What kind of government can Egypt expect to establish now?

With all the revolutionary activity and removal of current governments going on in North Africa and the Arabian peninsula, the question naturally arises about what kind of government will follow. Bruce Ackerman has addressed that question and provided some interesting insights. His teaser at Balkinization lays the basic issue out very clearly. A presidential system like that in France or the U.S. flows directly from the nature of the revolution it came from. That revolution produced clear leaders who became a charismatic head of state. Either that head of state "constitutionalizes his charisma" into a Presidential system or that a charismatic dictatorship is the likely outcome. But in either case, there had to be a known opposition leader to take the position of leader.

In Egypt there has been a leaderless revolution. Mubarak's dictatorship successfully repressed the opposition until it collapsed. There is no organized opposition to take over from Mubarak. Ackerman says that in this case:

a parliamentary system provides a far more promising constitutional transition to democracy than its presidential counterpart. The presidential form requires the revolutionaries to anoint a single leader prematurely -- thereby preempting a desirable period of democratic contestation, in which rival leaders compete for power. In contrast, a parliamentary system allows a number of political parties to project a number of different leaders onto the stage under conditions of relative equality, allowing them to present a set of competing options in a series of coalition governments.

Then he points out one major problem in the Egyptian situation:

The case for parliamentarianism is especially compelling in Egypt, since the Mubarak regime was selectively repressive – crushing secular dissent but allowing the Moslem Brotherhood to survive as the only organized opposition group.

This appears to be a good argument for Egypt to establish a parliamentarian system rather than a Presidential system. But whatever the case, the fact of the revolution having removed Mubarak does not in any way guarantee that Egypt will become the democracy the Egyptians really want. Egypt has a long way to go.

What is driving the Middle Eastern social unrest? It looks like food prices.

What has caused the Egyptians to revolt against Mubarak at this time? Paul Krugman lays the blame on bad weather.

While several factors have contributed to soaring food prices, what really stands out is the extent to which severe weather events have disrupted agricultural production. And these severe weather events are exactly the kind of thing we’d expect to see as rising concentrations of greenhouse gases change our climate — which means that the current food price surge may be just the beginning.

Now, to some extent soaring food prices are part of a general commodity boom: the prices of many raw materials, running the gamut from aluminum to zinc, have been rising rapidly since early 2009, mainly thanks to rapid industrial growth in emerging markets.

But the link between industrial growth and demand is a lot clearer for, say, copper than it is for food. Except in very poor countries, rising incomes don’t have much effect on how much people eat.

It’s true that growth in emerging nations like China leads to rising meat consumption, and hence rising demand for animal feed. It’s also true that agricultural raw materials, especially cotton, compete for land and other resources with food crops — as does the subsidized production of ethanol, which consumes a lot of corn. So both economic growth and bad energy policy have played some role in the food price surge.

Still, food prices lagged behind the prices of other commodities until last summer. Then the weather struck.

In his blog, Krugman expands on this idea.

First of all, I don’t have any particular faith that markets necessarily get things right. Some readers may remember that I was almost all alone back in 2000-2001, declaring that the California energy crisis reflected market manipulation, not fundamental shortages; and I took a lot of heat back in 2005 for warning that we had a huge housing bubble.

So this isn’t about a priori belief in markets; it’s about whether we see the “signature” of a speculation-driven price surge.

Many people on the “speculators did it” side like to point to financial data, especially large purchases of futures by various players. But food is a physical commodity, and plays in the financial markets can only move the price to the extent that they affect physical flows and stocks.

Here’s my exotic model of the market for a physical commodity: [Go to his blog to see the simple supply demand graph.]

OK, how can speculation affect this picture? The answer is, it has to work through accumulation of inventories — physical inventories. If high futures prices induce increased storage, this reduces the quantity available to consumers, and it can raise the price. And you can, in fact, argue that something like this has been happening for cotton and copper, where there are apparently large and growing inventories.

But for food, it’s just not happening: stocks are low and falling.

[...]

So if and when I see signs that speculation is really driving up prices, I’ll say so. But the signature just isn’t there right now.

This looks like good data-driven analysis to me. Until I see evidence to the contrary this works.

Wealth, Power and Revolutions: What is happening in North Africa?

Jon Taplin posted a very interesting essay at TPMCAFE about the causes of the revolutions we are watching in the Arabic Middle East right now. It set me to thinking about the interaction of globalization and political power. What I took away from his essay is the following:

Cheap money allows those with wealth to purchase wealth-producing assets and take control of them. So it benefits those with wealth and the banks which manage their money.

Commodities increase in value at a more rapid pace than do sources of intellectual wealth, since the sources of intellectual wealth are uncertain while commodity prices are the inverse of the cost of the cheap money.

So wealth itself becomes the primary source of wealth. The productive economy declines in both value (as measured in money) and in social importance (as measured in political power.)

To state that wealth itself becomes the primary source of wealth and to suggest that political power shifts towards that wealth and away from real economic production is to describe how the economy has been financialized.

The thing I have rarely seen discussed is the "power effect" of money. Possession of money gives an individual the power to influence the decision of those who want the money, and in the financial economy in which we all depend on others for the basic factors of living, this gives those with large accumulations of money great power over lots of people. The Koch brothers are a prime example of this. But there are no reliable and consistent accounting measures of power as there are of money, so economists tend to dismiss power and power effects. The interesting thing, though, is if you go into an organization and conduct a survey of who has power and who does not, the results are quite clear. Everyone knows who has power. But there are no power statements to put in power point alongside financial statements when higher managers make decisions. Those with power can easily dismiss the power aspects of their decisions.

I have attributed the violence in the Middle East largely to the effects of globalization. Globalization is the process of replacing traditional economies with money economies. It is possible to audit and manage the economic changes in a money economy, but because there is no valid and reliable measure of power through society, the power effects of such changes are neither widely recognized nor are they managed. In fact, Libertarianism is the justification presented by the powerful for refusing to manage the social power effects of financializing society.

A revolution is what happens when power moves away from large numbers of people who depend on having the power they need to live their lives with dignity and some predictability.