Tuesday, December 1, 2015

The evolution of soccer: taming the beast

In the 1960's soccer/football was in crisis. Stadiums were crumbling, tactics were defensive and hooliganism was dominant in the cradle of the game, the British Isles. Then a new, more offensive and modern style of play began to flourish in The Netherlands, taking inspiration from the seed that had been planted by a previous generation of Eastern European players and managers. The seed flourished in the World Cup of 1974, and then the new species evolved and mutated into even better forms in Spain and Germany. In parallel, some tragedies shocked the public authorities, who finally became determined to act against violence and crumbling facilities in England. Technological developments facilitated the expansion of the game, and judicial interventions paved the way for the internationalization of the market for players. More and more people had access to live games with the best stars of the planet, with increasing in-depth coverage of every aspect of the game. Combining all these phenomena, we see the evolving combination of markets, governments and a multiplicity of organizations (both for-profit, and not-for-profit) producing something really successful. I am sorry, but no creator was in command. Now the problems are derived from the success of the product. Soccer has become a global industry, and some disturbing associated phenomena that were minor problems when the scale of the animal was small, have now become more pervasive: corruption, politicization, child trafficking, tax competition, state aid, fiscal fraud, or the involvement of obscure olygarchs (local or foreign), are all worrying phenomena that call for reforms. The beautiful game is also a beatiful beast. The beast will probably be tamed by a combination of judicial action (as we are seeing with FIFA), but also the concerted action of expert global agencies such as CAS or WADA and organized groups of fans or worried sponsors fighting for a more democratic sport. The beast has to act to the benefit of fans without imposing costs on society at large.

Sunday, November 29, 2015

The most important meeting in the history of humanity

Unless we manage to contain climate change by the next few decades in a global effort, life in our planet will no longer be as we have known it. Oceans will grow, beaches and coastal cities will disappear and population movements will be massive. The poor will suffer more, and both developed and developing countries will have to introduce dramatic changes in the way people behave. All these issues will be discussed in the UN meeting starting tomorrow in Paris. Nation-states are ridiculous instruments in the face of this challenge. Humanity has to act cooperatively. This is what British writer Will Hutton has to say about the event today in The Guardian: "The most obvious response to climate change should be to transform the way the world generates energy. Living standards have risen 40 times over the last 250 years in the west, driven neither by the small state beloved of conservatives nor the large state favoured by socialists. Rather, the growth has resulted from a complicated interaction between capitalism and science and technology, of necessity publicly funded, creating wave after wave of transformations in the character of our economic base and the quality and quantity of what it produces. The same now has to be done for the world’s energy production. It needs to be technologically transformed to become as near carbon-free as possible, which will only work if there is a substantive global research and development effort led by governments, matching those of conquering space or winning a war, to explore the necessary technologies. Embracing global political solutions such as a global carbon tax or global emission caps are beyond political reach, given the range of entrenched interests, not to mention the stubborn refusal by many conservatives to accept climate change science. It will be innovation that will save the planet. This is the blisteringly obvious truth that should be written in neon in the skies above Paris at tomorrow’s launch of the 2015 UN climate change conference. Its goal is to try to agree binding agreements to limit the increase in global temperature to two degrees centigrade by 2100."

Tuesday, November 24, 2015

Woodrow Wilson, the racist

Since US President Woodrow Wilson is widely admired in pro-independence Catalan circles, because of his supposed position in favour of the self-determination of small nations, I thought some members of these circles might benefit from reading today's piece in the New York Times about his racist positions (after the piece, the paper has reinforced the point with an editorial):
"Perhaps best known for leading the United States during World War I and for trying to start the League of Nations, Wilson as president rolled back gains blacks had made since Reconstruction, removing black officials from the federal government and overseeing the segregation of rank­andfile workers. Raised in the South, he wrote of “a great Ku Klux Klan” that rose up to rid whites of “the intolerable burden of governments sustained by the votes of ignorant Negroes.” During Wilson’s tenure as president of Princeton, no blacks were admitted — “The whole temper and tradition of the place are such that no Negro has ever applied,” he wrote — though Harvard and Yale had admitted blacks decades earlier. Princeton admitted its first black student in the 1940s."
Although his position in favour of self-determination was basically a plot to weaken the losers of the first world-war, to the extent that it led to the sacralization of small nationalisms, it paved the way for subsequent catastrophes (including ethnic cleansing) some of which survive today, as the late historian Tony Judt came to acknowledge in a famous article about Israel and Palestine. The positions of Wilson on small nations and on racism may be completely unrelated. Or they may not.

The challenge of Durlauf to Piketty, in context

The mild criticisms of Steven Durlauf, editor of the Journal of Economic Literature, to Thomas Piketty in two debates in New York and Chicago would not lead one to anticipate the very tough review by Durlauf and his co-author Blume published in the Journal of Political Economy of the now famous book "Capital in the Twnety-First Century," by the French economist. The critique of the book has several fronts, including data, theory, policy, and the overall "methodological" approach of the book. The theoretical criticisms are to some extent already present in the reviews by Lindert and Milanovic, among others. This is not my field of expertise, but they point to the theoretical difficulties of making predictions about inequalities of personal income based simply on the rate of return on capital and the growth rate of the economy, as Piketty does. Blume and Durlauf's theoretical criticisms go beyond these macroeconomic issues and expand to the theory of justice ("lack of serious engagement with political phylosophy"), pointing out that there is nothing in the existing theories (both traditional and more recent such as in Sen or Roemer) that justifies basing a policy framework on claims about the 1 or 10% of the population instead of the other 90 or 99%. The data criticisms of Blume and Piketty have several fronts, but to me the most important one is the lack of consideration in Piketty's work of data on the distribution of welfare coming from the consumption of public goods. The criticisms on policy are basically about how Piketty neglects policy instruments against inequality that could go beyond taxation, such as political reforms that could reduce the weight of the rich in politics. But they also challenge some of the specific prescriptions of Piketty on some of these non-tax issues, such as policies on education financing. The reviewers dismiss the supposed erudition of Piketty that has been praised by some of his admirers, for example by blaming him for not being systematic in using literature as an evidentiary source (footnote 10 of the review, p. 755), and by writing that "when Piketty moves to topics for which he has not done original research, he is careless with theory, and empirical evidence is presented in an unreflective and selected fashion."
I have to say that I came to know the work of Durlauf very recently. His name just sounded familiar to me until I started reading his papers about complexity and economics, and about social capital, which are excellent pieces of scholarship and criticism, in my modest judgement. He and his co-author Blume claim to share the liberal (progressive) values of Piketty. So do I. Then, what does survive of Piketty after Durlauf's attack? In the view of this blogger (who has shared in the enthusiasm of seeing a book on inequality becoming a global best seller), a few important contributions still survive:
-The existence of strong inequality trends, derived from Piketty's and his co-authors research on top incomes from fiscal sources.
-Policy intuitions about the need to use policy instruments and institutions that go beyond the nation-state (like international taxation), which go beyond Acemoglu and Robinson in spite of Lindert's attempts to call for a synthesis in his review. Although Piketty himself downplays the importance of the fourth part of his book on policies, perhaps it will turn out to be his most enduring legacy.
-The need, as Milanovic claims (mentioning Freakonomics and "randomistas") to ask important and not trivial questions in economics, even though the answers should be more qualified (especially if Steven Durlauf is reading).

Friday, November 20, 2015

‘What do you want?’ ‘Cake!’ ‘Then we’ll serve cake.’

Today in the New York Times there is an article by racist Dutch politician Geert Wilders (one wonders what are the selection criteria for articles in the liberal media) where he asks for a national direct binding referendum on refugeee policy. He also criticizes political elites in the name of ordinary people, asks for his country to leave the European Union, and a return to national sovereignty (three of these points -namely direct democracy, national sovereignty and elite bashing, not the others -namely europhobia and xenophobia, are also made by Spanish leader of leftist populist Podemos party, Pablo Iglesias). This makes sense from the point of view of racist politicians: in the first year of Hitler in power, there where three referendums, as this is a great democratic method for demagogues in chaotic circumstances. Yet, as Nicholas Kristof reminds us in the next page in the New York Times, in January 1939, Americans polled said by a two-to-one majority that the United States should not accept 10,000 mostly Jewish refugee children from Germany. That year, the United States turned away a ship, the St. Louis, with Jewish refugee children; the St. Louis returned to Europe, where some of its passengers were murdered by the Nazis.
There is hope though. Here’s what Financial Times journalist Simon Kuper had to say about The Netherlands two weeks ago: “ The other day I was back in Leiden, the sleepy Dutch town where I grew up, listening to a rare politician tell a pro-refugee story. Ahmed Aboutaleb landed in the Netherlands from Morocco aged 15. Now he’s Social Democratic mayor of Rotterdam and, according to a poll in March, the most popular Dutch politician.
Aboutaleb walked into Saint Peter’s Church in Leiden flanked by enormous blond bodyguards — a scene unthinkable in the placid Netherlands of my childhood. He greeted the VeerStichting symposium with, “Nice of you to give this refugee shelter today.”(…)
He always listens. He says people want to know, “Are you still paying attention to me?” However, he adds, leaders then need to decide for themselves. Democracy, he says, isn’t opening your window and shouting, “‘What do you want?’ ‘Cake!’ ‘Then we’ll serve cake.’”
When it comes to refugees, Aboutaleb isn’t serving voters cake. In Leiden he quoted from the Koran in Arabic. He also noted, “A lot of talent from around the world flies over our heads to New York and London,” because many foreigners feel unwelcome in the Netherlands. And he said: “I think it’s fantastic to be in a position to help others.”
Aboutaleb discussed the refugee influx in practical, undramatic language as something the Netherlands can handle. The nearly all-white audience gave him a standing ovation.

Thursday, November 19, 2015

Fuzzy independence and wishful thinking

An interesting phenomenon of intellectual and political debates is how high calibre scholars are unable to apply the standards they use in their academic job when they participate in political debates. I knew of an example of this last week, after participating in Girona in an event about the future of fuzzy logic. I participated in this event as a result of a book chapter I wrote on "Fuzzy Logic and modern economics". I am basically an outsider to the field, but besides having an interest in the topic because my father is a great specialist in it, I have genuinely come to believe that there are some ideas there that can be useful for behavioural economics and related fields. At the end of the conference, I was told by one of the participants that two other scholars, also experts in the discipline, had been politely discussing with him about the desirability of the independence of Catalonia, and that the discussion had finished with a bet: if Catalonia is not independent after a reasonable period of time, the two pro-independence "fuzzy" scholars will invite the first one, who is not pro-independence, to have dinner. After thinking about it, I realized that this is probably in contradiction with fuzzy logic, to the extent that the category "independent countries" is a fuzzy set in XXI century Europe (that is, membership to the set is not a zero-one thing, but it is a matter of degree). If being independent means being an internationally recognized member state of the European Union, I would also bet that the two pro-secession scholars will lose their bet. But as things stand, EU member states these days are less and less independent, and less and less sovereign (ask the Greeks). Catalonia can be more independent, or less independent after the current drive. I think that today it is less independent than when the drive started three years ago. I honestly do not know if in two or three years it will be more or less independent. I wish that the degree of independence does not change substantially, but that the quality of its institutional relations with overall Spain and Europe improves. Of course, the scholars' bet had also a component of wishful thinking. Here's how to avoid it: talk to more people who disagree with you and open your mind. (By the way, I tried to do precisely this to predict the result of this Saturday's game between R. Madrid and FC Barcelona. In my economics and soccer class this week, I started by asking the students in my two classes to write down their estimated probability that RM would win. In one class, very few people wrote a figure above 50%, but in the second class they were more than half. I first wrote myself 40%, and after talking to them because they are more objective than myself, I updated my probability to 45%. Later, I checked information about the last 25 games in Madrid between the two teams, and it turns out that R. Madrid has won 44% of them. I also checked the betting markets, and these were assigning a probability of R. Madrid winning slightly below 50%. I wished it to be lower, but these are the facts after de-biasing myself. But at least the game is on Saturday and we will know: there will be clear feedback because soccer outcomes are less fuzzy than other categories. In comparison, the evolution of the institutional architecture of European nations and states will be a fuzzy never ending story in our post-Westphalian world).

Sunday, November 15, 2015

Stanley Fischer on Central Bank Independence

Stanley Fischer is a rare economist who has the double condition of being a top academic economist (and co-author of my first textbook on macroeconomics) and having had very substantial experience in his field of expertise as a policy-maker in two countries. He was the governor of the Centrral Bank in Israel between 2005 and 2013, and he is currently the Vice-President of the US Federal Reserve. In his last published speech, he provides an excellent synthesis of the literature and practice of Central Bank independence. He explains very well how in a democracy strategic delegation into an independent authority must be accompanied by mechanisms of accountability. He explains how this is achieved in different ways in different countries, and in the particular case of the US, how many of the reforms that have taken place in the last 10 to 20 years have been about increasing transparency and accountability. These reforms have facilitated a positive contribution of the independent Federal Reserve in the last crisis (although he says nothing about the likely contribution of the institution to the previous financial bubble). One should be careful when it comes to making proposals to radically change the current mechanisms, because they have evolved by trial and error amidst enormous difficulties. In his speech, Fischer analyzes how this last financial and economic crisis has expanded the number of tasks of Central Banks. This challenges the old prescription of Jan Tinbergen of a tight correspondence between the number of objectives and the number of instruments. It also makes it more difficult to introduce powerful incentives for central bankers. In this context, he establishes an interesting distinction between Central Bank Independence and Monetary Policy Independence. For example, he argues that different functions in the same Central Bank can have different degrees of independence, typically more independence for monetary policy and probably less independence in the case of financial stability and supervision. But he admits that much more work and experience is needed to understand the implications of this multiplicity of tasks.