Sunday, July 24, 2016

Are three trilemmas possible at the same time?

In his last book, "The Moral Economy," Samuel Bowles argues that a key objective of public policies should be to produce good people. That is, acknowledging the endogeneity of people's preferences, policies and institutions should be designed with the realistic objective of influencing social norms and values. The main message of the book is very similar to the one I read just before (by coincidence), "The Good, the Bad and the Economy," written a few years ago by Louis Putterman. Another similarity is that Bowles also systematically uses results from economic and social experiments to show that humans are not the self-interested caricatures of economics textbooks, but individuals that care about others and experience emotions. The new book addresses the issue of the separability between economic incentives and intrinsic preferences, which is an implicit assumption of much traditional work in public economics. It convincingly shows that economic incentives may crowd out (or crowd in) intrinsic motivations and therefore must be used with care. Towards the end of the book, there are nice examples of how this can be done. The author of "The Moral Economy" argues that the whole literature on optimal incentives in economics ("mechanism design") can also be interpreted as an extension of the laissez-faire view that markets can deliver efficiency under some conditions. When these conditions are not met, "mechanism design" used to promise that "principals" can set up incentives that harness the self-interest of individuals to obtain an efficient outcome. More recently, however, Bowles argues that mechanism designers have reached the conclusion that it is impossible to perfectly combine Pareto efficiency (the precise efficiency standard favoured by welfare economics) with both voluntary participation and preference neutrality (can I call this the Bowles' trilemma?). That is, if you do not want to coerce individuals to participate in relations that do not make them better-off, it is going to be very difficult to achieve full efficiency if individuals do not have pro-social preferences. Trilemmas have become fashionable ways to describe tensions in economic policies and institutions. A while ago, Branko Milanovic was very kind to elaborate on the answer to a question I posed to him on the compatibility of his trilemma with the famous one proposed by Rodrik. Now I wonder if the Milanovic and Rodrik's trilemmas can be combined with Bowles' trilemma. If they cannot, we would have a trilemma's trilemma. But there is no "Trillas tri-trilemma": I believe they are not incompatible. If globalization cannot be stopped, the nation-state and democracy will have an uneasy coexistence (that's something we are witnessing every day, especially in Europe, but not only): that's the message from Rodrik. And migration restrictions can hardly coexist with huge inequalities between countries: that's the message from Milanovic. After reading Bowles, I would add that if we want to keep basic individual freedoms (voluntary participation, for example migration) and aspire to some global social good (for example, efficiency), a key policy ingredient should be to try to influence individual preferences. What about that as a program for a realistic global federalism that acknowledges the difficulties of combining universal preferences with the day to day experiences and reference points of working people? The last paragraphs of the book could be an introduction to the next one by Sam Bowles. He writes about the difficulties of addressing the global scale problems of our knowledge intensive societies with the economic tools of the past: "I do not know whether an approach to constitutions, incentives, and sanctions adequate to this challenge can be developed. But we have little choice but to try." I couln't agree more.

Wednesday, July 20, 2016

A very ineffective hammer for a thousand crooked nails

The only good thing about the Brexit result is that now I can see many intellectuals with a high reputation saying very similar things to those I have been saying about nationalism in this blog (and in its Spanish/Catalan cousin) for the last five years. For example, Zadie Smith says:
"A referendum magnifies the worst aspects of an already imperfect system—democracy—channeling a dazzlingly wide variety of issues through a very narrow gate. It has the appearance of intensification—Ultimate democracy! Thumbs up or thumbs down!—but in practice delivers a dangerously misleading reduction. Even many who voted Leave ended up feeling that their vote did not accurately express their feelings. They had a wide variety of motives for their vote, and much of the Remain camp was similarly splintered.
Some of the reasoning was almost comically removed from the binary question posed. A friend whose mother still lives in the neighborhood describes a conversation over the garden fence, between her mother and a fellow North London leftist, who explained to my friend’s mother that she herself had voted Leave in order “to get rid of that bloody health secretary!” Ah, like so many people across this great nation I also long to be free of the almost perfectly named Jeremy Hunt, but a referendum turns out to be a very ineffective hammer for a thousand crooked nails." And she finishes with a Yugoslav warning, not very different form what I wrote some days ago: "A few days after the vote I came to France, to teach my NYU students in their Paris summer program, something that I suppose will not be so easy to do very soon. Straight off the train, I headed to dinner and sat down in a restaurant opposite one of my colleagues, the Bosnian-born writer Aleksandar Hemon, ordered a drink, and pronounced Brexit, melodramatically, “a total disaster.” Novelists are prone to melodrama. Hemon sighed, smiled sadly, and said: “No: just ‘a disaster.’ War is the total disaster.” Living through Yugoslavia’s bloody sovereignty implosion gives a man a sense of proportion. A European war on that scale is something Britain has avoided intimately experiencing for more than half a century now, and in defense against which the EU was in part formed. Whether we go any further down the road marked “disaster” is up to us." Before taking the Balkan road there is no doubt an American station, about which Jonathan Freedland says: "There are lessons here aplenty for Americans contemplating their own appointment with nationalist, nativist populism in November. They may think that there are not enough of the white, poor, angry, and left-behind to win an election. But Brexit suggests that when that constituency can be allied to a conservative cause that has millions of other, more ideologically-motivated devotees, victory is possible. It suggests that hostility to migrants, a cynical trampling on the truth, and a cavalier disdain for expertise can work wonders, such is the loathing of anything that can be associated with the “elite.” And it suggests that even great nations, those whose democratic arrangements were once regarded as a beacon to the world, are capable of acts of grievous, enduring self-harm." At least I'm in good company.

Sunday, July 17, 2016

The limited sovereingty of the the UK

The old nation-states of Europe, and those who lead movements that aspire to become new European nation-states, live in the contradiction of proclaiming their sovereignty but at the same time having accepted decisions in the recent decades that imply the transfer of their sovereignty to the European level. This is most clear in the Eurozone, where member states have transferred monetary sovereigty to the European Central Bank, and fiscal sovereignty to the fiscal rules associated to the zone. The increasingly consensus view is that this transfer of sovereignty is insufficient, and that it should be accompanied by a European Treasury with a large budget and taxation powers, accompanied by some legislative mechanism that complements the European Parliament. But also countries that are not members of the Eurozone live under the myth of sovereignty. British voters were called to vote in a referendum some weeks ago under the premise that the decision to leave the European Union was in their hands that day. Their "independence" and their "freedom" was at stake that day. Their surprise came the very day after the vote, when they heard their government, and the leaders of the Brexit campaign, argue that, contrary to what had been said during the campaign, they would delay the official request to leave the Union, because to leave, a negotiation that would last at least for two years would be necessary. They also learned that the decision to leave was subject to many constraints: you couldn't just leave and cherry pick some aspects of the relationship with the rest of Europe. In particular, they could not pick free trade and abandon free movement of citizens at the same time. The EU will not accept it. The British voters are not as sovereign as to cherry pick which aspects of Europe to retain and which to discard. At the same time, below the UK level, some sub-national levels began to claim some degree of sovereignty. It turns out that the fact that the Brexiteers had not won in Scotland, London, Gibraltar or Northern Ireland is a very significant fact that complicates the decision to leave for a variety of reasons. Whose is the sovereignty? Which is the relevant "demos"? These are old questions, questions that the evolution of Europe in the last decades, with all its problems, has made obsolete. Sovereignty is shared. If the UK, an old imperial nation with a consolidated democracy, is not fully sovereign, the implication for member states of the Eurozone and for aspiring new nation-states is obvious.

Saturday, July 16, 2016

The best book about everything

Following the advice of Jordi Brandts, I have been reading with great pleasure the book "The Good, the Bad, and the Economy," published in 2012 by economist Louis Putterman. It's difficult to say what this book is about because it is about so many things. It includes a history of life in our planet, with a special emphasis on the human species. On this, an endnote to one of the chapters includes this amazing link to the journey of humanity from its origins in Africa to the colonization of most of the Planet. It also includes a history of economic thought, from Adam Smith and before, to evolutionary, experimental and behavioral economics. Demanding readers will perhaps miss a few schools of thought, such as the economics of transaction costs pioneered by Ronald Coase, but the author is probably entitled to emphasize those topics that he knows best in such a synthesis of pretty much everything. Putterman has two important messages for the reader. The first is that humans are guided both by self-interest and by altruistic values, and that both are the result of the selection forces of evolution. The second is that the differences in development patterns in our world are the result of the slow forces of evolution. In history, there is a lot of continuity and path dependence. The fact that what today we call developed countries are richer than other parts of the world has its roots in advantages that started to materialize millenia ago, because of mainly geographical reasons similar to those explained by Jared Diamond in his books. Of course, progress towards a more equitable development will depend on tapping on the altruistic resources of humanity at the same time as using our self-interest to devise new technologies and ways of producing which allow us to overcome many of our social problems.

Tuesday, July 12, 2016

A Twenty-First Century Federalism for the UK and Europe

According to The Guardian, after the Brexit vote, an inter-party commission in the UK is accelerating its proposals to promote reforms towards a more federal UK. This acceleration would include a transition from a notion of sovereignty based on the centre "devolving" sovereignty to the nations, metropolitan cities and regions, to a notion of shared sovereignty where Scotland, Northern Ireland, London and other entities would have full sovereignty on all those responsibilities that are not clearly shared and pooled. The proposals for a federal future for the UK are endorsed by a number of representatives from all the mainstream political spectrum, including Labour leaders and former Liberal-Democrat and Conservative leaders Menzies Campbell and John Major. After a very narrow national victory of the Brexit vote in the irresponsible referendum called by David Cameron, the leaders of the Brexit campaign are finding it impossible to transform their promises in realities, among other reasons because London, Scotland and Northern Ireland are against them. The proposals of this group are so far silent on the relationship that the constituent parts of the new Federal Kingdom will have with Europe, but it seems clear that it cannot be that London is in the EU and, let's say, Guilford, is outside the EU. Therefore, most probably the Federal Kingdom will have to agree on a form of relationship/belonging to the EU that is not very different from the current form of belonging/relationship. No-one said that federalism in the XXI Century would be easy. We live in a complex world, a world on institutional diversity and innovation. But the old sovereign nation-state is dead.

Sunday, July 10, 2016

Farage and Le Pen at home and abroad

I have recently seen interviews with Nigel Farage and Marine Le Pen where they express their concern for the increasing racism that can be seen in Europe. These two leaders get very serious when they are asked if they worry about increasing acts of xenophobia in their countries and in other places. It is part of their public relations campaign to try to explicitly distance themselves from the very values that they have been promoting for years. Their explicit words have to do with freedom, democracy and the people. Their innuendo and their campaigning below the radar has to do with promoting hatred against the foreign and the immigrants. It is progress that they do not want to install a military government and supress elections. And it is very important for decent people to understand that they are not like Hitler. Actually, in some ways they are more difficult to defeat, because they use the tools of democracy to undermine not democracy itself, but the quality of institutions, separation of powers and respect for minorities (which are fundamental aspects of a healthy democracy). They want to keep majority voting as the only remaining aspect of democracy, at least if they find a way to make it play in their favour. Seen from abroad, Farage, Le Pen and Trump are racist opportunists. Seen from home, they look respectable and try to speak softly (well, Trump not yet, but he'll learn as the presidential election gets closer). If you see your local politicians yelling about democracy but promoting campaigns against some "foreign" enemy (the Mexicans, the Turkish, Brussels, Madrid), you should worry. (I write this the day that the so far main Catalan secessionist party has decided to change its name to Democratic Party of Catalonia).

Tuesday, July 5, 2016

Lessons from the referendums in Yugoslavia

Catherine Baker, a historian, argues that Brexit has echoes of the break-up of Yugoslavia: “The break-up of Yugoslavia took the public through a downward spiral of collapsing expectations, each dragging people into a new sphere of uncertainty and fear: from the Yugoslav system being more successful than its capitalist and Warsaw Pact neighbours, to the reverse; from it being unthinkable that the union of republics would break up, to it seeming inevitable that it would; from living an everyday working life to seeing your standard of living and the whole economy collapse beyond repair; from Communism being the ideology you learned at school, to an entire system of political power and property ownership falling apart; from moving normally around your town, to fearing for your safety on the streets, based on what others read as your ethnicity. Even if these were ill-founded – historians still debate whether or not Yugoslavia had too many long-term weaknesses to be viable when it was unified in 1918 – they were part of people’s common sense, until they could not be. When I teach courses about the break-up of Yugoslavia and the social contexts behind the 1990s wars, British students start seeing their own society differently. The issues at stake for Britain and its constituent entities have many resonances with, and important differences from, Yugoslavia – but perhaps the most troubling parallels come from how politicians and the media brought Yugoslavia to the point of collapse and co-operated to intensify fear and hatred once Slovenian and Croatian secession was inevitable.” Similarly, another historian, Fedja Buric, argues that “The Brexit referendum, like any other, was supposed to let the people speak. The trouble is, that they did not speak in unison and now the raison d’être of this multinational state has disappeared. In the early 1990s, Yugoslavs also went to their referendums to determine their willingness to stay in another federation. The result was bloodshed and the fragmentation of Yugoslavia into squabbling, dysfunctional mini nation-states. What can a dead country teach the (barely) alive one? The Yugoslav case defies the notion that democracy is an essential good in itself, that it brings stability and that it liberates people. In Yugoslavia, the 1990s began with a genuine mobilisation of grassroots engagement with the political process. New political parties sprang up overnight. People demonstrated, asking for all sorts of things. Referendums were announced. New futures were promised. The decade ended in a bloodbath, the country tearing itself apart into dysfunctional or nonfunctional nation-states.  The end tally: over 100,000 dead, more than 2 million displaced, new borders erected and a future poisoned by hate, division and nationalist-coloured corruption. If there is one lesson the UK should take from Yugoslavia it is this: referendums are terrible. These brief exercises in direct democracy not only fail to solve existential societal questions, but they bring to the fore societal divisions that had previously been channeled into civil political discourse (like in the UK) or, yes, been politically repressed (like in the case of Yugoslavia). What the Brexit debacle should teach us is that referendums are more often than not populist tools that allow demagogues to use the politics of resentment in a democratic way. Sure, referendums are democratic. But, they can also be deadly.”