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CHRIS COYNE: What I'd like to talk about tonightis a couple of the themes from my book, After War.I'm going to pull on some of the topics I talk about,and there are a couple others I'm going to throw in as well,and try to give you an overview of the main themes,some examples, and then we'll open it up for discussion.And we can talk about these topics, or anything else
CHRIS COYNE [continued]: that people want to talk about.So let me just start with some backgroundin what I'm talking about.What does reconstruction involve?Well, basically it involves rebuilding a countryafter a conflict.So it involves rebuilding physical infrastructure.Buildings, roadways, public services, sanitation,
CHRIS COYNE [continued]: and so on.It also typically involves attemptingto generate fundamental changes in economic, legal, andpolitical institutions.In other words, we want to establish-- when I say we,it's the people who are engaged in the reconstruction--liberal institutions, free market
CHRIS COYNE [continued]: economies, political institutions that limit thosethat are elected, legal institutions thatprotect property rights and enforce contracts, and so on.Now my talk is mainly going to focuson post-conflict situations.But I want to point out, and we can discuss this moreduring the Q&A, given what's going on in Haiti, much
CHRIS COYNE [continued]: of what I'm going to discuss is equally applicable to crisesin general.Famines, genocide, natural disasters such as earthquakes,and attempts to rebuild countriesafter those things happen.So a lot of the arguments I'm going to make are broader.But, since in my book I talk about post-conflict,that's what we'll stick to for now, at least.
CHRIS COYNE [continued]: So what's missing?Well, if you listen to politicians, news pundits,if you read newspapers, oftentimes what is neglectedis a basic consideration of the economic way of thinking.The economic way of thinking is groundedin a few core postulates.We say that people act purposefully,so they have goals that they seek to pursue
CHRIS COYNE [continued]: to the best of their ability.They respond to incentives, whichmeans as the net benefits of an activity increases,people engage in more of it, as the net cost of a behaviorincreases, people engage in less of that behavior.And we also point out that people face constraints.They face budget constraints, how much moneyis in your pocket or the bank, intelligence constraints,
CHRIS COYNE [continued]: limited knowledge, and so on.But rarely, if ever, are these issuesdiscussed in the context of reconstruction.Let me provide an example.This is an article in the New York Times from 1960.It's about the Helmand Valley region in Afghanistan,which is in the southwest part of Afghanistan.And Marjah is an area within the Helmand Valley.
CHRIS COYNE [continued]: Has anyone heard of Marjah recently?Do you know why it was in the news?
CHRIS COYNE: A little offensive.It was a big offensive.Several months ago.Now, why do I point this out?Well, the Helmand Valley project, as it's called,is one of the largest developmentfailures in the history of development economics.This was not following a war, thiswas an attempt to develop Afghanistan.Actually develop what was called a little America.
CHRIS COYNE [continued]: That's what the project was called in Afghanistan.And here was the fundamental idea,which sounds very nice on paper.The Helmand Valley region has very fertile farming land.We know that now, because it's the main sourceof poppy fields, but back then it wasn't, so they said, look,we are going to invest tons of money.I mean hundreds of millions of dollars to build canals,to relocate people, and what we're going to do
CHRIS COYNE [continued]: is basically push Afghanistan to a new level of development.We would create America in Afghanistan.Well, it didn't work so well, as illustrated by the offensivethat recently took place.But even in 1960, if you read this article,what are they talking about?It's a comedy of errors.
CHRIS COYNE [continued]: They didn't take into account the human element.Meaning what?They didn't take into account the factthat people face incentives and face constraints.Now, one of the things I want to emphasizeis that the failure of reconstruction effortsis not a matter of resources.It's not that resources are unimportant.What do I mean by resources?Money.Number of troops.
CHRIS COYNE [continued]: Physical capital.It's not a matter of that.There's other issues at play.And how do we know that?Well, if you look at the case of Marjah, or Helmand Valleymore broadly in the '50s, '60s, '70s, what happens?Well, this article talks about how the United States sent overthe most state-of-the-art farming technology.Tractors, other equipment.
CHRIS COYNE [continued]: So it wasn't a matter of resource.They had the latest technology at the time.But guess what?As the article points out, it was sitting there rusting.So why would it be the case that farming equipment,that in theory could generate increases in wealth if peopleutilized it?It's the most recent technology at the time,why is it sitting there rusting?
CHRIS COYNE [continued]: Well, the economic way of thinkingwould indicate it's something with incentivesand constraints.So what happens?Well, as I mentioned, 50 years later, the UScarries out a major offensive in this areato root out the Taliban.Of course, when the Taliban emerged,they also used the canals, and only about 20% or 30% I think
CHRIS COYNE [continued]: are operational, they use the canalsto hide when they were fighting.And of course, as I mentioned, thisis one of the most popular areas for growing poppy, which isa major problem in Afghanistan.So what I want to do is talk about two sets of constraintsthat reconstruction efforts face.Now let me just point out one other thing before moving on.
CHRIS COYNE [continued]: One of the powerful things about economics,is that we don't have to assume anythingabout people's motives.We assume that what they say is what they want.So when George Bush, Barack Obama, anyone else,says we want to bring freedom and democracy to Iraqand Afghanistan, we take them at their word.Economists don't judge whether the person is
CHRIS COYNE [continued]: telling the truth, whether it's good or bad,we take it is given.And then, what we will do is analyzethe means to understand if they are suitable to achievethe desired ends.So we don't have to judge that certain people are goodand certain people are bad.We can put aside all the political talk of Democratslike terrorism or whatever, Republicans like going to war.
CHRIS COYNE [continued]: Maybe, maybe not.I don't know enough of them.Some do, some don't, I'm sure.What we can say is that they all respond to incentives,so that's what we want to look at.So let's consider some of the incentives thatare at play, when these occupations and reconstructionefforts take place.First, let's talk about some internal constraints.Internal constraints are constraintsthat exist internal to the country being reconstructed.
CHRIS COYNE [continued]: So what are some examples of this logic?What is the art of association?The concept of the art of associationcomes from Alexis de Tocquevilles book DemocracyIn America.And, of course, Tocqueville recorded his travelsthroughout America.And one of the things he noted isthat Americans had a habit for interactingwith each other in what we call today's civil society.
CHRIS COYNE [continued]: He called it the art of association.And what Tocqueville pointed out,was that this art of association was a very powerful checkon government.Because what happened, was that peoplewere able to come together voluntarily,through private initiative, and private entrepreneurship,to solve collective action problems.Problems that went beyond themselves,
CHRIS COYNE [continued]: and were a broader part of the community.And why was this a check on government?Well, Tocqueville pointed out that itwas a check on government precisely because peopleweren't over reliant on government for helping them.They were able to find cooperative solutions,in many cases.Now, of course, today there's lots of talkabout civil society and NGOs.
CHRIS COYNE [continued]: I was talking to Chris and Isaac before we started here,and I was talking about how so many NGOs today arereally fake-outs, if you look.They receive so much of their funding from government,and development agencies funnel a lot of their budgetsinto NGOs, that they are really notnon-government organizations anymore.For instance, the World Bank spends a lot of money
CHRIS COYNE [continued]: every year on social capital initiatives.It basically pays people in other countriesto start associations.And it says, see?That's what Tocqueville is talking about.That's precisely the opposite of whatTocqueville was talking about.What he was talking about, was the voluntary emergence,spontaneous ordering, of associationswhich were outside of markets, and outside of government.
CHRIS COYNE [continued]: Now why is this important?Well, it's very simple.If people are able to find cooperative solutionsand get along with each other, it'sless likely there's going to be conflict.If it is the case that people are notable to get along with each other,if the art of association is lacking,then it's more likely that conflict is going to exist.Why is this all important?Well, everything I'm going to talk
CHRIS COYNE [continued]: about deals with these internal foundations.Right now, to understand this, let me give youa very simple example.If all this stuff I'm going to be talking about on this slidewas gone, there was no worry about beliefs,what we call culture in the broadest sense,broadly defined, reconstruction would be quite simple.You could just purchase a copy of the US Constitution
CHRIS COYNE [continued]: at a museum shop here in DC and just mail it over.We would be like, there you go.$5 for the Constitution, couple bucks for postage.Now you have a constitution.We get to send it to Iraq, Afghanistan, Haiti,anywhere else you wanted to.But we know that if we did that, it would nothave the same outcome that it has had United States.
CHRIS COYNE [continued]: Why?Precisely because the foundationsthat allow, or allowed in some cases, the Constitutionto operate as it has the United States,don't exist in other societies.So basically it is a piece of parchmentthat has no value, precisely because the fundamental values
CHRIS COYNE [continued]: underpinning it are missing.So the art of association.Belief systems.What do people believe?Very simple.You don't believe in private property rights,you're not going to respect them.If I believe it is proper to walk aroundpunching people in the face, then I'm going to do it.This doesn't mean that codified laws are unimportant,
CHRIS COYNE [continued]: but what it does mean is that simply writing things down,don't punch people.It's irrelevant if everyone believesyou should punch people.You need at least a certain number of peopleto believe you shouldn't do that.You need the people that actually end up violating that,to be a small minority.If it becomes a large number, a majority,then the formal laws break down.They are worthless.They're not worth the paper they're written on.
CHRIS COYNE [continued]: And then, of course, historical experiences.How you've experienced both governmentin the past, and interacting with other peoplein your society, will influence howyou view the present interactions with them,but also the future interactions as well.Why is this important?One of the main issues in Iraq and Afghanistan,and Haiti as well, is what?
CHRIS COYNE [continued]: Well there are certain groups of peoplethat hate each other, on top of that,their governments, historically, been some almost predatoryin the world.And now, what do we say?Well we want to get along with other people,and trust government.But the logic is simple.Which is, well, if you're in that society,and government has been predating you
CHRIS COYNE [continued]: for decades, centuries, why would you ever trust them now?What is the check to constrain their behavior?That's where historical experiences come in.So if I was going to sum this up, I'd say this.Free societies work best, where youdon't need to coerce people.Where people buy into the free society
CHRIS COYNE [continued]: project, the constitution of liberty,you don't need to stick a gun in people's facesto tell them to follow it.Precisely because there are norms and values in placewhich make those rules self-enforcing.When those norms and values are either absent, or break down,then the cost of enforcement goes up.
CHRIS COYNE [continued]: And that's precisely what we observe in placeslike Iraq and Afghanistan.We have a certain set of goals we want to accomplish,they're not happening, so what happens?You have to ramp up the force.It's more costly to enforce norms and rules that aren'tunderpinned by certain values.So you have internal constraints.Now look, you could read lots of government documents,and there's lots of lip service paid to culture.
CHRIS COYNE [continued]: They say you've got to respect culture,you've got to understand it.Well OK, that's nice to say, but reallywhat we need to talk about is what that means in practice,in terms of how we behave.And how that constrains our behavior.Again, what I see recently?This is off the conflict topic on the Haiti.
CHRIS COYNE [continued]: Haiti happens.One of the ambassadors says something like the following.Well, this is really bad for people,but there's a silver lining.Now we can put Haiti back togetherthe way we've been trying to for decades.They treat it like it's a puzzle.It's like a science experiment.If we just get smart enough people in the room,we can put the puzzle together the way we want to.
CHRIS COYNE [continued]: No talk of culture, no talk about historical experience,no talk about constraints.It's like no, we can just fix it if you just give meenough money, enough troops, and enough forceso I can do whatever we need to do to get it done.The knowledge problem.Typically, we talk about the knowledge problemin the context that F A Hayek talked about,and Ludwig von Mises before him, which
CHRIS COYNE [continued]: was this idea of allocating scarce resourcesamong competing ends.So the idea of the knowledge problem,as many economists talk about it,deals with this allocation issue.And the idea, of course, came outof the socialist calculation debate,which was the argument over if socialism could outproduce capitalism, in terms of material wealth.And Ludwig von Mises, then F A Hayek argued, it couldn't.
CHRIS COYNE [continued]: Because planners did not have the knowledge,what Hayek called the knowledge of time and place,in order to allocate resources correctly.Outside the institution of private property, and thensubsequent prices and profit and loss generated by property,there was no way to rationally allocate resources.Well I want to talk about it in a slightly different way.Which is, in addition to that problem, planners--
CHRIS COYNE [continued]: and when I talk about planners, I'mtalking about anyone that's basically involved in coming upwith the plan to fix these countries,can be politicians, policymakers, developmentexperts, usually involves a lot of PhDs,because they are supposedly smart.In addition to allocating resources,planners also lack the knowledge of how
CHRIS COYNE [continued]: to design a free society.In fact, in some sense, the projectis even more difficult than socialism.Socialism took place within a set of institutions.We're going to abolish private property,we have political institutions set up,and the problem was one of allocating resources.That's very hard to do.But now we're saying, look not only can we
CHRIS COYNE [continued]: think we can allocate resources, we'reputting that aside, we can design the very institutionswhich underpin a society.We can design your legal institutions, your courtsystem, your police force, your military.We can design your economic institutions.We can figure out how to do this all,such that society will work exactly like we wanted to.
CHRIS COYNE [continued]: That's a knowledge problem.Let me give you some examples.Example one.This is from the counterinsurgency field manual.Now, if I were to ask you a very simple question, whether areyour pro-war or anti-war, I don't care.If I said to you, US military, whatdo you think they're good at?What would you answer?
CHRIS COYNE: They're good-- no.Destroying wealth?OK, that's maybe.
CHRIS COYNE: Yeah, they're good at force.Well, maybe killing people, but force in general.And that can be protection.Keeping bad guys out, that's a form of force.Killing people when you need to.Blowing stuff up.That's what they're good at.Whether you like when we use them or not,that's their comparative advantage.Well, take a look at this.How many of you had said these things are part
CHRIS COYNE [continued]: of their comparative advantage?Mobilize economic activity, initiate contractswith local businesses to stimulate trade,rebuild commercial infrastructurelike banks, transportation, markets, currency.That's the military, by the way.This is the military guide.The counterinsurgency field manual.Support broad-based economic opportunity,support a free market economy.
CHRIS COYNE [continued]: This is just one example from that book, by the way.So what's the point here?Well, if you look over time, the role of governmentinstitutions, whether it is the WorldBank, USAID, the military, they've expanded dramatically.Part of this is just mission creep,which is the natural tendency of state bureaucracies,but part of it is planning mentality
CHRIS COYNE [continued]: that we can go around and fix the world.People in the military, to the extentthey have a comparative advantage,it's what we just talked about.Force.That's what they're good at.And that's what they're there for.Not this kind of stuff.Another example.If I was going to give you one example of the knowledgeproblem, here's a perfect example.
CHRIS COYNE [continued]: Now this PowerPoint presentation is actually 30 slides.It started with that middle box right there,and 30 slides later you get this.Which is, in theory, the entire Afghanistan societyon one PowerPoint slide.Now I challenge any of you to follow these arrowsand make sense of this.This was not the plan that was actually followed,
CHRIS COYNE [continued]: it was one of the proposed plans.It was put together by a consulting firm.That should strike you as ridiculous,that you hire McKinsey, or some consulting firmto say, please map out a country for us.Now, if you read the reports on this,oftentimes they are positive.
CHRIS COYNE [continued]: They say this is wonderful.Look, everyone's criticized us because we were so narrow,we're taking into account culture, and beliefs.So, you've said all these things are important,we're taking into account.But that misses the point.When we talk about these things, we'renot talking about writing the word down and putting lotsof arrow sticking out of it.This fundamental idea that you can do this type of thing
CHRIS COYNE [continued]: is what underpins these efforts, yet we're continually--or I don't know if you are-- many people are continuallysurprised when they don't work.But if you just think about it logically,you would understand why this is the case.Again, if we can't plan the allocation of resourcesin a way that maximizes their value, in other words,
CHRIS COYNE [continued]: generate sustained wealth, what makesus think that we can generate the fundamental institutions--not just the economic institutions--but everything else that underpins an entire society.But this is the logic that is used.External constraints.Internal constraints focus on the constraintsthat are internal to the country being reconstructed,
CHRIS COYNE [continued]: or occupied.External constraints are the constraints facingthose who are occupying it.So, in the United States' effort in Iraq and Afghanistan,there's internal constraints in those countries,but there's also external constraints.The US political system.Those influence efforts in foreign countries.
CHRIS COYNE [continued]: So we have to look at the knowledge problemthat we actually face constructing countries,assuming all these political issues away,but then we have to look at the factthat policymakers, voters, we faceincentives, which further reinforce that knowledgeproblem.So in order to get at this, we needto talk about public choice.
CHRIS COYNE [continued]: So you guys have probably heard about public choice, justa very quick overview.It emerges in the 1950s, 1960s, itcomes out of the traditional fieldin economics, the sub-field of public finance.And basically, here's the underlying logic.Up to the '50s and '60s, the standard viewwas one of romanticism towards government.
CHRIS COYNE [continued]: Here's the underlying idea in coming out of public economics.Markets fail.There's market failures.These can be externalities, public goods,macroeconomic instability, business cycles, inequality.These are market failures.The market left to its own devicewill not function, according to theory.
CHRIS COYNE [continued]: So what happens?Well, to the extent market fails,the argument was, government could serve as a corrective.Government could intervene throughwell-designed interventions and correct market failures.So perfect government in perfect market, perfect governmentalways wins.Always.Because it's perfect.Well, public choice scholars came along and said, wait,
CHRIS COYNE [continued]: you're missing something here, which is the following.If people are imperfect when they interactin private settings and markets, whathappens to them when they get elected to office?Or when they are hired as a bureaucrat?Why, all of a sudden, do people transformfrom imperfect, private individuals,
CHRIS COYNE [continued]: to perfect government agents?And the answer, of course, is they don't.They're still the same people.The power of the public choice fieldis that it calls or demands asymmetry of assumptions.If we are going to assume that people are self-interestedand respond to incentives in private settings,we have to make the same assumptions about themin public settings.
CHRIS COYNE [continued]: That's the core idea.So it's just the extension of the economic way of thinkingto the political realm.The reason this is powerful is preciselybecause we realize that, in addition to market failures,there's also political failures.So now the competition is not between an imperfect marketand a perfect government.The comparison now, is between an imperfect market
CHRIS COYNE [continued]: and an imperfect government.Now what we need to do is compare those imperfectionsto see which one is less.We live in an imperfect world.What we want to do is compare institutions and figure outwhich one is less than perfect.That's the core public choice.Well, we can extend a lot of that logic
CHRIS COYNE [continued]: to attempt to reconstruct countries.And I'll just run through some of this,we can talk more about it during the Q&A.The basic public choice model says there's four key groups.Four key groups, the interaction of them generate policy.
CHRIS COYNE [continued]: So let's run through each of these groups,talk a little bit about it, give some examples,and then we can discuss.Voters.The core assumption in public choiceis that voters respond to incentives.One of the main outcomes from thisis what's called rational ignorance.I'm sure many of you have heard about this.It's basically the idea that the cost of information
CHRIS COYNE [continued]: is positive.The likelihood of you impacting elections through your voteis basically zero.Positive information costs, zero benefitin terms of influencing the election.You're not fully informed.Typically people are not fully informed, or even informedat all about basic political issues if you push them on it.
CHRIS COYNE [continued]: So what does this mean?People know there's a war going on Iraq and Afghanistan.If you ask them how much it costs,how much they think it will cost in the future,how many troops are involved, what exactly is going on?Very few people will know.They tend to take broad positions,they either like the Republicans or the Democrats,but they really don't know the specifics that are going on.
CHRIS COYNE [continued]: So voters are rationally ignorant.Interest groups are collections of voterswho share a common interest.And here's the thing, while voterslack the incentive to be informed,special interest groups have a strong incentiveto be informed.Let me provide a simple example.
CHRIS COYNE [continued]: You and I-- I'm going to guess, unless your family isin the steel business-- don't knowwhat's happening in the steel industry.Or the agricultural industry.Unless your parents are in agriculture.Why?Because you don't care.It doesn't impact your daily life, directly.But guess what?
CHRIS COYNE [continued]: People in the steel industry, people in agriculture,they know what's going on in those industries.And they oftentimes will lobby government for protectionism.And I use that term in the broadest sense.It could be subsidies, tax breaks,trade barriers to keep out foreign competition.All of these things, like protectionism in general,
CHRIS COYNE [continued]: this is a basic economic point, raise the cost of trade.Which makes basic goods and servicesmore expensive for consumers, you and I.And that's how it impacts us.Through the cost of goods.But here's the thing, how it impacts us is either unseen,meaning if I asked you, well, how much extrado you pay per gallon of milk because of subsidies?Some of you might know.
CHRIS COYNE [continued]: It's a couple of cents per gallon.But you really don't think about it when you buy milk.It's not like, OK, it's really $3.78 but we're tackingon $0.10 extra for Bill the farmer.It doesn't say that.You don't know.Then on top of that, it's basicallypennies for each of us.So here's the thing, how many of youare willing to go spend your days lobbying in Washington DC
CHRIS COYNE [continued]: to get rid of milk subsidies?I've never seen anyone saying I'm tired of paying $10.00a year extra for milk.I'd like you to remove it.I have seen people go and say, no farms, no food,we need protection.Why?While it costs you and I $10.00, $20.00, $30.00 a year,they get hundreds of thousands or millions of dollars
CHRIS COYNE [continued]: in benefits.So it is in their interest to go lobby for these things.How does this affect reconstruction?Well do you remember lots of talk about Halliburton,and lots of talk, of course, about demonizing Halliburtonbecause of Dick Cheney, who used to be the CEO of Halliburton,and they said, see those Republicans?
CHRIS COYNE [continued]: They love corporations.They did all this to give it to Halliburton.Well maybe.This misses the point, and if you had looked into it,you would have seen that actually Halliburtongot more total dollars in contracts under Clintonand Gore, than they did under Bush.The reality is that people were partially right, here.Which is Halliburton has had a very long relationshipwith government, but it's bipartisan.
CHRIS COYNE [continued]: They give lots of money to government,and they lobby them for handouts.It's not just Republicans.This is for many of the other corporationsas well that were involved in reconstruction.You can easily trace the people in charge of those companiesto political leaders.Now, one of the arguments is that they are good at it.
CHRIS COYNE [continued]: Halliburton is good at infrastructure building.Maybe.But it doesn't help, when you haveins with political leaders.We see this repeatedly.They get favorable treatment.So interest groups will help shape reconstruction policyfor better or worse.So you have rational ignorant voters,
CHRIS COYNE [continued]: rationally aware interest groups,and then you have bureaucrats.Now bureaucrats are basically non-elected governmentofficials.OK?All the people that work in government agenciesand government bureaus.There's tons of bureaus involved in reconstruction.When I say tons, that's maybe too much.At least 10 major US bureaus, and then all the
CHRIS COYNE [continued]: sub ones as well.And then there's other countries as well.And what happens?Well, if you look at Iraq, for instance,do you remember all of the discussion of howBush didn't plan?If he'd only planned better, it would have gone differently.Well maybe.But if you actually look at what's going on,it's the logic of bureaucracy.Which is, in markets, firms are judged by what?
CHRIS COYNE [continued]: How profitable they are.They like money.How are government Bureaus judged?They're non-profits, by definition.So how are government bureaus judged for success?Does anyone have an idea?It can't be profit.What's that?
CHRIS COYNE: Their budget, what about it?
CHRIS COYNE: How big their budget is and what else?Can you think of anything else related to that?
AUDIENCE: How much power they have?
CHRIS COYNE: Power.Number of people.Right?Size.Clout.All right?Power, which is typically measured through budget size,and number of subordinates.So think about the incentives this creates.Let's think about a couple of the basic incentivesthat this logic of bureaucracy faces.Well, they're not warned about profits.
CHRIS COYNE [continued]: They're nonprofit by definition.They want money, as big a budget as they can getand they want to hire as many people as they can.And they want power.So we start going into Iraq, or theyare talking behind the scenes before you into Iraq.What happens?You start to get all this infighting between governmentbureaus.You got the Pentagon over here.You've got the State department.
CHRIS COYNE [continued]: All these people are fighting.Why?Because they're Democrats and Republicans?No.Because they want power.Which is the logical implication of government bureaucracies.I'm sure that many of them thought what they were doingwas the right thing.Their vision was the right vision.Well, that still doesn't overcome the fact
CHRIS COYNE [continued]: that the US government, in the broadest sense,and all other governments are supposedto be united in a common cause to rebuildIraq, rebuild Afghanistan.But the natural logic of bureaucracyis such that they're going to fight with each other.Which is exactly the opposite of working towards a common goal.What also happens?Well, as bureaucracy expands at larger and larger levels,
CHRIS COYNE [continued]: you have information problems, incentive problems,and then the problem of costs.Let me just talk about each of these briefly.Basically, here's the information problem.It is not a knowledge problem, that's different.This is information.Information is what?Well, as the chain gets longer and longer in a bureaucracy,meaning there's more and more layers involved,the likelihood of something being communicated down
CHRIS COYNE [continued]: here to up here?False.Gordon Tullock, one of the founders of public choice,used the example in his book, of the whispering down the lanegame, or the passing the story down the lane.You ever play this when you were kids, like in a class?Right?Or if you went to some cheesy business, like consulting,and then they talk about this to tell youthe importance of communication.
CHRIS COYNE [continued]: What's the logic?We line up 10 people.Someone reads the story down there, person one,and they're supposed to pass the story down the line.And then it gets to person 10, and then they retell the storyand it's completely different from how it originallywas written.Because as you pass it down, people leave out details,they fill in gaps based on their own memory,or their own imagination, and by the time it gets to the end,
CHRIS COYNE [continued]: it's completely lost its original meaning and intent.Well it's the same exact logic with bureaucracy.What else happens?You have incentive problems.As it gets bigger and bigger, youhave problems monitoring people.OK.Economists call this the principal agent problem.Principal hires an agent, but the problemis, you have to monitor them.The agent is the person that works for you.
CHRIS COYNE [continued]: And the problem is one of monitoring.Their incentive is to shirk.To not work hard.But as the principal, the person hiring them,you want them to work hard.So there's those monitoring cost as well.And then finally, there's this cost issue.And here's the logic.If bureaucracies are judged by size of budget,and number of subordinates, what's the incentive?In a for-profit firm, you have an incentive to cut costs.
CHRIS COYNE [continued]: The reason why, of course, is that turns into profit.Right?If you cut $100 in costs and you'reable to produce the same amount of output, or more output,that means there's more money in your pocket.Profit.Government bureaus are different than that.They're non-profits.So what happens?Well, they have an incentive to spend downtheir entire budgets.
CHRIS COYNE [continued]: This happens repeatedly.And the reason why, is you actuallyget penalized if you return money at the end of the year.If you come in under budget, what happens?Your budget the following year gets cut.You say, look last year we got $20 millionand we were really efficient and we only used $15 million,so I'm returning $5 million, but I'd like to ask for $25 million
CHRIS COYNE [continued]: this year.The response would be, well you don't need that.You're getting $15 million.So what happens with bureaus?There's an incentive to spend down your budget,even if it's wasteful, and then always ask for more money.Give me a bureau, and I can guaranteethat you can find some report that says the following:If only we had more resources, thingswould have been different.
CHRIS COYNE [continued]: More resources.This applies not just to reconstruction,look at the Department of Education.What do they always say?No.We need more money.If we just had more money per pupil,things would be different.And you're, like, well look, spending for pupils gone up.No we need more.It's all about resource constraints.But the incentive is to be wasteful,
CHRIS COYNE [continued]: and that leads to not just waste of resources,but also there's issues of infightingand poor communication.And finally, you have elected officials.Elected officials are people that are voted into office.And very briefly, the incentives they face,they care about what voters think.But they care also about what those special interest
CHRIS COYNE [continued]: groups think.And so, oftentimes they cater to special interest groups,even if the policy does not align with the broader goalsof the reconstruction effort.And what else is there?Well a problem with politics in general,is what's called the short sighted bias.Which is the following.If you're elected for four years or eight years, what do you do?
CHRIS COYNE [continued]: You look to basically capture benefitsduring that time in office, and push costsinto the future when you are not in office anymore.You basically want someone else to incurthe cost of your behavior.If I can start programs now, and thenpush funding off into the future,I don't have to deal with it anymore.And, of course, the problem here is what?Well, you have an incentive to borrow against the future,
CHRIS COYNE [continued]: and then let other people clean up your mess.Well that sounds nice, and it is for the person in office.But as we know, and Greece knows very well now,bills come due at some point, and you have to pay them.So this process can continue until, of course,enough bills come due that you can't afford it anymore,and that's when a country goes bankrupt.
CHRIS COYNE [continued]: So these are the issues that elected officials face.This short sighted bias.An example.This is an example of bureaucracy in Iraq.You can find many, here's just oneI wanted to pull to show you.Community stabilization program, sounds very nice,like all government programs.Who wouldn't want a stable community?
CHRIS COYNE [continued]: Again, it sounds very nice on paper.It's basically a welfare handout,in order to bribe people.They didn't call it that, but that's basically what it is.They were going to pay Iraqis to work.So it's a public works program.Kind of like the stimulus package.So you're going to build roads, dig ditches, things like that.
CHRIS COYNE [continued]: The idea was very straightforward.If we paid people enough money, then weraise the benefit of them working,and they won't be terrorists.If we're paying them to work, then theywon't be an insurgent.Sounds good.Implement the program, 640 [INAUDIBLE]in the scheme of things might notbe that much money to some people.
CHRIS COYNE [continued]: What happens?Well, the auditor does a study of the programand what does he find?Well they find that basically the UShad been paying the very people it was fighting.They were basically paying insurgents, which were thenshooting at US troops.And here's basically what happened.People started setting up shell people.
CHRIS COYNE [continued]: Fake people.They call them phantom Iraqis.So you had, basically, thugs, warlords, criminals, in Iraq,basically filing paperwork to get paymentsfor people that didn't exist.And because of the massive bureaucracy setup,a lot of this stuff fell through the cracks.And what happens?Money that's supposed to be going to be rebuilding Iraq,
CHRIS COYNE [continued]: our money, taxpayer dollars, goes to the very peoplethat are fighting our troops.We were basically paying people to shoot at our troops.The exact opposite of what we would want to accomplish.And again, this is just one of many examples.Here's the underlying logic.When you become overly reliant on bureaucracy,
CHRIS COYNE [continued]: and you keep expanding it, broader and broader,and the number of things you want to do,broader and broader, it becomes nearly impossible to do them.If you ask the military to attack people,they're good at it.We basically annihilated the Afghan government very quickly.Very quickly.If our goal had just been to overthrow the governmentand leave, it would have been a success.
CHRIS COYNE [continued]: We would have been in and out.I mean, we have the most powerful military in the world.We could do this like this-- [SNAP] Just drop some bombsand fly away.Kills a lot of people, but if that's the goal,we're very good at it.But when you start getting into this stuff.When you ask the military to do economics.I mean, most economists can't do development economicsvery well.Let alone people in the military.
CHRIS COYNE [continued]: When you ask all these bureaus to basically stimulateeconomic activity and figure out how to fund public works,and you keep expanding that broader and broader, whathappens is you start losing oversight.So what does the inspector general come back and say?Well, ideally he would have said look-- at the end of his audit,
CHRIS COYNE [continued]: they always give recommendations for improvement-- ideally hewould have said, look there's limits to what bureaucracy canaccomplish, we're becoming over reliant on bureaucracy,we should scale this back.And, of course, he doesn't say that, he says temporarilysuspend the program, but don't get rid of it.And, of course, then he turns to the most common catch phraseand mantra that they use in government bureaucracies,
CHRIS COYNE [continued]: we need better coordination.They loved saying it.Always.We need better coordination.It happened with Katrina and FEMA,you can look at any government bureaucracy thatdoes something wrong, they alwaysjust say better coordination.More resources, better coordination,we'll all be better.Well, it's not just a matter of coordination.It's a fundamental understanding of the incentivesthat bureaucrats face, and what those constraints
CHRIS COYNE [continued]: mean for what can be accomplished in practice.And again, you can find repeated examples of this.Of basically bureaucratic failure.And again, one of the things I haven't pointed outis that bureaucracy is the antithesis of markets.It's the exact opposite, right?Government planning to implement markets?Understand what's going on.F A Hayek pointed out that markets are powerful,
CHRIS COYNE [continued]: precisely because they're able to utilize knowledge dispersedamong millions of people.So now we say, we are going to centrally plan markets,because they are beneficial.Because of dispersed knowledge.Hopefully you see the tension there.Which is, if markets are beneficial preciselybecause they disperse knowledge, then you can't plan a market.Precisely because knowledge is dispersed
CHRIS COYNE [continued]: among millions of people.Which is why Hayek kept emphasizingthis idea of emergent order.Spontaneous orders, instead of planned orders.Top-down orders.That's why Hayek keeps emphasizingthat, precisely because of it.And, of course, government bureaucracyis basically the strongest form of central planning there is.No profits.Weak incentives to use resources wisely,
CHRIS COYNE [continued]: and they rely on top-down planning.Yet they are at the center of all of these efforts.And we want more and more of it.And we keep creating new ones.Now we have an Office of Reconstruction, Coordinatorof Reconstruction.Because now we're very coordinated betterand do better in the future.Lessons learned.It's another thing we always like to say.We learned from the past.Well, not very well.
CHRIS COYNE [continued]: Because of course people like to point to Germany and Japanfollowing World War II, but we've neverbeen able to replicate that.So what are the main take aways?Imperfect knowledge, non-neutral political system.We don't know how to design institutions.We know what a free society looks like.If I asked you-- we just started raising hands and makinga list of characteristics of a free society,
CHRIS COYNE [continued]: I bet you we can come up with a pretty good list.We have to know what?We lack the know-how.How to go about constructing what we know a free societylooks like.That's the knowledge problem.Then there's the non-neutral political system.The political system oftentimes generates perverse outcomes.One of the main takeaways is that success is nota function of ideology.
CHRIS COYNE [continued]: We have to push aside all the talk about conservativeand liberal, Democrats and Republicans,and look at incentives.Very quickly, some alternatives I talk about in the book,and I'll just mention these briefly,and then we can talk more about whatever youwant to, here in the Q&A. Peacekeeping and brute force.So right now we're kind of in this in-between, the United
CHRIS COYNE [continued]: States is, with its foreign policy.And it's a really weird thing, if you think about it.We occupy countries in order to free them,and then we design plans in orderto allow them to engage in self-determination.So there's tensions abound, here.So what are some alternatives to this [INAUDIBLE]?Rumsfeld used to call it like the light footprint approach,I think.It's like we're not stomping on you, that's the brute force,
CHRIS COYNE [continued]: we're not colonizing you, but we're also notjust engaged in peacekeeping.There's some weird middle ground in there.And in itself, that's kind of weird.We want to engage in a war, but we don't want to kill,we're overly cautious about collateral damage.That's kind of hard.It's hard to kill people if you're so concernedabout collateral damage.
CHRIS COYNE [continued]: And there's many other problems with that, as well.So some alternatives.Peacekeeping.This idea of peacekeeping is like, look,we'll send troops over, they will just keep the peaceand let institutions emerge.So it's kind of the Hayekian point.Well, there's a couple problems with this.First of all, rarely, if ever, dopeacekeeping missions stay pure peacekeeping.And here's the problem.Typically you have to end up picking a side.
CHRIS COYNE [continued]: If someone shoots at someone else,you have to either respond, whichmeans you're picking a side, or ignore it,which means you're picking a side.In addition to that, although outsiders,the peacekeeping forces view themselves as being neutral,the parties involved in the actual conflictdon't view them as neutral.This is what happened in Somalia.
CHRIS COYNE [continued]: For those of you who saw Black Hawk Down, the book and thenthe movie.US troops went in along with UN troopsand so it was supposed to be a peacekeeping mission.What happens?Well the troops are giving food to people to help them,and they say we're neutral.Well, guess what?If you're someones enemy and someone else
CHRIS COYNE [continued]: is feeding your enemy, then the person feeding themis your enemy too.All of a sudden it unravels, because they start shootingat the troops, then the troops haveto decide whether to shoot back, or are wegoing to stay neutral and not do anything?The whole thing unravels and the mission falls apart.Then you get to brute force.Now brute force is very effective,
CHRIS COYNE [continued]: because you basically have a complete disregard for people.If I said to you, look we're colonizing.You're a protectorate of the United States.We're installing a military government,forget this whole self determination thing,and you can do one of two things.You can listen to what I tell you or you can ignore itand I will either shoot you or throw you in jail.Now if people respond to incentives, this can work.
CHRIS COYNE [continued]: You're raising the cost of disobeying them,but there's moral issues which people would object to.And on top of it, there's practical issues as well.This goes back to that slide about a free societyworks best where the need for force is least.Which is, when people disagree with fundamentallywhat you're doing, it's very costly to enforce it.
CHRIS COYNE [continued]: You don't want a society where youneed a policeman on every corner with a gun lookingover your shoulder.We want a society where most peopletend to follow a set of rules.There's deviance from that, but most people tend to follow it.So anyway, I point out some problems with these,we can talk more about it.I want to talk about the argument I make in the book,
CHRIS COYNE [continued]: in concluding.Something that we need to talk about is free trade.Free trade, I want to make the argument,is the best means for promoting, not just economic prosperity,wealth, but also peace.This idea is not original to me.I'm sure you've all heard the Bastiat quote,
CHRIS COYNE [continued]: "When goods don't cross borders, troops will."So this idea goes back a long way.And here's the idea.Trade is a fundamentally cooperative endeavor.If you voluntarily trade with someone,they have to be willing to trade with you, and vice versa,meaning you both find value in it.So it's inherently cooperative, which is
CHRIS COYNE [continued]: the exact opposite of conflict.So if we want peace, one of the bestmeans about going about getting it, is to trade with people.Now, there's a couple responses to this.One is, well look, that's nice and all but, guess what?The Taliban doesn't want to trade with United States.A nice suggestion.
CHRIS COYNE [continued]: You're like, yeah let's trade with them in a McDonald's.That's cute.There you go, Osama bin Laden.You want a Happy Meal?And the point as well taken, but it overstates the point.Which is, of course, that trade is not a panacea.But here's one thing we could do.
CHRIS COYNE [continued]: The United States could say, lookwe are not going to force anyone to trade with us,but we are willing to open our bordersand trade with anyone that is willing to tradewith our citizens.Even Iran, for instance, or North Korea, or Cuba.Think about Cuba.
CHRIS COYNE [continued]: Think about how different things wouldbe if the US traded with Cuba.There is no travel bans on their citizens,we let Cuban citizens in whenever they wanted,they followed whatever process we have,but we allowed them in.And we traded with them.You could go buy Cuban cigars.I'm willing to bet that things would be dramaticallydifferent in Cuba right now.
CHRIS COYNE [continued]: And if you look at Cuba as an example, but alsoother countries as well that are blocked off,what is the rhetoric of their dictators?They always say, see America is a terrible place.They block us off, they don't want to trade with us.In other words, they use it as an example to support them,to reinforce their position.
CHRIS COYNE [continued]: Precisely because their citizens are notallowed to see the benefits of the great institutionswe have here in the United States.What better way to illustrate the benefits of a free society,than to allow people to see it themselves?And how do you see it?You either experience it personally,or you trade with people.And that's this idea of the static versus dynamic effects
CHRIS COYNE [continued]: of free trade.The static effect of free trade is very simple.It's just an allocation of resource, type issue.Which is, if you have something I want, and youhave something I want, and we trade, we're both better off.It's a reallocation of existing resources.You have a book I like, I have $5you like, we trade it we're both better off.I preferred the book, you preferred the $5.
CHRIS COYNE [continued]: That's static.Both resources exist and we're just moving them around.But, in addition to that, trade alsohas a dynamic effect, which is, it creates new opportunities.It not only reallocates existing resources,it creates knowledge.Both of what to do when someone makes a lot of money,if you look at markets, what happens?People start following it.
CHRIS COYNE [continued]: Or it also illustrates what not to do,which is why losses are so important.Someone makes a loss, it illustrates to other people,I probably shouldn't allocate resources to that, because I'mgoing to lose money.In addition to that, it exchanges, what?Ideas, ways of doing business, cultural norms.In other words, it's a learning experience onto itself.
CHRIS COYNE [continued]: And that's the dynamic aspect of trade, which people oftendon't talk about.In addition, we could talk about increasing, or facilitating,the movement of people.Now by this, I don't mean the Helmand Valley thingI talked about, where people were forced to relocatethe name of development.What I'm talking about is basically allowing people
CHRIS COYNE [continued]: to migrate and immigrate.That's another wonderful way for people to experience things.We can talk about some of the issues,and I realize it's not as simple as what I'm saying for,both practical reasons, and also there's arguments against this.But I will say this.Think about immigration as pretty much the sameas any other good or service.
CHRIS COYNE [continued]: Basically labor.It's a good.Which means trading it, allowing it to move around, and trade itfor money, or for goods and services.This is a good thing.Just like trading books, cars, and everything elseis a good thing.So let's talk about some reason for optimism.This is just the tariff rate, wellthe mean tariff rate over time.You can see for pretty much all continents,it's fallen over time.
CHRIS COYNE [continued]: Free trade has basically increased,the world's become more integrated,this is a reason for optimism.But there's reason for pessimism, too.Which is, the financial crisis.Economic problems.Historically, when there's economic downturns,countries turn to protectionism.
CHRIS COYNE [continued]: And the reason why, of course, is the public choice issueof politics.It's very easy and politically favorableto use protectionist rhetoric.To say, look, there's an economic downturn,we need to protect jobs in our country,we need to keep unfair dog-eat-dog competition out.
CHRIS COYNE [continued]: And so we have to raise trade barriers.Now actually, over the last couple of years,it hasn't been as bad as I thought it would be initially.Because this was my biggest worry,when the whole economic crisis hit,but as you can see from these quotesfrom the World Bank report, which I won't read to you,there has been an increase in protectionism,even though the leaders of the G20committed that there wouldn't be.
CHRIS COYNE [continued]: So in closing, protectionism.I want to make the point that I thinkprotectionism is the greatest threat to peace and prosperity.This slide is free trade is on fire, for those in the back whocan't see it, there's one of the collegestudents, the World Trade anarchistguys with the bandanas.Irony, of course, by the way, is that they
CHRIS COYNE [continued]: are able to go around and riot and go to college,and be against the man, precisely because they'reso wealthy, right?Because, like 100 years ago they'd be out on the farm,and the bandana would be to keep the oxmanure out of their lungs, or something like that.Now they're throwing beer bottles.
CHRIS COYNE [continued]: The cop is beating up the guy thatsays wealth sucks, and then off to the sideis US agribusiness and European farmers.And it's these basic things.The common agricultural policy of the EU.Talk about impoverishing people.What is the main product of the poorest countries in the world?Like African countries.
CHRIS COYNE [continued]: Anyone?
CHRIS COYNE: Basic agriculture.Yeah.So if we want them to become wealthier, what should we do?Allow them to produce agriculture, and thentrade it with people.Trade makes people wealthy.What happens?You get the common agricultural policy,you get US trade restrictions, which does what?Bans much of the potential trade for agriculture.Which means, the thing they have a comparative advantage in,
CHRIS COYNE [continued]: we basically block out.And then, of course, we turn aroundand hand out tons of foreign aid to them, preciselybecause they are poor.Again, you see the tension here.Now let me just say let's say one last thingand then I'll end, which is, I wantto make very clear that the argument hereis not that markets are a panacea,because I always get accused of this.Oh, if we just trade with everyone,
CHRIS COYNE [continued]: everything would be fine and dandy.That's not the argument at all.It's that basically, if our goal isto increase wealth and increase peace and cooperation,that one, if not the best way to do this,is to reduce trade barriers, and tradewith anyone that is willing to trade with our citizens.I'll stop there and we can talk about anything
CHRIS COYNE [continued]: that anyone wants to.[APPLAUSE]
AUDIENCE: First off, thank you for speaking with us today.You mentioned that the economic viewpoint is notconcerned with which politician is rightor which policies are right, but rather lookswith positive analysis at whateveris assumed that the politicians want to achieve, and seeswhether it's feasible or not.
AUDIENCE [continued]: From the discussion of the limitationson the different methodologies within reconstruction,and seeing that the peacekeeping doesn't really work,because of the reasons you mentioned,seeing that the middle ground doesn't work, for the reasonsthat you mentioned, and seeing that the brute force doesn't
AUDIENCE [continued]: work, because of the reasons you mentioned.Could not economists also contributeto the actual political-- the normative question?Judging that it seems universallythat it doesn't work?
CHRIS COYNE: Sure.So there's a couple of things here.First of all, in general I say that about the economic wayof thinking.But it's very common for economiststo use that positive speaking [INAUDIBLE],either assumptions or implications.Very easy.And it happens all the time.So, we have to be very cognizant of that, at least.But there is room for economists to contributeto the debate on this, and talk about informing policy.
CHRIS COYNE [continued]: So, I think the way you go about this, basically, is talkingabout these things with people.Now here's the problem in one fundamental sense.For the exact public choice reasonsI talked about, in some sense, people will justsay to me, yeah, nice.OK.They'll say, we agree with you, and thenwalk away and just keep doing what they're going to do.This is the same reason people say,if economists are right-- this with students
CHRIS COYNE [continued]: always say after Principles of Economics,they'll say, well OK, if you're right that trade is so great,how come we have trade barriers, then?Why don't they just go away?If we could all become wealthier and help people?Well, because of interest groups.So in some sense, the very public choiceissues I talked about makes policy change, in general, verydifficult. Part of it is informing people,
CHRIS COYNE [continued]: but to the extent bureaucrats wantto continue to expand the size of their bureau,for instance, telling them they can't do something,That's not going to be very effective.So that's kind of a pessimistic answer,but I believe economists have a lot to contribute to the policydebate.I've tried my best, I'm not very good at it, maybe.I don't know.
AUDIENCE: I totally agree about free trade,and most of the stuff you've said in your lecture,but one of the arguments that I've heard most consistentlyfrom people who are advocating veryaggressive military policy, is that they'retrying to remove predatory governments.And from that perspective, it seemslike an institution with a comparative advantage in force
AUDIENCE [continued]: would be the appropriate institution to use.So I guess my question is, what do youthink the appropriate scope for military intervention is?And how do we constrain it once it's there?
CHRIS COYNE: OK.So there's a couple things here.First of all I don't agree that, at least,the United States has gone around tryingto get rid of regimes.In many cases, actually, they prop up regimes.What they basically want, is to pick the peoplethey want in power.And, of course, also the other thing they dois give foreign aid to corrupt governments.Which I think is the dumbest thing ever.I liken this to basically, and I know dumb is a strong word,
CHRIS COYNE [continued]: but think about this.How many of you, if you saw a bully,just out on the corner beating the crap out of someone?Just pounding on them.So it's a much bigger person pounding on a smaller person.And then, how many of you would go up to them and say,you know what?When you're done pounding on that person, here's $100.Please take them to the hospital,and then out for nice steak dinner.And then walk away.
CHRIS COYNE [continued]: And then be like, OK I did my good for today,I can sleep well.You scoff at that, but think about this.The most brutal governments in the world,I'm not talking about like waiting in line at the DMV,or raising a postage stamp price,I'm talking about raping people, chopping their arm off, killingkids, making kids fight in wars.
CHRIS COYNE [continued]: The worst of the worst.Atrocities we can't even imagine.And then we say, OK we're going to give you moneybut really, you've got to get rid of corruption,and be good, and protect human rights.It's ridiculous.So think about this.It's an issue of comparative firstbest, second best, third best.
CHRIS COYNE [continued]: OK?The relevant alternative is not Saddam Hussein, or the USpolitical system, or Britain's political system.It is Saddam Hussein, or probably some equivalent.Might be a different leader, a different party,but the equivalent.We are experiencing that right now.There's massive problems with corruption,the public sector is the largest employer.
CHRIS COYNE [continued]: The Iraqi public sector, just likeit was under Saddam Hussein.There's very little private business going on,so there's two things.This is what I was trying to say before,with the efficiency of the military, what the military isgood at is destroying stuff.Getting rid of governments, in many cases, is very simple.Now, when they are dispersed, whenthere's insurgency movements [INAUDIBLE] it's harder.
CHRIS COYNE [continued]: But when there's a centralized government,we're very good at overturning it,but that's different than building something better.And the thing to think about is, what's the alternative?What's the next best?One thing I think we can do, there'slots of talk of weakened failed states.This is the new talk.We've got to fix weakened failed states.They hurt their people, they're a threatto regional and international stability.Why not let weakened and failed states just collapse?
CHRIS COYNE [continued]: They are weak and failed for a reason.They're not good.So why are we paying them?That's the bully.The bully argument is, well let's pay them.They are bad because they are poor, notbecause they are bad people.That's one way to think about it.Another is, know the incentives they face,is that there's no constraints on their behavior.So they beat up people and take their stuff.They're basically thugs.
CHRIS COYNE [continued]: So why would we want to give them money?And here's the dilemma with foreign aid.You want to give money to people thatare going to do good with it, but if you're doing good,if you're protecting people's private property,you don't need foreign aid.Because you are going to become wealthy anyway.So then we end up giving foreign aidto people that don't protect people's private property.But that's the worst case.So let weakened failed states collapse.
CHRIS COYNE [continued]: I would cut foreign aid to a lot of these dictators, that's oneof the first things I would do.A graduate student at West Virginia his name is Matt Ryan,is at Duquesne University now.A couple years ago, we just lookedat-- Parade Magazine every year puts out its list of top 10or top 20 dictators, we just lookedat the foreign aid we give to those countries, it's enormous.
CHRIS COYNE [continued]: And it's very hard to argue-- and look,even in the case of humanitarian type aid, we give a lot of foodaid to North Korea, because we say, looktheir citizens are starving.But then, they don't let in our monitoring agenciesto make sure it's going to the actual people thatare starving.So think about why people North Korea are starving.There's a point of comparison here, which is South Korea.
CHRIS COYNE [continued]: North and South.Have you guys seen that picture of the two at night?North Korea is pitch black, South Korea has lights on.There's a reason why.And then we give food aid to help starving people, whichare starving because of the government,and then they say, well we're notgoing to let you in to monitor us,to make sure we use it correctly, and we're like, OK.[INAUDIBLE] get to people that need it.
CHRIS COYNE [continued]: I doubt it.So I think we just have to be very careful about whatour goals are.This whole thing started with Colin Powell,with the Pottery Barn principle.If we break it, we have to fix it with Iraq, remember?He was saying before we went to Iraq,if we go in there we're going to have to stay and fix it.We're going to have the moral obligation and all this.To the extent that's the case, and I'm not a philosopher,
CHRIS COYNE [continued]: so I'm not going to say what's-- we have a moral responsibilityto do, but if that's true, we better be very careful what weget involved in, because I don't think we're very goodat rebuilding entire societies.
AUDIENCE: We have a question from Kelly Miller in Michigan.She's says, it appears today, from a distance at least,that our postwar reconstruction efforts in Germany and Japanwere very successful.What factors, military, cultural, economic,made this happen?Could you comment on the differencebetween those efforts, such as the Marshall Plan,and what we're doing in the Middle East?
CHRIS COYNE: Sure, this is a very good question.In the book, I have a chapter on this.I have a chapter on Japan and Germany.Post World War II Japan and Germany are typicallypointed to as cases of success.And they were successful, from the standpointof-- if you look at them now they are developed countries.They are not at war.And I point out several differences.I won't go into all of them, there's long histories.But one was development.
CHRIS COYNE [continued]: They were both industrialized countries.The second is, they were international wars, wherethey were basically one government wasengaging in international war.There wasn't the ethnic conflict going on.And there was clear case of surrender.We basically annihilated the government,and then we took over the country.
CHRIS COYNE [continued]: There were military governments.It was the brute force approach.Doesn't get any more brutal than an A-bomb.Pretty effective, in terms of brute force.You want to get people to surrender and give up?Just drop an A-bomb on them.It will work.I'm not saying that tongue in cheek, it's true.It's brutal, but it works.
CHRIS COYNE [continued]: And then you go in and you reconstruct the country.Now the Marshall Plan gets way too much credit.It was a very small percentage of GDP.But if you actually look at the historyof the reconstruction of Germany,all the things I talked about were at play.There was major bureaucracy and infighting going on.The US military government kept in place the Nazi price
CHRIS COYNE [continued]: controls, so basically there was massive shortagesof basic necessities because productsweren't allowed to be traded.Ludwig Erhard, who was in charge of a lot of the bankingand finance sector, basically removedthe price controls behind the-- Lucius Claywas in charge of the military government
CHRIS COYNE [continued]: for the US-- he went on the radioand announced that the price controls have been lifted.Lucius Clay calls him into his office on Mondayand says, why did you do that?You were not supposed to announce any policy changeswithout getting my approval.And he says, because if I told you,you wouldn't have let me do it.And they start removing all these basic controlson the economy, and then development starts happening.
CHRIS COYNE [continued]: Again, if you understand the benefits of trade,then you realize that this matters.In Germany and Japan, it was largelya matter of physical capital.Rebuilding buildings.Which we can do.We can rebuild physical buildings.The problem is, if people are fighting around a hospital,it doesn't matter how pretty the hospital is.
CHRIS COYNE [continued]: If you build it and then it gets blown up the next day,it's not very useful.It's a waste of resources, basically.And that stuff wasn't going on in Germany and Japan.If you look at the history of Japan, for instance.Basically citizens acquiesced to the US.They were a strong military presence,but they were also very nervous about brutality.They were expecting the US to treat them brutally.And they actually ended up treating them relatively well,
CHRIS COYNE [continued]: compared what they were expecting.So when you have all that.You have a centralized government.The US kept a lot of their political institutionsin place.Everyone talks about how MacArthurwrote the Japanese constitution in 10 days.Well, MacArthur and several other peoplewrote it in 10 days, but what is not often discussed,it was passed by the Japanese legislature.
CHRIS COYNE [continued]: It was a formality, they were goingto pass it no matter what, but they alsohad input on what was included, as well asseveral other Japanese leaders.So there is that cultural element there,of inclusion of the ideas of established leaders.So when you think about it that way,Japan and Germany are very poor examples for modern dayreconstruction efforts.
CHRIS COYNE [continued]: They are nothing like Somalia, they are nothing like Haiti,they are nothing like Iraq, and theyare nothing like Afghanistan.The threats today, or the idea that wehave to use force abroad, rarely, if ever,applies to a country that is the equivalent of Germanyand Japan.It's typically like a weakened failed state.We see it now.Somalia is the next big one and Iran.
CHRIS COYNE [continued]: Iran is not like Germany and Japan.There's lots of tensions going on that are bubbling up.These are tough issues.Iran, North Korea, these are very hard issues.I don't think, in either case, wecan rebuild the countries the waypeople tend to think we can.I do think we could overthrow the governments through force,
CHRIS COYNE [continued]: those are two very separate issues.
AUDIENCE: Yeah, I wanted to go backto the notion of spontaneous order,and the emergence of prosperity and peace coming from that.If you look at Afghanistan, 65% of the populationis under the age of 25.And these young people are angry, they're uneducated,a lot of them have fallen for extremist ideologies,
AUDIENCE [continued]: how do we ensure that during reconstruction periods,that the proper institutions emerge from them,without intervening and taking away from that spontaneity?
CHRIS COYNE: Sure.This a hard question.I wish I had the answer, which I don't, or Icould be in charge of it and I could fix it.First of all, in general, studiesshow that terrorism in general is not correlatedwith lack of education.That's one thing to keep in mind.But on top of that, there's another strandof literature in the terrorist literature, by the way.
CHRIS COYNE [continued]: And there's debate about this.I'm not saying there is 100% consensus on this,that terrorism is the result of military occupation.It's more likely people would be terroristswhen basically you have military occupiers from other countries,and the idea is very straightforward.If someone with a gun is in your backyard telling youwhat to do, you have very few options.
CHRIS COYNE [continued]: And the idea is, it lowers the cost of being a terrorist,because you're basically forced into a corner thathave to retaliate with force.There is this idea of blowback, and, of course, a lot of peopleassociate this with Ron Paul, because remember with Giuliani,they got into that when they had the debateand Ron Paul said foreign policy.
CHRIS COYNE [continued]: We should look at US foreign policyto see about what role that played in 9/11,and Giuliani did the whole thing,how dare you blame America for attacking itself,or whatever he said.Well this idea of blowback is not Ron Paul,it's not a crazy idea actually, it's the CIA's idea.The CIA came up with the concept of blowback,which is a very simple concept.If you pull a string over here, over here
CHRIS COYNE [continued]: being some foreign country, it has an effect.It does something.It sets off a chain of events, and that chain of events,in some cases, can blow back.It could ripple through and come backto affect the United States in certain ways.One of the things they talk aboutis, if you basically invade other people, or anger them,they are more likely to attack you.That's the CIA.This is not like a crazy Libertarian conspiracy theory.
CHRIS COYNE [continued]: So one thing we need to think about is this idea of blowback.What role does our actions have on subsequent actions?In many cases, we can't know that.Now, there is this problem of spontaneous order, whichis where I thought maybe you were going,or this is where I thought you were going when you startedit, which is, spontaneous orders are not always good.And we can talk about what good is.In other words, you can have lots of spontaneous orders
CHRIS COYNE [continued]: that generate outcomes that we may not like.So what does this mean?Well, there's a distinction between--and the distinction can be blurry sometimes--between spontaneous orders and top-down orders.But even Hayek pointed out that we do a lot of planning.We all plan.
CHRIS COYNE [continued]: We have top-down planning orders.The IHS program.The Summer Fellows program.The seminars.This.These are all planned events.Yeah.I know.I know.I'm watching you the whole time.They are all centrally planned, but they take place
CHRIS COYNE [continued]: within a set of norms and values,which are the spontaneous part.And what we can plan is constrained by that.So how do we make sure?I don't think we make sure.That my response.I don't think there's any making sure to do.To the extent you believe the military and the governmentshould protect US citizens, then that's what it should do.
CHRIS COYNE [continued]: And I know that's difficult, in some cases, so there'sthese fine line type arguments.So someone coming to attack the US,coming on our shores, that's an easy one.You defend it.But preemptive type attacks, thoseget a little gray sometimes.But should we care what people in Afghanistan do?Should our government?I think you can make the argument no.
CHRIS COYNE [continued]: Not to the extent-- because there's lots 20-year-olds,well, all right.Right?And you are like, well, they're growing poppy--I mean think about Afghanistan.We shifted ground so many times.We started destroying the poppy fields,then we said no, we need them because of the economy,so we're going to let them grow.Then we went back to destroying them,then we said we need a strong government.Then you realize now-- and you could look this up
CHRIS COYNE [continued]: in the New York Times-- there's been several articles.You know now, the US is paying warlordsto basically have local governance, because theyrealized the national government, whichare supposed to be reconstructing,isn't effective.What's the real form of government?Local warlords.So now the US is like, OK, we're basically going to bribe you.We will give you aid.Aid is just the name for bribing, in most cases.It really is.
CHRIS COYNE [continued]: Corrupt governments, what are we doing?We're bribing them not to be corrupt.That's what we're trying to do.We're basically aiding warlords to do what we want them to do,which cuts against the idea of havinga strong national government.So there's always tensions going on.Precisely because of these type of issues.
CHRIS COYNE [continued]: To the extent we should be concerned,it's because it affects us negatively.But other than that-- I mean, you guys can care about itall you want.You can start a nonprofit, you can go over to Afghanistanand build-- how many of you read that book Three Cups of Tea?Did anyone read that?Some of you, right?
CHRIS COYNE [continued]: It's in Pakistan where he builds that school?Can you guys help me?Yeah, Greg Mortenson is his name, right?OK.So Greg Mortenson is this guy whowas a hiker, correct me if I forget the story,he was a mountain climber.He was doing something in Pakistan, he got stranded.Some tribe in the mountains helped him out.He was very grateful for this.And he had talked to them while he was there, became
CHRIS COYNE [continued]: very close with them, and he wantedto repay the debt, basically.And they said, what we can use as a school.We don't have a school.The guy comes back, I think it's Californiahe lives in, in the book, but this guywas living out of his car.He starts raising this money to build a school.He raises enough money, goes back over,and the whole story is about how he basicallygot all the supplies, and then all these challenges
CHRIS COYNE [continued]: he went through, traversing these hills and roads,and bribing people, which people to talk to,to get all this stuff done, to build this school.It's a form of basically bottom-up nonprofit type workfor people that care about it.And also, he has an incentive not to waste those resources,
CHRIS COYNE [continued]: because-- I thought it was going to bring this up,maybe somewhere we can talk more about it-- I thought someonewas going to say well, non-profits,like you guys working in, are also bureaucraciesthat are non-profits.Well, there's a constraint they face, which is donors.To the extent donors care about their money not being wasted,there's an inherent check.For the Pentagon and State Department, who are the donors?You and I. And we don't voluntarily donate.
AUDIENCE: We have a question from Paul [INAUDIBLE]at the Grassroot Institute of Hawaii.He's probably like eating breakfast.[INTERPOSING VOICES]It is a good gig.He says, given the political realitiesof government bureaucracy [INAUDIBLE]the public choice realities, what is the best method,if we want to promote free trade in a limited interventionpolicy like you're saying.
AUDIENCE [continued]: What's the best method to actually bring that about?
CHRIS COYNE: Given the current constraints?First, I should go to Hawaii to speak.This is an answer better given in person, in Hawaii.I didn't know that.That's a very good gig.It's very difficult to- how old youhave to be to be a part of this program?
CHRIS COYNE [continued]: I can apply still for next summer?This is a very hard question.Given the status quo, how do you do it?Well, there's several, at least.And some of these aren't realistic.Here's what you would have to do in some sense.What you have to do is somehow get ridof the vested interests.
CHRIS COYNE [continued]: And there's a couple of ways to do this.One is, they become irrelevant.So the things they produce are just not relevant anymore.So they have a dominant position making typewriters,and then the computer comes along,and then typewriters are irrelevant.So OK, you can have all the protectionismyou want with typewriters, just like youcan have all protectionism you want with horse buggies.I really don't care, because we don't use them anymore.
CHRIS COYNE [continued]: So that's one.The second is, it would have to be some kind of waveof public opinion change, some kindof broad ideological change, which isvery difficult to bring about.But that could happen.A third is to pay them off.You could pay them off, in theory.So here's the problem.Gordon Tullock talked about this,
CHRIS COYNE [continued]: it's called the transitional gains trap.Which is basically, once you've passeda regulation or a subsidy, and it's incorporatedinto the value of the resource, it's very difficultto ever get away from it.There's a lock-in effect, basically,because people don't want to give it up.There's a little more to it than that,but that's the gist of the argument.So in theory, what you could do to get rid of vested interest
CHRIS COYNE [continued]: groups, is pay them off.So if the benefits of having free trade were-- I'mmaking this number up completely, but-- $1 million,you could pay them up to that amount,to get rid of the protected interests and have free trade.Now, this also would be difficult to do,
CHRIS COYNE [continued]: because taxpayers would get mad.Because if you said, for instance, OK we'regoing to start paying off taxi drivers in New York Cityto get rid of the medallions, and we'regoing to tax you in order to do it,people might get mad at that, as well.This is a very difficult thing to do, in general,getting rid of these bureaucracies, these interestgroups.The first thing is just to be aware of it.And to point out, I think, the benefits
CHRIS COYNE [continued]: of free trade to people.Not so much the special interests,because they're going to be against it no matter what,but just the average person.I find, in general, that the people do not understandthe basic gains from trade.That's one of the most common mis-- and part of itis economists fault. They just don't understand gainsfrom trade.And think about this in your own life, how many people have
CHRIS COYNE [continued]: you met that think that capitalism,or trade, or free movement of goods and services,or labor is a bad thing?Not that they want to get rid of it,they're not like Socialists, necessarily, or Communists,but they say, look, we need governmentto protect consumers, we need them to protect labor,we need restrictions on this, restrictions on that,anti-competitive behavior.You hear all this language, and people just
CHRIS COYNE [continued]: don't understand the benefits of trade.We talk about greedy businessmen,and profit-driven businessmen, and basically talkabout government as a protective and a correctiveto these problems, and I think if people understoodthat, it would go a long way in realizing these problems to getrid of it.But it's a very difficult question.It's very difficult also, with foreign aid,
CHRIS COYNE [continued]: get cutting that off, because vested interests,both in those countries, but also in the United States.They basically are employed because of this.
AUDIENCE: So, what do you do when you have a situation-- wecould raise our barriers to trade with countries like Cuba,or North Korea, or things like that.But on the other side, there would stillbe all these government barriers to them doing free tradeand engaging with us, and if our companieswere to trade with them, they would still
AUDIENCE [continued]: be subject to all sorts of barriers on that end.I am thinking of Google in China,where if Google wants to be in China,it has to accept government censorship.Is that better, or is that actually worse?Because they are now establishing a marketover there that is inhibited.What is your opinion on that?
CHRIS COYNE: Sure.Well, there's a couple things here.First of all, the way trade works is this.First of all, people trade with people,so we talk about countries trading.Countries don't trade, people trade.So those people could be private citizens,or they could be governments.People in government.But people trade.And here's the thing, with free trade,there's all this stuff about retaliatory barrier,
CHRIS COYNE [continued]: so if they raise their barriers, we're going to raise them,or if they do this we're going to get them back.Really, you're screwing yourself over.So basically we say this.China raised barriers to letting US cars gointo to their country, so their consumers nowhave fewer cars to purchase.That's what it does.It restricts the number of cars, which hurts their consumers.
CHRIS COYNE [continued]: Their consumers now have fewer options,and they pay more per car, because there's fewer cars.And then we say, OK, let's get them back.Let's prevent Japanese cars from coming over here.Really, what you're saying is, OK, Iwant to hurt my consumers in retaliation.You've screwed over your own people,so I'm going to get you back by screwing over my citizens.I'm going to restrict the trade options and raise the price.
CHRIS COYNE [continued]: And somehow we act like this is hurting them.Well it hurts some of their producersbecause they can't trade as much,but it also hurts you and I, who pay thousands of dollarsextra per car, because of tariffs, quotas, and so on.So here's the thing.My argument is this.We should open our markets to peoplethat want to trade with us to the greatest extent possible.
CHRIS COYNE [continued]: I would be pro-zero-trade barriersAnd then companies and entrepreneurscan figure out for themselves.If China wants to-- if their government wantsto restrict what their consumers can have, do I like it?No.I'd like it if they let them have whatever they wanted.But do I care that much?No.I still think having Google there isbetter than not having Google.
CHRIS COYNE [continued]: Pretty sure someone will figure out a way around that,like they have already.In general, anything that expands markets,whether it's trading information,I think is preferable because it gives thema higher likelihood of seeing how other countries operate,or other societies can operate in gettingthese ideas out there.The benefits of these things.Now here's another point that someone brought up to me once.
CHRIS COYNE [continued]: This is related to your point.They said, look, you want to trade with Iran,you say people trade with people, but guess what?If you and I traded with Iran, wewould be trading with their government,because their government basically controls it.It's not like they're going to say,OK now we're going to give all the spoils of tradeout to our citizens.And my response to this is twofold.One, and this is the cold hearted response,is I don't care, because you and I are still
CHRIS COYNE [continued]: better off as consumers.The option is not, we trade with them or they go away.They're still going to be there.And the second one is, if you really care about it that much,boycott it.If you open barriers up and you don't like something,boycott it.Just like people boycott stuff today.If you really care about it that much, and if you don't thenyou're OK with it.
CHRIS COYNE [continued]: You like trading with Iran.The government.So you like the dictator.Good job.The other bad thing is one of sanctions.I should make mention of that.Sanctions, I think, are one of the worst policies.They're politically popular because they're obvious to see,and it's tough talk.It's like, we are sanctioning them.Sanctions rarely, if ever, work.
CHRIS COYNE [continued]: There's very few examples of them actuallyleading to political change, because basically,unless you have everyone agreeing to it,the dictator can just turn around and go eitheron the black market, or to a different tradingpartner and trade with them.And then, of course, you get thingslike the oil for food scandal with the UN.Because of all the bureaucratic issues we talk about.And, of course, you guys realize that the oilfor food scandal with the UN was because we put sanctions
CHRIS COYNE [continued]: on them.So we put sanctions on them.Basically they fell on the average Iraqi citizeninstead of on Saddam Hussein, who lived very wellin his hundreds of palaces.So then we're like, OK we're starving them,so we're going to let Saddam Hussein, again,who we say is one of the worst people in the world,sell some of his oil, as long as heuses it to help his citizens, and then
CHRIS COYNE [continued]: we're going to monitor it.And then you get all this corruptionand stuff going on in that program.That's the whole oil for food scandal in a nut shell.Where the obvious thing would have been like,OK, sanctions are hurting the citizens of Iraq,maybe we should get rid of them.No, let's create a whole new program on top of it.That's a smart idea.So let's create more layers of bureaucracy.
AUDIENCE: I have a question.[INAUDIBLE]So when we have this goal of, say, free trade and allthat jazz, can we work within the existing institutionalframework to achieve that?Because we have all these organizations
AUDIENCE [continued]: that are already ostensibly dedicatedto trade liberalization, like the GATT and the WTO,and so on, and so forth.And despite the downward trend in trade barriers,they seem really ineffective.Just look at the mess of the Doha around and all that jazz.Can we, as advocates of trade liberalization,work with these institutions, or should weadvocate institutional change?
CHRIS COYNE: You're going to a strategic type argument now?Look, here's a very simple point.If you want to trade with people, it's very easy to do.Which is, I'm going to trade with you.In other words, I don't need an institution,an entire bureaucracy, set up to figure out how to do this.And basically what I'm telling you is,get rid of the institutions.Free trade agreements are one of the biggest scams,
CHRIS COYNE [continued]: I think, going around.And the reason I dislike them greatlyis because they basically co-opt the rhetoric of free trade,and they are basically a way for interest groupsto cover up their practices.Again, the logic being, if you want free trade,remove trade barriers.You don't need agreements in this, and that,unless you're trying to phase things in.
CHRIS COYNE [continued]: And if you read them, there's tariffs on this, but noton that.And we're going to do certain things.Why are there tariffs on some things, and not others?Because interest groups are lobbying for protectionism.And all of a sudden, it starts getting all complicated,because it's this collectivism bilateral typething, which is why the [INAUDIBLE] broke down, too.What's the US go around saying to people?
CHRIS COYNE [continued]: We're hypocritical.We say, well, like African countries,you are [INAUDIBLE] they have trade barriers.That's part of the conditionality of foreign aid.And they turn around and say well, what about you?You're keeping out our goods.So this is just another example of the tension involved.Which is, we preach.We talk a good game, when it comes to markets and thingslike that.But in practice, oftentimes we don't follow it.
CHRIS COYNE [continued]: And a lot of this stuff is common sense.I don't understand why, with free trade,you need to remove it.Well it's very complicated.No it's really not.It's like, you're either trading with people, or you're not.You're either raising barriers to trade, or you're not.And if you are really committed to free trade, get rid of them.Irrespective of what they do.Again, if they want to spite their own citizens, good.
CHRIS COYNE [continued]: I mean.I don't like it.I wish they wouldn't, but they're not hurting me.All this stuff.Predatory pricing.Dumping.Think about what dumping is.Of course, what they are trying to pictureis someone taking a dump on you, or something.Ah, China's dumping goods.It's going to fall on my head.No, in reality they're charging like a nickel.I am like, cool.
CHRIS COYNE [continued]: I like paying a nickel for stuff.Because I can buy more stuff.And then we're like, no, we need to protect consumersand producers from this.And it's like, why?Seems odd.Well, the reason why, is because producersdon't like being undercut.Because then they go out of business.But we know that the foundations of progressis precisely that process.So a lot of this stuff is just common sense.
CHRIS COYNE [continued]: You just got to cut through all the rhetoric that'sbuilt up upon it.So, anyway, thank you very much.I appreciate it.[APPLAUSE]
After War: The Political Economy of Exporting Democracy
View Segments Segment :
Professor Chris Coyne discusses post-conflict reconstruction and why it is ineffective. He cites four distinct groups--voters, interest groups, bureaucrats, and elected officials--and their very different motivations. He skewers the idea that governments can effectively plan a new societal structure and advocates free trade as a way to incentivize the evolution of good structures.
Professor Chris Coyne discusses post-conflict reconstruction and why it is ineffective. He cites four distinct groups--voters, interest groups, bureaucrats, and elected officials--and their very different motivations. He skewers the idea that governments can effectively plan a new societal structure and advocates free trade as a way to incentivize the evolution of good structures.