Sunday, July 5, 2020

Protected enclaves are not going to change the world

In the last book published by Esther Duflo and Abhijit Banerjee, recent Economics Nobel laureates, entitled "Good Economics for Hard Times," they implicitly respond to some critics of their previous work. These critics had argued that it would be difficult to change the world "one experiment at a time," suggesting that their micro approach based on Randomized Control Trials could only address small scale problems, in which external validity was at least problematic. In their new book, they cannot be blamed for not thinking big, because they address most of the current big problems of humanity, such as inequalities, trade policies, migrations, climate change or automatization. To do that, for each of these topics, they survey the academic literature (not only experiments) and provide their own view. Although the arguments for every topic have lots of subtleties, the main message is that market mechanisms are not reliable to solve most of these problems, mainly because they work much less smoothly than assumed by traditional economic theory. Then societies should rely on government solutions that focus on those policies that are known to provide good solutions, and not on those about which we know little. One example they give is that we should be less obsessed about economic growth. Obsession with growth was at the root of "supply" policies that have caused a lot on inequality since the 1980s in countries such as the USA and the UK. As a result of these policies, such as lower taxation, these countries have not found the growth panacea, but they are today more unequal than in the past, and more unequal than countries that have been more reluctant to embrace the same policies.
As another example of policies targeting growth about which they are skeptical, they mention the ZEDEs policy promoted by economist Paul Romer (another Nobel laureate). ZEDEs are zones for employment and economic development, which Romer not only promoted in his academic work, but also as a consultant. These zones would be reserved for "charter cities," giant "protected enclaves" that live by what Duflo and Banerjee call Romerian rules within nations that do not. Although Honduras has so far been the only country to buy the idea, Romer wants hundreds of these charter cities around the world, each of them hosting eventually one million people. This is based on the idea that big virtuous cities generate positive externalities, and these create innovation, social capital and growth. The authors explain that, though it claimed inspiration from Romer's ideas, the Honduran vision seemed closer to the banana enclaves of the past: "They deviated form the get-go when they decided not to use the oversight of a third-party government," which was a key ingredient of Romer's project. Duflo and Banerjee conclude that this story "suggests charter cities are unlikely to hold the key to sustained growth in developing countries for the very good reason that the internal political compulsions the charter is intended to hold at bay often have a way of biting back." The idea that somehow one can escape a problematic world by building gated communities, insulated agencies or small virtuous independent countries illustrates the misleading dream that one can fix the world by injecting into it perfect laboratories.

Sunday, June 28, 2020

Teaching economics for a better world

(This is the English version of my article in Spanish published in Alternativas Económicas)
After the 2008 crisis and mobilizations such as those of the “Occupy Wall Street” or “Indignados” movement, or those of Chilean students, many voices around the world called for a rethinking of the teaching methods of economics at the university. The traditional ones had not been useful to understand the crisis.
The CORE Project (www.core-econ.org) is an empathic response to these voices, without giving up reasonably high standards of quality and rigour. The project consists of making a series of high-quality materials available to teachers and first-year students free of charge, which update the teaching of the introduction to economics, both for those studying a degree in economics and for those studying other degrees (but having to learn economics at the introductory level). These materials range from a free e-book to data for conducting empirical guided projects, videos, exercises, or experiments.
CORE's objectives include: to build a global community of people interested in innovating pedagogical methods for teaching economics; to develop an interactive methodology aimed at solving social problems; to bring contemporary developments in economic research into the classroom from the beginning; and to provide everyone with the tools to understand the great economic issues of the world around us, emphasizing issues such as inequalities or climate change. The on-line nature of the materials makes it easy to adapt quickly to current issues. In this sense, it was only weeks after the start of the coronavirus crisis that CORE made available to its users a series of educational materials on the pandemic and its economic implications. The fact that the material is freely available online facilitates distance learning when necessary, and also facilitates modern learning methodologies.
The project has been led by a wide group of economics scholars from different parts of the world, concerned about the need to renew methods and content in teaching economics. The leadership work carried out by Samuel Bowles, professor at the Santa Fe Institute in New Mexico, and Wendy Carlin, professor at the University of Oxford, stand out within the group. Among the Spanish economists involved, the participation of Humberto Llavador from the Pompeu Fabra University, and Antonio Cabrales, until now at the University College of London (UCL), and soon at the Carlos III University, stands out. CORE materials are already being used in various universities around the world, such as UCL in England or the Toulouse School of Economics in France.
The CORE e-book is being translated into Spanish, and 8 chapters of the translated version of the 22 of the complete e-book are now available. The translation will be fully available for the next academic year 2020-21. At the Universitat Autònoma de Barcelona (UAB) we are gradually introducing it in the teaching of economics for non-economists.
One of the characteristics of the selection of content in CORE is its inter-disciplinary nature. At the UAB we will use it as the main material in Introduction to Economics of the new degree of History, Politics and Economics that will begin in 2021-22. It is accepted naturally and as a positive thing that the economy must dialogue humbly with other branches of knowledge, such as history, political science, psychology, natural sciences or computer science.
The organization of the contents in CORE contains significant differences with the traditional textbook of introductory economics. Specifically, issues of income and wealth inequalities are addressed from the beginning, and the traditional separation between microeconomics and macroeconomics is blurred. The market as a resource allocation mechanism is approached as an institution along with other possible ones that act on the really existing social interactions. The typical supply and demand graph does not appear until well into the e-book, once students have been introduced to Game Theory as a toolbox to analyze social interactions in general, which allow us to address real questions such as negotiations on climate change, the provision of public goods such as peace and security, or the existence (or not) of potential conflicts between efficiency and equity.
The market is a powerful institution based on individual interests that has advantages and disadvantages (these are especially visible when there are external effects such as climate change, or when free agreements leave uncovered contingencies and give rise to power relations). Another important institution is the State, with its coercive power ideally legitimized by democracy, and it also has advantages and disadvantages. There is a third block of resource allocation mechanisms, traditionally left aside by traditional economics, which are communities, that is, organized human groups without the need for external coercive power, which are based on social norms as the foundation of cooperation. This set of mechanisms also has advantages and disadvantages: it allows the development of collective projects without the need for a coercive apparatus, but part of the cooperation can be translated into intra-group cooperation to go aggressively against another group. The CORE project itself, constituted as a non-profit organization financed mainly by foundations, is an example of the work carried out by a community of altruistic professionals interested in renewing the teaching of economics. The great challenges of the present and the future of human societies will require combining the best of markets, state and communities, trying to mitigate their disadvantages.
This is not the only attempt to renew the teaching methods of economics. The freely available video courses of Raj Chetty based on his classes at Harvard, where he progressively introduces the most modern methods of economics and econometrics with real empirical work, or the mobile phone experiment platform that Humberto Llavador and a group of collaborators have launched, are complementary efforts.
All of this is extremely useful for students and teachers. And it is also useful for journalists and policy makers, and for anyone who wants to better understand the economic reality (the economy) and the branch of knowledge that tries to approach it (economics). Not to disseminate slogans, but to better understand the complex social reality in which their activity and life take place.

Sunday, June 21, 2020

In defence of (good) politicians

Foxes know many little things and hedgehogs know one big thing. Hedgehogs are more famous but foxes are more effective at making predictions and solving complex problems. Politicians, in general, are the ultimate foxes.
Their task is covered by a very incomplete contract. The objective is not very well defined, the effort is multidimesnional, and there are quality issues that are very difficult to measure. Their intrinsic motivation is key when explicit incentives play basically no role beyond (perhaps and not in all cases) reelection.
As I have spent most of my young and adult life between politics and academia (although being a professional politician only for 4 years between 1991 and 1995), I have learned that politics is a difficult and badly paid job.
Some academics and business people become very bad politicians, and very few of those who try become good ones. But politicians are absolutely necessary given the well-known limits of voter and expert wisdom. Of course, politicians need controls, checks and balances, and scrutiny, but the provision of high quality politicians is a public good that has no substitute.
I should probably write a companion post "in defence of academics", but these are very good at defending and promoting themselves (especially economists).
Of course, as we can see these days very well, especially watching what happens in the US, there is a big difference between good and bad politicians. What a difference it makes to have one president or another. But the president that today is embarrassing many Americans promoted himself on the basis of not being a traditional politician, but an outsider. Hopefully next time voters will think twice before believing that outsiders can do a better job than traditional politicians with judgment, patience and personality.
Politics is tough, and if we keep conveying the idea that politics is hopeless, talented kids will not want to run for office and one day become politicians, as they should.
A good politician is not an academic with a good PhD becoming a politician. It is very easy to give examples, throughout history until today, of politicians that are very qualified academics but that embrace fanatic movements or worse. When I was doing my PhD in Florence, in my second or third year I gave a seminar paper and was assigned as a discussant another student that gave the most masochistic of discussions. He was a very brilliant student. Today he seems (as I have been told and after doing some Internet research) to be as masochistic and as brilliant, and has become famous being a controversial parlamentarian in one of the so-called "frugal" European countries, earning his "reputation" among other things by leading the campaign against the perception of European funds by the countries that have been worst hit by the Covid-19 pandemic.
Imperfect knowledge and radical uncertainty (likelihoods unknown, outcomes difficult to define) are pervasive in political life. Those that keep calm and wise in these circumstances are good politicians.

Sunday, June 14, 2020

Re-organizing production in a new model of public-private partnerships

In his latest column, Dani Rodrik goes beyond the emerging consensus that post_COVID reforms must incorporate a more progressive taxation, education and protection policies, stronger anti-trust enforcement for technological multinationals and more determination against climate change. Although all these efforts would be welcome, Rodrik misses an additional key component to reforms, namely changes in the way production is organized.
The organization of production creates positive and negative externalities. For example, good and stable jobs have an impact on more cohesive communities. Rodrik's objectives would be directly met by a substantial expansion of cooperatives and other worker-owned firms, but also by conventional corporations that embrace a broader mission than maximizing shareholder value.
Rodrik's words are the introduction of an ambitious program of a new model of public-private partnerships, with implications for industrial policy, the fight against inequality and the mitigation of climate change. Perhaps the Next Generation reconstruction program of the European Union could incorporate these ideas in the mechanisms that it will promote. In Rodrik's words:
Economic insecurity and inequality today are structural problems. Secular trends in technology and globalization are hollowing out the middle of the employment distribution. The result is more bad jobs that do not offer stability, sufficient pay, and career progression, and permanently depressed labor markets outside major metropolitan centers.
Addressing these problems requires a different strategy that tackles the creation of good jobs directly. The onus should be on firms to internalize the economic and social spillovers they cause. Hence, the productive sector must be at the heart of the new strategy.
Put bluntly, we must change what we produce, how we produce it, and who gets a say in these decisions. This requires not just new policies, but also the reconfiguration of existing ones.
Active labor-market policies designed to increase skills and employability should be broadened into partnerships with firms and explicitly target the creation of good jobs. Industrial and regional policies that currently center on tax incentives and investment subsidies must be replaced by customized business services and amenities to facilitate maximum employment creation.

Monday, June 8, 2020

Radical, but imperfect, markets

In the last issue of the Journal of Economic Literature there is a very critical review of the book “Radical Markets”. The review is written by David K. Levine and the book was written by Eric Posner and E. Glenn Weyl. The latter made a number of suggestions, with the flavor of a “progressive” Chicago School, that claim that would solve some of our biggest problems by expanding markets in property, the use of data, democracy, immigration and investment.
Last year I also wrote a book review, in Spanish, of the same book, which I found interesting to read. I strongly recommend to read both the book and the review. Next I translate part of the review that I wrote, because it basically agrees with Levine while adding a few more comments.
All of the proposals in "Radical Markets" face such practical challenges that the probability of their massive use to alleviate the problems they are intended to address is very low. Some objections that could be raised include the following:
-The authors do not take into account the cognitive limitations of individuals, and generally forget the contributions of behavioral economics (also related branches such as the contributions of Bowles or Ostrom on cooperative capacity or social norms to solve collective problems). For example, the quadratic voting mechanism takes as given the preferences of voters and the mechanisms established to set the political agenda, when precisely much of the political competition takes place to shape these preferences and this agenda.
-It omits the difficulties that can be posed to the recipes offered from the point of view of the political process that could lead to them, due for example to the opposition of those who benefit from the current status quo. A challenge for the implementation of one of the proposals is how to make the big information multinationals pay for our data without global regulation, and how to get there from the current fragmented institutional configuration.
-The authors' analysis, based on mechanism design, omits any reflection on complexity / evolution. The great advances or setbacks of humanity have taken place less by the action of academic designs and more by the complex evolution of mechanisms of social mobilization. Although the authors admit, with a small mouth, enormous difficulties in adopting their proposals, the truth is that they somewhat underestimate the more than probable difficulties, unintended consequences, role of uncertainty, etc.
-In the book some fanciful claims are made, such as that inequality within developed countries is the “most significant problem of humanity”. For a book that tries to present radical proposals that address the great problems of the present ("our solution to the current crisis is to radically expand markets," say the authors), avoiding the problem of climate change is somewhat curious.
An interesting aspect of the book is the importance that the authors give to the role that technology can play in the application of these recipes, especially by putting in immediate contact the different parts that operate in a market. However, while the idea that we do not take full advantage of new technologies is convincing, it is no less true that not all people at the moment have access to innovations that would allow an expansion of markets like the one they envision.
The “stagnequality” (high inequality compatible with low economic growth) that the authors denounce is undoubtedly partly due to a deficit of ideas (rather than physical or technological difficulties). The exploration of institutional niches is necessary, but existing institutions have been the result of complex evolutions rather than academic designs. Although undoubtedly the contributions of good economists (dead, Keynes said, but perhaps also alive) can also help to shake the world.

Monday, June 1, 2020

Will the friendliest survive?

Some days ago, Stephen Sackur interviewed Rutger Bregman in the BBC program "Hard Talk," about his new book "Humankind: A Hopeful History." I would have liked to rush to buy it online from my favorite local book store, but some weeks ago it disappointed me being totally unable to process an on-line transaction. So I have to confess that I went to Amazon, and in a few seconds I had the book in my Kindle.
The book is a sequence of examples of evidence that in human nature, the friendly cooperative side dominates our violent instincts. It is precisely our cooperative, friendly nature, that has provided our species an evolutionary advantage over some competitors. According to Bregman, the Neanderthals were probably more intelligent, but they were less friendly, and therefore less able to socialize and cooperate, at a moment in time where doing things together was crucial. Some well-known stories that were well established in the history of science as proof that humans are prone to conflict and collapse, are challenged by the author with more recent evidence. For example, it is most probably not true that the Easter Island society collapsed due to an ecological and social conflict endogenously self-inflicted by humans, as explained by the polymath  Jareed Diamond in his book "Collapse." Apparently, Easter Island never had a very large population, so there was not much to collapse from, and probably its ecological crisis was due to natural phenomena. The Robbers Cave experiment, an experiment directed by a social psychologist in the 1950s in the US where summer camp children showed the dangers of tribalism (and that I explain to my students in my course on Soccer and Economics), was probably manipulated by its author. In wars, soldiers in the field show much less aggressive behavior than expected.
Other things mentioned in the book we already knew, like for example that the "tragedy of the Commons" suggested by Hardin is not inevitable, as shown by the field research of Nobel prize winner Elinor Ostrom. Or that intrinsic incentives are very important, and sometimes may be crowded out by extrinsic incentives. These two things I do teach them to my students.
Of course, where Bregman has more difficulties is in explaining why humans, in spite of our friendliness, have incurred in phenomena like ethnic cleansing or the Holocaust. His explaination is that friendliness is more easily shown to our group members. But then he provides no clue about what defines the group, and why if the group extended from the family, to the tribe, and then the nation of strangers, why it cannot be expanded to the whole human group or beyond.
There is no doubt that our cooperative side has been overlooked, and that institutions should be designed to extract the best from humans. That's the main message of the book, although there is little detail on how to do it. And when there is detail, it is unconvincing. For example, the participatory politics of some Venezuelan or Brazilian municipalities, clearly must have had a difficult time scaling up, if we look at the dismal condition of the two countries at the moment. Between our cooperative genes and our selfish genes there is most probably a polycentric equilibrium (several types coexisting), and the difficult but key challenge is to create the conditions for our cooperative side to dominate and become dominant in the overall population of types. The next crucial stage of this battle will be the November presidential election in the US.

Sunday, May 31, 2020

National-Populism (and much worse) is this

In the middle of a revolt and civil unrest after the assassination of another African-American citizen by the police, after failing to provide leadership and national management in the worst pandemic in decades, Donald Trump called a press conference two days ago where he only talked about China... It is one of the best illustrations of national-populism that one could find. For a national-populist leader, it is imperative to find a scapegoat, especially when problems escalate and one does not have a solution, nor the will to look for one.
Of course, Trump is much worse than a national-populist, but the nationalist and populist components are key dimensions of the catastrophe that is unfolding in front of everybody. These components are the foundation on which he can build worse things such as the contempt for institutions, conventions, the media or democratic rivals, or the potential refusal to admit defeat if he loses the November presidential election, as suggested by New York Times columnist Roger Cohen.
National-populists have no passion for honest government. In fact, they do not govern at all. As Robert Reich has argued in an article in The Guardian, Donald Trump is not governing: his divisive tweets are no substitute for government.
Riots do not develop out of thin air, everybody knows this in general, and in the US in particular in the context of racial discrimination. But in these days of discord, the US president fans the flames, instead of providing leadership and calm. Trump even threatened White House protesters with "vicious dogs and ominous weapons." All this is very disturbing, and all decent people in the world should desire that it ends in November. For it to end, I believe it is also better that any kind of violence ends, even if violence is understandable from those that suffer violence and that see for ages no response to their non-violent protest. But violent protest will make it easier to resort to a "law and order" rhetoric, which is probably the only hope that Trump has to have any chance of winning the November election. When the other party cheats in a contract, it is wrong and counter-productive to do the same, the only hope comes from restoring the institutions of a decent social contract and make them work in favor of deep reforms.

Sunday, May 24, 2020

Accountable federal democracies

The COVID-19 crisis is a wake-up call to the many things that are wrong with capitalism, the nation-state and representative democracy, as we have experienced them in the recent decades.
The great New York Times journalist Roger Cohen looks for signs of hope in the middle of this crisis, and sees them… in Europe. In many places, and most notably in the US of the dystopic  presidency of Donald Trump, forces are trying to disrupt the workings of accountable democratic governments, looking for scapegoats and trying to blame the Chinese, the states, and Madrid or Brussels in other places.
In some situations, federalism can be used to free ride and blame others, but the hope is a federalism that can be used to have accountable governments at every level that cooperate and that are aware of their interdependencies. The hope is that this can be made to work in Europe, if the European Union accelerates its federal transition. And Cohen suggests that the recent agreement between Merkel and Macron to finance recovery by means of transfers and European debt is a clear sign that this may be happening. Against all the eurosceptic rhetoric, it turns out that the hope comes from Europe.
Accountability is just one of the objectives of a federal democracy. Others are efficiency and equity in the deployment of public policies. Sometimes these objectives may be in conflict. For example, accountability calls for a transparent delimitation of responsibilities, and many times efficiency and equity require close cooperation and working togehter. But the terms of the relevant trade-offs may be improved, and in the long run some trade-offs may disappear, like for example when efficiency and equity make institutions stronger and this improves accountability.
The crisis is showing the shortcomings of our current, but existing, federal mechanisms (nationally and internationally). These mechanisms are not a panacea against opportunists that are masters in transferring blame and looking for scapegoats.  But the crisis also shows the necessity and urgency of better, stronger federal mechanisms of solidarity and sustainable prosperity. This is the essence of the European Hamiltonian moment.

Monday, May 18, 2020

Counter-cyclical central powers with pro-cyclical sub-central ones, again

Rodden and Wibbels have an academic article where they analyze, in the context of the previous global financial crisis and before, the conflicto between counter-cyclical stablization policies of central governments, and pro-cyclical budgets of sub-central ones. Because of tax competition and borrowing constraints, the finances of regional powers have a very hard time in times of crisis, although in most federations and decentralized countries, they have very important expenditure powers that are more under demand in times of recession. This creates tensions that, among other things, may undermine the stabilization efforts of the central Powers, who in turn may have incentives not to transfer enough resources to the sub-central governments, in order to shift the blame for the crisis.
Although fiscal policies of central governments sometimes provide modest insurance against regional income shocks, the paper shows that procyclical fiscal policy among provincial governments can easily overwhelm these stabilizing effects. The authors examine the cyclicality of budget items among provincial governments in seven federations (it seems that Canada and Australia do it better than the others), showing that own-source taxes are generally highly procyclical, and contrary to common wisdom, revenue sharing and discretionary transfers are either acyclical or procyclical. Constituent governments are thus left alone to smooth their own shocks, and they document the extent to which various restraints on borrowing and saving undermine their ability to do so. The resulting procyclicality of provincial fiscal policy is likely to have important implications in a world where demands for countercyclical fiscal policy are increasing but considerable fiscal responsibilities are being devolved to subnational governments.
They do not develop a lot on the potential solutions, but they hint that specific institutions like ones existing in Australia and Canada may be useful to introduce an explicit mandate to counteract output shocks. Since similar tensions are emerging again in federal and decentralized countries in the context of the COVID-19 crisis, these ideas will be necessary again.

Saturday, May 16, 2020

E-Book (short) review of "Economics in the Age of COVID-19," by Joshua Gans

I found this e-book a useful short guide to the economics of public decision-making in the middle of a pandemic. The book does not make any grandiose claim, but may be a useful guide to explain the economics of the crisis to students (something I guess many lecturers will have to do if not now, very soon, and for some time).
The book starts by explaining why centralized planning akin to efforts made by governments in wartime ("repugnant" in more normal times) is OK in a pandemic. The reason is that coordination is needed in a very short period of time to stop the economy, except for very few essential services. Markets are usually good at achieving coordination, but not when there is an emergency that needs to be tackled without waiting for market incentives to have their effect on decisions and allocations.
Another teachable lesson is that the typical concave-shaped production possibilities frontier of normal times, between health in the horizontal axis, and everything else (or "the economy") in the vertical axis, experiences some significant changes that explain the policy options and cosntraints that governments face. First, in general, there are now fewer feasible allocations because some activities will no longer be possible. Second, the remaining frontier will no longer be concave because of non-linearities. At some point (for example H in the graph) an increase in economic activity will have to be accompanied by a sharp reduction of health, because of the infectious disease. Third (see second graph), progressing too fast on re-opening the economy can be very costly in terms of spreading the disease: if you don't hold your line on social distancing, the production possibilities frontier further shrinks, because many combinations with reasonable health cease to be available.



The subsequent chapters deal with the importance of testing and other technological challenges for gradual reopening. The pandemic is a knowledge problem in the sense that we do not know who is spreading the disease. We can re-open the economy if that is done by those that we know that are less likely to spread the disease. In most places, that is being done in a very generic way, by for example allowing some activities in some regions gradually, but Ganz advocates for a much more fine-tuned approach.
But before re-opening, the best policy to flatten the pandemic's curve is to pause the economy and at the same time try to keep in place the links and organizations that make it possible. The economy should be expanded with keynesian policies only after the disease is contained.
In general, I am skeptical about books being published in a rush. But this one is not over-ambitious and it is based on previous theory and empirical results. There will be an open peer-review process that will finish with a promised second edition in the fall. It will be an opportunity to check how the first one ages.
Although I missed some paragraphs about the difficulty of cooperation between several government levels, both vertically and horizontally, the final words of the book leave no doubt about the importance of achieving global cooperation:
"To buid the global institutions we need to mitigate the costs of future pandemics, we will need that resolve. There are signs of hope (…). Any victory we have over the next two years needs to come with a warning, The eye cannot be taken off the ball. And if you need any guide from history, remember that we did not get the IMF or the United Nations until we had not one but two world wars."

Sunday, May 10, 2020

Politicians and academics

Tim Besley and Andrés Velasco have written an interesting article about the relationship between politicians and scientists in the current COVID-19 pandemic. They are both academic economists who focus their work on public policies, and therefore have a professional interest in politics. Andrés Velasco, now at the London School of Economics, had been in the past a senior minister in the center left government of Chile, and a (failed) presidential candidate. The article goes beyond the typical appeals of academics to heed the views of experts, and shows a good dose of respect for (good) politicians and political institutions. I especially liked this paragraph:

The fact that long before the virus hit most politicians’ credibility was at a nadir should not obscure another equally important fact: in modern secular societies, no one else can do the job of generating public trust. And if those modern societies are democratic, accountability is one key source of that trust. While the conventional view is that accountability is a constraint on political action, it is also an enabler. When politicians have announced lockdowns that impose economic costs, the public know that the politicians will ultimately be judged on whether the trade-offs are deemed to have been well-judged. Holding politicians responsible for a decision they have taken can enhance trust in that action.

Politicians and academics necessarily interact, and they should leave aside their mutual prejudices. Prejudices of politicians about academics include believing that academics have little work, know little about the "real world", and waste time instead of communicating with citizens with the "language of the street." Prejudices of academics about politicians include that they are ill-prepared, have bad intentions or are in general corrupt. The quote by Keynes, about men of action working on the shoulders of some obscure academic economist of the past, should be complemented by saying that often academics dream of being men (or women) of action, that is, politicians.
National-populism will not be defeated by delegating into the likes of Mr. Fauci, but by convincing public opinions that strong actions and interventions are needed to correct inequalities and fight climate change. So perhaps academics could focus part of their work on scientifically finding how to persuade public opinions of this. Politicians have a lot of soft knowledge to contribute to that.
They need each other and, also, they both need to remain modest and aware of their limitations. After all, in some way they are part of an elite that needs the trust and the support of many working people that are neither politicians nor academics. And many people are, or have been, both politicians and academics, like Andrés Velasco, although being successful on both fronts has proven very challenging for them.

Sunday, May 3, 2020

The economic rhetoric about reform and change, now

In an article written in 2017, Stuti Khemani of the World Bank reviews the reasons that economists have provided for the difficulties that democratic societies face undertaking what many have called "reforms," and sometimes "srtructural reforms". There is some understanding that these reforms refer to policies that in some objective way are desirable, but that are blocked by interest groups or some other political difficulty. More modernly, the obstacle to "reforms" seems to be populism. In an initial period, the literature focused on reforms about fiscal consolidation, to open up later the scope to the analysis of liberalization reforms. Since in theory, the winners could compensate the losers, in some sense much of this literature is redundant, because it is well known that social choices by majority rule, or some other voting procedure, do not guarantee efficiency. But beyond interest groups and the difficulties of democracies with efficiency, the article of Khemani is interesting because it opens up a new reason why policies that are socially desirable in some objective way are not developed. This reason has to do with the difficulties of spreading the social norms and preferences that make change possible. Of course, these days this should be applied not so much to fiscal consolidation or liberalization, but to policies that mitigate climate change (and other related hazards such as pandemics) and that reduce inequalities, which by the way are sometimes in conflict with fiscal consolidation or liberalization.
The role of interest groups is actually related to social norms and preferences, because as the author argues
"Part of the power of groups to block reforms, despite the evidence that the reforms would benefit an overwhelming majority, is likely to come from their ability to persuade the “winners”— society or citizens at large—that the reforms are not in their interest. Or, to distract citizens into valuing other aspects of policy-making (such as social and religious policies), systematically mobilizing citizens on those non-economic policy dimensions, while deliberately pursuing economic policies to the detriment of those citizens."

Saturday, May 2, 2020

Federal histories

After the global financial crisis, I read two articles that explained very well which were the challenges and difficulties of European federalism as compared to that of the US. In "The euro crisis: some reflections on institutional reform," Jean Tirole (2012) argued that it was very important to combine solidarity and market discipline, and that this was not easy given the inequalities of income per capita across European countries. He suggested though that we might learn from the evolution of federalism in the US since the eighteenth century. An article he recommended was "Fiscal Federalism: US History for Architects of Europe's Fiscal Union," by C. Randall Henning and Martin Kessler (2012). These authors emphasize the importance of both state-owned fiscal responsibility, and a federal budget. The federal government in the US does not mandate balanced budgets nor, since the 1840s, does it bail out states in fiscal trouble. States adopted balanced budget rules of varying strength during the nineteenth century and these rules limit debt accumulation. Before introducing debt brakes for euro area member states, however, Europeans should consider that maintaining a capacity for federal (European) countercyclical macroeconomic stabilization is essential. Balanced budget rules have been viable in the US states because the federal government has a broad set of fiscal powers, including countercyclical fiscal action. Finally, because debt brakes threaten to collide with bank rescues, the euro area should unify (as it is slowly doing) bank regulation and create a common fiscal pool for restructuring the banking system.
These days not only comparisons between American and European federalism become relevant, but also comparisons between reality and plausible counterfactuals in large regions. For example,
"The America's More Perfect Unions," by Joshua Simon (2014) is a fascinating article which highlights the direct and indirect economic effects of the success or failure of the political unions established after independence in both the United States and Latin America. It demonstrates that influential political theorists throughout the hemisphere understood the developmental advantages to be gained from unifying former colonies and employing the political authority newly at their disposal to abolish the stifling institutional legacies of European rule, suggesting that if Spanish America’s unions had endured, or conversely, if the United States had collapsed, the two regions’ economies might not have diverged as dramatically as they subsequently did. For example, the autor quotes the "liberator" Simón Bolívar saying: "The states of the Isthmus of Panama as far north as Guatemala will perhaps unite in federation. This magnificent position between two great oceans could become, with time, the world’s emporium, its canals shortening global distances and strengthening commercial ties between Europe, America, and Asia, bringing tribute to this happy region from the four quarters of the globe. Maybe here alone it will one day be possible to establish a global capital, a new Byzantium for the modern world!"
In his last book "Capital and Ideology" also mentions other missed opportunities for federalism in Africa and Europe in the twentieth century. Now we are again at a critical juncture, let's hope and let's make everything posible so that we can keep making progress towards a better federalism in Europe. This will have to combine enhanced fiscal powers to manage debt and taxes for the federation, market and political discipline for the states, and mechanisms of solidarity that make the compact politically sustainable.  If we succeed, the future is to persist in a slow federalist evolution (like in the US history). If we fail (we won't, right?), our future will be closer to a politically unstable combination of small fiscal havens and failed states.





Sunday, April 26, 2020

Economics after COVID-19

During and after the last global financial crisis, there was a lot of soul searching among economists, and although the reaction was slow and far from universal, some fruits have emerged from that. A higher concern for inequality, a turn to more empirical methods (facilitated by technology), new pedagogical projects such as CORE, and more dialogue with other disciplines.
I do not remember well what happened in the early days of the crisis in 2008, but now perhaps because there is even a more intense use of social networks (because of technology supply but also because of technology demand in lockdown), many economists are hurrying to provide very early analysis of what is happening, predictions of what will happen, and prescriptions about what should be done. The dangers of research in a hurry are well-known. That is precisely why the production process of research is slow. Researchers need to work parsimoniously, and their work must be assessed by qualified peers. When work is screened and published, debate continues and others elaborate on previous work, or forget it, or demolish it because there were unspotted mistakes or unlooked at factors.
Three months ago, economists did not know anything about COVID-19, but some of them are now telling anyone who listens why some countries are more affected by the pandemic than others. Besides cross-country regressions being quite a thing of the past (among other things because countries are rarely a good unit of analysis, except for the fact that data is collected at the national level), it is quite likely that if one still wants to run a regression with the most talked about variables on the right hand side of the eqation, these variables would only explain a small part of the variation, and most of the variation would be random.
That is not to say that we should not do empirical work. I am sure that many people are doing very good empirical work, the results of which will not be known in months, perhaps years. Some people are learning from past pandemics, and that is a good idea. It would not be wrong if we correct a little bit the unbalance of the last years and we also have a look at good theoretical work. Jean Tirole and his co-authors have very good recent theoretical work on social norms and narratives, which may be useful in the difficult years to come.
We should not rush to completely change what we were doing, but instead keep working on the new things that emerged from the previous crisis. Perhaps then we will not only help society stop the crisis (what happened the last time), but we will also learn to build societies with more solid foundations (stronger and more cooperative governments that fight inequality, climate change and health hazards).
The recent article by Bowles and Carlin in VOX-CEPR suggests that the study of mechanisms of resource allocation beyond markets and governments (such as communities or civil society) deserve attention. A paradoxical result will perhaps be that the scientific method has taught us that values, social norms and narratives are a key ingredient to build a more sustainable society, although the use of the scientific method in economics was based on the idea that value judgements should be avoided.

Monday, April 20, 2020

Climate, politics and the boiling frog

After watching the videos of lectures by Raj Chetty on climate change and big data, I read the article by Moore et al. on climate change and the "boiling frog effect." As they explain,
"the remarkability of particular temperatures changes rapidly with repeated exposure. Using sentiment analysis tools, we provide evidence for a “boiling frog” effect: The declining noteworthiness of historically extreme temperatures is not accompanied by a decline in the negative sentiment that they induce, indicating that social normalization of extreme conditions rather than adaptation is driving these results. Using climate model projections we show that, despite large increases in absolute temperature, anomalies relative to our empirically estimated shifting baseline are small and not clearly distinguishable from zero throughout the 21st century."
The key concept here is the social normalization of extreme conditions. The phenomenon is a gradual one. Unfortunately, I am afraid that the "climate" boiling frog is accompanied by a "political" boiling frog, by which extreme political conditions are progressively normalized. One day a sexual predator with the mental age of a five-year old is elected to the presidency of the richest country in the world, and just a few years later the same individual promotes the "liberation" of states where scientists and governors recommend the lockdown of the population. Of course, the two boiling frogs complement each other. The political boiling frog makes slowly boiling the climate boiling frog easier. If both the climate and the political phenomena continue to happen slowly, it will be very difficult to stop them, because what would have been incredible 10 or 20 years ago, now has become normalized.
Does the possibility of a wake-up call exist? Perhaps one of the few pieces of good news these days is that the COVID-19 pandemic may provide such wake-up call. This sudden and global shock breaks the slow progress of the boiling process. Perhaps public opinions will realize that unless we introduce deep changes in our societies (reinforcing the public sector and cooperation at all levels), we will remain exposed to dramatic hazards for our health and welfare, like pandemics, climate change or poverty. But this will not happen automatically, it needs massive investment by leaders and decent governments on new narratives and social norms.

Monday, April 13, 2020

Critical junctures and roads not taken

Daron Acemoglu, in his last book with James Robinson, "The Narrow Path" and in his recent debate with Jean Tirole on the coronavirus crisis, has pointed out that throughout history there are rare "critical junctures" where significant changes are possible. Virtuous societies take advantage of such junctures to make progress towards states of higher capacity that are better controlled by society. The theory suggests some question marks in terms of empirical content (how can one identify if we are in the presence of a critical juncture?), but there is little doubt that in some points in time changes have really been possible, and the road taken by history was just one among several that were possible at the time.
In "The Plot Against America", the novel written by Phillip Roth and now an HBO TV series, the critical juncture is the 1940 US presidential election, which in true history was won by Frankiln D. Roosevelt, the builder of the New Deal, and in fiction was won by Charles A. Lindbergh, a nazi sympathizer. Other thinkers have focused on the critical juncture of the US Civil War of the XIX Century, were the federalists defeated the confederates that had triggered the war with the secession of some southern states. What if… the confederacy had won the US Civil War? What if instead the federalists had won in Central and South America? Then in the North there would be a panoply of small independent states with no single market, and in Central and South America there would be large and strong federations with strong markets and institutions, instead of the many failed states that now populate the southern half of the Continent. What if, as suggested by Thomas Piketty in "Capital and Ideology", Africa had been decolonized like India, with a big federation, instead of tens of small states many of them landlocked without access to the see? What if Europe had become a federation before the second World War, as suggested by the likes of Churchill or Robbins? We will never know, but all these things were possible and did not happen, highlighting the role of contingency and the indeterminacy of history. If we are in a critical juncture now, the road that will be taken is not written in stone. We should better fight for cooperation, federation and solidarity.

Saturday, April 11, 2020

From soccer superstars to economics superstars

I must confess that I used to watch too many soccer matches. Do I miss them? Not much. I guess that humans have a high ability to adapt. There are some historical soccer matches on TV these days, but it is not the same experience. We will see whether soccer recovers its recent weight on the preferences of people like me, or our children's generation, once the pandemic is over. Suddenly, we have realized that life offers other things beyond enjoying games played by Leo Messi.
But while Messi and other soccer superstars cannot telework, economic superstars can, or at least one can enjoy their work online even if the work was produced some time ago. The depreciation rate of economics superstars' work is lower than for soccer superstars. For example, I am in the middle of a self-imposed program of watching everyday one of the 18 lessons taught by Raj Chetty on Economics and Big Data at Harvard (around one year ago). It is an excellent course. It is teaching frontier econometrics by example. By looking at his (or others') work he introduces first year students to the world of quasi-experiments, but also to basic statistical concepts. Instead of approaching economics or econometrics from theory, he approaches them from real world data and by addressing pressing problems such as social mobility, racial disparities or the challenges of education policies. The class on racial disparities, for example, explains how there is a persistent gap in income between white and black individuals in the US because their mobility functions are different. It is as if they were on different treadmills. Their opportunities will not change just by trying to help those in the current generation. Policies must change the treadmill.
Another example of enjoying economic superstars these days was watching the debate between Acemoglu and Tirole about the economics of coronavirus chaired by Besley at the Royal Economic Society. Acemoglu tried to frame the policy failures of governments in front of the coronavirus crisis in terms of concepts from his last book with Robinson, "The Narrow Corridor". There is little doubt that state capacity is crucial to address emergencies like the present one. Jean Triole was quite impressive talking almost desperately about the need for more cooperation, stronger international institutions, and social norms that promote a long run perspective in health policy, climate change or the fight against inequalities. Institutions and social norms are related: a role for stronger independent institutions is to diffuse information and norms that promote this long run perspective. He explained very well the need to separate the fact that in this crisis there is little risk of moral hazard (as the crisis results from an exogenous event), from the fact that there should be no open bar. Public money still has an opportunity cost, and therefore public interventions and expenditures should be carefully targeted.
Like in soccer, economic superstars are not alone. In soccer, they need team mates and rivals so that we have games and tournaments. In economics, other more modest professionals have the obligation at least to promote these good ideas, build on them, and teach and discuss them with our students (on line or, whenever possible, face to face).

Sunday, April 5, 2020

Renaissance bonds and economic ideas

There is no shortage of articles by economists trying to make sense of the current crisis and making proposals to address the economic and social consequences of the COVID-19 pandemic. Although a few of them rush to make proposals that only look at the advantages of the proposed solutions, most authors are aware of the existing trade-offs, like for example LSE economist Ricardo Reis. Emergencies do not eliminate dilemmas, if anything they make them more acute.
There is a general consensus that stopping the economy is necessary now to save lives (although some have been slow to reach the conclusion), and this will require first emergency funds to treat the ill, and second funds to support the incomes of those most hurt by the sudden break of economic flows. In a third stage, it will be necessary to revive the economy with demand side stabilization policies (fiscal and monetary).
But some authors have gone beyond this, and have noted that exceptional supply side policies will be needed as well, because the usual market mechanisms will not be able to efficiently deal in the short run with the necessary coordination to gradually revive the economy with those that are immune or not ill. In the CEPR-Vox portal, there are interesting articles in this direction by Baldwin, Dewatripont and Ichino. The need for some sort of careful and sophisticated planning based on an intensive use of technology is also emphasized by Weil and Sethy in this article. Of course the use of immunity tests will have to be balanced with the associated concerns for privacy and the unintended effects on the incentives for some individuals to get infected.
If European mechanisms and global coordination are needed in the aggregate demand mechanisms and to support those regions most affected by the pandemic (these regions as we are seeing may be different over time), they will also be needed in this planning stage to gradually revive the economy in a sort of large scale public-private partnership. This has the political pre-requisite of trying to defeat the national-populists, Trumps and Bolsonaros that still believe that this is a national war, or otherwise isolate them with experts and both lower and higher level governments.
This need to think about supply policies should not make us forget about the urgency of the fiscal problems. That is why I have signed (together with many others) an Open letter which included this paragraph:
"In line with other appeals that we also subscribe to, we propose issuing Eurobonds, that we suggest calling “European Renaissance Bonds”. These bonds could be backed by some common fiscal capacity or other financial instruments created ad-hoc, considering that the fear of moral hazard cannot play any role under the present circumstances. Moreover, let us stress that this new common debt will not imply any mutualisation of existing sovereign debts but will refer only to the expenses that are needed to face the huge common shock hitting all EU countries. If a collective political determination and consensus emerges, no technical problem is unsurmountable." Although high levels of debt will be needed, some authors have already proposed to start thinking about how to raise taxes to pay the final bill. Landais, Saez and Zucman, for example, have proposed  a Progressive Wealth Tax, which is not incompatible with a tax on the extraordinary profits that a few firms will make with the crisis.


Saturday, April 4, 2020

Interview with Branko Milanovic

Branko Milanovic: “If we equalize the initial capital, it will not be necessary to redistribute so much”

Interview by Francesc Trillas (originally published in Catalan in Política & Prosa, December 2019) about Milanovic’s last book, “Capitalism, Alone”


Question. What is different in “Capitalism, Alone” from your previous books?


Answer. It's a different book ... well, not completely different, because it's also about inequality. But it is more ambitious, because it has a more political and philosophical side.
Let me start with the title. The title means that capitalism is the only mode of production, the only way of organizing production (except for globally irrelevant cases) that exists in the world today. This may seem like a statement that is irrelevant to some people. For example, young people have already lived only under capitalism. But if you look historically, you will see that capitalism was created on a large scale after the Industrial Revolution, and had competitors at that time, even though the British were leading globalization, because much of the world was feudal.
In central Europe there was forced labor in the year of the revolutions of 1848. In Russia and the United States there was slavery in the 19th century. In India there was also forced labor. The rival that capitalism had to defeat in some way was feudalism. In the end, capitalism prevailed, we have almost nowhere people who do not have the same rights as others. But also since 1917 with the Russian Revolution there was another competitor, Communism ...
 
Q. You know well because you lived under a communist regime


A. Indeed, this competitor was significant because it reached a third of the world's population, and probably more than a third of the earth's surface, including China and Vietnam afterwards. And some countries that came closer like Ethiopia, Angola, and others. But now they are gone and China has become a capitalist country. That is why capitalism is alone today.
 
Q. It's alone, but in a diversity of ways, right? Because in many parts it is not brutal capitalism like Manchester in the 19th century.
A. Okay, these are different forms of capitalism and the book in fact is about different forms of capitalism, not one. The book broadly outlines the existence of two major forms of capitalism: what can be called meritocratic liberal capitalism and political capitalism. Today, unfortunately, the word meritocratic has come to mean something that is deserved. But I use the concept of John Rawls, for whom meritocracy simply means that there are no legal restrictions for each one to become what they want. In other words, not because you were born black or in a poor family, you must not have the same rights.

This is very undemanding in social terms: there are no quotas, no free education ... but with liberal capitalism in the sense of Rawls's "liberal" concept it does mean that there is some correction for this birth inequality. I use the United States as an example of this kind of capitalism because I know the country well and know the data much better.
The rich and very educated marry among them: this is homogamy; the same individuals have high incomes of capital and labor: this is homoplutia.
And the second type of capitalism is the political capitalism of China (and of Vietnam, Angola, Ethiopia, etc.). The book has a political side, because it says that we have capitalism as the only mode of production now, but from a political and social point of view it comes in two different versions, which are to some extent competing. To understand why what I call political capitalism is different, I look at its genesis, where I argue that communist revolutions in China and Vietnam are equivalent to bourgeois revolutions because through communist revolutions they were free from all feudal impediments, and were able to free their countries from foreign rule. And communism could only do these two things, because they were so well organized. And almost without being aware they created a national bourgeoisie ...
 
Q. You mean the cadres of the communist party?


A. Not only, because now this world is capitalist in the sense that most of the added value is produced by the private sector.
The system in these countries is capitalist, and has not been planned; it is just as history has turned out. They started out as socialists, of course, and tried to put socialism into practice, but found themselves creating a national bourgeoisie. I think the genesis, the creation of this political capitalism, is very different from the origin of liberal capitalism, because the liberal capitalism of the United States and the West did not have to get rid of external colonizers, despite the fact that the United States was a colony, but it was a very different situation.
I look at the systemic forces that increase inequality in the two types of capitalism and lead to the creation of a sustainable elite in both cases.
 
Q. And within liberal capitalism, do you not distinguish between the most laissez-faire system in the United States and the most social democratic system in Europe?



A. Not much. At first I make a bit of distinction, but I really believe that there is essentially liberal capitalism today and that democratic social capitalism was diluted in liberalism in the 1980's (after approximately 1945). Of course there are differences between Denmark and the United States, but the systemic factors associated with globalization, technological change and the decline of unions, and the issues associated with migration, move them in the same direction. From a global perspective, they are not that different, though there are differences between countries.


Q. What is the impact of the two forms of capitalism on inequality?



A. I speak of seven systemic forces that cause inequality in liberal capitalism:
First, the increase in the percentage of GDP contributed by capital, which means increases in interpersonal inequality; this is an empirical reality that has been happening for the last 30 years. Second, this directly translates to an increase in interpersonal inequality because the people who receive a large portion of their income from capital are above in the income distribution. If two people, poor and rich, had the same share of income from capital, an increase in the ratio of capital to total income would not create interpersonal inequalities, but it really is not the case. Third, rich people receive better returns on their assets, as Piketty tells Capital in the 21st Century.
Fourth, the rich and very educated get married more to each other: this is called homogamy. Fifth, the same individuals or families have high incomes of both capital and labor; this is called homoplutia. This was not the case in classical capitalism, where the great capitalists or landowners did not basically work. There are now great executives of companies who have high income from work and capital because they accumulate wealth over the course of their working lives. By the way, this is more productive than if you are just earning a living. None of the latter two phenomena, homogamy and homoplutia, are ethically or morally bad, public policy has nothing to do with them, each one marries who they want and working is productive. All this makes it not easy to deal with inequality in modern society.

Sixth, rich people are trying to buy, or have a non-proportional influence on, the political system, more than between the 40's and 80's. And seventh, they are transferring all these benefits, which come from having more wealth and education, to their children, more than in the past. Educated parents spend more time on parenting than other parents (we have good data on this), giving their children immense benefits compared to other children, solidifying the upper class. This is also a positive thing, it is desirable for parents to spend more time with the children, but in this way they give huge advantages to their offspring.
This, combined with the control of the political process, leads to the creation of an upper class in liberal capitalism.




Q. And many of these forces are also present in political capitalism ...



A. In the countries of political capitalism there are three additional factors. First, an efficient administration or bureaucracy, with few restrictions on its operation, which does not have to spend time on deliberation. This is a key aspect of political capitalism for generating growth. Second, the absence of rule of law, which leads to endemic corruption. This is not something that is a system anomaly. The system must be corrupt because without the rule of law, one must be able to punish in some way. Coercion is not based on the law but on power. And thirdly, in these countries there is state autonomy. The interest of the state can be imposed beyond what the rich want. The power of the capitalist bourgeoisie is less than in liberal capitalism, which has become the empire of the rich. They maintain the autonomy of the state to pursue mercantilist policies or even to pursue policies contrary to the richest. China's rich, rather than Russia's, are custodians of a wealth that is, in a sense, the state's wealth. The rich have more power in liberal democracies.
 
Q. Another book that has also been published this fall, is Capital et idéologie, by Thomas Piketty. This book makes a series of proposals to reverse what it describes as a shift of the social base of progressive parties, which today seem to have the support of the more educated sectors, but are losing the support of important sectors with a low level of education or income. Do you agree with this description, and with Piketty's proposals?



A. I have prescriptive parts in the book. The part of Piketty's book on Change in Voters’ Structure, which is very relevant for Spain, relies on evidence based on surveys from very diverse countries. Partly because of the success of working-class policies, there is a new group of voters who are becoming more socio-liberal; their interests change because they are now wealthier and have a better education. But without American political analysts seeing it, a lower-class part of the working class has stopped voting.
My general philosophy in terms of prescriptions is that if there are such forces that increase inequality, pre-1980 policies based on education, unions, taxes and transfers may no longer work as before. There can be no more years of compulsory education, we are on a roof, people cannot be forced to have doctorates. Unions are in decline. Middle-class people no longer want to pay higher taxes than they already pay or vote for them, and they are more skeptical about the use of public money than in the past.

Tax rates of 90% of maximum marginal rate only affected a very small part of the population. Maximum rates can be increased, but I don't think much is gained.
Since we cannot redistribute current income much, it would be better to develop policies to equalize the initial endowment. Both human capital and asset ownership.
If we equate capital relatively, we will not need to redistribute so many resources. How is financial capital decentralized, which is much more concentrated than income? We need to think of a people’s capitalism where the middle class has more capital, withdrawing privileges that large investors have. At present small investors have no advantage but the rich do: they can transfer resources to descendants, accumulate profits, etc. Inheritance taxes must be used to redistribute ownership.
 
Q. But to do all this would require some degree of international coordination, right? Otherwise, capital would move ...


A. Yes, it requires international coordination. It is also necessary that everyone has the same access to the same quality of education. There are currently two levels of education, which cannot be seen in the school years, but in the quality of the schools. Years of education no longer determine wage levels, but the quality of education does. The quality of public education must be significantly improved, in order to balance the provision of human capital. In the United States, change should be almost revolutionary. Today's system is to preserve the privileges of rich people. And the last point is to reform the financing of the political system. I do not give many details, but these are my prescriptions. We need a new goal: people's capitalism.
 
Q. Is there any difference between this people’s capitalism and the popular capitalism Margaret Thatcher spoke of?



A. My people’s capitalism bears some resemblance to the popular capitalism of Margaret Thatcher, though she did little to materialize it except for the privatization of home ownership. The concentration of share ownership did not diminish, but I think he had the same idea.

This should be the next great goal of capitalism in rich countries: greater equality in capital provision. It should be a democracy or a capitalism of owning people. The system would be much more stable if everyone had a stake, rather than the current situation, where the forces of inequality are getting stronger.
 
Q. On a personal level, even after many years have passed, do you miss the Yugoslav federation in your cultural identity, in your life?


A. Not now, but yes when the break-in and in particular the war took place. My family was neither religious nor nationalistic. The breakup of the USSR was not a tragedy for many people (for some it was a great development, like the Baltic states, unless you were part of the Russian minority in those countries), but it was for many others , who had to redefine their identity. People don't appreciate that. There were a lot of mixed families that don't exist anymore, as the documentary “Brothers no more” (about the distance created between basketball players and former Friends Petrovic and Divac) explains. This shock, this redefinition of identity, is not easy. You need to reevaluate your identity and the identity of others.
 
Q. You have made proposals that have been relatively controversial with regard to immigration.



A. I think, at least in theory, that globalization should include free movement of workers, as well as ideas and capital. But people are not avatars, they have cultures and social norms. Work is not the same as capital, there are cultures, religions, world views, along with economic reasons. For these reasons immigration is conflicting. Before you say no one comes (like the Dutch politician who said the country was already full), you must accept, for the population's preference, temporary immigration permits (4 or 5 years), as the system in Germany, but with an obligation to return. They would come only if they had a job, and their permit would not be renewed.

Sure, this has drawbacks, but the general idea is that foreigners come for jobs that exist, and after leaving, without direct access to citizenship, but protection of health and work. There would be some citizenship protections, but not all.
 
Q. You have also criticized environmental movements in developed countries.



A. It is very easy to ask that others do not have access to amenities and luxuries that we have. Some environmentalists have no idea what the numbers are. If you set the income level as it is, one option is for the poorest to leave them as they are. But if you want them to get better, and a lot of people, up to middle levels in the rich world, there are no resources for everyone without growth.
They have to tell us what they want to do, you can't go out of reality. If they want radical solutions, they have to say how they make it politically viable. If they want us to think seriously, they have to do the numbers and tell us what strategy we will follow. How will we do it? They haven't thought about it enough. And sometimes it is unfair to many people who want to be rich, have cars, travel by plane ...
There is a link between global inequality and climate footprint, because the rich pollute more, consume more, and eat more meat. With less inequality, there would be less climate footprint. But by reducing Bill Gates's consumption, it would just be a drop in the ocean - no illusions should be made. But this is not a topic that I discuss in my book.