"Antifragile," the last book by Nassim Nicholas Taleb is about decision making in the face of uncertainty. Its main message is that, given the volatility and unpredictability of the future, it is best to adopt strategies (in life, work, investment) that are not only robust, but that benefit from randomness. Around this main idea, the author explains his preference for facts rather than opinions, and for practitioners rather than academics (especially economists). As an academic economist, it would not be appropriate for me to defend the profession in a corporatist way, but sometimes Taleb sounds a bit like a spoiled child indulging in prejudices (not only against academic economists, also against the Japanese, the Russian, an attitude close to finding excessive deterministic explanations, which he criticized in earlier work). Many of the ideas of the book, for example the problems derived from principal-agent situations, or "commission biases" in public (and other) interventions, or consumption cascades, have been also (and sometimes better) explained by academic economists of the traditional or the behavioural kind. Taleb shows no mercy for authors who saw no excessive risks in the strategies of financial institutions before the crisis, to write books claiming that they had predicted the crisis after it (like Stiglitz), or for central bankers who profited unethically although legally from their knowledge of financial regulations (like Blinder). Other economists, such as game-theorist Rubinstein or climate change expert Stern are mentioned in a much more favourable light. Although the book is the logical continuation of "Fooled by Randomness" and "The Black Swan", and it is full of useful and interesting insights, it does not have in my view the originality and power of the previous ones.
is fashionable to blame Europe for our current economic problems, Spain (and Catalonia)
would be much worse without the discipline of European membership. It is the
European Commission who stops (or tries to stop) the Spanish government from still
committing more public funds to vested interests, or who tries to put pressure
on the Spanish legislators to avoid reducing even more the independence of
regulators. At the European level, the Spanish lobbies, especially the big
corporate interests, have much less sway. This is an idea I would like to test
also for soccer. My conjecture, based on my experience as fan (and my knowledge
of the literature on soccer and incentive theory), is that referees make less
mistakes (in favour of the home team, or in favour of the big teams) in the
Champions League than in the Spanish competitions. Since in the last decade and
more the same teams have faced each other both in the Champions League and in
the national competitions (think of the Barça-R. Madrid games of 2011, but
there are many more examples), one can compare the same teams, in front
of the same crowds, but with referees under different incentive systems. Pepe
was sent off in the Champions League, but could step on Messi and not even be
booked in the Spanish League. The R. Madrid players could feel free to ambush
the referee since minute 1 of the Spanish Cup final that they won in 2011, but were defeated by Barça with a neutral referee, with some days difference in the semi-finals of the Champions
League. The UEFA Champions League is a better league, with better supervision
and monitoring, with more regulatory stability and credibility, with less scope
for corporate pressure and vested interests. We need more, not less, Europe.
Nate Silver, the statistician, argues in The Signal and The Noise that one of the most serious problems in social sciences is that many important thing are difficult to measure. Then subjective potentially biased information is unavoidable, and one should be open to any way of improving information (through case studies, narratives, personal experience...). It is very important then to keep in mind that the things that are easy to measure, define and monitor are not necessarily the most important ones. Three examples from economics and politics may help understand that this is really a key issue:
-In the provision of incentives in organizations, if targets and monetary incentives focus on measurable dimensions, then important dimensions that are difficult to measure will be neglected. The clearest example, well known in the theory of incentives, is that teachers will spend too much effort in improving the skills of children to pass tests (which are measurable), instead of helping them become good citizens.
-In the assessment of de facto implementation of de iure institutions, de facto issues are much more difficult to measure than de iure ones. This can lead to serious misallocation of resources. For example, if an international institution gives aid conditional on the degree of independence of industry regulators (for example in infrastructure industries), then the risk exists that countries with good laws but awful implementation of them, will unfairly get international aid.
-In the recommendations to overcome institutional crises, or to improve democracy, too often the focus is placed on institutional discrete fixes, such as changing the electoral system (for example, from proportional to majoritary, or from closed to open candidate lists, as recently suggested in Spain by former prime minister Felipe González). Some thought reveals that a system that is tainted by widespread corruption or patronage will persist after any of these changes: for example, if the voter is granted the ability to rank a list of candidates from the same political party, the list on offer may end up being of even lower quality than before the reform.
A final comparison from the world of sports. In baseball, many things are measurable, whereas in soccer everything is much more fluid (except set-pieces or referee decisions like cards or injury time added). Life is more like soccer.
Transparency International (TI) has issued the 2012 edition of its corruption index. The least corrupt countries in the world according to this index are Denmark, Finland and New Zealand. The most corrupt countries are Afganistan and North Corea. Spain is in position 30 in the ranking, tied with Botswana. Portugal and Italy are even below Spain.
TI says that "A growing outcry over corrupt governments forced several leaders from
office last year, but as the dust has cleared it has become apparent
that the levels of bribery, abuse of power and secret dealings are still
very high in many countries. Transparency International’s 2012 Index shows that corruption continues to ravage societies around the world.
Two thirds of the 176 countries ranked in the 2012 index score below
50, on a scale from 0 (perceived to be highly corrupt) to 100 (perceived
to be very clean), showing that public institutions need to be more
transparent, and powerful officials more accountable."
TI's index is not perfect. It does not take into account some forms of corruption: for example, Chile looks very decent, but no account is made of the fact that one of the richest (perhaps THE richest) man in the country is the president, which is only the tip of the iceberg of a country where the business oligarchy has enormous political and social power (isn't that corruption? If it is not, then they don't need to become corrupt). Another example is the presence of politically connected agents in the board of directors or other positions in large firms.
In any case, it is a very decent effort. Corruption is one of the most serious challenges facing our societies, and as a brief reflection on the top and bottom countries suggests, it is very strongly correlated with social welfare.
My wife, the journalist Beatriz Silva, has been working on a
documentary about child poverty in Europe. It is a big project between several
Each television channel makes a documentary and they share the films. She
worked for the Franco-German TV network, ARTE. It is a woderful piece of TV journalism and the part on poverty in Barcelona, in which Beatriz was especially involved, is especially disturbing. It shows the impact of the crisis on the most vulnerable sectors of society. The documentary was released last Monday and you can see it on the web for a few days in French and in German.
Yesterday the snap Catalan election that was called to give the Catalan president, the center-right nationalist politician Artur Mas, an overall majority, delivered a big electoral surprise as his party obtained 50 out of 135 seats in Parliament, losing 12 seats. Three temptative factors make help explain what happened, getting inspiration from behavioural economics:
1) Availability Bias. Mr Mas tried to capitalize on the mass demonstration of 9-11 in Barcelona, where a big crowd marched in favour of independence, by saying that he himself supported independence, changing the moderate trajectory of his party. Unfortunately, scientific calculations showing that the demonstrators were not 1.5 million but 600.000, and not a representative sample, and that they were marching for a variety of reasons, were not heeded.
2) Social Pressure. When a well organized minority is very noisy, herd behaviour pushes many people (even hitherto moderate politicians) to forget about doubts, uncertainties, and ideologies that embrace complexity.
3) Categories. Do we face huge social and economic problems in a very complex situation? Let's solve them using a category we think we know (a new nation state) and everything will be fixed...
The center-left chooses on Sunday its candidate for the general election of 2013 in Italy. There are several candidates, and if no candidate reaches 50% of the vote, the two best may still go to another vote in some weeks time. The two favourites are the veteran Pier Luigi Bersani, secretary of the Democratic Party (the heirs of the old and very decent Italian Communst Party, who was refounded and adhered to the Socialist International after the collapse of the Italian Socialist Party of Bettino Craxi), and Matteo Renzi, the 37 year old Mayor of Florence. Renzi runs on a platform of political renewal, attacking the gerontocracy that dominates Italian politics. Bersani emphasizes his centre-left credentials. Unfortunately, I don't follow Italian politics close enough any more (I lived in Italy between 1995 and 1999), but two factors make me wish Mr. Bersani to win. First, I think Renzi is too young to lead a country with the problems of Italy, whereas I have always had great respect for the seriousness of the party that used to be the PCI (and enjoyed its dinners on Sundays in the Casa dil Popolo in Fiesole): if only all the aparatchiks in the world were like D'Alema or Bersani. Second, I have been following the almost desperate appeals of the veteran journalist Eugenio Scalfari in La Repubblica against populism and for an alliance between the center and the left that leaves the Berlusconi years forever behind. Scalfari does not exclude an alliance between Bersani and Monti after the election, and I also think this would be a very reasonable majority to guide Italy in the near future, and contribute to a more democratic and integrated Europe.
Acemoglu and Robinson (AR) summarize and expand their work (and their joint work with Simon Johnson -ARJ) for a wider public in "Why Nations Fail," one of the books in social sciences that has become more influential and has received more reviews by high caliber scholars in a short period of time. The thesis of this book is that the key to economic success are political institutions that avoid concentration of power and set up economic institutions that protect property rights and provide incentives for productivity enhancing activities by large sectors of the population and not only by an elite. They appropriately add to the usual emphasis of the New Institutional Economics on institutions that credibly commit to respecting property rights, an emphasis of the need for institutions to be inclusive, to invite the economic participation of large majorities. Political institutions are far more important than geography or culture to explain economic progress, according to AR. Examples include the diverse fortunes of East and West Germany, North and South Korea, or the city of Nogales (at each side of the border in the US and Mexico). Each pair shares geography and culture, but not institutions.
Other very interesting themes in the book are the exaggerated role that some academic advice gives to experts (I have sympathy for the arguments of the authors on the false ignorance of elites); the need for a certain level of centralization so that the there is a minimum amount of order and security; and the fact that the independence of colonies was not accompanied by a change in institutions and social structures.
A related phenomenon explained by AR is the reversal of fortunes in former colonies: lands that were rich in resources 500 years ago induced extractive institutions from colonizers, whereas poorer lands facilitated importing metropolitan institutions or the setting up of institutions where colonizers had increasingly equal rights. In their previous econometric work (with Johnson) they instrument poor institutions by settler mortality, thus obtaining an exogenous source of institutional variation, apparently fixing the endogeneity problem.
Reviews by Diamond, Subramanian, and Sachs have been critical with "Why Nations Fail." The polymath Jared Diamond accepts that institutions are important, but good institutions are concentrated in countries with a temperate climate, with access to sea (AR's response to Diamond and his replica are here). Jeffrey Sachsargues that contrary to the arguments by Acemoglu and Robinson, Nogales actually shows the importance of geography (being close to the US border; Mexican Nogales has ten times the size of US Nogales).
Subramanian shows graphically how China and India (the two most populous countries in the world) do not fit with the positive correlation between inclusive political institutions and economic growth. The response by Acemoglu and Robinson is that India has not been an inclusive democracy, and China will eventually decline. Other published reviews by William Easterly, Francis Fukuyama(Easterly and Fukuyama are both happy that AR address the big issues of development and institutional change instead of only minor issues common in recent research, such as the relationship between foreign aid and mosquito bed nets) and Martin Wolf are more laudatory, but also mention that AR simplify too much and too easily jump to conclusions in their book.
Relatedly, evidence on settler mortality used in their academic work by ARJ is disputed by Albouy in the American Economic Review (AER): he claims that the data used by ARJ is not representative of settler mortality during colonization and the results (that good institutions cause economic development) are not robust to the correct interpretation of the data. The response by ARJ can be found in the same issue of AER.
Earlier doubts about the research program devoted to finding clear links between specific institutions and economic development were raised by Chang (this article triggered a heated academic debate, which can be followed here) and Clark.
Institutions are probably important especially because they support exchange when the quid and the quo are separated in time, and promote cooperation and coordination in solving collective problems, which often involve dilemmas between equity and efficiency. But institutions are not easy to define, which makes falsifying theory difficult. Additionally, institutions are not good travelers, are costly and endogenous; are not the only determinant of growth or development; and co-evolve together with outcomes, random events, preferences and the environment. You cannot just inject good formal institutions in a country and expect it to suddenly become the paradise. AR, in their fascinating book, are right especially in one thing: solutions are never apolitical. If you want to change things, you should be ready to get involved in collective action, fail and stand up again.
Barack Obama won the re-election as US President, and the world is relieved by that (by the way, it's interesting that outside the US, many people supporting right wing causes such as the secession of rich regions under the leadership of right-wing corrupt elites, try to clean their reputation or their remorses by making sure that everybody knows that they would have supported Obama -what is the word to qualify this behavior?). But there are two other winners that deserve attention for social scientists.
One is Nate Silver, author of the Five Thirty Eight blog, who has a model to predict electoral results that correctly forecasted the result state by state. Now it's easy to praise Nate Silver, but I can because I did it in advance. I'm now reading his book "The Signal and the Noise", which has implications that go much beyond politics (more on it when I finish reading).
The other is Elizabeth Warren, the new senator for Massachusetts. This is good news for consumers, as Simon Johnson reminds us. As can be read in Wikipedia, Warren has long advocated the creation of a new Consumer Financial Protection Bureau. The bureau was established by the Dodd–Frank Wall Street Reform and Consumer Protection Act signed into law by President Obama in July 2010. For the first year after the bill's signing, Warren worked on implementation of the bureau as a Special Assistant to the President in anticipation of the agency's formal opening. While liberal groups and consumer advocacy groups pushed for Obama to nominate Warren as the agency's permanent director, Warren was strongly opposed by financial institutions which had criticized Warren as overly aggressive in pursuing regulations, and by the Republican members of Congress. In January 2012, over the objections of Republican senators, President Obama appointed former Ohio Attorney General Richard Cordray as the Bureau's director in a "recess appointment".
There are no national solutions to the problems of the world, but some national solutions are more important than others. All of us are affected by what will happen on Tuesday 6th in the USA's presidential election. In past elections, I used to follow predictions from political stock markets such as Intrade, and I was always curious to see who was The Economist endorsing. Good news from these two sides: Intrade gives a probability today of more than 66% of an Obama victory and The Economist has just announced it prefers Obama to win. This time, I have also been following the blog Five Thirty Eight, written by Nate Silver, who uses a statistical model to predict the result based on national and state data. The current prediction is that Obama has a probability of victory of 79%, with a clear victory in the electoral college and a slight majority in the popular vote. Of course, Romney may still win, and the election will be closer than four years ago. As Silver explains, when a team is winning a match by a narrow margin when there are still a couple of minutes to play, it has a high chance of winning, but many things can happen. Decent readers (also, or perhaps especially, in Europe) should keep their fingers crossed.
Tony Barber from the Financial Times fears that he will be drowned in the Barcelona harbour, or be thrown off the Edimburgh castle, for arguing that separatism is an exaggerated threat to Europe.
He doesn't really have to worry, at least about Barcelona. Many Catalans agree that separatism is not the best way forward, and propose a federal Spain in a federal Europe as a much more realistic and practical way of solving our problems. A number of Catalan intellectuals and professionals have argued just that in a recent manifesto. The main advantage of federalism is that it is scalable, it can be replicated in different countries (each with its tailored formula) and between countries. Separatism is obviously not scalable, you can't keep separating bits of countries, creating new borders, and at the same time pretending to be creating a united Europe.
Here's another manifesto I have not only signed, but helped to write and promote:
The results of the upcoming snap Catalan election which will take place on November 25 will be decisive for the future of the citizens of Catalonia. Since the CiU coalition, led by Artur Mas, started to govern in Catalonia two years ago, we have been witnessing a paradoxical situation. On the one hand, Artur Mas’ government has taken the lead in implementing a fiscal model, and drastic social cuts in education and health care, which are a far cry from the social model of more advanced countries in Europe. At the same time, CiU has supported, time and time again, in the Spanish Parliament in Madrid, the most backward labor policies in the history of Spanish democracy. The alliance between CiU and the Popular Party (the PP, the conservative ruling party in Spain) in the Spanish and Catalan Parliaments has allowed for public media to drastically lose the freedom of expression that it had gained with previous progressive Spanish and Catalan governments. In parallel, CiU has taken, in a short period of time, a strategic opportunistic turn, placing itself in the forefront of an independence movement which wants to initiate a secession process.
The Catalan society is suffering a very deep economic crisis which has also become a social and political crisis, resulting in an increase in poverty and inequality and an erosion of the equal opportunities principle. Many are suffering and are seeing their life projects truncated.
This situation demands from everyone an exercise in political and ethical responsibility, especially in times of such a serious loss of credibility by political parties and institutions. We think that secession from Spain is not the only way forward and that in the present context it jeopardizes social cohesion. From an economic, social or cultural point of view, it is not the way to improve the living conditions of Catalans.
Right now many propose independence as a “magic” road that would lead us out of the difficulties we are living with, leaving behind the dead weight that, they say, Spain represents. It is a discourse in which half truths and various exaggerations are mixed together. This is especially true relative to the fiscal relations between Catalonia and the central administration: such is the confusion that it is common to hear such populist and aggressive statements as: “Spain robs us”. At the same time, some pro-independence sectors have managed to spread the idea that if Catalonia separates (which will mean breaking up the Spanish State), it will be a politically friendly process with no excessive economic costs, with no social disruption, a win-win situation. Those supporting independence believe that globalization can only have positive consequences for Catalonia and so they have unashamedly taken on the neoliberal economic model. They try to convince us that for the Catalan society, having its own state will be “good business”. The emphasis being put on the economic advantages of independence, which do not stand up to a rigorous analysis, is no more than a careful strategy to obfuscate an unequivocal social reality which goes back many generations: the fact that most of the citizens of Catalonia share Catalan and Spanish identities in various degrees.
I have signed the manifesto of the Spinelli group for a united Europe. I am absolutely in favour of a federal, integrated, more democratic European Union. I think that nationalism stands in the way of this objective, and that achieving it is more necessary than ever to collectively solve our social and economic problems. There are no national solutions to most of todays' problems: climate change, global poverty, financial instability... However, manifestos only allow for the decision to sign them or not, but blogs make it possible to qualify the decision. And my qualification in this case has two parts:
-In an ideal world, a Europe devoid of nationalism would be great, but I think that plans for a future Europe should be more realistic about the nature of humans in society. Nationalism is an evolved feature of human societies, one that appeared in hunter-gatherer societies to jointly fight enemies external to the group and that will not disappear just because Daniel Cohn-Bendit and his friends wish so. It would be better to think of a future united Europe that provides a framework to deal with the many problems of societies with conflicting, diverse and overlapping national identities.
-I think some of the people who have signed the manifesto are at the same time promoting initiatives in their own countries that undermine the objectives of the Spinelli group. To be honest, for example, I wonder how the Catalan nationalist conservative MEP Mr. Ramon Tremosa can at the same time be signing in favour of removing the frontiers inside Europe, and actively promoting the independence of Catalonia, thus pushing for a more fragmented Europe, with more frontiers rather than less. I would have prefered to sign a manifesto where the promoters are more careful about the bed-fellows they attract.
“Newsnight Scotland” presented a report on the rise of the movement for Catalan
independence that was an improvement upon the previous report by Newsnight (the UK one) on the same issue, which was one-sided and simplistic, far below the
standards of the programme and the BBC in general. For those who are unfamiliar
with the BBC and Newsnight, this is a BBC2 daily programme that in the first
half hour presents some reports of interest to the whole UK viewers and in the
next 15 minutes presents something specific of England, Scotland or I guess
other bits of the UK. I can watch with my decoder in Barcelona the Scottish
version. Instead of presenting the view
of only one politician (and a very mediocre one, Mr. Oriol Pujol), as the UK
version did some days ago, the Scottish version presented the old Jordi Pujol,
former president of Catalonia (whose English is better than his son’s, without
deserving a Proficiency), and also politicians and social leaders for and against
independence. At the end there was a debate among two unknown (to me) “experts,”
a member of the Scottish National Party, and a Catalan young academic located
in Scotland who was in favour of Catalan (and I can presume Scottish and
perhaps anybody’s) independence. Ok, it was better this time. But there is room
for improvement. These are my suggestions for next time:
-Ask the Pujol
family about corruption (as Jeremy
Paxman or any other serious BBC presenter would do with any politicians tainted
by clear suspicions of wrong-doing). The son is being investigated for his
involvement in corruption in the vehicle inspection industry and the father saw
two of his former finance ministers go to prison. The party that he founded is
under investigation by a judge for illegal financing using as a platform the
Music Palace (“Palau de la Música”), a cultural infrastructure lavishly
subsidized by the public sector. The party of the Pujols started to clearly support independence just
last summer when the corruption accusations were reaching a maximum.
Pujol family and the other leaders of his party why just before stating their
support for independence and calling a snap election to benefit from the
populist independentist wave, they changed the legislation on the governance of
public TV and radio, and overturned the legislation put forward by the previous
progressive Catalan government, which for the first time created a truly
pluralist and publicly spirited TV and radio along the lines of the BBC.
you get your numbers right on demonstrators. It is impossible that there were
1.5 million people in the September 11th demonstration in Barcelona.
According to two newspapers with different views on the issue of independence,
La Vanguardia and El Pais, if you multiply square meters by persons per square
meters, it is impossible that the number of demonstrators goes beyond 600.000
persons. Experts in counting demonstrators who did the numbers put the actual
number below 500.000. Still, there were a lot of people, but it is difficult to
argue that they were completely representative of a plural society of 7.5
million people. The BBC should not just take any number given by the organizers
two last persons participating in a debate qualified experts? Wouldn’t it have
been better to invite some qualified, well known, recognized, objective experts
for such an emotionally charged issue? There are scholars who have very good
research on comparative nationalism and the determinants of secessionism, such
as Branko Milanovic or Will Kymlicka, who can shed real light on the comparison
of Scotland and Catalonia, and between these and other realities. Local
nationalists tend to feel very unique, but the fact is that there are identity
and sovereignty problems all over the world.
deeper view of Catalan history, how despite Catalan culture and language being
discriminated for much of modern history, there are many links between Catalans
and the rest of Spain, with many, perhaps most Catalans having relatives in
other parts of Spain and speaking Spanish as their first language (true, some
Spanish speaking Catalans also support independence, but hardly a majority).
There is a strong Federalist tradition in Catalonia, a plural society inside a
plural Spain that might better find
solution to its identity and institutional problems in a united, federal
presenter of Newsnight Scotland asked a very good question to the Catalan young
academic about what she thought about the fact that the Catalans had voted just
a bit more than 30 years ago vastly in favour of the Spanish Constitution. Other
possible questions next time may include: can independence or
self-determination be generalized to other relatively (in their countries) rich
regions in Europe? Wouldn’t it be egoist as pointed out by Der Spiegel? Isn’t
it a contradiction to want federalism for Europe and not for Spain? Does this
debate now help solve the economic crisis, in Catalonia, Spain or Europe?
Today we had the inaugural event of the new Master in Applied Research in Economics and Business at the Autonomous University of Barcelona.
This is a new Master of research of one year, fully taught in English,
which results from the merger and evolution of two pre-existing masters:
the one on applied economics, and one on business economics. The event
has included two invited lectures, by Andrés Rius from Universidad de la
República in Uruguay, and Paul Brewer from University of Queensland in
Australia. Although they were a priori uncoordinated (one talking about
institutions and investment, the other about globalization and poverty),
surprisingly they have coincided in sending a warning to future
graduates: be critical and skeptical of the work by other researchers. I
hope their simple but persuasive words will be useful for our students.
The latter include more than twenty persons from four continents, which
we hope we can give a good learning opportunity.
Yesterday Newsnight offered a 10 minutes report by Paul Mason on the increasing demands for independence in Catalonia. Unfortunately, the report was one-sided and did not reflect the usual standards of the programme. I doubt that if Jeremy Paxman had been doing a similar report about a part of Great Britain, he would have been so one-sided. The only interviewed politician was Oriol Pujol, secretary general of the ruling party Convergence and Union. Newsnight failed to note that Mr. Pujol is himself under investigation for corruption allegations (as other members of his party), and it failed to interview any other representative of a political party or coalition. It would have been easy to find one who spoke better in English than Mr. Pujol, the son of a former Catalan president who has seen how two of his regional Finance Ministers spent time in prison for corruption allegations. Catalonia is a plural and complex society, where more than half of the population speak Spanish as first language and have links with the rest of Spain. Many Catalans do not favour independence but federalism, and that was never mentioned in the report.
I am making (slowly) progress on three fronts in my research:
-My paper with Daniel Montolio on regulatory federalsim in telecommunications has been accepted in Information Economics and Policy, subject to some minor final changes.
-I presented an interpretative survey on Behavioral Public Economics and Regulation in my Department last thursday. It's just a preliminary version, I have to work much more on it.
-On November 6th I will present at the University of Barcelona my paper with John J. García on takeovers in European energy.
What do these papers have in common (besides their slow production process)? Perhaps the consideration that the preferences of regulators are endogenous and context-dependent, in different ways, although when I started working on regulatory federalism and energy takeovers I didn't see it in this way. But I'm so slow that when I started I didn't know about behavioral economics. The first and the third paper can be downloaded in their current versions from my web page.
I have been collecting data on the backgrounds of members of regulatory
agencies in Latin America and Spain, and reviewing some related
literature. There is a paper on the professional and educational
bakckrounds of central bankers, stating that insiders are more hawkish
than outsiders, which is reiterated by research on dissenting votes in
the Bank of England. There is also recent research by Paul Grout among
others on the "experience effect" in the Competition Commission in the
UK. They find that more experienced regulators in competition policy
tend to be tougher on companies potentially abusing their monopolistic
position. What to make of this empirical evidence? There are two
potential intepretations: that many regulators do not easily apply
efficient welfare enhancing decisions, but the most politically
expedient ones, or that they have biases that come from different
cultural views and not from different sources of information as experts,
as argued by social pshychologist Slovic. Perhaps both interpretations
can be reconciled by the fact that behavioral biases usually go into the
direction of making policies closer to the more
politically expedient (or populist) options, as argued by Kovacic and a
co.auhtor in a recent paper in the Journal of Regulatory Economics.
Great reminder by Paul Krugman about the essentials of the political economy of redistribution. This is essential reading for anyone who wants to understand inequality in democracies. In any society income distribution is skewed, which means that the median voter has preferences for redistribution. This is the essential part: "imagine yourself as a hired gun for the right tail of the income
distribution. What would you do in an effort to stop the median voter
from realizing that she would benefit from a more European-style system?
Well, you’d do everything you can to exaggerate the disincentive
effects of higher taxes, while trying to convince middle-income voters
that the benefits of government programs go to other people. And at the
same time, you’d do everything you can to disenfranchise lower-income
citizens, so that the median voter has a higher income than the median
citizen". In many countries, especially but not only in Europe, you would add that one of the things a desperate right wing guy would do is to manipulate the nationalistic feelings of the people, so that middle and even lower classes support right wing leaders who present themselves as more nationalist, just because this way elections are run on nationalist agendas, and not on redistributive issues. As John E. Roemer once said, that is one of the reasons why the poor do not expropriate the rich in democracies. Followers of current issues in Catalonia and Spain may obtain useful insights to understand recent developments.
Tomorrow I start teaching the course (20 hours) on Public Economics at the UAB's Master in Economics and Business Administration. As last year, I will explain welfare economics, political economy, incentives in the public sector and behavioral economics. At the same time, I am teaching a course on the economics of soccer. Is there any relationship? I certainly have incentives to find any, because my cognitive abilities are limited. I guess they have in common that in both cases it is about finding both market failures and individual failures. It is also about externalities and how different institutions (leagues, governments) try to internalize them. Individual failures sometimes make government intervention more necessary, but in the case of soccer individual biases and anomalous behaviour just make the whole show more fun (think of those idiosincratic club officials, or those stupid sports journalists). And sometimes individual failure (inside government) make intervention or collective action more difficult. And then there is the whole issue of public investment in sports, for example building stadiums or organizing big sports events, clearly in general a case of governmental failure. Don't get me wrong, government failure does not mean that governments should not intervene in the economy, but that they should do better things (not spending lots of money in big sports events that in general have more costs than benefits).
thousands of people demonstrated in Barcelona in favour of the independence of
Catalonia from Spain. I was not among them, because my current position (which
I am open to discuss in a civilized debate) is against opening a process of
secession. But I think that if so many people are in favour of independence,
there should be a serious debate about it, even if the current wave is a result
of economic collapse and political opportunism, or precisely because of it. Here
are some sources that may be helpful. All these sources have in common that
they have nothing to do with Catalonia, and therefore are far away from the
emotions that plague this debate locally. Therefore, they may provide some
in his book on “Microeconomics” and in some more recent contributions explains
both how ethnic and national groups are part of the mechanisms of cooperation
(sometimes against others) present in human life since early history, and how
the nation-state developed as a complement to large scale capitalism.
Roemer, in his paper on “Why the poor do not expropriate the rich in
democracies?”, explains how minorities in the income scale may skillfully use
other dimensions (such as religion or ethnicity) to obtain votes that they
would not obtain if the cleavage were only income distribution.
in “Nations and Nationalism”, explains both how nationalism should never be
underestimated and how national cultures in nation-states have provided the
necessary glue in modern industrial societies to avoid entropy and facilitate
exchange and mobility. Then if there are more nations than states, nations
compete to become states.
Magris in “Il Danubio” explains how multi-national and multi-cultural states
are everywhere in Europe, and how the ethnic dream (or nightmare) of having
uni-national states is futile, at least in most of Europe.
-Josep M. Colomer,
in “Great Empires, Small Nations”, explains how more small nations have become
states, or have achieved success in promoting their interests because larger "Empires" have been allocated the task of building global public goods.
interesting authors include Alesina and Spolaore, who have a paper where in a
globalized world small nations face little costs of abandoning big states; Ginsburg, who
discusses the economic and welfare aspects of linguistic policies; and Sen, who
analyzes the implications of people having a variety of overlapping identities.
discussion of independence should attempt to answer both positive and normative
questions. Among the positive questions: how have current frontiers been fixed?
How many of them are the result of wars and violence, and how many of them the
result of civilized settlements? How many of them have required international agreements
or the collapse of a former empire or international bloc? Which would the
distributive implications of independence be? Which social groups would benefit
most? How would the transition process be? How would assets be split? How would
the new social security system be?
should include what is the relevant collectivity whose welfare should be
considered? In the case of Catalonia, the project of its independence should consider
only the citizens of Catalonia, those of Spain, or all the world (some
externalities are conceivable: imitation effects, collective action deviated to
nationalistic issues instead of global public goods)?
In the case
of Europe, how would secession processes in Scotland, Catalonia and other
nations interact with the political construction of Europe which is necessary
to resolve the current economic and financial crisis? Can secession and a
federal Europe be achieved at the same time starting from the current stus-quo? Would the new states be accepted in the European Union and the euro?
necessary cost-benefit analysis should consider the huge role of uncertainty
and the application of a discount factor. It seems plausible that the benefits
could increase in the long run, especially for rich regions, but the costs
would be concentrated in the short run and in transition. How should the future
be valued compared to the present? If in the current legal framework there is no way to make democratic independence possible, should peaceful resistance of armed struggle be adopted? What would the costs of these be?
How should shared
symbols and common history be accounted for? Some people in the potentially
independent land may have family, linguistic, cultural, sport or heritage links
with the bigger nation-state.
What can we expect in terms of changes in terms
of government and regulatory capture? What happens if mechanisms for tax
harmonization are not strong enough and there is a race to the bottom in labour
laws, corporation and other taxes, and other regulations? If social and
identity issues are non-orthogonal dimensions, how are they related? What are
the implications for social capital of the “us and them” rhetoric? Is it true that
homogeneous societies facilitate cooperation and the implementation of a social
It would be
good to have a civilized debate and to have a mechanism to resolve this issue
peacefully. And perhaps the sooner we do it, the better, so we can move on to
more important issues (which will still be there regardless of the status of
Catalonia in Spain, Europe or the world).