Let's talk (and fund) federalism in Brussels

The association to which I belong and in which I have been active in the last years, Federalistes d'Esquerres (Leftist Federalists) organizes two important events in Brussels this coming week, on Tuesday 27th and Wednesday 28th. Although I personally will not be able to be there this time, more than thirty of my colleagues will be joining the members of the European Parliament Javi López and Ernest Urtasun, two great federalists, in promoting the ideas and solutions of federalism, for a more united Europe and for a solution to identity and institutional problems, based on respect and solidarity. Federalism offers solutions to the economic crisis and to the crises of refugees and migrations, it offers mechanisms to reduce inequalities and to fight climate change. On Tuesday, there will be a fund raising event for the documentary FEDERAL, produced by our association and the award winning director Albert Soler. Everybody is welcome to this event, which has as explicit objective to raise funds to promote our ideals in the movie theaters. Do not forget to bring your wallet (it's a metaphor: you can pay through a crowdfunding platform or by money transfer). On Wednesday 28th, there will be an event at the European Parliament, hosted by the two parlamentarians, where our association will introduce itself and have a dialogue with our representatives and other attending people. In Brussels, my colleagues will have the occasion of continuing our dialogue wth other European federalists, such as those in the Union of European Federalists, to strengthen our cooperation and plan for future actions together. We are more committed than ever to make true the dream of our founding fathers: the federal United States of Europe.

Expanding institutional economics

In the last issue of the Journal of Economic Literature, Pranab Bardhan makes a number of criticisms to contributions by new institutional economists, including Acemoglu and Robinson. The most important of these criticisms, in my view, is that this literature does not give sufficient attention to the contradiction between committing to respect property rights and political accountability. Another important criticism is the resistance in this literature to consider other functions of government beyond respecting property rights such as providing coordination for example in the context of modern industrial policy. The criticisms of Bardhan elaborate or complement previous criticisms of the same literature by Clark, Chang, Allen and McCloskey. In my view, the arguments of these authors do not invalidate the work of authors such as North, Weingast, Spiller and others, who build on the seminal work by Coase and Williamson, but actually expand their focus and conceptual framework. At the end of the article, some suggestions are given for future research, among which I particularly liked this one: "An important, yet largely unresolved, issue is to find clear directions from empirical data about when democratic processes lead to long-term investments in public goods serving the poor and when they instead degenerate into short-term populism and clientelistic patronage distribution. What, empirically, is the pattern of the dynamics of erosion of political clientelism, and why does it vary so markedly between countries or even regions?"

Michael Gazzaniga and the illusion of self

As recommended by Louis Putterman in the WINIR 2016 Conference in Boston, I have been reading neurologist Michael Gazzaniga. In particular, I read the book "Who is in Charge." This scholar is famously expert for his study of the parallel work of left and right hemispheres in our brain. As a byproduct of this work, he has a powerful theory of how consciousness is just an emerging property that has been evolutionarily useful, but that results from the interaction of specialized units of our brain that follow physical laws. In reality, there is no-one in charge, and no unique self calling the shots. For example, some hours ago, I was writing something related to economics in my computer, my daughter came into my offcie, said something related to an agenda and, when she left the room, I noticed that "I" had typed in my computer the word "agenda", which was completely unrelated to my writing before she came in. "...Consciousness involves a multitude of widely distributed specialized systems and disunited processes, the products of which are integrated in a dynamic manner by the interpreter module. Consciousness is an emergent property. (...) Our conscious experience is assembled on the fly, as our brains respond to constantly changing inputs, calculate potential courses of action, and execute responses like a streetwise kid." We are like other complex systems, such as an ant hill, made of self-organizing units. As a scientist that I heard in a BBC documentary said, we are just put together in a way that makes us look smarter. Therefore, the idea of a rational self that is free to make decisions is not only eroded from outside, by social forces whose role is increasingly recognized by social psychology and other behavioural sciences, but also from inside, as increasingly noted by neurologists like Gazzaniga. The rest of the book is about how "this post hoc interpreting process has implications for and an impact on the big questions of free will and determinism, personal responsibility and our moral compass."

Is it ultimately about race and cultural anxiety?

In an interview with Christiane Amanpour, Paul Krugman has just said in the CNN, mostly inspired by politics in the US but refering also to Europe, that the increasing success of national-populism, contrary to conventional wisdom, may not be so much due to worsening economic conditions of workers in developed countries due to globalization, but due to race and identity. White people would feel threatened by multiculturalism and population movements. This coincides with work that has questioned that the graph called "Milanovic's elephant" justifies the interpretation that inequality is caused by globalization. A study has analyzed in-depth the data behind the elephant and, although the most important features of the graph survive (China's middle class being the big winners in global income distribution between 1988 and 2008 although not becoming richer than us yet, and the very rich doing much better than the working and middle class in developed countries, although this seems to have slowed down in the crisis), in turns out that in individual countries we see very different evolutions of the poorest deciles of the income distribution depending on government policies. The nuances of using the available data from countries to construct the final graph were already discussed in the background academic article by Milanovic and a co-author. Then it would be that the main determinant of inequalities would not be so much globalization but national economic policies. In any case, globalization poses huge challenges and constraints to national policies. In addition, if the main reason of political backlash is ethnic or cultural, this begs the question of what are the political and economic mechanisms that make a strategy of appealing to race and identity successful as opposed to a strategy based on class and redistribution. Branko Milanovic and John E. Roemer would be well placed to undertake such political economy study at a global scale, since both have done past work that speaks to this issue. Milanovic did work in the past about the determinants of ethnic voting, and Roemer explained why the poor do not expropriate the rich in democracies (answer: because the rich are able to make other dimensions more salient). One hopes that their recent and promising paper about national and global income distribution is just to whet our appetite. The elephant graph is still great and I have used it in my first class in a couple of courses to motivate the interest of the students in the controversies surrounding globalization, markets and inequality. I should also say to my students that to study the really important problems with real data is very challenging and a single graph can never close a debate.

We should make Europe popular

The debate goes on about how to reform Europe to make it more efective and democratic. The Robert Schuman Foundation has published a report with some proposals. Some of them must be left for a Treaty reform, but others can be done in the current legal context. It mentions that "the think-tank Bruegel recently recommended, in a written contribution, a few actions that are legally possible within the framework of the present EU Treaties:
- avoiding excessive budgetary adjustments in the countries in crisis, by accepting a certain restructuring of the sovereign debt,
- conferring upon the future European Fiscal Board the task of guiding budgetary policies during exceptional periods, good or bad, when budgetary coordination would be necessary,
- asking for more stabilizing national budgetary policies,
- even providing for the creation of a European unemployment (re-)insurance scheme targeted at large asymmetrical shocks. This mechanism would have to be created via an intergovernmental agreement.
Hence these measures, not requiring a revision of the EU Treaties, could be implemented rapidly."

Europe will keep evolving slowly, but it is important that measures are taken rapidly to restore confidence in the European project. Otherwise, nationalism and opportunism will keep spreading in the public opinion and in sectors of the political elites, and the final result could be the collpase of the Union through a series of referendums that, in the name of democracy, end up destroying the supra-national European institutions that today make Europe possible.

Increasing circles of solidarity

Today is the last day of the Conference WINIR 2016 on Institutions and Human Behavior. To me, the best moment was the presentation by Louis Putterman from Brown University about a new unpublished paper on "Democracy and Collective Action." Since I volunteered to be the chair of his session (because I wanted to meet him) I could overcome my shyness to approach him at the end and not only ask him to sign a copy of his book "The Good, the Bad and the Economy" but also ask him a question about his presentation. In his new paper he addresses the topic of the sustainability of democracy, which was absent from his book. According to Putterman, the assumptions of traditional economics would make democracy unsustainable, because of the free-rider problem. That is, if all of us are selfish utility maximizers, given the costs and benefits of getting involved in collective action, nobody would pay the cost of getting informed or participate in the political process as voters, demonstrators or candidates, and democracies everywhere would be in the hands of thieves. There is little doubt that politics is in the hands of thieves in several places, and some thieves are running as candidates in some places. But it is also true that in some cases democracy has reasonably provided public goods such as health, infrastructures and basic education or law and order. Putterman says that democracy is possible because we are not like the economics textbook individuals, but we are social and political animals, as Aristotle had established long ago. We have evolved to be social like many social animals. My question to Putterman was that if we are social in the way that many social animals are, that should be good news for politicians like Trump or Farage, because the solidarity of individual animals does not go beyond the local group, and it has the dark side of violence against other groups even of the same species. Putterman briefly answered that over the history of humanity we have developed an ability to increase the circles of solidarity and that he hoped that we didn't need a threat from another planet to develop some sort of global altruism. Perhaps global climate change will do the trick. I'll read the paper of Putterman more in depth when I land on the other side of the pond and I'll look for some references he mentioned. And perhaps I'll ask him by email for more details about his idea of increasing circles of solidarity. This and a bit of feedback for my own research is what you get in these conferences.

The Trump possibility

I am spending a few days in the US (leisure plus an academic conference). When I arrived at the Boston airport a few days ago, just after leaving the aircraft we were stuck in a very slow line that ended in the immigration interrogation. Above the line there was a TV screen with the CNN on, precisely at the moment in which Donald Trump was giving a speech about "securing our borders." At that moment, it seemed to me difficult to secure the borders even better than they are. Even if Trump were to win the election, the system of checks and balances, I believe, would make it very difficult to introduce dramatic changes in a system that is relatively strict already in my view. More than the immediate policy concerns, my worry is the deterioration of political discourse and social trust that politicians like Trust implie. His probability of winning the election according to the best political statisticians is now around 22%. If the election was today, he would not win. But incorporate to the statistical model a couple of public relations tricks and a big terror attack and the probability can easily jump, in a very volatile political atmosphere. Before the party conventions in July, the probability was close to 50%. Trump is just one chain in the global exchange program of national-populism. He was visited recently by Nigel Farage and by the leader of the Italian Northern League. Rumours of Vladimir Putin supporting Donald Trump are consistent with financial links between the Russian leader and some Trump aides, as well as by statements of the American tycoon praising Putin. The main message of all these populist leaders is that "good fences make good neighbours." The policy details are scarce and usually inconvenient to them: "I will fix this and that; we will take back control"... It is not easy to see how all this wave is going to be stopped. As Louis Putterman (someone I expect to meet at the Conference I am attending this week-end) says in "The Good, The Bad and the Economy", what is wanted is this: "idealists who are not satisfied with easy answers."