Why U.S. Financial Hegemony Will Endure

The United States not only continues to dominate global finance but has become even more central since the 2008 crisis. How did this happen?

By Sarah Bauerle Danzman and W. Kindred Winecoff

Sarah Bauerle Danzman is a Ph.D. Candidate in Political Science, University of North Carolina at Chapel Hill.

W. Kindred Winecoff is Assistant Professor of Political Science, Indiana University Bloomington. This piece is adapted from an article in the March 2013 edition of Perspectives on Politics.

The great financial crisis of 2008 convinced many in the markets and policy arena that the U.S. had reached its high-water mark of dominance and that its decline was sealed. As they saw it, American financial prominence had proven so destabilizing that other countries had to insulate themselves against “profligate” U.S. behavior. Furthermore, the crisis dramatically reduced U.S. attractiveness to global capital, thus weakening its financial power to such an extent that the U.S. would be severely constrained in its ability to finance government debt at home and pursue geopolitical projects abroad.

As a result, many in this camp have anticipated a restructuring of the international financial system away from New York and toward China and other emerging markets. According to the World Economic Forum, Hong Kong displaced the United States as the world’s leading financial center last year. Many would agree with the economist Arvind Subramanian, who has argued that by 2030 China will be the world’s sole superpower, and that it is already the “world’s largest banker.”

These assessments see power as a result of the internal attributes of national economies: large economies with attractive financial sectors have power, while weaker ones do not. Accordingly, the U.S. decline in the share of global trade and income, and its domestic financial instability, should diminish its influence. But this focus fails to consider the ways in which the global financial network is, in fact, a complex and adaptive system. Power within this system does not depend solely on domestic attributes, but on the distribution of financial relationships that exists globally. In other words, the most well-connected economies, not just the biggest, are the most powerful. By extension, change within this structure does not follow a linear process, and economies that are initially more advantaged will continue to grow as the system develops.

The difference between these two approaches is significant. When we conceptualize the international financial system as a network, we see that the U.S. has become more central since 2007, not less. Rather than shift from West-to-East, global financial actors have responded to crisis by reorganizing around American capital to a remarkable extent. This is partially due to proactive responses to the crisis by policymakers such as the Federal Reserve, but it is also the result of factors outside the U.S. Above all, American capital markets remain attractive because complex networks contain strong path dependencies, which reinforce the core position of prominent countries while keeping potential challengers in the periphery. That is to say, policymakers and market players were limited in the decisions they could take because of factors that had already been locked in. As a result, the structure of the global financial system keeps the U.S. at the core and will continue to do so unless the entire network is fragmented, as it was during the 1930s when Great Britain lost its dominance.

Some who do see continuing U.S. financial resiliency contend that American power serves to the disadvantage of smaller countries. Indeed, they are correct that when a crisis occurs in the core – where the U.S. remains -- the effects are felt throughout the system. But they miss the fact that American prominence also provides important stabilization mechanisms that can contain crises. To explain this, we need to look at what network scientists call “topology,” which refers to the organization of the components of a network, whether we are looking at a computer system or a financial system.

Once we view the international financial system in this context, we see that it is robust when facing crises in peripheral countries, but fragile when facing crises occurring in the core. This explains why the U.S. subprime crisis destabilized the global economy, while upheavals such as the 1990s East Asian crisis did not. Even the euro zone crisis has remained localized, to this point. A network perspective also explains how policy interventions by the U.S. prevented the collapse of the global system, thus ensuring that U.S. centrality persists. Finally, a network model should make us more cautious about promoting policies meant to erode U.S. financial hegemony. In fact, American centrality contained crises in peripheral countries from spreading globally, and the U.S. government demonstrated both the capacity and the willingness to pursue monetary and fiscal policies to moderate crises emanating from its own banking system. Returning to a world in which the structure of global financial relationships devolves outside the U.S. would therefore reintroduce a type of systemic risk not seen since the 1930s.

Describing the global banking network

What does the international banking network look like? First, the U.S. is strongly central, with over 70 percent of all countries placing a substantial amount of their overseas portfolio assets in the U.S., according to the Bank for International Settlements. After that, the distribution of international holdings is widely dispersed. The U.K. is the next most central, with about 35 percent of all countries significantly tied to its banking system. But most countries are only weakly tied there, even those with large financial sectors. Moving to Asia, Hong Kong -- which supposedly passed New York and London as the world’s preeminent financial center -- attracts a large amount of finance from fewer than 5 percent of the world’s economies. Mainland China barely exists in these networks, because the yuan is not convertible and foreign investment is tightly regulated.

Moreover, this network topology has reinforced itself over time, as ties to the U.S. have become increasingly strong. That progression paused briefly as a result of the 2007-08 shock, but quickly resumed. Perhaps most astonishingly, the U.S. has actually become more central in the aftermath of the crisis. The current international banking system is what we would call “hierarchical” – with the U.S. at its core and most other countries’ banking systems in the periphery – and displays dynamics of preferential attachment that reinforce this kind of “system hierarchy” through time.

When U.S. centrality helps, and when it hurts

What are the implications of a hierarchical financial network on international financial stability, and what does it mean for policy responses to crises? U.S. centrality, on the whole, is positive for system stability because the U.S. – with its deep, liquid banking system – is best poised to absorb and manage banking losses. When a peripheral country experiences a banking crisis it transmits its losses to foreign banks with which it has cross-border obligations, mainly U.S. financial institutions. In such cases, peripheral-country losses represent only a relatively small percentage of global banking assets, so U.S. banks are generally able to assume losses without collapsing. In this way, U.S. centrality acts as an important buffer to most interstate banking crisis contagion.

Consequently, a U.S.-centered global banking system is robust enough to withstand crises emanating from peripheral countries. This claim may seem counter-intuitive as well as controversial. But if we understand network dynamics, we can see the benefit of an international financial system centered on the U.S. And given preferential attachment, the persistence of U.S. centrality speaks to its positive effect: if U.S. centrality were in fact destabilizing, this kind of network manifestation would have quickly disintegrated after its initial formation.

That said, under certain conditions, U.S. centrality could be quite destructive to the stability of the global financial system. Because U.S. banking obligations represent a sizable percentage of bank balance sheets in most countries, most economies are vulnerable to crises that originate in America. Unlike the U.S., these peripheral countries are unable to absorb losses because U.S. obligations represent a large portion of their portfolios. Thus, a U.S.-centered global banking system is fragile to crises emanating from the core.

What this means for crisis response

This leads us to the next question: Why did the U.S. subprime crisis, which rippled throughout the international banking system, not ultimately destroy it? Indeed, as our analysis shows, the U.S. actually became more central to the system in the aftermath of the crisis. Ultimately, the answer is a combination of three factors: the lack of better alternatives, policy responses in the core, and the actions that banks took to protect themselves against risk. All of these responses strengthened ties between the U.S. and peripheral national banking systems.

First, while the subprime crisis illustrated the vulnerabilities in the U.S. banking system, financial actors continue to face limited alternatives when determining where to place assets other than in the U.S. The euro zone, deeply embroiled in its own debt crises, is not an attractive alternative. China, despite its economic growth, is an unviable center because its currency is not internationalized and its banking system is closed. Hong Kong and Switzerland are too small to provide sufficient liquidity or offer the kind of policy capacity to provide stability in the face of crisis. Other large emerging economies such as Brazil, Russia, and India have not developed large, internationally integrated financial markets. Given a lack of fit alternatives, the U.S. remains central.

Second, once the crisis unfolded, the U.S. pursued domestic and international policies that helped to stem financial losses. The Federal Reserve took swift action to unfreeze credit markets and injected massive amounts of liquidity into the global system. In an unprecedented move, the Fed also lent billions of dollars to distressed foreign firms during the crisis: 10 of the top 20 borrowers from Fed emergency lending programs were European banks; an 11th was Japanese. Fed Chairmen Ben Bernanke, an economist who understands how important global cooperation is in the face of systemic crisis, opened swap lines with almost every significant central bank in the world. Unlike Britain in the 1930s, the U.S. was able to pursue policies to reinforce the structure of the system because of its central position within that structure; it was willing to do so because it knew staying at the center confers economic and geopolitical advantages.

Finally, banks actually increased their exposure to the U.S. banking system in the aftermath of the crisis. They did so because, despite the crisis, American banks are still considered safer than others. The U.S. banking system is deep and liquid. As discussed above, the U.S. has the capacity to moderate crises by supporting systemically important banks, and its government demonstrated its willingness to pursue such stabilization policies in the face of crisis. This increased reliance on the U.S. illustrates an important feature of a network characterized by preferential attachment: once a hierarchical network is created, destruction of this system would obliterate substantial wealth, so banks have incentives to shore up the core and re-constitute the network. This dynamic is nicely demonstrated by market responses to the 2011 downgrade of the U.S. sovereign debt rating. While any other country would have seen interest rates spike after a downgrade, interest rates on U.S. government bonds actually fell.

Revising lessons learned

Many pundits claim the lesson of the Great Recession is that American financial dominance is both dangerous and waning. Our conceptualization of the international financial system as a complex network leads us to a wholly different set of conclusions.

First, the optimal policy response to crises depends on where within the network the crisis occurs. A crisis in the core requires quite different actions than does a crisis in the periphery: the latter has very little chance of generating systemic crisis and can be managed by institutions like the International Monetary Fund. While the hardship of people suffering in Greece and other countries hit by crises is very real, these peripheral calamities do not pose significant threats to the system as a whole. Crises in the U.S., by contrast, can quickly destabilize the entire financial system. Accordingly, the policy response to these crises must be designed to support the structure of the system, not change it. This requires significant global policy coordination designed to maintain liquidity and prevent systemic collapse.

Second, the actions that peripheral countries take to insulate themselves against crisis often paradoxically reinforce U.S. centrality. This dynamic is generally a net positive for network stability so long as macroeconomic imbalances are managed carefully. In Asia, for example, countries amassed foreign exchange reserves as self-insurance against negative current account shocks – a move that further entrenched U.S. centrality, since the dollar is the primary global reserve currency. As discussed above, the dollar’s primacy allows the U.S. to respond to negative shocks with large injections of liquidity into the global financial system. U.S. financial centrality, along with its demonstrated willingness to respond to shocks with the policies necessary to keep markets liquid, raises investors’ confidence in its financial system while tying their financial health to the strength of this network. This leads investors to continue to buy U.S. debt, further allowing the U.S. to borrow cheaply even after ratings agencies downgrade or threaten to downgrade U.S. debt. Indeed, our argument complements economist Barry Eichengreen’s conclusion in his book Exorbitant Privilege that the U.S. dollar will persist as the main global reserve currency due to lack of a fit alternative.

Third, our argument about “preferential attachment” suggests that the emergence of a better alternative is a rare phenomenon, since positive feedback perpetually structures the network around the center. Moreover, even if such an alternative did exist, we would not see a change to the network structure unless a shock emanating from the core was large enough to destroy the topology of international relationships. Even when shocks are large enough to destroy the system, core countries may pursue policies that prevent network collapse. Thus, preferential attachment makes the emergence of a new financial hegemon highly unlikely. At the same time, because so many countries are highly connected to the center, hierarchical networks are susceptible to hugely disruptive tail events with systemic effects. One important implication of our research is that it may be incredibly difficult to predict when we might experience a destabilizing crisis -- but we do know that such a crisis must originate in the U.S.

Finally, our network model describes the necessary and sufficient conditions for the persistence and change of systemic orders. It does not mean the U.S. will forever be the center of the international financial system. But for the U.S. to be dethroned, three things need to happen jointly: a severe crisis in the U.S., the inability or unwillingness of the U.S. government to pursue policies necessary to stabilize the system, and the emergence of an alternative that is ready to move into a position at the center. Network dynamics suggest that under these three conditions, a network transformation could happen quite rapidly. Historically, such transitions have been accompanied by political instability and major power conflicts. The most recent transition – from British to American financial centrality – occurred within the context of two World Wars and a Great Depression. It appears that none of these conditions exists at present. Because of the persistence created by preferential attachment, policies aimed at eroding U.S. centrality probably will not work. But if they did, world order would be threatened.

The Changing Face of Violence

A debate has kicked off among scholars on whether we have become inherently more peaceful. A more important question is whether we actually understand the many forms violence takes.

By Joel F. Harrington

Joel F. Harrington is Professor of History at Vanderbilt University and author of The Faithful Executioner: Life and Death, Honor and Shame in the Turbulent Sixteenth Century (Farrar, Straus & Giroux, 2013).

Like most people, I have been transfixed by the current national debate on gun violence, desperately hoping for effective collective measures to prevent further killings. Tragically, we Americans seem to be enmeshed in the same arguments on a recurring basis, sparked by each new calamity, only to see action on the policy front blocked every time – even in the wake of the Newtown massacre last year.

The debate over gun control does not just turn on the perennial question of violence and human nature, although that remains a core issue – just remember the “guns don’t kill people, people kill people” mantra of the NRA. The arguments among our fellow citizens also stem from an equally profound and distinctively American disagreement over the relationship between the individual and the state. This historical tension over the state monopoly of violence is particularly evident in the rhetoric of the pro-gun groups, characterized by a fundamental distrust of government at all levels. Prodded further, many “Second Amendment defenders” would argue that the citizen’s right to self-defense trumps the state’s authority in maintaining public order. Even the mildest restrictions on gun ownership—background checks for mental illness or a criminal record—thus not only threaten a core American freedom but call the entire legitimacy of the federal state into question.

As a historian of early modern Europe, I generally stay clear of contemporary policy debates. But having spent the last four years immersed in the personal journal of a professional executioner named Frantz Schmidt (1554-1634) -- who, over the course of his 45-year career in Nuremberg, put to death nearly 400 individuals and maimed or tortured two to three times that number -- I believe that the past offers some much needed broader perspective on both the changing face of human violence and the state’s indispensable role in curbing it.

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Some readers come away from my book, The Faithful Executioner, concluding that we have indeed evolved into a more peaceful species. This is not at all my intended point, but it is an understandable reaction. Pre-modern Europe is foreign to us in more ways than one. Most obviously, people had a dramatically different experience of violence. In sixteenth-century Germany, most men regularly carried knives or other weapons, including guns. Private and family feuds often turned deadly and brutal robbers roamed the countryside at their leisure. Even with the imperfect statistics available, it is clear that homicide and assault rates were much higher in Frantz Schmidt’s society than in the modern U.S. or Europe. At the same time, capital punishment in various forms -- ranging from the infamous drawing and quartering to simple hanging -- was also much more frequent, more violent, and fully public. Even Texas at its peak of 40 executions in 2000 cannot touch sixteenth-century Nuremberg, where the proportionate annual rate was 150 times higher.

Given these and similar trends, some scholars, most famously the social psychologist Steven Pinker, have concluded that we as a species are becoming less violent. This news is certainly heartening, if counterintuitive, at least to those of us besieged by daily reports of massacres in Syria, bombings in Iraq, and gun rampages in the U.S. Even taking into account the world wars and genocides of the twentieth century, Pinker argues that we are statistically much better off in terms of danger than at any time in recorded history, measured almost exclusively by intentional deaths. It undoubtedly causes chagrin for Pinker, an outspoken secular liberal, that his gun control opponents can claim his argument as proof not only that modern, rational people can be trusted with firearms and but also that the two developments—decreased homicides and a better armed citizenry—are in fact closely related.

On the other side of the debate over the historical evolution of violence are writers such as geographer Jared Diamond, who stress the close correlation between technical advancement in Europe during the past five centuries and the increasing destructiveness of weapons (think not just nuclear bombs, but Uzis, M-16s, and IEDs). The twenty-first century world of Diamond thus represents the amplification of violence, rather than its diminishment. This time, gun control advocates can take heart.

I find just two problems with both sweeping overviews: First, violence is not a monolithic, unchanging entity, capable of easy quantification. Second, the reasons that certain types of violence have declined in the West have nothing to do with a change in human nature; nor is the impact of technology as one-sidedly pernicious as Diamond assumes.

Let’s begin with the nature of violence itself. To argue our own (or any) society is more or less violent than in the past misses the point at an even more fundamental level: Violence is broader and deeper than just intentional killings or physical assaults. Perhaps because I commute on a near daily basis between the sixteenth and twenty-first centuries, I see in both eras an intuitive understanding that human violence is much more pervasive and malleable than mere homicide statistics suggest. What scientists call a bio-archeological tendency and theologians call original sin lies deep within our nature. The urge to fulfill a desire by force can also take many forms other than outright assault or killing. In that sense, all human societies are violent. It is a bond connecting all of us across the centuries and around the world.

The so-called civilizing process—the creation of a more socially integrated and collectively prosperous society under the rule of law—does not necessarily result in the elimination or even reduction of violence, but rather its transformation. Modern violence can include various forms of state force (intimidation, imprisonment, torture, execution), interpersonal aggressions (sexual harassment, stalking, child abuse), self-destructive acts (eating disorders, self-mutilation, suicide), and psychological abuse.

One of the great “achievements” of the civilizing process over the past five centuries has been the increased privatization and internalization of violence -- a psychological shift with profound real-world consequences. To be sure, Schmidt’s contemporaries enjoyed tabloid accounts of bloody murders and gruesome battle sagas, just like we enjoy our horror movies. And yes, it remains difficult to establish direct links between incidences of gun violence today and increasingly graphic video games, Internet pornography, and the collective opus of Quentin Tarantino. But the modern intensification of internalized violence is an indisputable fact. For better and for worse, more sophisticated technology has made an entire spectrum of human experiences more accessible to more people in more extreme forms.

Perhaps the most obvious indictment of modern internalized violence is the global spike in suicides during the past 40 years, particularly among the young. According to the World Health Organization, self-killing today accounts for four times as many intentional fatalities as war or other state violence, and 15% more than homicide—the inverse of Frantz Schmidt’s Europe.

The implications for the supposed evolution of human nature over the past five centuries seem clear, but let us be explicit. Readers of The Faithful Executioner have often expressed surprise at the many similarities, particularly at the level of personal emotions, between our two, distant societies. Frantz Schmidt’s personal journal, for instance, does not paint a picture of a heartless monster. Like most of us today, the executioner himself was appalled by the cold, premeditated acts of violence he encountered and saddened by moments of passion that turned unexpectedly deadly. This hardened professional was surprisingly affected by the suffering of victims, frequently adopting their perspective in his journal’s descriptions of crimes. Violence against children and the elderly filled him with especially intense grief and rage.

Nor is his world as bizarre and alien to us as we might assume, despite its gruesome and flamboyant methods of criminal punishment. Interpersonal acts of violence – rape, assault, murder – stemmed from the same range of emotions, calculated motives, and unintended consequences as they do today. Perpetrators included jealous boyfriends, adulterous wives, feuding co-workers, mentally ill parents, and, of course, a variety of professional criminals and, occasionally, sociopaths. In short, I found no evidence in my research that people in the past were more or less aggressive than today, or conversely, more or less compassionate.

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So if it’s not our supposedly evolved empathy or other emotional changes that separate the modern U.S. from Frantz Schmidt’s world, what is it? It is undeniable, after all, that some forms of violence—the ones singled out by Pinker and others—have declined in the modern West. How do we explain that? Here we return to the indispensable role of the successful state monopoly over violence.

Take the aforementioned decrease in homicides and public executions. Law enforcement, even in an advanced city-state such as sixteenth-century Nuremberg, was woefully ineffective. Consequently, punishment—on those rare occasions when violent offenders were apprehended—was severe: public flogging, mutilation, and a variety of public execution methods, ranging from hanging to the infamous drawing-and-quartering. Dramatic and sometimes gory punishments were the only reassurance that weak governmental authorities could offer their fearful constituents. Given the rudimentary state of forensic investigation, judicial torture also played an instrumental role in interrogation and conviction.

The same direct correlation between weak government and “private justice” is evident in a variety of past and present societies, from the American Wild West to Somalia in 2013. Poverty and the “stand-your-ground” culture are also closely related. In other words, poor societies with weak governmental controls and traditions of self-redress create conditions that both support more killing and maiming and provide fewer remedies for reducing the same.

By contrast, modern affluent societies (such as our own) with relatively strong law enforcement (bolstered by sophisticated technology) tend to experience proportionately less much violence of this nature, with some internal areas of exception, such as poor, urban centers. Greater restraints on the carrying of firearms, still absurdly modest in the U.S. by European standards, are directly related to the decline of this type of violence in our society. Most modern Americans, consequently, are far less likely to be killed in an ambush or bar fight than the average individual in sixteenth-century Germany or modern-day Afghanistan.

This gradual growth in state power has been balanced by a second, more recent, and even more fundamental distinction between these two worlds: the development of the notion of inalienable human rights. This has provided at least a theoretical and legal basis for limiting state coercion and violence, even in the pursuit of justice. While no Western country has a spotless record on the use of governmental coercion, the U.S. is in that fortunate club where such extreme measures on a routine basis are unthinkable. Authoritarian regimes, by contrast, neither recognize such externally imposed restrictions nor place the sovereignty of the individual on par with sovereignty of the state. Frantz Schmidt would have agreed that even apprehended criminals had a right to due process, but the idea that this right included protection of their bodies following incriminating evidence or conviction for a serious offense would have been incomprehensible. The executioner in fact lobbied his superiors to moderate and standardize state violence, but abolishing it outright would have been far too great an intellectual jump for anyone in his society.

If we want to have a more informed discussion of the role of guns in our country, we must stop thinking of violence solely in quantitative rather than qualitative terms. What most separates those of us in the “civilized” modern day from our ancestors in the violent past is not the degree of aggressive impulses or even the number of yearly homicides. It is our collective response to all forms of violence in our day.

In the instance of reducing gun killings, that means understanding the importance of a clear state monopoly on violence and the subsequent rule of law. Untreated mental disorders and the availability of military weaponry, exacerbated by a cultural celebration of violence, put all of us at greater risk in a variety of ways. Indeed, a leap backwards for us is not inconceivable. It is in fact what some of our political leaders are considering: a return to “private justice” at the hands of a citizenry armed with military weapons, coupled with calls for less-restrained interrogation methods and more extreme state punishments for terrorists and other violent criminals. I find the world of pre-modern Europe fascinating, but I have no desire to live in it. We must be ever vigilant about the balance between individual rights and state authority, but at the same time we cannot deny that reasonable government restrictions on private violence have made all of us safer. Even a sixteenth-century executioner knew that.

Why Central Bank Transparency May Be Overrated

Be it ever so brilliant, communication in monetary policy is no panacea in today’s world of slow growth, high debt, and fiscal policy uncertainty.

By Brigitte Granville

Brigitte Granville is Professor of International Economics and Economic Policy at the School of Business and Management, Queen Mary University, London. Her most recent book is Remembering Inflation (Princeton University Press, 2013).

The Federal Reserve’s challenge of communicating effectively to markets has rarely been greater than during the past few months, as Chairman Ben Bernanke has to telegraph the exit route away from the unconventional monetary policies implemented since the 2008 crisis. His most likely successor, Fed Vice Chairwoman Janet Yellen, summed this up aptly in a speech last April, when she drew out the contrast between the practices of today and those of previous eras, and argued that central banks have gone from a stance of “never explain” to one embracing transparency.

No matter how transparent, however, central bankers in both the U.S. and Europe are running up against a problem that escapes the reach of any one particular individual or team in charge of monetary policy. The challenge is that they lost a considerable weapon in their arsenal – namely, robust discretionary control over interest rates – as they pursued the extraordinary measures of quantitative easing, or QE, in recent years. This was a response to the lack of credit demand as the private sector has kept on shedding its own debt, known as deleveraging. Yet many economies remain burdened with high public debt and sluggish growth. This leaves fiscal policy as the only effective lever that a government can use, but this, too, is limited in its reach due to the constraints of high debt.

It is worth noting the Fed has purchased 95 percent of net U.S. government debt issuance in the last six months. Accordingly, any exit from current monetary policy cannot be independent from the fiscal situation as the government’s financing is largely reliant on the central bank’s stance. Accordingly, Bernanke has backtracked from the Fed’s once-expected intention to reduce the pace of QE this autumn, likely amid concerns over fiscal policy uncertainty. We ended up in a world of fiscal dominance of monetary policy. How did central banks fall into this trap?

To understand this story, it is first important to explain the basic principles that underlie the imperative of central bank communication. The first is that transparency and communication are not the same thing. For example, former Fed Chairman Alan Greenspan duly communicated Fed policy to markets as the law required, but that did not stop him from taking the occasional recourse to studied ambiguity. In contrast, Yellen defines transparency as ensuring that all the information held by the central bank is communicated to the public.

The second principle concerning Fed communication has to do with the nature of money today -- namely, that a currency is worth what policymakers promise it to be. So for such “fiat” money to hold value, it has to be credible. When it is not credible -- in, say, a crisis-stricken country – it collapses as people flock to the dollar instead. In other words, the promise of purchasing power that currency embodies must be trusted. So to build as much trust as possible, policymakers typically commit themselves to making low inflation the primary objective of monetary policy.

To undergird this promise, central banks are increasingly replacing their discretionary decisions on interest rates with a more rule-based framework for monetary policy that emphasizes credibility, transparency and accountability. This development, which became ever more widespread around the world since the inflation crisis of the 1970s, bases monetary policy around a transparent program rather than leaving policy to be buffeted by calculations of short term trade-offs between unemployment and inflation. This rule-based framework is sometimes called “constrained discretion,” which means that a central bank mainly focuses on stabilizing inflation and inflation expectations. However, it sometimes deviates from this course to accommodate shocks in output and unemployment. As long as these deviations from “sound” monetary policy are short term, inflation expectations remain muted. The market only becomes concerned when these deviations are seen as lasting too long.

Credibility is usually measured by inflation expectations. Before the response to the 2008 crisis, the job of a central banker seemed simple: as long as you communicated with the public and used some kind of peg to anchor inflation expectations such as inflation targeting, all you had to do was ensure that the interest rate fell when inflation expectations were low and rose when they were high. But the major tool that is the interest rate became less and less robust as central bankers kept pushing down interest rates during the 2008 crisis – and they discovered a problem that continues to this day: monetary policy is now constrained by the fact that once nominal interest rates have been brought down to zero, they can fall no further (known as the “zero lower bound”). And this is no longer enough to boost credit demand of households and corporations, which is limited as they keep on deleveraging. The standard monetary policy toolkit is therefore obsolete when severe credit frictions occur. At the same time, post-crisis demand stimulus has also come through fiscal policy, namely higher government spending, with the obvious consequence of rapidly escalating levels of public debt.

On the monetary side, it soon became clear that reducing interest rates to close to zero would not suffice to kick-start the battered U.S. economy after the financial crash. As a result, policymakers supplanted the use of traditional interest rate settings and instruments such as discount windows and open market operations by a plethora of extraordinary facilities to provide reserves, guarantees and short-term credits to banks. Unconventional monetary policy under the general label of QE aimed to overcome the zero bound of nominal interest rates with the central bank directly purchasing the domestic government’s bonds and other domestic securities. This, in turn, aimed to bypass the banking sector rather than rely on what we term the “broken credit channel” of monetary transmission. The fiscal stimulus was therefore partly financed by the expansion of the Fed’s balance sheet.

The aim of QE is to raise inflationary expectations, thereby inducing people to borrow and spend to drive up demand (say, by injecting funds into banks to finance domestic loans and refinance mortgages). But it needs to stimulate domestic demand without undermining confidence in the future value of money or in the sustainability of public finances and debt. And indeed, interest rates have stayed at historic lows, which has helped the U.S. economy in some sectors, such as housing. More broadly, however, the sheer overhang of debt built up before the crisis continues to keep people reluctant to borrow.

While this reluctance to spend has contained real inflation risk, it has not stopped the fiscal deterioration. The crisis generated huge budget deficits and public debt through a combination of discretionary fiscal stimulus; lower tax revenues on the back of slow growth; reduced spending by the private sector as it deleveraged; and the socialization of bank losses through programs like the Troubled Assets Relief Program. Fiscal constraints in the U.S. and other mature economies have therefore built up very sharply.

Another assumption needed to make QE work is a certain “Keynesian myopia.” As the economists Daniel Benjamin and Levis Kochin have defined it, QE’s desired effect requires convincing the public that near-term tax increases are not coming, so that consumer spending continues as normal rather than contract. This only works if you can persuade the public that payback time will never come in the form of higher taxes. In more formal terms, this means that the real value of outstanding debt will indefinitely exceed future primary surpluses, which are the positive balance of government revenues over spending, leaving aside spending on debt service. To be effective, fiscal and monetary policy need to be coordinated when private-sector balance sheets heal and credit demand for quantitative easing ceases.

But as we know, many fiscally troubled developed countries did become concerned about staving off the threat of national insolvency, and accordingly, they launched austerity programs. This was most pronounced in Europe, especially in the troubled periphery, but government spending fell in the U.S. as well, starting in 2011, and since then has caused substantial fiscal drag. Given Washington’s current fiscal impasse, the full effect of unconventional monetary policy cannot be achieved. As for the broader austerity experiment – U.S. and Europe -- the results were mixed, depending on how far the public tolerated the hardship stemming from higher taxes and decreased spending. If these countries escape from their fiscal predicament and return to solid economic growth in the longer run, their public finances will improve without the need for a retrenchment so painful as to undermine the government’s credibility.

But what if a country cannot sustain reasonable growth? In that case, bond markets may doubt whether debt sustainability could be restored, and they could start dumping government debt – causing interest rates to jump. All of a sudden, governments would find it difficult to service their debt, or, at least, to service their bond payments without falling ever more deeply into debt. This danger is captured by the budget crunch that occurs when real interest rates exceed the growth rate, unless primary surpluses are kept large enough, which is something that becomes ever more painful in an environment of low or negative growth. In that case, a country’s public debt becomes unsustainable.

In these circumstances, one way to stave off default would be to press the central bank to take QE a step further by cancelling some or all of the government bonds purchased by the central bank or undertaking direct central bank financing of government spending, for example. Such options are made all the more tempting by the illusion that monetary policy can single-handedly restore growth and thereby dig the government out of its fiscal hole. But here we see the risks generated by central-bank discretion replacing the traditional rules in monetary policy. These risks lie in the uncertainties generated by large and snowballing levels of public debt resulting sooner or later (the exact timing driven by political expediency) as the central bank is forced to act as the banker of the government. There is nothing new here: in times of profound crisis, central banks are called to the rescue.

Central banks can always try to head off any such crunch by reversing QE once inflationary pressures start to be felt. That process may be fraught – as the central bank would be selling government bonds into a falling market – but it could at least make the attempt. (And, in any case, the bonds could simply be held to maturity, at which point the government would have to repay without any central bank refinancing). Put another way, QE in its initial form represented only a temporary increase in the monetary base. But what if it becomes a permanent increase – if, for example, central banks continued to purchase government paper even against the background of rising inflation? Then they will have definitively crossed their Rubicon. In that case, the unanchoring of inflationary expectations would only be a matter of “when,” not “if.”

The common thread running through these various dangers is the inextricable links between monetary and fiscal policy. These two planks of macroeconomic management become even more closely intertwined under QE. One way or the other, excessive public debt threatens monetary stability. Either inflationary expectations generated by monetary stimulus cause government bond yields to rise, in turn making public debt look unsustainable, or QE’s effect in disguising the underlying weakness of the public finances proves short-lived. When the reality of the fiscal emergency becomes impossible to ignore, the response with the least political resistance is to inflate the debt away. In other words, the fiscal limit to monetary policy – that is, the maximum government debt-GDP ratio that can be sustained without risking default of rampant inflation -- would have been reached.

These realities bring home the limits of what central banks can achieve on the communication front. However skillful the messaging designed to shore up public confidence in a central bank’s ability to control inflation, it cannot escape the constraints set by time and consistency: the public understands that the central bank may be inconsistent over time, so it distrusts declarations by those authorities. Even if the central bank itself remains trusted, such trust becomes less relevant as the reality dawns that the problem’s source lies in the public finances – which are not under the control of the monetary authorities.

To be sure, central bank governors in their public remarks regularly express their concerns about the weakness of fiscal policy. By this means, they communicate a desired message – for example, that a government’s failure to carry out a necessary tightening of fiscal policy will result in higher interest rates. While such a statement might help create the intended expectations, however, the central bank can never back this up through actions under its control. And if higher interest rates do result, they could simply make the government appear to be heading for insolvency, rather than prompt policymakers to cut government spending.

There is also the issue of how effective communication can be when a central bank cites multiple targets. In the past, central bankers simply announced inflation forecasts and thereby implied the direction of interest rates by enabling market participants to see whether those forecasts were above or below the mandated target for inflation. But today, many central bankers are indulging in a variation of traditional communication known as “forward guidance.” The difference here is that the central bank makes its interest rate policy conditional on a key indicator – typically unemployment falling to a declared level. In addition to the difficulty created by targeting several different indicators rather than inflation alone, such multiple targets could all too easily be derailed by unpredictable actions (or inaction) by governments in the fiscal sphere. In that case, higher public debt can seriously increase inflation expectations, and against this threat, no amount of “communication” can be sure to prevail. Furthermore, multiple policy targets confuse the formation of inflation expectations, leading to unpredictable consequences for central bank credibility.

Even though the debates on forward guidance, alternative and multiple policy targets and the level of transparency are worthwhile, none of these measures are able to deal with the fiscal challenges a number of developed economies are facing.

No matter how dovish Bernanke’s successor turns out to be, monetary policy effectiveness is greatly reduced when credible coordination between fiscal-monetary is lacking and fiscal-policy uncertainty prevails. So the idea of transparency that Yellen very properly champions as a point of principle will become less and less applicable by any central banks that have also gone down the road of unconventional monetary policies. Under present circumstances, it will not be enough to ensure certainty and confidence if the Fed just declares a priority target of reduced unemployment (that is, the “dove-ish” position that Yellen favors). Market participants are bound to wonder when the risk of unemployment deemed excessively high becomes less pressing than the risk of inflation linked to excessive public debt. And the Fed will not singlehandedly be in a position to communicate credibly when that point will have been reached. That judgment depends on players in the government and the legislature.

Being ‘Different’ in a World of High Achievers

A Columbia professor writes about the challenges of raising a Down syndrome child – and the mixed reactions among her colleagues.

By Allison Stevens

Allison Stevens lives in the Washington, D.C., area and writes about politics, health, parenting, and women’s issues.

Rachel Adams, a tenured professor of English and American Studies at Columbia University, built a career out of studying the history of people with disabilities.

But it was not until she gave birth to a boy with Down syndrome that she truly began to understand what it means to be different in a high-pressure society that values and expects perfection—especially in the elite academic circles in which she traveled.

In Raising Henry: A Memoir of Motherhood, Disability, & Discovery (Yale University Press, 2013), Adams tells the poignant and often painful story of raising a disabled child in contemporary America.

It is, at first, a sad story. It starts with a sense of foreboding as Adams and her husband gazed upon their newborn son, noting, “Something about him didn’t quite make sense.” As the parents of a normally developing toddler, they knew immediately that their second son was different, but they were not able to articulate this frightening reality until a doctor did it for them.

When the pediatrician arrived, he informed Adams that her infant son, Henry, had features consistent with Down syndrome. Her fantasy—the one of the “perfect” family, with two happily married parents doting over a pair of healthy kids, the one in which she “has it all” as a professor and a mother in vibrant New York City—shattered in an instant.

To her credit, Adams has the fortitude to speak candidly about the crushing disappointment that she felt when she learned that her son has an intellectual disability. In the hospital, she confessed, she did not bask in the hormone-laced glow of new motherhood; rather, she was reeling from the “loss of the son I thought I was going to have and the family I imagined we would be.”

But over the pages of the memoir, this sad beginning gradually makes its way to a happy ending. Henry scores many triumphs over genetic adversity -- he even learns to read at age four -- and Adams discovers the profound love she has for her child and a newfound passion to advocate on behalf of people with all manner of disabilities.

The journey is not an easy one, especially in an academic environment in which “intelligence and intellectual achievement are valued above all else.”

“Babies like Henry simply aren’t born to successful, overeducated parents like us,” Adams writes, and wonders whether her friends and colleagues would be able to recognize the value of her son, who is “slower, less capable, and more dependent” than other children.

It is a fair question. She describes incredulous friends who ask her, “How this could have happened?” There is a jaw-dropping exchange in which a well-known disability studies scholar asks her at a cocktail party why she did not get genetic testing during her pregnancy. The assumption between the lines is that she would have aborted Henry had she had the test.

In one particularly awkward moment, she runs into Rayna Rapp, a renowned anthropology professor at New York University who explores her own decision to abort a fetus with Down syndrome in a book she wrote about prenatal testing. “I can imagine how hard it is,” Rapp says as she looks at Henry—an exchange that Adams describes as a “bad metaphor.”

Adams also describes the hypocrisy of the ivory tower, where only certain kinds of diversity are appreciated. “The evidence is there in the glossy college brochures that illustrate diversity by picturing students of many different races and nationalities,” she writes. “Where are the students in wheelchairs, the guide dogs, and the sign interpreters?”

To be sure, Adams also finds solace in the academic milieu. It is a fellow professor, Penn State’s Michael Berube, whose memoir about parenting a son with Down syndrome gets her through some of her bleakest moments.

And her background in disability studies gives her an important perspective that allows her to understand why society marginalizes the disabled, and leads her to love, and even celebrate, her son’s differences. She also has a deep sense of gratitude that she gave birth to Henry in the twenty-first century—a time not so far removed from the days in which babies like Henry were deemed “Mongoloid idiots” and sent to live lonely lives in far-off institutions. And she knows that many children, including those with Down syndrome, are far worse off than her own son.

At the same time, however, she sees firsthand the many ways in which the disabled are still mistreated in modern America in general, and in academia in particular. She notes, for example, that Columbia University, where she teaches, is compliant with federal disability law but falls “far short of creating a genuinely inclusive and barrier-free environment for people with disabilities.”

Again, to Adams’ credit, she turns her anger into advocacy and becomes “an unwitting, and often bumbling crusader” for disability rights. She gives lectures to geneticists and medical students about parenting disabled children, starts a collaborative research project on problems of social difference, and ultimately writes this memoir about her experience.

Adams’ story is an intensely individual one, and her memoir at times goes into excess detail about the day-to-day difficulties she faces as the mother of a disabled child—the endless appointments with therapists, the contradictory advice from health professionals, the challenges of landing coveted spots in New York City day care programs. She also weaves in a somewhat tangential tale about the death of her mother, which does not quite square with her overarching theme.

But her broader story is valuable to any reader, whether or not they have a Down syndrome child in their family. The tale, in fact, turns out to be a universal one. Despite assumptions that we will naturally live life without disability, Adams points out that we will all experience it at some point -- whether through illness, injury, or the mere consequence of aging. She refers to it as “the paradox” of disability: “If we live long enough, it will happen to all of us. And yet when it happens, it always comes as a surprise.”

Raising Henry, in other words, helps readers see disability as it ought to be seen: as a part of life, rather than apart from it.

The Academic as Digital Native

An Interview with Mary Beard

Mary Beard is Professor of Classics at Newnham College, University of Cambridge, as well as classics editor of the Times Literary Supplement, where she writes the popular blog, A Don’s Life . You can follow her on Twitter @wmarybeard . In September, Symposium Magazine sat down with her as she was traveling through Washington, D.C.

On top of your academic duties, you have managed a long-running, prominent blog for more than eight years and have picked up more than 52,000 Twitter followers. How do you manage all these platforms as a professor?

Both blogging and Twitter have been very useful for my academic work. But I’ll talk about blogging first, since that came first. I was very suspicious when I started blogging at the TLS. I thought it would dumb everything down and be over in about six months. But in fact, I discovered it was the reverse. One of the best things was the links in my posts. It meant I could give reader direct access to the things I was writing about (including some of the most obscure ancient texts online) whether they were specialists or curious non-specialists, without having to explain anything else. That way you can talk to so many different audiences. I can now say I’ve shared a great deal on my blog -- and I’ve learned a great deal.

Can you say the same for Twitter?

The speed and the confrontational nature are different on Twitter. I happen to have nice followers, for the most part, but that’s not always the case. Twitter’s rubric is not courtesy. But as to the advantages, some of the interactive benefits of blogging are also on Twitter; it’s just at a faster pace.

As an academic, I learn the most from Twitter when people post links to foreign press articles, say, a Turkish piece on archeological digs or an article in La Repubblica that I otherwise might not have heard about. For me it’s the information sharing that is so useful, especially from sources that I don’t read regularly. And this can be very valuable information.

What about the opportunity cost of spending time on blogging and social media? Do you lose time for other priorities? How do you clear away the distractions?

As far as discerning what is useful from all the noise, I would compare Twitter to a house with many rooms, and I pick and chose which rooms I visit. Most of the people I follow are people in my business. In a way, I could say that the information I used to pick up at a conference, I now pick up on Twitter. In terms of seeing what is going on in my field – say, in excavations – I get live tweets now from conferences, so I pick up a lot. But of course, you still do get much more out at a conference.

On the other side of it, I’ve made myself available on Twitter so that when I go through my feed, I can answer questions from school children learning Latin or tourists in Rome, and so on. This is a form of public engagement that is very immediate.

It’s also worth saying that in this particular debate about the value of social media, we are too easily hung up on the nature of the medium. It’s how we use it that matters. The Arab Spring was not a Twitter Spring; it was a people’s revolution using Twitter among other tools. Social media are neither good or bad, any more than print is good or bad.

The great advantage of Twitter – in terms of managing it – is that it has only has 140 characters, so it’s perfect for filling in the slots of time when you’re on the bus or waiting for a student to turn up. In a way, there is a briskness about it that is time saving. And the speed is an advantage, too. If I tweet a question about what book I should read if I want to learn about Alexander the Great, followers will tweet right back. You find people and people find you in a much more efficient way.

What about the reliability of information you get on Twitter? How do you screen?

If you rely on Twitter, it’s like relying on what you hear in a pub late at night. So of course you have to be careful. But you can get incorrect news out of papers as well. We’ve found a medium that we enjoy, and we need work on being a bit more discerning about what we believe.

But I’ve also seen the downside of Twitter. Just recently, there was an uproar over one of my recent tweets about an ad for Marks & Spencer in which none of the apparently older women had a trace of grey hair. All I did was tweet about how funny this was, and somehow it caused a great outcry. All of a sudden, the word was “Mary Beard slams M&S for ageist advertising.” I suppose I have to be less naïve and remember that even the most casual Tweet can always be picked up – and twisted.

What we have here is a problem between the subject and the medium. If you try to convert one short quip into a real story, it won’t necessarily make a good or interesting or true story. It remains a quip -- maybe trivial, maybe not -- nothing more.

So is blogging safer territory?

To a certain extent – at least one has a full post of however many words you like to explain things. But you still run into traps. I once blogged about a particularly awful train journey between London and Cambridge. So that got into the local paper as “Professor slams train service.” I did not slam the train service – just this one trip. But at least I had a full post to explain this a bit more.

Another example was when I did a visiting blog post for a Sheffield University history blog, which happens to be a very good site, and they wanted me to write about academics and TV. So I wrote a post about how to encourage professors to go on TV because people actually like hearing from experts rather than only from celebrities. But somehow the papers picked this up as “Mary Beard slams celebrity TV spots.” That wasn’t my point at all.

What annoy me most are not the people who are openly offensive. It’s the way that your words, which are in public sphere, become represented as some kind of newsworthy statement even though they are clearly not intended as such. It really puts me off and makes me now more careful about saying something about, say, an advertisement for Marks & Spencer.

When does managing your followers on Twitter become unwieldy?

It does get different when you get to 52,000, like me. In some ways, Twitter is most fun when you have 1,000 followers, so then it’s semi-public but still personal. God knows what it’s like when you have 5 million. I also have certain distaste for political tweets. I mean, we know that President Obama doesn’t tweet, and nor does Pope Francis. Please. They have someone to tweet for them. The tweets that we like are the ones that are really done by the person we follow.

But in general, what takes up time is not tweeting; it’s when something goes viral and every journalist out there calls you up to ask your comment, well, on grey hair and the M&S advertisement.

What has been the reaction among your colleagues at Cambridge?

I don’t think I’m seen as an outlier that much. I’m not sure I was the first to blog; quite a lot of them blog, it’s just that mine is kept going because it’s with a newspaper, the TLS. Otherwise, blogging is like going to the gym: You’re enthusiastic and then it tails off. Some professors are like that with their blogs. My department has a Twitter account, and it’s a very effective way of getting information on, say, seminar cancellations. It could well be that I have colleagues who think my blogging and tweeting are ridiculous, but they wouldn’t tell me. We still do have a veil of courtesy at Cambridge.

When Does Digital Activism Pack a Punch?

A new project is collecting data to offer insights from digital campaigns around the world.

By Philip N. Howard

Philip N. Howard is Professor in the Department of Communication at the University of Washington and the School of Public Policy at the Central European University. You can follow him on his blog and on Twitter @pnhoward.

The past few decades have given scholars a rich collection of data that can help them analyze political change, whether Latin America in 1980s and 1890s, the former Soviet Bloc after 1989, Africa since the 1990s, or the Arab Spring in 2011. It was the last transformation, however, that has galvanized researchers to assess activism and upheaval in the context of the digital age. Even though the 2011 wave was not, of course, the first time that digital tools were used, what made the Arab Spring a compelling case was that citizens had more hardware on hand than before to spread their movement from below, as well as new virtual networks that complemented and reinforced networks on the ground.

Initially, the digital optimists seemed to have the upper hand, arguing that social media and its array of platforms vitally contributed to these movements – and made the grip of unelected rulers elsewhere all the more precarious. The digital pessimists then struck back, citing example after example of autocratic governments that used technology ruthlessly and efficiently to stifle dissent, monitor civil society groups more closely, and further consolidate power.

With the support of the U. S. Institute of Peace, Mary Joyce, Frank Edwards, and I led a research team to analyze at some 1,200 cases of digital activism worldwide, including around 400 in the past three years, to dig into the data. First, we defined activism as efforts not just at regime change, but campaigns for policy changes at all levels of government. Second, we made sure this was a truly global sample – going far beyond the best-known cases that both sides in this debate had cited. Our initial research in this Digital Activism Research Project showed us how much more work can and should be done, but several lessons jumped out right away.

Most important, our study lets us find a way outside the confines of this debate, as it shows that the lessons are more nuanced. Our findings show that digital activism does indeed count as real civic engagement, but we have to understand the many dramatic stories of local and regional change, not just turnover at the top. And even if the headline story is about the fall of a dictator, there are invariably more interesting developments going on below, as digital activism engages civic life in countless ways. Furthermore, our findings apply to governments regardless of regime type. We should not think of these cases just in the context of resistance against sclerotic regimes, but in one of broad political change.

Every case of digital activism is its own story, and from country to country there are key factors that provide the important context for why some social movements triumph and others falter. Moreover, what makes studying social movements so difficult is that our recent history is full of partial successes. The public record on protest movements is always incomplete. But with a focused look at digital activism over the last few years, there are a few clear conclusions we can draw from the real-world examples.

What we learned

One key measure of success for a social movement is getting people into the street. Street protests alone do not always achieve their goals, but moving away from the computer to out on a street march is a crucial goal for groups trying to initiate political change. These days, one thing that makes the study of modern social movements so interesting is that when people march they stay connected. Taking to the streets is still an important goal of online activism. But these days, when people take to the street, they take their mobile phones with them.

On this question, digital activism has a demonstrated, positive impact, especially when civil society groups use digital tools and focus on the goal of changing government policy. If they have this objective, they can succeed with only modest street protests and a few digital tools. And this seems to be true regardless of regime type. By contrast, if groups are not united on which policy they want to change, success is more elusive.

What are the means that make a digital activism campaign successful? It is a mistake to tie any particular tool to a theory of political change. Calling something a Facebook Revolution or Twitter Revolt might make for compelling headlines, but it does not help us better understand the causes and consequences of modern political engagement. In our research, we found no clear associations between particular tools and specific campaign outcomes. Although Facebook and Twitter often dominate across movements, most groups use a mix of platforms rather than relying on just one.

We also found that digital activism is an overwhelmingly non-violent undertaking. There were only rare cases when mobilizing groups used digital tools to encourage violence against their opponents. Moreover, hacking and other forms of “technical violence” are rare. Of the campaigns we looked at, only three percent involved offline violence, and two percent involved hacking against targets. As a general rule, digital activism is focused on civic engagement, not harming people or property.

We also were able to unpack just how many different applications have been used. Social networks like Facebook and micro-blogs like Twitter were each used in about half of all campaigns worldwide. But digital video was also popular and integrated into almost 40 percent of campaigns, followed by e-petitions, with 25 percent. There was considerable regional variation in how groups used these tools: video is more popular in Eastern Europe than micro-blogging, but the reverse holds in West Africa.

Our methodology

Our broad sample was far more comprehensive than most research to date on digital activism, which is usually focused on case studies of individual campaigns or a network of campaigns working at a single point in time or around one issue. We deliberately took a comparative perspective, and, as I emphasized above, our analysis was not limited to the standard or most high-profile cases, or to the successful campaigns.

We used the tool of “fuzzy-set logic” statistical modeling – basically, an approach that measures cases according to their degree of membership (usually set between 0.0 and 1.0) in qualitative categories. For example, rather than say a policy goal is achieved (1.0) or not achieved (0.0), we can assign varying degrees of success, say, 0.50 or 0.75. The benefit of this technique is that it can set aside irrelevant variation on either far end of the scale, and it helps us use variables that are “nearly necessary” or “nearly sufficient” and still teach us about the causes and consequences of digital activism.

This way, we could look for plausible patterns of shared causal conditions and diverse outcomes by reducing the important features of hundreds of cases to a few variables. And to identify the key factors behind the success of digital activism, we also had to study the failures. Perhaps most important, this technique was useful because it was grounded in the observed, real-world experience of hundreds of digital activism campaigns.

Under this approach, the two most important measures of accuracy are what we term the coverage and consistency scores. Coverage refers to the percentage of cases explained by the variables in play. Consistency refers to the degree to which cases adhere to a particular mix of variables. We drew up a score for “raw coverage,” which indicates the proportion of the outcomes explained by the variables in question, as well as a “unique coverage” score, which indicates the percentage of the outcomes that are exclusively explained by one particular mix of factors. Both scores are important because some cases can be sensibly explained by several causal recipes, while others can only be explained by a particular causal narrative.

Going back to the question of bringing people on to the streets, we first recorded whether there were reports of public protest. Then, we looked at which other features of a digital activism campaign might explain such an outcome. In other words, we had to ask: When is digital activism successful at mobilizing people to take to the streets?

Of the case-specific variables associated with the data set, we singled out a unique combination of causal factors in play. There are two sets of what we term “causal recipes” for understanding how online protest moves offline: Digital activism campaigns are most successful at moving offline when they target a government, and the government is an authoritarian regime: 24 percent of the cases can be understood this way, and 10 percent of the cases can only be sensibly explained this way. Digital activism campaigns are also successful at moving offline when they target government and employ several digital tools: 29 percent of the cases can be understood this way, and 15 percent of the cases can only be explained this way. To be sure, statistical modeling always involves simplifying relationships for the sake of generalization. But this approach of looking for patterns in real-world cases helps bring interesting patterns to light.

In other words, digital activism campaigns are most successful at drawing public demonstrations of protest when the government is the target. In addition, they are most successful when the regime is more authoritarian or when the campaign has employed multiple digital tools. Together, these two “recipes” cover 40 percent of our cases with a high degree of consistency.

In other words, patterns of success and failure do not privilege Facebook over Twitter, or Vimeo over YouTube. If anything, using singular digital strategies and having all your organizing work go into one platform is the mistake. Having multiple tools, reaching your audience several ways, and having a diverse toolkit are the most important ingredients for impact.

To be sure, some pundits will still downplay the value of having people use their mobile phones and Internet connections for political muckraking. But our data show the pace of digital campaigning is on the rise, and campaigns are ever more creative. The tools that get built may not have an immediate impact, but they get passed on to the next campaign. Ultimately, digital networks are social networks. Even the movements that fail to have an impact generate social ties that last well beyond any particular campaign.

Merkel’s Victory, Or Why All Politics Is Local

The unspoken consensus across Europe to avoid upsetting anything ahead of the German election did just that: Europe hardly featured in the campaign.

By Kai Arzheimer

Kai Arzheimer is Professor of Political Science at the University of Mainz, Germany, and a visiting fellow in the Department of Government, University of Essex, U.K. You can read his blog here and follow him on Twitter @kai_arzheimer.

For much of the past year, the European Union and the euro-zone countries have been in a stalemate, eagerly awaiting the outcome of the German election. With so much at stake, no one dared to discuss any new deals that might relax the tough austerity rules imposed on member states such as Cyprus, Greece, and Portugal and supply these ailing economies with fresh credit. At the same time, policymakers decided to delay any attempts to put the bloc's troubled banks under the control of a single regulator or seriously debate the future structure and content of the Union's quasi-constitutional treaty base.

The reason for delay was not just uncertainty over the political fate of German Chancellor Angela Merkel as the September election loomed. It also stemmed from a tacit agreement between policymakers across Europe to avoid anything that might disturb German voters. While a very broad pro-European (and pro-euro) consensus still holds among German political, media, and business elites, German voters have become worried about future payouts to their southern neighbors and the existing risks already taken by the government to guarantee foreign sovereign debt. So deep was this concern that a euro-skeptic party sprung up only months before the election on Sept. 22. The “Alternative for Germany” (AfD) failed to garner the 5 percent of the vote required for parliamentary representation but only by a hair, at 4.7 percent, which signaled a respectable showing given its lack of time, resources, and expertise.

But in the end, the unspoken consensus across Europe to avoid upsetting anything ahead of the German election did just that: Europe hardly featured in the campaigns of mainstream parties. Instead, candidates focused mostly on the domestic issues such as labor market regulation and welfare. And Merkel played the two sides of the Europe coin well. Outside Germany, she has come under fire for an alleged lack of leadership and passion for Europe, for her pragmatic and piecemeal approach to politics, and for her tendency to apply German solutions to European problems. But back home, these were precisely the qualities that helped her win the election. On top of that, she could boast that Germany has weathered the biggest economic crisis in living memory well. Unemployment is at a record low, the economy is healthy, and, for the first time in more than a generation, the country is heading toward a balanced budget.

Furthermore, while Merkel and her Christian Democrats were attacked by their competitors on the left on a range of social policies, there was far more agreement on the euro crisis than many of her opponents would admit. This held especially true for the Social Democrats, who are likely to wind up as junior partners in a “grand coalition” in coming weeks. In the event the Social Democrats do link up with Merkel (whose party fell just a few seats short of a n outright parliamentary majority), they will continue to back her European policies as they have done in the past. Their presence in the coalition will also help Merkel counter-balance a small group of conservative “euro-rebels” within her own party, giving her a little more leeway.

But even if the Social Democrats scale back the rhetorical emphasis on austerity and push instead for European stimulus packages, they know they are facing tight limits to what they can do: At the end of the day, they are accountable to German voters. And in Germany, where there are usually two or three state elections each year, there are frequent chances for voters to express dissatisfaction with the national government. So if the Social Democrats were to propose tax hikes to support fellow Europeans in the South, they will find it to be a non-starter.

Aside from being the most likely outcome, a “grand coalition” between Merkel’s Christian Democrats and the Social Democrats is probably the most stable configuration. Both parties have formed coalitions at the state level and have twice done so at the national level (1966-69 and 2005-09, in Merkel’s first term). Despite the ideological differences between the two parties, Merkel has moved to the center in recent years, a reflection of her pragmatic nature. More so than under any other political constellation, the two parties are likely to agree on a whole host of issues and could sustain a government for its entire four-year term. Crucially, in recent years, the SPD has voted with Merkel on euro-zone emergency measures and related international treaties. Moreover, the SPD currently controls the parliament’s upper house, or Federal Council, a powerful institution that can exercise a veto over many federal policies. So teaming up with the SPD would make Merkel's life easier in this respect.

This is not to say the relationship will be easy. The SPD entered the 2005 coalition with the Christian Democrats on (almost) equal footing, but was punished by voters in 2009 with its worst result ever. Four years later, they have hardly recovered from that blow. The left wing within the SPD is deeply skeptical about joining forces with Merkel again, on grounds that more progressive voters would flock instead to other leftist parties, who could play the electorally rewarding role of the principled opposition. Given this resistance and the fact that the Social Democrats will try to maximize the premium they can extract from the Christian Democrats, talks could go on for a few more weeks.

Merkel's victory in perspective

Merkel's Christian Democrats and their Bavarian sister party, the Christian Social Union, won a combined vote share of 41.5 percent, their best result since German unification in 1990. This resounding victory is largely due to Merkel's personal popularity. Her approval ratings were consistently higher than those of her challenger, the Social Democrats’ Peer Steinbrück — higher, in fact, than the ratings of her party. Even among supporters of the opposition, Merkel is widely respected. After her victory, pundits and political leaders around the world proclaimed her the most powerful woman in the world.

The irony, however, is that under Germany’s parliamentary system, voters did not directly vote for her. Instead, voters cast their ballot for a party list, and the parliament, in turn, selects the chancellor as head of the executive. Essentially, the electoral system is proportional, and any party can get in parliament if it clears 5 percent of the national vote. Furthermore, proportional representation rarely gives majorities (as opposed to simple pluralities) to a single party. Germany's constitution, shaped by the traumatic experience of the politically unstable inter-war years, stipulates that the incoming chancellor must be endorsed by a majority of the members of parliament, who currently number 630. Merkel's Christian Democratic alliance won 311 seats, which is an excellent result but still requires her to partner with another party to clear a majority.

Had Merkel’s current partner, the pro-market Free Democratic Party (FDP), cleared the 5 percent hurdle, her preferred coalition would have held. But the FDP not only failed to clear the electoral threshold for the first time in its history, it got no real “tactical” votes from CDU supporters – contrary to my own models ahead of the election. In German election, voters cast a “first ballot” for their preferred party (which puts up a candidate in each district) and then a “second ballot” that can either go to their preferred party or to another party. Under a complex formula, those second ballots help determine the final distribution of seats in the national parliament. In effect, this system allows voters to express split preferences, and it has also helped Germany’s smaller parties, like the Greens, stay viable.

However, Germany recently undertook a reform of the electoral system that reduced the incentives for tactical voting. That reform, combined with a crushing defeat of the FDP in a state election in mid-September, caused the Christian Democrats to worry that the Free Democrats might not succeed this time, and that any tactical votes for them might be lost. So in an unprecedented move, the Christian Democrats explicitly urged their voters to refrain from tactical voting. As a result, the Christian Democrats performed slightly better and the Liberal Democrats slightly worse than I and many modelers had projected -- and that made all the difference. If just over 100,000 of Merkel's 14.9 million supporters had voted for the FDP instead, the coalition would have continued, leaving Merkel with a tried, tested, and presumably very much domesticated partner. But the FDP dropped out of parliament.

What Europe should expect

Although the election is a high-water mark for Merkel, she still faces not one, but three rivals on the left: the Social Democrats; the Greens, who governed in a coalition under Social Democrat Gerhard Schroeder, and who hold power in various state governments; and the Left Party, which is the result of a merger between the former East German Communists and a left-wing group of SPD dissidents.

Aside from the grand coalition discussed above, other groupings are possible, though unlikely. A leftist coalition that would deprive Merkel of the chancellorship is hard to envision, as the SPD has ruled out any such arrangement with the Left Party. It will probably have to reconsider their position in years to come, given that the Left Party remains a strong force in what was East Germany and polled more than 8 percent nationally this time around. But at the moment, the SPD cannot enter a coalition with the Left without losing all political credibility.

Another option is that the Christian Democrats could team up with the Greens. While both sides said that they are open for talks, this pairing looks unlikely: Such an arrangement is unpopular with rank-and-file members in both parties, and previous CDU/Green coalitions in the states did not work well. Furthermore, the current Green leadership is undergoing some soul searching in light of the party’s worse-than-expected performance at the polls, coming in under 9 percent. As they take time to secure their positions, it is unlikely they would form a coalition against the explicit wishes of the party base.

So how will Germany’s neighbors react to these results? Merkel’s detractors in southern Europe will still complain that Germany's enormous trade surplus is hurting their economies badly, denying them the opportunity to export their way out of recession and create jobs. They will also keep up the charge that Germany is benefitting from the woes of her neighbors, thanks to its safe-haven status and the exceptionally low interest rates that come with it, as it effectively borrows money for free.

But in the eyes of Germans voters, these complaints do not matter. They decided to trust their leadership to a safe pair of hands that protected them from the crisis and, more generally, insulated them from that ever-quarrelsome thing, the European Union. If anything, this election has taught us that any future German government will be formed on the almost exclusive basis of domestic issues and will act with domestic considerations in mind, constrained only by party politics and an activist constitutional court. Merkel's spectacular triumph has not changed anything about that – and there is no reason why Merkel herself should change. She will continue with her cautious, sometimes uninspired style, approaching one problem at a time while balancing Germany's domestic, European, and international interests. Europe and the world should expect more of the same.

A Grand Illusion

How the top French schools remain incubators for the elites despite the nation’s ostensibly egalitarian politics.

By Euny Hong

Euny Hong is a New York-based journalist and author, previously with the Financial Times and France 24. Her new book, Welcome to the Future: South Korea’s Plan to Own the World’s Pop Culture, will be published by Picador books in early 2014. You can follow her on Twitter @euny.

Ever-rising tuition and plummeting public financial support for higher education are two reasons why so many young people in the U.S. are rocked by an unprecedented debt crisis. But in the debate over how to create a more equitable system, an intriguing counterfactual question remains: what would happen if college were deeply discounted, even the most elite schools? Would we move toward something closer to a meritocracy?

For those seeking a more egalitarian utopia, France is often touted as an attractive model. But the country’s highly stratified higher education system suggests that low tuition alone cannot open to the doors to all, especially at the most prestigious institutions.

To many American parents who have to start saving from the moment they conceive a child, the French system seems like one to which all nations should aspire. Anyone who passes the high school baccalaureat exam – which is upwards of 80% of students -- can go to a regular public university for a few hundred euros a year. While the U.S. college application process requires fees at every stage, applying to French universities is unburdened by such punitive costs.

Super-elite and super-motivated French students can elect to apply for one of the Grandes Ecoles, which are so august that technically they are not classified as “universities.” These schools are direct conveyor belts to the nation’s ruling political, scientific, academic, and commercial ruling classes. There are about 220 in all, but some are more equal than others.

Within this pool, the real brass rings are the ENS (Ecole Normale Superieur); ENA (Ecole Normale d’Administration); “X”(Ecole Polytechnique); and HEC (Haute etudes commerciales). Sciences Po (Institut d’Etudes Politiques de Paris) is legally classified as a “grand establishment of higher education” rather than a Grande Ecole, but for reasons of clarity it is lumped into the latter category.

Many of these schools do charge fees, but rarely more than a few thousand euros a year. Even at the business school HEC, the annual tuition for French nationals tops out at about 12,000 euros a year, which is laughable by US standards. It is a safe bet that these graduates can pay off the loan for their entire degree well before middle age, unlike many of their US counterparts. Furthermore, it is an open secret that banks will extend generous loans to HEC students. And for extremely qualified students at some of the Grandes Ecoles, it is possible to earn not only a full tuition bursary, but also a generous monthly stipend – something unheard of in most countries at the undergraduate level.

In theory, since tuition is not very prohibitive, all French children have equal access to these schools, and with it a chance to catapult to the upper stratosphere. But the reality is more complicated. Despite the seemingly level playing field, the vast majority of students at the top Grandes Ecoles are from wealthy backgrounds. In fact, the socio-economic landscape at one of these schools far more lopsided than at a $50,000-a-year American Ivy League School.

Journalist Peter Gumbel, author of the recent book France’s Got Talent: The Woeful Consequences of French Elitism, told me, “The word ‘egalite’ is carved on school buildings, so it’s shocking to see how inegalitarian it’s become. In theory, students from anywhere who are clever can pass [the entrance exams], but in practice, it doesn’t work like that.”

According to Gumbel’s book, only 12% of ENA students are from working or lower-class families. At École Polytechnique, 60% of the students were poor and 14% were wealthy in the days of Napoleon’s rule. Now, more than two centuries on, only 11% of students are on financial aid. By contrast, the student body in the U.S. Ivy Leagues has shifted away from the prep feeder school model, and typically some two-thirds of students will qualify for financial aid.

A Grande Ecole degree also puts a student in an elite pool for life. The laurels it bestows have much more clout than do their equivalents in most other Western countries—what an Ivy diploma or Oxbridge degree will get you pale in comparison to the guaranteed path of glory that lies ahead for a Grande Ecole graduate. For one thing, the student pool is miniscule; the ENA typically admits 110 students per class year, of which 80 are French nationals. And yet from that tiny pool arise a shocking proportion of France’s political leaders. “Enarques,” as ENA graduates are called, include seven of the last 12 French prime ministers, while 46% of CEOs graduated from three of the grandes ecoles, according to The Economist.

In the 2012 French presidential elections, four candidates were Enarques, including current president François Hollande. Hollande’s former companion and the mother of his four children, Segolene Royal, was not only in the same ENA class as Hollande, but also ran against him for the Socialist Party presidential ticket during the last election.

Mary MacCarthy, a Colorado-based journalist who studied journalism at Sciences Po from 2004 to 2006, said she was shocked when she began her studies there.

“It was the first time in my life that I felt I was in some sort of aristocracy, and people all had the same mentality,” she said. “Even if they didn’t grow up together, you got the feeling that they did grow up together, and were from the same upper crust part of Paris.”

She contrasts this to her undergraduate education at Boston University, where financial aid was generous. And the student body “wasn’t just East Coast people from the city.”

Sciences Po is one of the Grandes Ecoles that has made more of an effort to recruit students from more diverse backgrounds, but MacCarthy described this push as unimpressive.

“I saw how those students were treated, and it was very much as a token,” she said. “I remember getting an email saying ‘Let’s welcome all the scholarship students,’ which is welcoming but in a condescending way. Even as a foreigner, I was treated that way. They said, you’re here because you’re a foreigner, not because you’d have gotten in otherwise.’”

In many cases, students who gain successful admission to the Grandes Ecoles have attended two years of additional study post-high school -- “prepa” -- to prepare them for the competitive exams. As Gumbel describes it, prepa “is almost a caricature of the culture.”

“There are rituals of humiliation,” he told me. “You start off getting terrible marks and teachers tell you how bad you are. It’s very strange, almost sadistic. In other countries, you’d be told how great you are and not get slapped down all the time.”

Even though the prepa are free to all, they also favor certain backgrounds. The vast majority of students come from Paris, and the pool is miniscule. According to Gumbel’s book, most students at Ecole Polytechnique went to just five classes among the nation’s “preparatoires,” three of which are in Paris’ most posh neighborhoods, and two in the wealthy suburb of Versailles.

“By comparison,” he notes, “in Britain, students from the top 100 schools only make up one third of those who get into Oxbridge.”

From the American viewpoint, the tiny pool size is even more striking. Long gone are the days when Ivy League schools had just a few “feeder” prep academies where most of their students came from.

The French education system across the board has a reputation for doing a poor job on outreach, which is one reason students from less-well off French families often lack the gumption and initiative to apply to these schools. “There’s a sort of self-censorship,” said Gumbel. “Students from certain schools, even if they’re very good, won’t try to apply.”

Gumbel noted that Sciences Po -- where he has taught -- has tried to address this gap by approaching schools in disadvantaged areas and encouraging students to apply. Without such direct outreach, he said, many students would be too intimidated even to consider a Grande Ecole. But this practice is more the exception than the rule.

“There’s no positive reinforcement; in fact, there’s negative reinforcement,” he said. “A child who goes off the rails can go down a vicious spiral.”

American schools, by contrast, at least offer chances to students who might have other skills. Said Gumbel: “In America, if you’re so-so at school but great at music or sport, you can go to a great college.”

Even with all these impediments, there is also a selection effect that reinforces this trend. All too many enterprising French youngsters from disadvantaged backgrounds are just not willing to go for the brass ring -- it’s not really that appealing for such students. Conventional success, rather than joining the ruling class, is more important.

Charles Givadinovich, who has studied both at Sciences Po and HEC and is now active in the UMP centre-right French political party, told me that this class of student is more concerned about taking a practical route rather than a prestigious one. Shaped by family tradition, many of these upwardly mobile students prefer to pursue career paths that will raise their social status while being more practical to attain. For example, to become a lawyer, judge or doctor, “a Grande Ecole is not the path,” said Givadinovich. “To work in the public sector, which is nearly 25% of jobs in France, you don’t need an elite school.”

The unfairness of the system aside, does it build strong leaders? Gumbel believes that, here, too, the grande ecoles are lacking. “They’re good at what they’re good at, and they’re all good at the same thing,” he said. “[The schools] recognize these narrow intellectual skills. And at the Grande Ecole, these people are given the keys to the Republic.”

The flaws in the French system aside, the US is hardly off the hook. Low-interest student loans offered by the US government (which can run up to 7% annually) will hardly make a dent in the annual tuition for most private universities, and even at some state universities. This forces students to take out hefty private loans, which can carry annual interest as high as 11%. And there are growing legions of disgruntled business and law school students who claim that their degree was a waste of money, unable to find employment in their desired fields after graduation. Another charge is that schools regularly publish misleadingly high figures about post-degree job placement. The U.S. higher education system may ultimately reinforce downward class mobility as students struggle to pay off loans. In other words, a workable model, whether here or abroad, is much harder to find than one would expect.