Wednesday, July 25, 2012

The Darwin Economy (by Francesc Trillas)

I just submitted to a journal my review of the book written by Robert Frank, "The Darwin Economy". My conclusion is that it is an excellent book, but that as a colleague told me, there is a significant oportunity cost to having bright academics having to spend time arguing that government is necessary. It is the existence of anti-government zealots that causes such a misallocation of resources. The book presents very interesting links among the thoughts of scholars such as Darwin, Smith, Stuart Mill and Coase. Althoug the author says that he has criticisms both for the right and for the left, don't feel guilty, the book has been written to fight the extreme right.

Sunday, July 22, 2012

Beinhocker's book (by Pedja dell'Arno)

Beinhocker's "The Origin of Wealth" is a remarkable book. Its main argument is that Traditional Economics should be and is being replaced by a new paradigm that is gradually taking shape: Complexity Economics. The book narrates a meeting that took place at the Santa Fe Institute in New Mexico between a group of scientists of different disciplines and high level economists, and how some of the scientists were amazed at how the economists had been stuck in a sicentific method of 100 or more years ago, based on a static equilibrium concept derived from the physics of the time. These scientists compared the economists to the Cuban society of today, were people drive cars from the 1950s and they are very skilled at making those very old cars to run. Beinhocker argues that economics should treat the economy as an open dynamic system that is not necessarily in equilbrium and use scientific tools that are common in other disciplines. It is not at all about rejecting the use of mathematical techniques in economics, as too often one sees in other critiques of modern economics, but it is about using new and perhaps more sophisticated mathematical tools. The weakest part of the book is the attempt by the author to portrait the social and political implications of the new paradigm as overcoming the "old divide" between left and right. In fact, the details of these implications are a severe blow, one more, to the view that markets self-regulate and reach optimal allocations that make governments unnecessary. But perhaps to publish with a good company you need to say that left and right equally make no sense.

Sunday, July 15, 2012

Olympic Games and Processed Food (by Francesc Trillas)

The main sponsors of the London Olympic Games are the big companies of the Processed Food Industry. This has triggered a big controversy in the UK through the BBC, because these companies are responsible for the declining health habits of large parts of the population, mostly children.
The justification given by the defenders of the scheme is that these sponsors pay for half the costs of the Games. In other words, without these sponsors, the games would be unaffordable. Well, that is the point. What about the health costs? What are the social benefits and the social costs of organizing the games in this way? If the social costs are higher than the social benefits, the games should not take place.

Saturday, July 14, 2012

Let's pray for Wiggins (by Pedja dell'Arno)

Bradley Wiggins, the British cyclist and current leader of the Tour de France, has written one of the best pieces on doping ever written by a sportsman.
Let's hope that everything he says is true and we don't have another disappointment soon. In the meantime, at least he has been able to speak clear against doping, an unusual experience in professional sports.

Thursday, July 5, 2012

Economics that saves lives (by Francesc Trillas)

I attended two days ago a presentation in Barcelona by Chilean economist Andrés Gómez-Lobo, on the ups and downs of the Transantiago reform in Chile. This reform was meant to improve the public transportation system in Santiago, but dramatically failed for a number of reasons. In the old system, small buses in an informal system dangerously competed in the streets for passengers (at the cost of an amazing ratio of fatal accidents and injuries). The new system wanted to introduce overnight a new “main routes” system, with tariff integration, more modern vehicles and people changing vehicle and mode for one same trip. But lack of preparation implied very long waiting times and heavy congestion, causing an enormous social and political crisis in 2007. Andrés uses applications of welfare economics to public transportation, plus common sense, to explain how the technocrats (who designed the reform without checks and balances) failed to grasp the subtleties of the ordinary people’s demand for public transportation. He has two lessons for future reforms: don’t play games with the need of ordinary people for urban public transportation, and be humble if you have a policy reform to propose and implement. Andrés and others worked in reforming the reform and now Santiago has a system that is better than the old and that has at least partially learned from the mistakes of the Transantiago.
This work is in the best tradition of policy papers based on simple welfare economics. The main things to be learned are in the new book by Joaquim Silvestre, Public Microeconomics.  This type of work is in the best tradition of “left-wing” neo-classical economists like Kenneth Arrow, who back in 1963 set the standards high in his paper on why health care should not be left to market forces.