Lifted from Acemoglu. "The Crisis of 2008:  Structural Lessons for and from Economists." 2009, CEPR:

Our second too-quickly-accepted notion is that the capitalist economy lives in a institution-less vacuum, where markets miraculously monitor opportunistic behaviour.  Forgetting institutional foundations of markets, we mistakenly equated free markets with unregulated markets.  Although we understand that even unfettered competitive markets are based on a set of laws and institutions that secure property rights, ensure enforcement of contracts, and regulate firm behaviour and product and service quality, we increasingly abstracted from the role of institutions and regulations supporting market transactions in our conceptualization  of markets.  Sure enough institutions have received more attention over the past 15 years or so than before, but the thinking was that we had to study the role of institutions to understand why poor nations were poor, not to probe the nature of the institutions that ensured continued prosperity in the advanced nations and how they should change in face of ever evolving economic relations.  In our obliviousness to the importance of market-supporting institutions we were in sync with policymakers.  They were lured by ideological notions derived from Ayn Rand novels rather than economic theory.  And we let their policies and rhetoric set the agenda for our thinking about the world, and worse perhaps, even for our policy advice.  In hindsight, we should not be surprised that unregulated profit-seeking individuals have taken risks from which they benefit and others lose.

A note of context... Acemoglu is the emerging expert on economic growth.  He was the recipient of the 2005 John Bates Clark Medal for the best economist under 40, and his new book Introduction to Modern Economic Growth (2009), has already established itself as the seminal textbook in the subject through advanced availability of electronic copies.  

Resource Management

There is an emerging discipline within macroeconomics revolving around the management of "resource rich economies."  The idea is to apply macroeconomic theory to address the problem of why so many developing countries fail to channel an abundance of natural resources into economic growth and development.  An especially interesting question in this research is how a country manages "resource windfalls" (a large influx of wealth due to a discovery of resources or a large shock to the value of known resources).  It seems that such windfalls often create more problems than they solve--demolishing infant industries, creating capital flight, and causing political strife.  This last bit merits emphasis, as the management of resources is an extremely politically rich focus of economics.  Shocks to a system, both positive and negative, are likely to emphasize the political framework formalizing our collective action and interaction.

While this field is generally viewed as an idiosyncratic subset of development macroeconomics,  the scope of this analysis could easily be applied well beyond the circumstantial constraints defining the current research focus.  The interaction of a political framework and the management of large resource shocks extends far beyond developing countries and countries with infantile industries and political structures to countries with complex interactions. These complex interactions basically constrain people from exploiting each other, either intentionally on not.  These constraints take the form of commitment mechanisms, reputation-based incentives, signaling devices, and a host of other tools that drive the transformation of an economy into what we see in developed countries.  In short, studying management of resources within a political framework extends into the institutions that have been created to address a multitude of collective action problems in a given society.

Right... if you've followed through my theoretical postulation, here's the meat... all countries manage resources, and the management of such resources has huge implications for economic growth and development.  Large fluctuations in these resources just accentuate the problem.  Even when a developed economy, like the United States, suffers a large change in its resource values (like the value of the gold, oil, land, and other contributions to the commodity bubble that just popped), the economic insights from this "resource rich" discipline should surely have some relevance.

Unless we are fundamentally different... as Americans like to think we are.  In which case, what is that difference?  Is it that we are just better people, or that we have set up a system of institutions, political and otherwise, to distinguish ourselves when we suffer such a blow? While some obvious institutions come to mind (e.g. the fed), other institutions' influences are likely to be much more subtle and inadvertent.  And such subtle effects could explain the magnitude of the problem within the underdeveloped countries.

So in this economic storm, we will obviously ask ourselves, "will the levy hold?"  But we should also be asking ourselves whether our buildings are prone to flooding, our highways serve as wind-breaks, and the normal supply-chain management can be used in a disaster relief effort.

If we view the economy in this way, an industry isn't just an industry, a government project isn't just a government project, and a dollar spent on taxes isn't the same as a dollar spent on building schools.

Democratic Leadership

http://www.politico.com/news/stories/0109/17714.html

I completely agree with this account.  In the long run, I think that Obama has a great strategy and vision of what he wants to do with the country and the way he plans to implement that vision.  However, this agenda was formulated completely independently of the current crisis.  How well he can cope with the problem at hand is worthy of skepticism.

Furthermore, the article's point about consensus and accountability are even more important.  I worked on the campaign because I agreed with Obama's political philosophy and because I was impressed by his temperament.  As much as that drove me in the campaign, it is cause for skepticism of the Democrats at large.  Much of the Democratic establishment have temperaments of Clinton-era Democrats, when the government was temporarily shut down because politicians had a collective temper tantrum, and our politicians were sidetracked by scandals driven by personal vendettas.  The examples are endless, but figures such as Aunty Diane and Henry Waxman come to mind.  

On a political philosophy front, Obama has endlessly been accused of empty rhetoric, mostly because he spent the time to outline his political philosophy.  The fact that this was considered such a vice illustrates how novel the idea of a debate on political philosophy is within our current establishment.  Democrats have long been the party with the right answers and no reasons for defending those answers.  Obama broke from this trend, but there is little reason to doubt that the rest of the party still aimlessly supports a disparate platform under the title "liberal."

Remember, congress has their own leadership, and they ultimately write the laws.  More dangerous than the fact that Obama won't have a Republican congress to contend with is the fact that the Democratic congress won't have a Republican president threatening veto.  Combine this with the analysis of Obama's weak record of confronting his party and we have a Democratic congress run amok.

Taken together, Politico's reasons for caution are greater than the sum of their parts.  Obama's populist vision has been sidetracked by a crisis, which he must rely on others to navigate.  However, Politico's skepticism itemizes the reasons why this trust in party veterans is cause for concern.  As the refreshing visionary of the party, Obama may be Lassie when we need a sheep dog.  

Resumption

After a long hiatus, I have decided to return to the blog world with a different focus.

But first, a recap:

The long pause in posts was actually due to a request from our local campaign office to stop unauthorized communication, as people tended to get carried away in their support for Obama.  We actually had an incident in which the Secret Service intervened because a supporter overzealously made a joke about our opponent that was taken the wrong way.  Personally, though, I was actually relieved to stop posting when I did, as the cult-like fanaticism surrounding the campaign was alarming.  Associated with this fanaticism was a self-indulgence on par with the exhibitionist football fan who paints his whole body blue before the tailgate party and spends the day screaming shirtless at other fans in his own team's section (in the campaign, we called that guy "Aaron").  I was pleased to have the opportunity to prove I was not a self-publicist, even if it meant a cease to the post I doubted anyone even read.  

In the interim, Obama won the nomination, with the help of south-west Indiana, which went to Hillary by an absurdly thin margin, but held the overall margin for a victory.  However, before the general election kicked off, I received notice that I had been accepted to Oxford for a two year masters in economics.  Therefore, I would not be able to relocate for the duration of the campaign.  Again, this was somewhat of a relief--we had won our race, and my motivation of a "progressive" political ideology would not carry me through a race that I could see would be more partisan and cultural than anything else.  Thus, I spent my summer with family, learning to row, refreshing my economic knowledge, and generally preparing for a period of hard work.

Obviously, Obama won the general election, and he will be sworn in next Tuesday.  My reaction to this news was caught on tape and posted on YouTube: http://uk.youtube.com/watch?v=gv8fPNtSCS4 (bear in mind that this was recorded at 4 am)

However, Obama's election is not the only piece of news of recent.  In the interim, we have also had a financial crisis, which is shaking the economic foundations of our country.  The magnitude of this crisis is evident and widely reported--from the collapse of Fannie and Freddie to the 350 billion flushed down the toilet by Bush's unqualified Treasury secretary.  Nevertheless, the significance of this evidence is much more complex than the general population probably realizes, and is definitely too complex to write about tonight.

Instead, tonight I resume writing.  While I am no longer an Obama volunteer accounting my transition from Britain, the name still suits.  My focus now will be on explaining the global impact of Obama's decisions on the economy.  Obviously, I will often digress, to discuss the state of modern academics, the incompetence of those around me, and, since I'm writing in the UK, the weather.  As an American in Oxford, a combined perspective from my experience with American politics and an ever expanding economics repertoire shift my focus to the ways in which our new administration will have an impact reaching as far as this isolated island: a new meaning for a new administration.

Michelle

So here's how I almost got pummeled by the secret service:

Michelle Obama came to town. Many of the preparations were the same as our preparations in Terre Haute. We gave out tickets the day before, we publicized the event over the radio, we had the influx of advance staff, the volunteer recruitment, the awkward conversations as people tried to figure out who could get them an introduction (not me!). But whatever fanfare we did, it was less than her husband received. After all, the nature of her trip spoke for itself... she was due to speak at 9 a.m. on a Wednesday morning, between her appearance on the Colbert Report and her husband's debate against Hillary. This was no keynote, but an attempt to appease a battleground in preparation for the post-Pennsylvania Indiana mayhem next week.

My role in this was equally lackluster. I was the (glorified) pizza delivery guy. Actually, they called me the "runner" which meant I ran things to and from the event (things like hamburgers). In this occupation, I am given the responsibility of running Michelle's lunch out to her private jet... only there's a catch. The lunch order is for 10:30, and Michelle is due to leave at 11. Surely, this shouldn't be a problem, as the airport is only 10 minutes away from the venue, and the food is on the way.

However, this is southern Indiana, and fast food isn't exactly fast. So I wait impatiently staring at my watch as the hamburgers are slowly served up, then I sprint to the car, slipping the keys into the ignition as I jump into the driver's seat. Pulling onto the highway, I receive a phone call telling me the motorcade is pulling out. The race is on!

Speeding past the Whirlpool factory surrounded by cornfields, my eyes are glued to my rearview mirror. I know full well that my head start is severely undermined by the Secret Service's refusal to stop for red lights.

However, I arrive at the airport without any sign of the secret service. I park the car, and relay the food onto the private jet, with engines blaring as I run. With my last handful of stuff, running across the tarmac, I hear a short siren and am immediately overrun by a convoy of police cars and inconspicuous rental cars. Apparently, a young man running to their private jet with two full plastic bags doesn't sit well, as the last black suburban swerves off to the side and three men in suits jump out.

Luckily, I'm not a terrorist. So they let me live. Actually, Michelle's assistant recognizes me from an earlier meeting, and intervenes to save the day.

On a side note, the peak of this day was most definitely not racing the secret service, but hearing an extrodinarily articulate speech about what is at stake in this election. I'm still trying to decipher the impact of Michelle's words, as there is nothing substantiatively, or even thematically, different from her husband's speeches. But Michelle touched on an element of personal perspective that is missing in many of Barack's speeches. Barack speaks largely in terms of how to fix American infrastructure through community involvement. Michelle relates this to the personal struggle outlined in Dreams from my Father, the struggle to work hard for personal achievements amidst a system that rewards this type of hard work less and less. And many of these achievements are not monetary, but value based... interaction with neighbors, education, humanitarian ideals, and cultural preservation to name a few. These value-based achievements are being undermined just as much, and Michelle illustrates that through her own struggle.

In short, Barack takes a set of believe universal ideals, and applies them to the political sphere... community involvement, integrity, and respect for diverse opinions to name a few; Michelle takes personal struggles and desires and applies them to these ideals... desire to provide for one's family, to be an upright member of society, to work for achievement. Together, they make for a truly powerful message.

Terre Haute

The Barack Obama campaign made national headlines yesterday, and I was there.

The story starts on Thursday, at 5 a.m. as I leave for a two hour trip north from Evansville to a town called Terre Haute. The early start is due to an event at 9 a.m. Actually, it's an event within an event... we are passing out free tickets to a "town hall" meeting with Barack Obama. On our way north, pop music blares on the radio, as we passively wait for the DJ to come on again with the local news. After each song, the reported turnout seems more ominous as people queue en masse in the wee hours... at one point, the DJ announces the arrival of police following a minor scuffle. However, we arrive to a largely peaceful crowd and hand out over two thousand tickets to local residents.

On a side note... some perspective is required here. An event with 2-3 thousand is a decent sized event, filling a large high school gym. However, this amount is no pittance... it takes three hours just for everyone to sign their name for these tickets. Even after weeks of nonstop events such as these, we would be lucky for 5% of the expected 1 million voters in the Indiana primary to see Obama in a crowded room.

After the ticket distribution: back to the Terre Haute HQ for my daily business. Only this is no ordinary day. Within an hour, I become aware of a staffer I haven't met before (there are only 3 full time staffers in the TH office). As he walks away, though, I'm struck with an odd sense of deja vu. Only it's not deja vu... as this guy was actually in my graduating class in high school back in LA (roughly 2,500 miles away).

It turns out Jake is part of the "advance team" preparing for the arrival of the senator. I am quickly recruited to aid him over the next few days with management of the press. We spend the remaining period running through the event, preparing the set-up, and overseeing the coordination with other steakholders, including the ominous Secret Service (who are my new favorite people). We spend the entire time in this high school gym, setting up barriers, press file areas, camera platforms, and a miriad of other small items. I am struck by the competence of the people instructing me, as we methodically move through an endless list of details to be sorted.

Friday evening, after much controlled mayhem, Obama takes the stage. I sit right off to the side with the press as the man himself comes on stage with an early direct attack at his opponents. Apparently, while we were isolated in this remote location, the campaign was receiving allegations of being "out of touch" with the American people. In a campaign focused on community based engagement, I believe the senator took this rather personally, and gave an impressive account of how our current status quo has failed the American people, aided by both Clinton and McCain (who were each individually criticized by name).

Even then, my isolation prevented me from realizing the significance of these statements. It wasn't until I turned on CNN the next morning that I realized this attack was the most direct confrontation of this campaign. Furthermore, this was deeply rooted, focused on the sincerity of a popular message.

Defending this sincerity wasn't just a soundbite, but the theme for the night... while the talking points were probably largely the same (as my campaign friends say they generally are at these events), the framework was entirely within the context of restoring credibility to American politics. A simple foreign policy question turned into a general willingness to accept criticism and responsibility. A question on VP candidates turned into a general assertion of why someone should be motivated to go into public service. A question on hurricaine Katrina was used as a springboard to vindicate our entire public sector, with links to low standards in education policy to the media's sensationalist standards.

While I believe more and more that the campaign is less about the candidate than the values of a growing coalition. I am constantly reassured by seeing a passionate and candid candidate.

Perspective

Today I had the pleasure of seeing my first official event... of the Clinton campaign. Chelsea Clinton spoke at the student union of the University of Southern Indiana. And the result was fascinating.

The event was staged as a "town hall" setup. That is, it was a somewhat intimate setting, with a strong focus on questions from the audience. As there is more of a direct conversation with the community, there is generally less fanfare than one finds in a rally. Furthermore, this setup lends itself to policy oriented discussions, partly to avoid unplanned political maneuvers. In this respect, Chelsea shone brilliantly. She showed a mastership of the issues at hand, including specific policy knowledge, relevant statistics, and an ability to put her words into perspective. After seeing Chelsea today, I was impressed by an obviously well-educated, bright person. Furthermore, I was left with the impression that a Hillary administration would be well grounded in strong policy decisions.

Unfortunately, good policy does not necessarily lead to good governance. In order to rule in our democracy, one must not only make good decisions but lead people into action as well. This sense of greater perspective is what lacks in the Clinton campaign (I'm not sure most people have a good sense of why Hillary even wants to be president). And this perspective was lacking in Chelsea's demeanor as well. There was no overwhelming theme framing the Chelsea's articulate responses, except a familiarity with mundane details.

Furthermore, this lack of perspective was made all the more apparent by the elephant in the room. Barack Obama's campaign for change, which has also displayed credibility on the policy level, has consistently portrayed a message of urgency and inspiration. Obama's ability to consistently relate his policy stance back to the fundamentals of American democracy taps into a deeper sense of patriotism and humanity. This uniting element blatantly contrasts with a consistently lackluster, yet competent, performance from the Clinton campaign.

On that note, registration for voting in the Indiana primary ended yesterday. Obama's registration drive resulted in 50,000 new voters, roughly 5% of the projected vote. In Evansville, we registered roughly 4,000, while the local Clinton campaign does not claim to have registered any.