case in particular, I wonder how much/little we know about the details. If I knew a lot more, would I have different policy conclusions. Seems likely, so I'll withhold (strong) judgment.


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