Saturday, December 28, 2013

The book of 2014

OK, the book was published in 2013, but I do not expect many people to read its around 1000 pages by the next two days. This book describes and quantifies the increasing inequalities at the national and international level in the XXI century and makes a number of proposals to reduce them. The most important of these proposals is a progressive global tax on capital. This is a useful utopia that could be applied today in the European Union and perhaps in the future extended at the global level. Of course, it is something that needs new accompanying institutions, especially a more integrated and democratic Europe that leaves behind the old nation states. The book is also a call for a better economics, more integrated with other social sciences, especially history and political science. It has an excellent accompanying web page and should be read by any economist or student of economics, especially those that think that the market is the solution to anything, or those that think that solutions can be found at the national level.

Monday, December 23, 2013

How to fight populist movements

There are several movements in Europe which have as common objective to exploit the anxieties of the working classes to promote simplistic solutions to common problems. These simplistic solutions can have different forms, from looking for scapegoats (typically foreign citizens from neighbouring countries or regions, or immigrants) to protectionism or nationalism. Of course, there is some responsibility for these of the mainstream political parties and their inability to introduce necessary institutional and political reforms. But in my view the deep cause of the social distrust is the severity of the economic crisis and the difficulties of finding alternative economic policies. In Europe, the margin for national policies is very narrow, and significant solutions should be sought at the EU level. But the case must be made that populist movements are wrong and that their exploitation of people’s anxieties is dangerous. This requires involvement in public debate, collective organization and use of facts and reason as much as possible. If the next European Parliament has more than a symbolic share of this type of political movements, the project of an integrated Europe as a force for peace and welfare will be severely damaged. And the problems that are at the root of the anxieties will get worse, not better.

Wednesday, December 18, 2013

Spanish soccer and state aid

The European Commission has opened three distinct in-depth investigations to verify whether various public support measures in favour of certain Spanish professional football clubs are in line with EU state aid rules. None of the measures was notified to the Commission, who was alerted by concerned citizens. The Commission has concerns that these measures provided significant advantages to the beneficiary clubs to the detriment of the clubs which have to operate without such support. The opening of an in-depth investigation gives Spain and interested third parties an opportunity to comment on the measures under examination; it does not prejudge its outcome.
Commission Vice President in charge of competition policy Joaquín Almunia said: "Professional football clubs should finance their running costs and investments with sound financial management rather than at the expense of the taxpayer. Member States and public authorities must comply with EU rules on state aid in this sector as in all economic sectors."
I couldn't agree more with Mr. Almunia, although he is an Athletic Bilbao fan and I am a Barça fan, and our clubs are among those investigated. Public subsidies for football clubs raise many interesting issues for welfare economics. It will be very interesting to follow this investigation together with my students in the course "Behaviour and Incentives in Economics: The Case of Soccer" in the Study Abroad programme of the Autonomous University of Barcelona.

Thursday, December 12, 2013

"The Haves and the Have-nots" by Branko Milanovic

The last book by Milanovic, lead economist of the World Bank research division is, as it says in its subtitle, "a brief and idiosyncratic history of global inequality." The book is structured around three main essays: one on within country inequality, another one on between countries inequality, and another on global citizen inequality. Each of these essays summarizes and gives a personal interpretation of the economic literature on these issues. After each main essay there are some shorter chapters, called vignettes, where the author illustrates the main topics with episodes from history or literature. There are two important ideas among others in this book. One is that inequality among countries (locational inequality) is today much larger than within-country inequality, as opposed to what happened until the ninetieth century. Overall, the place of birth and the income class of the parents determine 80% of anyone's income, the remaining 20% left to luck and effort. The other main idea is that there are important reasons to worry about global inequality, although there is no global political authority to whom we can send our complaints (perhaps we should build one). The reasons have to do with a practical and an ethical reason. The practical reason is that huge inequalities at the global level create political tensions, potentially chaos that may ignite huge migration movements. The ethical reason is that from a cosmopolitan criterion of social justice, there is no reason why we should worry more about citizens from our country than about human beings from other countries.

Thursday, December 5, 2013

Homage to Nelson Mandela


The costs of secession movements

Scholars and commentators that have been thinking about the potential secession of Quebec and Scotland provide interesting insights on the sovereignty debate in Catalonia. The constitutional, cultural, economic and demographic realities are different, but Quebec and Scotland are the only examples of parts of industrialized states that have tried to secede peacefully through referenda. Robert Young introduces the important concept of the transaction costs in the transition to secession, which, as well as uncertainty costs, depend on the politics and the degree of conflict associated to secession should this occur. He claims that transition costs in general can be very significant, and may delay for several decades the potential net benefits of independence. Kim Somers and François Vaillancourt present some interesting quantitative work on the now fifty-five year old debate about sovereignty in Quebec: despite the small number of time observations and endogeneity problems, they show serious costs of the hypothetical event of secession in terms of GDP and migration, but they do not find significant overall economic costs of the movement towards independence. This may provide a clue of the proposals for “light” or “low cost” independence that seem to be made by secessionists in Scotland now that the referendum approaches: “independence” seems to be compatible with keeping the pound, the queen and the BBC at least. What secessionists find useful is the “movement”, the “process” towards independence: that is not very costly economically and it provides huge political dividends potentially for many years. But they need the process to last, not to finish, that would be too costly (politically for them, and economically in general).

Monday, December 2, 2013

Scientific rigour and political activism

A friend of mine who has spend time doing research in Canada, in Montreal (Quebec) to be precise, told me an interesting anecdote. She attended a seminar of a researcher whose conclusions reinforced an argument of the supporters of Quebec’s independence. When my friend had to opportunity to talk to this researcher in private and raised the issue of his support to independence, the researcher said that he was surprised that my friend assumed that he was pro-independence, since this was a private issue that he completely separated from his work as a researcher. I bet that this anecdote would not have happened in Spain or Catalonia, where it is much easier to infer the political position from the statements made in research formats. There is nothing wrong in being a scientist with political positions. That is what Einstein used to do. But the theory of relativity had little to do with world peace or social justice, the ideas advocated by Einstein. It is much more difficult to separate the two spheres when you do research in social sciences, where the choice of topics and the interpretation of results is unavoidably impregnated by one’s biases, as was openly and unashamedly done by the neo-conservative members of the Mont Pelerin Society. Scientists should be modest and open-minded, and be willing to update their prior beliefs as they receive contradicting evidence. The bad thing is when someone tries to disguise his or her prejudices into science. Some of the best economists today are openly partisan (they are openly left-wing), like Stiglitz, Krugman, Bowles, Aghion, Piketty or many others: in this case their progressive values have inspired their big questions, but their answers are nuanced (at least in my biased view) enough to see that they know how to update their beliefs. I prefer these intellectuals, rather than those whose bias is to ride the wave of the moment or to look somewhere else in the face of injustice or stupidity.