Wednesday, December 13, 2017

Path dependence in sports history

We are finishing another edition of the course on soccer and economics at the Study Abroad program of the Autonomous University of Barcelona. Most students are from the USA and one of the groups just presented their essay about the limits to soccer success in their country. Of course, a key issue is that resources are already being spent on other sports, such as American football, baseball and basketball. Although soccer is increasing its popularity because of the expansion of demographic groups such as hispanics and women's soccer is very successful, most fans still see the NBA, the NFL and the MLB as the most important sports leagues. Although basketball is probably expanding and American football is declining (see an article in The Guardian by the famous former basketball player Kareem Abdul-Jabar), they are still above soccer in the preferences of Americans. According to my students, one possible reason is just history: in the XIXth Century, the USA wanted to re-affirm its identity by distinguishing itself from British sports such as rugby or cricket, and that is how American football and baseball started and expanded. This gave them a starting advantage, and the era of big economic growth of the United States additionally favoured these leagues. When soccer became a global industry at the end of the XXth century, it was perhaps too late to become the leading sport in North America. It can still grow of course, and the elimination from the next World Cup should not be seen as a drama (at least, they will be in the good company of Italy, The Netherlands and Chile). Countries that do not have a strong soccer tradition can easily catch up by importing resources such as managers or veteran players, or by exporting their best players to the best leagues and asking them to come back to play for the national team, as explained by Branko Milanovic in an article published in 2006. But once they achieve a decent level, they find much more difficult to achieve excellence. Like in other industries, imitation is easy but excellence requires innovation and the creation of new styles of doing things, and this probably only comes with role models, cultural environments and strong communities transferring a passion for something from generation to generation. That is what is argued in a recent academic article by Stefan Szymanski and Melanie Krause. Perhaps that is why Messi is Argentinian and not form the USA or China -although many are trying to produce "the new Messi," in some cases with a lot of money.

Monday, December 11, 2017

Matthew D'Ancona and national-populists re-inventing the wheel

I started reading this article in The Guardian by Matthew D'Ancona believing that it would relate the Isareli-Palestinian conflict with the Brexit controversy about Northern Ireland (something that keeps my analogy-prone mind in good shape), but I found something much better. Actually, two things. First, a great metaphor about the lies of Brexit based on the re-invention of the wheel: "So, here’s an idea: let’s abolish the wheel. Let’s escape the tyranny of the circular device, and spend the money saved on axles, spokes and hubs on – oh, I don’t know – the NHS. Let’s take back control of rotation! But wait a minute. This can’t be done overnight. We shall still need some means of transporting ourselves and our goods until we have formally renounced the wheel, but before we have agreed on a new device. There’ll probably need to be an “implementation period” in which we remain “aligned” with the existing circular format. Then, when we’ve finally got rid of the old system – let freedom ring! – we’ll need a new, bespoke mechanism. What we’ll want is our own round component that rolls around an axis; an independently designed disc that turns reliably to enable easy movement. Something that gyrates smoothly along the ground. I wonder what we should call it." Second, a very useful insight about clarity and ambiguity, which should be read by those in Spain and Catalonia that fell in love with the Clarity Act of Canada: "As so often, it was our old friend “constructive ambiguity” that got May, her party, the Irish government and Brussels over the line. You can read the text as a victory for British sovereignty, a significant retention of power by the EU, a step towards Irish unity or a safeguarding of the union. This kind of ambiguity was essential to the Good Friday agreement, which entrenched an open-ended process founded upon euphemism. In contrast, the Brexit talks assume and depend upon the eventual achievement of clarity – even if, in many cases, that point is not reached until long after the UK’s formal departure on 29 March 2019." And to wrap it up there is a final part of the article that is the perfect illustration of the big topic of behavioral political economy: expressive voting versus rational choice. I leave it to you to enjoy it.

Sunday, December 10, 2017

The biographer's autobiography

James Atlas is the biographer of two American writers, the forgotten poet Delmore Schwartz and the famous Nobel Prize winner Saul Bellow. I have never had the opportunity to read these two biographies but now I will try to buy and read them. What I have read is the wonderful autobiography of Atlas himself, where he explains how he became a biographer, and he tells us some of the secrets of his speciality, starting with what he learned at Oxford (a place he didn't particularly enjoy) in the beginnings of his career. I knew about the book after reading a positive review by a Spanish writer in a newspaper. The book, entitled "The Shadow in the Garden. A Biographer's Tale," is a love letter to books and book writers and critics in general. Atlas tells us about his emotions and physical sensations in those moments where he lived through experiences such as finding some special document or meeting some important character. He is also very open about his tension with Bellow and the many flaws of this author as a human being. The difference between Bellow and Schwartz from the point of view of Atlas is that he never met the latter (although he shared with him the problem of depression) but he interacted frequently with the former. The last chapters of the book discuss the future of biography. In the past, writing a biography was about collecting documents such as letters, personal journals and objects, unpublished manuscripts, and interviewing people who had interacted with the subject of the book. With the Internet, email, social networks, blogs and you tube, the lives of famous authors are very much in the public domain. Perhaps it will not be about writing a biography any more, but about putting together materials in a web site. But then many of the emotions associated with the old art of a biography will not be there any longer.The footnotes are not to be missed, full of irony and interesting insights to complement the general text. I really enjoyed reading this book.

Thursday, December 7, 2017

Peace agreements are incompatible with national-populism

For anyone who has been paying attention, it should be no surprise that detailed and nevertheless fragile peace agreements that were reached in the 1990s are today in danger because of the rhetoric, the actions and the events unleashed by national-populist forces. Brexit threatens the results of the Good Friday agreement reached almost twenty years ago after decades of violence in Northern Ireland. That agreement was not perfect, it was complex and multilateral. It had even some disturbing elements, like the obligation to "share" a government between religious parties, accepting de facto the "tagging" of organizations and voters, instead of promoting that one day the province could be dominated by a secular multicultural political force or several of them. More importantly, the agreement was made possible by the existence of the European Union, which facilitated a legal and economic framework that produced the dilution of the border between Northern Ireland and the Republic of Ireland, as it happend for example between Spain and Portugal (I still laugh when someone wants to seem modern by asking for an Iberian federation -we already have it! It's called European Union). The two parts of the island can share today a common economic and trading area and even an electricity system. Each part probably believes that it is sovereign, but the border disappeared twenty years ago, which means that even unconsciously they have been sharing the same territory. And it has been good for them, as the island has probably lived through the most prosperous and peaceful period of its contemporary history. Now Brexit threatens this, because British voters by a small margin decided to leave the EU in a simplistic referendum by a very small majority, even if the voters in the Northern Ireland province voted to remain, as they voted in favor of the Good Friday agreement almost twenty years ago together with the voters of the Republic of Ireland. That was a complex and patient agreement, the result of multilateral negotiations. The extremists in the British conservative party and the extremists among the Northern Irish unionists have a hard time trying to make compatible Brexit with the Good Friday Agreement. In fact, they are incompatible, and probably the only solution is either to acknowledge that Brexit as it has been imagined by its proponents is impossible, or to construct a special regime in Northern Ireland without saying it to save the face of the Unionist and the British government. In the Middle East, the Oslo peace accords were also fragile and imperfect. In a perfect world, instead of a two state solution we would have a plurinational federal state as suggested by the late historian Tony Judt. But it was also a multilateral agreement that laid the foundation of future peace negotiations. Donald Trump does not want any of it and is willing to sacrifice decades of good will and slow progress to demonstrate that his rhetoric must prevail. Our world is interconnected and the decisions of British or American voters have effects on third parties. But a characteristic of national-populists is that they do not have time for complex agreements or institutional constraints. The problem is that some of these constraints keep the world in relative peace.

Sunday, December 3, 2017

It is the moral compass, not the academic credentials

The weeks that surrounded the illegal and suspended declaration of independence in Catalonia coincided with a 4% reduction of the retail sales in the region, the exodus of the headquarters of 2800 firms (among them, the two largest banks and some of the most important companies), the fall or postponement of tourist reservations and investment plans, and the transfer of savings to accounts in other regions. It is tempting to conclude that pro-secession leaders lack any knowledge of the economy or any knowledge of the mechanisms of the rule of law in a European member-state of the XXI Century. We could easily blame bad selection mechanisms in political elites or even the poor educational system in general in Spain and Catalonia. However, the Catalan pro-secession movement and the regional government that has represented it in the recent past have been supported by first-rate intellectuals, among them several economists with a PhD from US universities, philosophers fluent in Germany and experts in Wittgenstein, or legal scholars with previous high reputations among their peers. On October 10th, the day in which the now sadly famous Catalan former president Carles Puigdemont said that he acknowledged the results of the illegal referendum of October 1st and then added that he suspended the declaration of independence temporarily, his cabinet met in the morning prior to that Parliamentary speech to decide on the strategy. In that meeting, all the members of the regional government agreed that it was better to suspend the declaration and try to offer a more moderate face, given the hundreds of companies that were already announcing that they were leaving the region and given the zero prospects of international recognition. Only one member of the regional government disagreed from her by then scared colleagues by proposing to go all the way down and declare independence immediately without fear of any consequences. That was the regional Minister of Education, an economist with a PhD from Minnesota University in the USA. Today Paul Krugman has written in his blog about the betrayal of many intellectuals of the US Republican Party, their refusal to apply scientific or moral standards when they evaluate the policies of their party. Krugman alludes to the title of a famous book ("La Trahison des Clercs") by a French intellectual in the first half of the XXth Century, where he denounced the many intellectuals that supported nationalism or stalinism. We could similarly refer to the betrayal of many intellectuals, Catalan edition (incidentally, one of the Republican intellectuals mentioned by Krugman is a co-author of one of the most radical Catalan economists). In the blog of the LSE there is a review of a recent book on how European governments are these days more and not less crowded with academics. The regional Minister of Finance and Economy of Catalonia was in October a Historian with a PhD, like Gordon Brown. The difference does not lie in the academic credentials (although I suspect that the PhD dissertation of Mr. Brown was much better than the one written by Mr. Junqueras). The difference lies in the moral compass, which in the case of Brown made him give that famous speech against nationalism ("the silent majority will be silent no more") that most probably decided the 2014 Scottish referendum.

Wednesday, November 29, 2017

Second generation commitment devices

As argued in a recent article written by a former central banker of Argentina and a co-author:
“We call for amending the design of some of democracy’s existing commitment devices. These relate to the judiciary, media, central bank, regulators – the elite’s expertise and the experts themselves. The current commitment devices and institutions don’t seem to be fully sufficient nor entirely credible (depending, of course, on the country and its institutional history). These institutions should be improved immediately by introducing what we call a ‘second generation’ of commitment devices. These are specifically designed to materially improve existing structures through stronger and more credible accountability elements, for both the institutions and the elite. They can reduce the populist’s incentives and ability to introduce measures that would quickly and disproportionally favour him and allow him to enhance his grip over the initial benefits.”
These “second generation commitment devices” require a careful study of the biases of regulators and a careful study of the behavioral issues that surround the political arena in which they work, because the forces of populism do play with these tools. Before embarking on the specific or generic reforms suggested by Mario Blejer and Piroska Nagy-Mohacsi in that article, such as periodic reviews of regulatory institutions or focusing more on fair process than outcomes (as well as “allocate resources to improving the public’s understanding of the long term costs of unsustainable policies”), it would be useful to have a better knowledge of the characteristics of the decision-making process of the individuals that participate in regulatory decisions.
Mainstream political operators respect the existing institutional constraints and functioning of politics, but these are often under criticism. As another  recent article on the supply and demand of populism suggests, new leaders are then very tempted to break away from one form or another of existing constraints. These constraints can be formal or informal, and it is not unusual that national-populist leaders, at the same time that they propose walls or exits, they also depart from inherited conventions and use strong rhetoric or ride the waves of the mob rule. The answer should be serious institutional reforms.

Sunday, November 26, 2017

Blaming others after wasting resources in a conflict

As Catalan former president Carles Puigdemont blames "Madrid" and now even the EU for all his problems, I find this paragraph in a new article about populism very suitable, especially where it says that when he finally fails to deliver, the populist finds someone else to blame for spoiling the party: "The populist wants, of course, to complete his takeover of the system before the negative consequences of his policies start to bite. But if he cannot achieve this objective he ‘doubles up’, raising his populist bets. Policies that benefit his constituencies gain priority while deficits, inflation, debt, and/or state intervention, price control, and protectionism increase as democratic institutions crumble. Again, the populist leader is ‘time consistent’ – he expected these results and never intended to pay for those costs, financed through the use of financial and physical repression, default, institutional destruction, expropriation, etc. He continues to promise massive gains in output, employment, trade, and so on, and when he finally fails to deliver, he finds someone else to blame for spoiling the party. He starts resorting to extreme policies (undue pressure on business leaders, state interventions in various forms, nationalisation, and so on) particularly before each election cycle. He also goes after individual freedoms, and institutions whose remit is to protect them." The academic literature about populism will learn a lot from the Catalan case and the neo-populist tricks of the secessionists, which can also be illuminated with the academic literature about conflict (violent or not). Ethnic conflict (ethnic in a very general sense, as based on a marker different from income) is more sustainable than income conflict because ethnic groups include rich individuals that have the resources to sustain conflict over time. As Esteban, Mayoral and Ray argue in an article in Science, "such markers can profitably be exploited for economic and political ends, even when the markers themselves have nothing to do with economics. A study of this requires an extension of the theory to include the economic characteristics of ethnic groups and how such characteristics influence the supply of resources to conflict."