Making Inferences about the Effect of the Stimulus

Did the stimulus help the US economy? In the wake of the debt ceiling debacle, Obama cannot expect to get additional stimulus passed, because of Republican opposition to increasing spending when the debt has become as large as it is.  I want to stop and think about how we'd know if it had worked. One approach is what's called an interrupted time-series research design: the economy was bad before the stimulus, then there was the stimulus, and the economy is not now "good." So the stimulus had no effect. The trouble with this is that it's a pretty crummy research design. The post-stimulus world is a different world than the pre-stimulus one, and it's pretty hard to compare the two. We can really only tell what effect the stimulus had if we could compare a pair of USAs. They are exactly identical, except that one got stimulus and the other didn't. Unfortunately, we don't see the no-stimulus world; we need to be able to see that alternate universe in order to make a causal claim. This is what's known as the Fundamental Problem of Causal Inference (FPCI). If you want to know how a cause (or "treatment") affects an outcome, you need to compare the real world that received the treatment with an identical world in which the only different thing is whether or not a treatment was received.

We don't know how well the stimulus worked because the possible states of the world include the following:

1. The economic stimulus had no effect; the economy has not changed as a result..
2. The economic stimulus had a large effect; the economy would have been much worse without it.
3. The economic stimulus had a large effect, the economy would have been much better without it.

Not to mention the many states of the world between those three. We could be in state 2 or 3 and we wouldn't be able to differentiate between them. State 2 includes the possible worlds in which economic and job growth both grow largely as well as the world where economic indicators grow more than they might have otherwise, but they still aren't positive.

Just to be clear: this means that we cannot tell if the stimulus was effective by comparing the state of the economy before the stimulus with the state of the economy afterward. We could compare the behavior of firms that received stimulus funds with those that received no funds. It's not quite the stimulus vs. no-stimulus world, but it's closer, especially if we think that direct and indirect effects across firms were minimal (this is a big problem that I do not address here). A recent paper by Jones and Rothschild (h/t to Tyler Cowen for covering the paper) attempts part of this comparison. The study claims that the stimulus should have been larger to be effective, because only 42 percent of the workers hired with stimulus funds were unemployed. Jones and Rothschild, the authors of the study survey firms that received stimulus funds to find out how they behaved given that they used those funds.

What's wrong with this picture? It's the FPCI: By studying firms that received stimulus funds, we don't know how firms that did not receive funds reacted. Not only can we not assess how an outcome varied by using a variable that doesn't change--in this case, a binary indicator of whether a firm received funds or not, but we cannot assess how an outcome varied when we don't observe the counterfactual state. That is, how would these funds behave if they had not received stimulus. The authors attempt to mitigate this by trying to get their respondents to think couterfactually, but this fails to solve the problem. We can't expect the individuals involved in decision-making to know how they would have behaved in different circumstances. We only know how they did behave. More specifically, in the case of this paper, we don't know whether non-stimulus firms were shedding workers at drastic rates (so that 42% looks really, really good in comparison) or were hiring from the ranks of the unemployed at much higher rates (so that 42% looks pretty poor).

There are at least two ways to solve this problem. One may already be lurking in their data. The other requires significant additional work. One way to (attempt) to solve the FIPC is to make relevant comparisons. We could compare the US to another, similar country that didn't attempt stimulus, or that attempted less stimulus. But more specifically, we could focus on the implicit comparison the authors make: We can compare firms that received lots of stimulus to those that received less stimulus. Or we can compare firms that received stimulus to those that received no stimulus. As I mentioned, the first might already be in their data--it makes sense that they would have asked how much stimulus funds the firm received, then they could calculate a per-employee or per-output measure of stimulus received to make the numbers more comparable. Or they can conduct another survey and attempt to match firms that didn't receive stimulus with those that did.

Both of these approaches may still be problematic in terms of FIPC. No matter how many factors these firms share, unless stimulus was awarded via a lottery, it will be difficult to know for certain that the difference made by the stimulus is not, in fact, a result of some other factor.

Two Roads Diverging? Scientific Realism and Rational Choice

Hampsher-Monk and Hindmoor (2010; here, gated) argue that game theoretic models may be instrumentalist, structuralist, or realist. Whether a model is realist or not hinges on whether or not "interpretive" evidence, that is, evidence about how the actors in question think about an issue, is useful as evidence in favor of game theoretic models.

In instrumentalist models, the truth of assumptions is irrelevant because a model's utility is in its predictions. In structuralist models, actors are forced into their responses by external structures, so how actors think and process is irrelevant. In realist models, assumptions need to be true because models are both descriptive as well as explanatory.

It seems to me, however, that interpretive evidence should also be useful in structural models because a structural model may also be realist. That is, in arguing that structures determine behavior, it makes no claim about reasoning regarding behavior. In some sense, it's really a realist argument that says that reason doesn't matter for behavior, so we should be able to see some disjunction between reasoning and behavior across different actors. So interpretive evidence would be useful here.


It does strike me that they are correct, however, about instrumental models and interpretive evidence. It also suggests that a realist can legitimately argue that some factors aren't relevant as part of their explanations, but this strikes me as different than assuming that something isn't relevant a priori. Is this correct?

But this hinges on a bigger question: So, can a scientific realist make simplifying assumptions (and know that he or she is making assumptions) and still be a realist? Or does being a realist mean you don't have the ability (luxury?) of making assumptions?

The Gulf Cooperation Council as "Internal Security" Organization

The Bahraini use of the GCC's "Peninsula Shield" reflects the fact that there is probably no other international organization of its kind in the world. Mohammed Ayoub makes a similar argument to one Charles Tripp made in a 1995 edited volume, Regionalism in World Politics. Basically, the GCC, for all its efforts at economic cooperation, is really a security organization. But it's not exactly focused on external security (like NATO, for instance), but on internal security. That is, the job of the GCC is to allow its member countries to swap information that will allow their leaders to stay in power. That the Saudis (and others) would allow their troop contribution to the GCC to be used like this highlights this fact.

That said, I'd love to hear if other IOs perform or performed similar tasks. I wouldn't be surprised if the Soviet Union maintained a similar mechanism within the Warsaw pact, although that seems more hierarchical than this does. This kind of organization seems distinctly authoritarian: are there democratic counter-examples?

Saif al-Islam Qaddafi has always been His Father's Son

It was reported some time ago how interesting it was that Saif al-Islam Qaddafi's (SAQ's) wrote his dissertation on the role that civil society could play in making the institutions of global governance more democratic. Now it's being reported that, following his "civil war" speech of the other night, LSE is trying to distance itself from Qaddafi's son. This is not at all surprising. What's more surprising is that SAQ ever achieved "Media Golden Child" status on account of his liberal, reform oriented dissertation.

SAQ's dissertation appears to neatly sidestep the question of creating more democratic domestic political institutions, as if international institutions were the ones doing all the oppression. That issue alone should have at least sounded a few alarm bells back when the world discovered the "reformer" that was Saif al-Islam Qaddafi. Not that he wasn't a reformer, but he certainly isn't now, and his dissertation--at least, the title, abstract, and descriptions offered--appear to sidestep this issue all too cleanly.

In his dissertation, SAQ says "I shall be primarily concerned with what I argue is the central failing of the current system of global governance in the new global environment: that it is highly undemocratic."

A broader summary:

This dissertation analyses the problem of how to create more just and democratic global governing institutions, exploring the approach of a more formal system of collective decision-making by the three main actors in global society: governments, civil society and the business sector....
The thesis explains and adopts three philosophical foundations in support of the argument. The first is liberal individualism; the thesis argues that there are strong motivations for free individuals to seek fair terms of cooperation within the necessary constraints of being members of a global society. Drawing on the works of David Hume, John Rawls and Ned McClennen, it elaborates significant self-interested and moral motives that prompt individuals to seek cooperation on fair terms if they expect others to do so. Secondly, it supports a theory of global justice, rejecting the limits of Rawls’s view of international justice based on what he calls ‘peoples’ rather than persons. Thirdly, the thesis adopts and applies David Held’s eight cosmopolitan principles to support the concept and specific structures of ‘Collective Management’. (hat tip to Alex Tabarrok).

 As an approach to international organizations, SAQ neglects the fact that international bureaucracies--the form that nearly all international organizations take--are inherently undemocratic. Bureaucracy, as an organizational form, is necessarily non-majoritarian. That is, bureaucracy isn't inherently democratic. That's why both democratic and authoritarian states use it so frequently. This isn't a problem because we need these institutions to implement policy, and we like the Weberian rationality that embodies their decision-making (although autocrats don't always take advantage of this aspect of bureaucracy). Any "democratic-ness" that a bureaucracy inherits comes from the nature of the institutions (in this case, the states) giving the bureaucracy its marching orders. There is no "democratic deficit" in international institutions (I'm borrowing somewhat from this Andrew Moravcsik article).

This suggests, then, that if we can call international organizations "undemocratic," we can only do so because many of the governments who participate governing these institutions are themselves undemocratic. While I don't think most of the people who are sympathetic to SAQ's argument are themselves autocracy boosters, in SAQ's case, neglecting this point reveals that he has always been his father's son.

Could Journalists Spend Five Minutes on Game Theory, Please?

A recent New York Times article, headlined as "Egypt's Leader's Signal Commitment to Civilian Rule" tells me little about what the Egyptian government has done to "signal" its "commitment." The UK's David Cameron visited, the country's top prosecutor wants to request that the Foreign Ministry freeze the assets of Mubarak, his family and his cronies, the military has appointed an opposition member to a ministerial position--as the Minister of Tourism, and the military has refused (so far) to reappoint a Minister of Information.

In none of these case has the government "signaled" anything or demonstrated that its commitments are "credible." That is, these actions are easy to do and easy to undo. In fact, few of them represent "actions" by the government at all. An important foreign dignitary visited and a prosecutor wants to do something to the Mubaraks. And appointing an opposition party member as the Minister of Tourism hardly seems earth shattering. I fail to see how this will entail any costs to the military should they choose to move in a less-than-democratic direction.

Also, Cameron refused to meet with the Muslim Brotherhood, saying "that the Egyptian uprising was 'not about extremists on the streets.'" This, perhaps, sends the clearest message of all those presented in the article. Namely, that the West still vitally misunderstands the nature of the Muslim Brotherhood. The sooner the West stops associating the organization with extremism, the better. Indeed, such a move might even bolster the moderate elements of the organization.

Obama Doesn't Deserve Any Credit for Egypt

With Mubarak gone, we (rightly) want to assess Obama's handling of an entirely unexpected crisis. Niall Ferguson criticizes Obama's team for not appropriately gaming such a difficult to image scenario. Sure, this would have been advisable, but at some point your foreign policy team has to decide which in conceivable threats to deal with, and which are, well, simply inconceivable (This makes some sense, whether or not revolutions are inherently unpredictable (as Scott Wolford argues) or if a group of Egypt experts had, in fact, predicted Mubarak’s weakness (as Dan Drezner claims)). Slate’s John Dickerson weighs in in Obama’s favor, arguing that when events move quickly, doing little isn’t such a bad option. Foreign Policy's Blake Hounshell argues similarly that Obama, while spending too much time trying to "thread the needle," came down in favor of the protests, but in a way that avoided making the protesters look like foreign stooges.

All of these arguments miss an important point about what Obama did. Under pressure from Middle Eastern allies, the Obama administration responded carefully, finally deciding to "support" the protestors in their calls for reform, but by maintaining calls for stability. Mubarak and his government could stay in power, handle the transition, and work toward September elections. Some commenters (like Stephen Walt and Blake Hounshell) claim that this represents Obama’s ultimate support for the protesters.

I don't see it that way. Unless Obama and his team are much more naive than I give them credit for, they, like any other politician, know the value of political promises. Without strict incentives to follow up, political promises aren't credible. And any promise by Mubarak to work towards "transition" wasn't credible. The Egyptian protesters knew this: that's why they stayed on the streets. If they had gone home, Mubarak could simply have loaded up Facebook and started hunting down the organizers, one by one. By September, any new protests that could have been generated by the new elections could have been shut down by arresting the organizers and putting security forces out in force to quell new protests. End result: Mubarak stays in power, with Obama's support for reform giving him the out he needed. 

Good thing the Egyptians didn't fall for it.

Here's the real rub, though. The US can pretty much afford to piss off Arab dictators--Mubarak and the rest, since, as far as foreign policy goes, their interests are our interests. Saudis don't want high oil prices, but not because they're worried about the US. Mubarak's Egypt will always play along on combating terrorism and maintaining the treaty with Israel. They can't afford not to. Both because of the outrageous levels of development and military aid we give Egypt, but also because it's in their interests to do so.

If Mubarak hadn't fallen, angering him wouldn't have mattered so much, because our interests are aligned. If he did, then it's critical that we played the right game during the protests. And that game was to unambiguously side with the protesters. We weren't, and I'm certain that if the next government is a non-military one, they'll remember who got them there and who didn't.