Sunday, October 19, 2014

Paying tribute to Ajax

This Tuesday Ajax Amsterdam comes to play to Barcelona for a Champions League game. I will not miss it. Time to pay tribute to the great Dutch team. At the end of the 1960s and early 1970s this soccer team, under coach Rinus Michels, invented a new style of play that had some roots in Hungary and other places: total football. Players exchanged their positions, defended by attacking and occupying the rival’s half of the pitch, played with a much faster pace than was usual, and were obsessed with the efficient use of space. The star of that team was Johan Cruyff, “The Flying Dutchman”. We Barça fans have a lot to thank to these innovators, because after their experience in Amsterdam, Michels came to coach our team and Johan Cruyff came as a player and settled himself in Barcelona. For some time, Michels was simultaneously the manager of FC Barcelona and of the Dutch national team, which arrived to the final of the World Cup in 1974, being probably the best team ever not to win the World Cup. Johan Cruyff was later the manager of FC Barcelona between 1988 and 1996. Then in the late 1990s another Dutch manager that had led Ajax again to the peak of European soccer, Louis Van Gaal, today in Manchester United, also came to manage FC Barcelona. Pep Guardiola –manager of Barça and today Bayern Munich- played under Cruyff and Van Gaal, and Luis Enrique –the current manager of Barça- played under Van Gaal and was a team mate of Guardiola both as a player and as a manager. The style of play that is today revered in Barcelona has its roots in the great Dutch team.
I am reading the book by Simon Kuper "Ajax, the Dutch, the war," where he explains the history of Ajax, a club linked to the Jewish communities in Amsterdam that were practically exterminated during the Second World War.
Today Ajax cannot aspire to win the top European championship, because the rules of global soccer make it very difficult for teams from small countries to win. According to Branko Milanovic, globalization of soccer input markets has implied more concentration of talent among a small number of clubs, all of them playing in the leagues of the largest European countries. But globalization and the specific institutions of global soccer contribute to a more egalitarian structure among national teams, so that The Netherlands still present very talented teams in each edition of the World Cup. The best Dutch players play in the big teams of England, Germany and Spain from a very early age, but go back to their national team in the World Cup and the Eurocup.
To whet your appetite for Tuesday’s game, enjoy the video of the highlights of the game between Uruguay and The Netherlands in 1974.

Wednesday, October 15, 2014

Lessons from economists

One of the most important findings of the increasing literature on soccer and economics is that players behave in penalty kicks as if they were using a mixed strategy Nash Equilibrium. That means first that they behave as if randomizing, that is, as if instead of choosing kicking to one side or the other, what they choose is a probability distribution, like choosing between tossing a coin, playing the roulette or any other random device, before kicking the ball (and the goalkeeper, before diving). In addition, they randomize in an optimal way, given the choice of the rival. It turns out that this was proved by the Basque economist Ignacio Palacios-Huerta, who compiled an amazing data set with hundreds of penalty kicks. The data set is so rich, that he offers it to football teams, summarizing patterns of kickers and goalkeepers. One of the first to use the advice from Palacios-Huerta were Chelsea FC in the penalty shoout-out of the Champions League Final in 2008. But Chelsea lost. Then the same economist prepared a report for The Netherlands for the final of the 2010 World Cup, but then Iniesta scored that goal in the extra time, making the penalty shoot-out unnecessary. Some say that, although Palacios.Huerta claims that he did not advise The Netherlands in 2014, the Dutch players still kept some of the wisdom they received from previous reports by Palacios-Huerta. But by now it was common knowledge that they had received this advice (and the advice had been publicized in the book "Soccernomics"), so that their rivals could adjust accordingly. As a result, perhaps Argentina, but not Costa Rica, outsmarted them and reached the final, so that The Netherlands had to fight for the third place. But who is happier, the winner of the game for the third place, or the loser of the final? In any case, it is not clear that players do benefit from the advice of the economists. The work of Palacios-Huerta shows that players are extremely rational when they kick penalties, but the way to be rational is to keep the other player guessing, that is, randomizing. If you advise someone who is randomizing he may stop doing so. So there is an air of a paradox in Palacios-Huerta, the person who discovered that players optimally randomize, recommending them to follow patterns. But at least in 2008 the advice failed to deliver.

Tuesday, October 14, 2014

Jean Tirole and a better regulated planet

Jean Tirole deserves the Nobel Prize. He has written articles over the past 30 years on a great variey of topics, most of them on applied microeconomic theory. Many of us should thank him for collecting the research in his articles and summarizing it in a number of thick books on game theory, industrial organization, regulation and corporate finance. Tirole means clarity: he writes concisely and effectively, and he is able to explain complex topics, theorems and proofs with the simplest possible language. His book with the late Jean-Jacques Laffont on regulation is now 20 years old, but must still be read by anyone who wants to know the basic problems of regulation and liberalization: asymmetic information, capture, commitment and market power. He has produced multi-disciplinary work at the highest level. For example, half of the book on regulation with Laffont is about the politics of regulation. And he has a fertile line of work with Benabou on psychology and economics. He has also recent work on climate change and institutional issues in the euro zone that perhaps suggests a future book on regulation and international federalism. His institutional work as leader of the Toulouse School of Economics shows the fruits of the collaboration at the highest level between the USA and Europe. As with many good economists, some people will now rush to extract short run lessons from the work of this newly famous economist for the great public. Please handle this with care. Spanish journalists for example have been unable to translate correctly "market power" for the last 24 hours since Tirole was announced as the Nobel Prize winner. There aren't many immediate lessons. Tirole gives lots of insights for example about how real regulation works, but most of his advice is on constitutional rules, and when practitioners arrive to a new office, the rules are usually already in place. Since the global rules for issues like climate change and financial instability do not exist yet, perhaps, if read carefully, some useful lessons can be applied to the institutional architecture of a better regulated planet.

Friday, October 10, 2014

“The Process” by Artur Kafka (or was it Franz?)

The President of the Catalan government, Mr. Artur Mas, is leading a sustained campaign to hold a referendum about independence in Catalonia.
Some of the surrealist elements are similar to the Scottish referendum, like being in denial about sustained warnings by EU officials that any seceded country would have to apply for EU membership and that this would have to be approved by unanimity of all member states.
But other elements of surrealism are really original and unique. The question and the date of the referendum, for example, were agreed without any representatives of the no vote, before the legal framework for the referendum was established.
One of the arguments for independence, before July 25th., was that an independent Catalonia would have better institutional quality and no corruption. But that day the historical leader of the leading nationalist party, Mr. Pujol confessed to had been a tax evader during all his 23 year tenure as president of the Catalan government.
One of the members of the commission in charge of controlling the democratic quality of the vote resigned a few days ago before attending the first meeting because he said that the vote did not have enough democratic guarantees… and was immediately and brutally attacked in twitter by the mob.
Some of the slogans for the yes campaign of the non-legal referendum (this campaign has an official cost of 200,000 euros per week and is produced by an internationally prestigious agency) has slogans like these:
-"A country were the opinion of citizens is listened to”, as if we were now living in a deaf country.
-“A country with the school in Catalan”, which is something that has already been happening for the last 30 years without independence.
-“A country without corruption and budgets cuts”, as if the nationalists had not been at the forefront of corruption and budget cuts.
-“A country with open electoral lists”, as if Catalonia had not had discretion to pass its own electoral law at the regional level and refused to use it because the nationalists wanted to keep the Spanish system because it privileges the rural vote.
Lluis Llach, a retired singer (now also a wine-maker, novelist and friend of famous footballers) and one of the symbols of Catalan nationalism, argues that after Mr. Pujol’s allegations he even prefers independence more now, to “clean up.” And adds in an interview in newspaper El Pais that  he is a nationalist “to be able to be internationalist” (my translation, but please check if I am misinterpreting). Seriously.
FC Barcelona footballers Dani Alves and Gerard Piqué reproduce in politics their lack of coordination on the pitch. Piqué insists that Catalans should be allowed to vote (as if we had not voted around 40 times in the last 35 years) whereas the Brazilian Alves cautions that people should think twice about independence (I prefer not to imagine the bullying in the social networks after just expressing such doubts). I would have predicted that the always happy Alves would have been an exception among the many international friends of Catalonia who have refused to endorse independence in spite of the efforts made to achieve international support, but not even Alves…

Tuesday, October 7, 2014

Promise and difficulties of global federalism

The proposal made by Branko Milanovic in his 2006 paper on "Global Income Inequality: What it is and Why it Matters" illustrates the meaning of federalism, its promise and also its difficulties. He argues that global income inequality between citizens of the whole world is very large. It doesn't matter a lot whether it has increased or decreased slightly in the recent past, because in any case it remains huge, logically larger than the income inequality of any of the most unequal countries such as Brazil or Southafrica. We may just not worry about it, but universalistic ethical considerations or, absent these, practical considerations about global revolts and migrations (which are more likely today because of media globalization), should make all of us worried about the phenomenon. He proposes, to fight against it, the creation of a global agency, independent from national governments, that taxes the rich people in rich countries and transfers the resources to the poor people in poor countries. The specification is necessary because often international aid flows from relatively poor or middle income people in rich countries (but not from their rich, who avoid or evade taxes) to the elites in poor countries, which may end up being regressive. But of course, it would not be democratic to tax without this agency being elected by the people: "no taxation without representation." Hence, this form of global federalism should be accompanied by the direct election and democratic accountability of the members of the agency, as opposed to the current global institutions, which are confederal in nature because they are representations of the national governments. Federations, as opposed to confederations, involve a direct relationship between the citizens and the governments at each level, with each type of taxation allocated to that level of government that is more efficient at administrating it. At the European level, we are fighting to go from the currently mostly confederal structures to increasingly federal ones. At the global level, we haven't started yet, but we should.

Saturday, October 4, 2014

Imagine Alex Salmond with a TV channel

Today I spoke with a person who participated in the Better Together campaign in Scotland. He was asked about the role of public media during the campaign, since the Catalan publicly owned media is playing a key role in the mobilization of pro-independence supporters in Catalonia. He explained that the BBC had been neutral all along. The Better Together campaign not always agreed with the broadcaster, but whenever the campaign had some complaint, they delivered it privately. Instead, the Yes campaign organized rallies against the BBC, which was accused by them of biased coverage. The Yes campaign intimidated and harassed BBC and other journalists. It was part of what some have referred to as the tendency of the pro-independence side to behave in ways similar to the mob rule. What our Scottish friend had a hard time in understanding was that there was a TV channel owned by the Catalan autonomous government. In the UK, since by law and by culture the public broadcasters have to be neutral and independent, there is no question that with one public channel for the whole UK, the BBC, the most prestigious news organization in the world, no one else should create a public broadcaster, and much less a non-neutral one. The White Book on Scottish independence did not pledge to create an ex novo new channel in case of independence, but just to transfer all BBC assets in Scotland to the new Scottish independent state. However, in Spain, with a tradition of biased public television from the years of one single (francoist) channel, decentralization involved the creation of TV channels in all the regions, all of them being absolutely biased in favour of their regional governments. The Catalan TV is a case in point, and its bias has intensified in the last few years, and has played a key role in the intensification of the pro-secession fervour. If you are British, try to imagine a TV channel at the absolute service of Alex Salmond and the yes campaign. If that had been the case, probably David Cameron would have thought twice about the wisdom of calling a referendum, and today most European governments would not be thinking that he was the most irresponsible of the European leaders for actually calling it, and creating a cascade effect that is now threatening the stability of other European countries.

Tuesday, September 30, 2014

Trying to explain inequality to my students

I have been working in trying to explain better to my Master's degree students recent developments in academic research on inequality, including contributions by Milanovic and Piketty among others. Here are some notes of what I have been preparing:
Milanovic: global inequality among all citizens in the world is today more explained by between-country than within-country differences compared to 150 years ago, although more recently the tendency is being reversed.
  ∙  Global inequality is higher than the inequality levels of the most unequal countries.
  ∙  There are discrepancies about the sign of the changes in global inequality in the recent past.
  ∙  Globalization (increase in trade and economic integration) has increased mean income of some developing countries and affected within income inequality.
The economic surges of China, India and other nations have been among the most egalitarian developments in history, so national growth may play a big role in reducing global inequality: but not clear that they compensate for increasing within inequality in the USA and other countries and for the decline of other nations.
  ∙  Should we care about global inequality or we should care only about poverty?
 1. Bhagwati: even the calculation of global inequality is a "lunacy:" there is no "global polity," no "addressee."
 2. Krueger: "poor people are desperate to improve their material conditions... rather than to march up the income distribution ladder."
But there are ethical (universalism or cosmopolitan Social Welfare Functions -SWFs) and practical (globalization of media and information creates a sense of injustice or at least a desire to migrate) reasons to care about global inequality.
  ∙An idea: an international agency with taxation power to tax from the rich in rich countries to the poor in poor countries without government involvement that takes away national sovereignty from both rich and poor countries.
  ∙Problem: "no taxation without representation," hence difficult to implement without global democratic federalism (according to Milanovic himself, soccer has been better than politics at this, with FIFA and rules for national teams redistributing welfare gains to poor countries).
How much of our individual welfare is determined by the country where we are born? Around 1/2 (Milanovic). Given that personal circumstances (gender, race) also affect, the probability of effort greatly affecting income in the global scale is low: migration is rational for citizens of the poorest countries.
  ∙Rodrik: if a small efficiency improvement implies large redistribution of income, we should use criteria of justice (who are the parties affected? do they deserve the redistribution? should we compensate the losers?), "we should need some assurance that the process conforms with our conceptions of distributive justice."
  ∙The distributional impacts of economic restructuring (structural reforms) are big: no pain, no gain.
Stern: we do not need social welfare and individual utility functions to theorize about the need to reduce inequality:
 1.sometimes the difficulties of interpersonal utility comparisons with a utilitarian SWF make it difficult to use them to redistribute: it would be efficiency-improving to transfer income from depressed to non-depressed people because the latter are deemed more efficient in converting income into individual utility;
 2.with a rawlsian SWF, it may allow for a very wide and rising inequality, where additional gains are disproportionately received by the rich, so long as tere is some, albeit very modest, increase in the income of the poor.
  ∙  Capabilities or empowerment approach by A. Sen: individuals should have right to basic goods, abilities and services to develop a free life -eg learning to read, access to basic health.
Bowles and Gintis: inheritance of inequality higher than expected, and not necessarily related to genetic inheritance of Intelligence Quotient (IQ) or other traditional inputs to wealth, but related to inherited traits (such as race, population group).
  ∙  Krugman: inequality may be reflected in biased political power.
  ∙  From Kuznets to Piketty: from the prevalence of the view that development and inequality followed an inverted U-shaped relationship, to the believe that capital income is increasingly concentrated internationally.
Inequality of income reflects a continuous measure. There are also important discrete categories that add information on social power: social classes, groups. These categories occupy different contractual roles in hierarchical relations.
  ∙  How to redistribute: pre-distribution? international taxation? highest jurisdictions should raise the taxes with the more mobile bases. Is inequality good for growth? Essential dilemma: social monopoly versus incentives.
  ∙  Should we care about equality of opportunity or also about equality of outcomes?