Cognitive dissonance

We all try to construct stories of ourselves that make us feel well. Sometimes this is very difficult, such as when we incur in contradictions. Confirmation bias is a consequence of this. Once we have taken a position on something, we blind ourselves to evidence that may contradict this initial position, to keep our reputation in front of others and to reduce cognitive dissonance in our interior (the great economist George Akerloff was one of the first to explore the social implications of this). This is perhaps one of the reasons behind the rhetoric strategies of the new populist right in Europe. After all that happened in the XX century (two world wars, holocausts, ethnic cleansing in Europe) it is very difficult to sustain an openly fascist speech. Instead, those who take advantage of severe financial crisis to look for scapegoats and easy solutions, pay lip service to democracy and freedom... and at the same time to patriotism and nationalism. One of these parties is called "Freedom Party." Another is called "New Democracy." Others are less scrupolous and call themselves "True Finns." The new brand of the conservative Catalan nationalists (the old one being tarnished by corruption) is called "Democracy and Freedom". Like the UKIP in the UK and the National Front in France they sell themselves as the true defenders of freedom and democracy, and at the same time they demonish the foreign, the Spanish, the muslim or simply the new. Of course, embracing complexity and supporting causes that do not have easy scapegoats is much more difficult. But there is no other way if we want to avoid the tragedies of the past. Happy new year.

FIFA, Blatter and the great Andrew Jennings

Don't miss the last documentary by BBC journalist Andrew Jennings about FIFA and corruption. Jennings explains how his long investigative work has been finally vindicated by the recent public exposure of corruption at FIFA, and convincingly compares the governance of global soccer to the Mafia. This is what the excellent web page "Play the Game" has to say about Jennings programme:
"The BBC today took a little wrap off what investigative journalist Andrew Jennings’ latest Panorama show, airing on BBC tonight, includes.

As observers had already guessed after the U.S. Attorney General Loretta Lynch released the latest, superseding, indictment into FIFA on Thursday, the U.S. authorities now also have an eye on FIFA president Sepp Blatter, writes the BBC.

According to the BBC, the U.S. authorities have documents that could compromise Blatter’s denial of wrongdoing in relation to the ISL scheme through which FIFA officials received more than 100 million euro in bribes from sports marketing company ISL for World Cup rights deals during the 1990’s.

In a letter obtained by the FBI, former FIFA president João Havelange writes that Blatter had “full knowledge of all activities” and was “always apprised to them”, writes The Guardian.

In May 2013, FIFA’s adjudicatory arm of the ethics committee cleared Blatter of wrong-doing in relation to the ISL affair. He may have been "clumsy" but his conduct "could not be classified in any way as misconduct with regard to any ethics rules," stated the FIFA report at the time.

A set of rather extensive reforms was presented to the FIFA executive committee on Dec 3, the same day that Swiss authorities made a second set of arrests and another 16 FIFA officials were indicted by the U.S. Attorney General’s office making the total number of defendants reach 27."

The economists' political adventures

"The Economist" wrote last week that its vote in the Spanish election would have gone for "Ciudadanos," a centre-right emerging political party. That is, emerging at the national level, because in Catalonia they have been around for more than a decade. However, the result of "Ciudadanos" has been disappointing, with 40 seats out of 350, much below the expectations. Instead, in the Catalan regional election two months ago, Ciudadanos obtained an excellent result, becoming the second group in Parliament after the secessionists. What happened between the Catalan and the Spanish election? Of course, a rigorous answer to this question deserves the attention of the best political scientists. My only suggestion to them is to look at the influence of their "getting out of the closet" in economic policy. By the Catalan election, "Ciudadanos" was an anti-Catalan nationalist party, concerned about corruption and political renewal (that is why it didn't use the word "party" in its name). It did not run on a very specific economic policy platform. Just one week before the last European election, their leader Albert Rivera said that they were indifferent between going to the socialist or the liberal group in the European Parliament (after the election, they went to the liberal group). But at the national election they couldn't escape the ideological issue. What they did was to commission their economic program to a high calibre Spanish economics professor from the London School of Economics with a PhD from Chicago University, Prof. Luis Garicano. This excellent academic economist wrote almost the perfect pro-market ("less and better government") program, with the help of one of his PhD students. This gave a perfect justification to "The Economist," the magazine, to endorse them, and through this back door, support a coalition between them and the right-wing Popular Party led by the unpopular Mariano Rajoy. The great magazine found the best excuse to de facto support a leadership that had been tarnished by corruption, which could be found contradictory with past positions such as vigourously and consistently campaingning for years against Berlusconi in Italy. The clear positioning of "Ciudadanos" in the center-right with a rigourous economic policy program perhaps did a lot to get a few votes from academic economists, but did little to allow them to reach new voters or even keep those that were inclined to vote for them two months ago. It is not the first time that the input of academic economists has been detrimental in the popular vote. Another excellent economist, Michelle Boldrin, had an incredible failure in a recent Italian election as leader of a new party (the same election I believe where Mario Monti lost when trying to legitimize his tenure as a technocratic prime minister). Another example is Andreu Mas-Colell, one of the best Catalan economists: he has been in the government of Artur Mas, the leader of the Catalan secessionists, trying to give an image of seriousness to the nationalist populism that his leader was promoting, but actually becoming an unpopular cabinet member contributing to the declining popularity of his leader's party. It is not the first time that the preferences of academic economists seem to be at odds with the preferences of the general population. I am proud to be an economist, and in many aspects I am an admirer of the academic career of these scholars. But they have not been good politicians.

"The Economist" and some economists are nudging Spain to support a smaller state

Edward Glaeser has a fantastic academic article written in 2005 where he explains the relationship between soft paternalism (public interventions that do not alter the choice set) and political manipulation. He argues that departures from full rationality are endogenous and therefore subject to manipulation and vulnerable to strategies of persuasion. In Spain (including Catalonia), right wing parties and institutions controlled by them seem very aware of that: they are spending the last hours of the election campaign (for this Sunday`s general election) trying to turn the two issues that have dominated Spanish politics in the last four years into their favour. One issue has been the independence campaign in Catalonia, under the leadership of right-wing nationalist leader and president of the Catalan autonomous government, Mr. Artur Mas. And the other has been the succession of coruption scandals and the protest movements against them and simultaneously against the unequal distribution of the costs of the economic and financial crisis. In Catalonia, Mr. Mas has used all the resources of his regional government, including public broadcasters, to support the independence drive, and to promote a new elite of opinion leaders identified with this drive. Among this new elite there is a right-wing famous economist that plays an important role, Xavier Sala-i-Martín, who combines the defense of Catalan independence with the support of the ideas of radical neo-liberalism in economics, including his admiration for Ronald Reagan and the policies of the Republican Party in the USA. The bookstores are full of books by this colourful economist, who has his own program on the regional public TV. However, this program is not enough dose, so he also appeared in a routine talkshow today two days before the end of the election campaign. In Spain, the movement against corruption resulted first in the emergence of a left wing populist party, Podemos, who will still have a good result in the election. But in the last few months, a lot of the protest energies have gone to benefit an emerging party with a "laissez-faire" economic program, Ciudadanos. Their economic program has been coodinated by another famous economist, Luis Garicano, whose admiration for Margaret Thatcher is not difficult to find in the Internet. Both Garicano and Sala-i-Martín have good academic credentials, but their bias is clear and identical: they support a smaller state with lower fiscal pressure and weaker egalitarian and welfare policies. The Economist is consistent with its liberal ideology in economics when it supports a coalition of the right wing incumbent Popular Party (PP) and Ciudadanos, but fails to be consistent with its tradition for a better democracy (which it showed for example in its campaign against Berlusconi) when it thinks that a government with a party that has not come clean with its amazing corruption scandals, will be able to lead regeneration is Spain. The claim that Ciudadanos is somehow more able than PP to address the Catalan issue is ridiculous: Ciudadanos was born in Catalonia to oppose Catalan nationalism with Spanish nationalism. PP+Ciudadanos in the Spanish government guarantee that a war of nationalisms will dominate Spanish politics in the years to come. That is why old supporters of the also Spanish nationalists PP, like former MEP Alejo Vidal-Quadras, now support Ciudadanos. What Spain needs is a federal Constitution that openly recognises its diversity and that can be supported by a majority of Catalans and Spaniards. Neither PP nor Ciudadanos (nor the Catalan secessionists) are supporting that. But their economic leaders and supporters all agree that we need smaller government.

Opening a Spanish door to egalitarian and federalist reforms

In the Spanish general election of December 20th, all predictions agree that prime minister Mariano Rajoy will lose his current overall majority in Parliament. This will open the door to coalition agreements. The exact outcome of the election is uncertain, and therefore it is very hard to forecast exactly what kind of alliances can be formed after the vote to choose a new government. The vote takes place after four controversial years of Mr. Rajoy in office. In these years, the Spanish banking system had to be bailed out, and corruption scandals tarnished the reputation of the party in office and the prime minister himself. The banking bailout and the corruption scandals were interconnected because one of the symbols of corruption, former IMF leader and Spanish vice-prime minister Rodrigo Rato, was himself the chairman of the largest bank that had to be bailed out (Bankia). This bailout has its origins in the economic and financial crisis that exploded when the housing bubble burst after 2008. The subsequent troubles were part of the euro and debt crisis that engulfed the European periphery and does not have only one source of causality or responsibility. But the current government has not used his four years in office to convince voters that it had a project of shared prosperity or a real will to reform democracy in realistic ways and fight corruption. In the meantime, the government has been completely unable to solve or alleviate the constitutional crisis with Catalonia, one of Spain's most prosperous regions. Quite the opposite: Mr. Rajoy has been trying to exploit this crisis to fight the election along a nationalist cleavage, instead of making federalist proposals that could be accepted by most of the Catalan and Spanish people at the same time. The institutional crisis produced by the combination of economic recession, corruption scandals and a sovereignty challenge, has been used by "emergent" populist parties like Podemos and Ciudadanos to challenge the mainstream political forces. At the same time, the Socialist Party, under a new leader, Pedro Sánchez, presents a new face with a serious program, containing proposals to address federal reform, as well as egalitarian policies in a serious fiscal framework. It is around these proposals that the alternative should be structured.

Good news for our grandchildren

It makes me happy that the usually despised socialdemocrats in the French government, led by Hollande, Valls and Fabius, with the support of democratic US president Obama, under the close watch of former vice-president Al Gore and the great center-left economist Nicholas Stern, have managed to engineer a global agreement in Paris to stop climate change. It also makes me happy that the leader of Greenpeance, Kumi Naiboo, is relatively happy. He also reminds us of the work and challenges ahead:
"The wheel of climate action turns slowly, but in Paris it has turned. There’s much in this deal that frustrates and disappoints me, but it still puts the fossil fuel industry squarely on the wrong side of history. Parts of this deal have been diluted and polluted by the people who despoil our planet, but it contains a new temperature limit of 1.5 degrees. That single number, and the new goal of net zero emissions by the second half of this century, will cause consternation in the boardrooms of coal companies and the palaces of oil-exporting states and that is a very good thing. The transition away from fossil fuels is inevitable. Now comes our great task of this century. How do we meet this new goal? The measures outlined simply do not get us there. When it comes to forcing real, meaningful action, Paris fails to meet the moment. We have a 1.5 degree wall to climb, but the ladder isn’t long enough. The emissions targets outlined in this agreement are simply not big enough to get us to where we need to be. There is also not enough in this deal for the nations and people on the frontlines of climate change. It contains an inherent, ingrained injustice. The nations which caused this problem have promised too little to help the people on the frontlines of this crisis who are already losing their lives and livelihoods for problems they did not create. This deal won’t dig us out the hole we’re in, but it makes the sides less steep. To pull us free of fossil fuels we are going to need to mobilise in ever greater numbers."

Must even the most complex of questions be reduced to a dichotomy?

Peter Emerson, director of the Borda Institute, summarizes in a recent article his ideas about referendums and similar binary decision-making processes in complex societies divided by identity and similar problems:

"Before the Edinburgh Agreement, the SNP advocated three options for the 2014 Scottish referendum: independence, devo-max and status quo. But Cameron reckoned his favourite, status quo, would win a two-option contest against independence. So binary it was. Many wanted devo-max; nobody voted for it because they couldn’t – it wasn’t on the ballot paper; yet it 'won'. Scotland’s referendum was used as ‘justification’ by those wanting separatism in Ukraine: not the Edinburgh Agreement bit, but the binary nature of the ballot.Thus the tragedy of the Balkans was repeated. In 1991, with wars already in Slovenia and Croatia, the EU's Badinter Commission insisted on referendums. As a result, there were umpteen plebiscites: a few were recognised; others, as in Herzeg-Bosna and the Sandżak, were not. But “all the wars in the former Yugoslavia started with a referendum,” (Oslobodjenje, Sarajevo’s now legendary newspaper, 7.2.1999). In 2002, a referendum was incorporated into the Machakos Protocol for South Sudan. Six months later, there was renewed violence in Darfur. After all, if one region can fight, hold a referendum, and thus gain its political objective, why not another? South Sudan has since imploded.  Was it wise to promote self-determination by referendum – in a word, Balkanisation – in Africa, a continent replete with borders geographical, historical and tribal? In Egypt’s Tahrir Square, the people were united – young, old, male, female, Muslim and Copt. But then they held a referendum. Two-option voting is divisive. So they divided. And then they fought. In Iran, in 1953, 99.8 per cent voted for socialism. Ten years later, 99.9 per cent wanted capitalism. In ’79, they voted for an Islamic Republic, by (a mere) 99.3 per cent. In 2007, Venezuela held a constitutional referendum. In the first of two ballots, voters were asked to vote a single yes-or-no on a list of 33 questions; in the second, on 36. Both ballots were lost by 49 to 51 per cent. Must even the most complex of questions be reduced to a dichotomy? Stalinist results are not confined to non-western democracies: the majority in favour of the Northern Ireland border poll of 1973 was 99.7 per cent. As often happens, the majority votes in favour while the minority abstains (Crimean Tatars), boycotts (Northern Ireland nationalists), or resorts to violence (Bosnian Serbs). Where the communities are evenly balanced, as in Quebec in 1995, both sides do participate, but the outcome was in part determined by neither side. On matters of contention, then, majority voting is inadequate. As implied above, it often allows those in power to determine the question. Supposed democrats have thus abused the democratic process, but so too have unabashed dictators like Napoleon, Mussolini, Hitler, Duvalier and Saddam Hussein."

It is not about Spain, it is about Europe

There is a general election in Spain on December, 20th. The ruling conservative Popular Party is running a campaign under a very simple slogan: "Spain". The reason is that the cleavage they try to exploit is the one between unity of the country or secessionism, trying to highlight the separatist threat of the Catalan nationalists (not the majotity of the Catalan electorate) as the biggest issue that the country is facing. Since this issue became a significant one three and a half years ago, the Popular Party of prime minister Mariano Rajoy has done everything in its hands to throw gasoline to the fire, and nothing to offer an institutional federal reform that could accommodate the aspirations of a big majority of Catalan society. Meanwhile, Spain is emerging from the euro crisis mainly thanks to the action and credible promises of the European Central Bank, but doing little to create the foundations of a productive economy in the mid to long run. The Spanish electorate, like the electorates of all countries in the euro-zone, support the common currency, and therefore implicitly call for strengthening the institutions that make the euro-zone stable and prosperous: this means a political and fiscal union. This increasingly federal Europe is unavoidable and desirable in the context of a common currency, and it is in this framework that it is necessary to support strategies of economic growth that serve the purpose of defeating the forces of populism or even the extreme right. In France and England, xenophobic parties of this persuasion are progressing too much and dominating the political agenda. It is a renovated European project that is needed to defeat them. By running on a Spanish nationalist platform, the Popular Party of Mariano Rajoy is also trying to hide the incredible corruption scandals that have affected them in the recent past. They are being investigated for the reception of kickbacks at a large scale, and for the reception of illegal payments to politicians, allegedly affecting even the prime minister. The Spanish electorate has alternatives. A renovated socialist party is not the kind of enthusiastic project that attracts headlines and the social media, but it is just the serious federalist center-left alternative needed by Spain.

Mutual coercion, mutually agreed upon

Simon A. Levin has an interesting article about the sources of social cooperation in human societies and in other animals. He reminds us several times across the article that Hardin (the first author to analyze the "tragedy of the commons")  argued that the solutions to commons problems involve mutual coercion, mutually agreed upon: "Mutual coercion, mutually agreed upon, has been successful over and over again in small societies. Arrangements such as the lobster gangs of Maine, the water temples of Bali, and the Tribunal de las Aguas de Valencia, all give evidence that self-organized solutions, with emergent norms, can help protect public goods, combining top-down and bottom-up mechanisms. As we move to larger scales, however, for example in protecting climate or biodiversity as public goods, the challenges become greater. Recent work demonstrates the importance of great inequities in wealth, and of heterogeneity more generally in addressing global problems. These issues of scale and heterogeneity led the late Ostrom to argue for a modular, polycentric approach to addressing climate change, which means starting locally, and building up from there. And I would argue that it also means agreements between subsets of nations, as building blocks for larger-scale agreements; indeed, from what we know about Darwinian selection and the evolution of multicellularity, in which modules can become building blocks for emergent complexity, this seems the most hopeful approach to global sustainability. The greatest challenges to achieving a sustainable future in an increasingly interconnected world rest in finding solutions to dealing with public goods and common-pool resources, especially when the individual agents are nations or distributed networks of individuals. The lessons to be derived from evolution and evolutionary theory are a starting point, but scaling up to larger and larger groups, in a technological world in which individuals can make sophisticated calculations about their futures and their interests, create novel challenges, both from the viewpoints of applications and mathematical theory. Addressing such challenges is essential if we are to address our own futures, and represent some of the most exciting challenges for sustainability science." Levin believes that consensus building may be more important than voting, in a paragraph where he could have cited the great Swedish economist Knut Wicksell: "Of course, the theory of how societies vote and how they should vote has been a staple of economics and the decision sciences for many decades. In most situations, however, the way human groups arrive at collective decisions is much more bottom-up, based on a balance between innate tendencies and knowledge on the one hand, and imitation on the other. What then is the role of leadership? How is consensus achieved in democratic societies, and how important are those who are more likely to follow than lead?"

"Achieving" independence or "falling into" independence

African nations made the mistake of leaving their status as colonies to found relatively small nation-states, instead of embracing large federations under perhaps the initial umbrella of the United Nations. Academics and intellectuals, both local and international, supported the move, just to regret it half a century later. Here's what a recent academic paper has to say about it: "From the middle of the 19th century, most of Africa was colonized by Western powers and the continent remained under its European overlords until independence movements gained strength in the aftermath of WWII. The main wave of independence started in the late 1950s and in 1960 alone, 17 countries achieved independence. With the exception of South Sudan, the full process of decolonization and independence was completed when Eritrea and Namibia became independent in the early 1990. In virtually all these countries, the key figures of their independence movements initially became the first official leaders. All promised better conditions for the people and when Africa stood on the edge of independence it was with the hope of prosperity. This positive outlook was shared by Western observers, as described by Easterly and Levine (1997, p. 1203): “In the 1960s, a leading development textbook ranked Africa’s growth potential ahead of East Asia’s, and the World Bank’s chief economist listed seven African countries that “clearly have potential to reach or surpass” a 7 percent growth rate.”
However, what should have been the start of prosperity for the continent instead became what has become known as Africa’s growth tragedy. Today, Sub-Saharan Africa is the poorest part of the world, as a consequence of 20 years of declining GDP per capita. The decline was so massive that the average 1972 GDP level was not reached again until 2004."

The evolution of soccer: taming the beast

In the 1960's soccer/football was in crisis. Stadiums were crumbling, tactics were defensive and hooliganism was dominant in the cradle of the game, the British Isles. Then a new, more offensive and modern style of play began to flourish in The Netherlands, taking inspiration from the seed that had been planted by a previous generation of Eastern European players and managers. The seed flourished in the World Cup of 1974, and then the new species evolved and mutated into even better forms in Spain and Germany. In parallel, some tragedies shocked the public authorities, who finally became determined to act against violence and crumbling facilities in England. Technological developments facilitated the expansion of the game, and judicial interventions paved the way for the internationalization of the market for players. More and more people had access to live games with the best stars of the planet, with increasing in-depth coverage of every aspect of the game. Combining all these phenomena, we see the evolving combination of markets, governments and a multiplicity of organizations (both for-profit, and not-for-profit) producing something really successful. I am sorry, but no creator was in command. Now the problems are derived from the success of the product. Soccer has become a global industry, and some disturbing associated phenomena that were minor problems when the scale of the animal was small, have now become more pervasive: corruption, politicization, child trafficking, tax competition, state aid, fiscal fraud, or the involvement of obscure olygarchs (local or foreign), are all worrying phenomena that call for reforms. The beautiful game is also a beatiful beast. The beast will probably be tamed by a combination of judicial action (as we are seeing with FIFA), but also the concerted action of expert global agencies such as CAS or WADA and organized groups of fans or worried sponsors fighting for a more democratic sport. The beast has to act to the benefit of fans without imposing costs on society at large.

The most important meeting in the history of humanity

Unless we manage to contain climate change by the next few decades in a global effort, life in our planet will no longer be as we have known it. Oceans will grow, beaches and coastal cities will disappear and population movements will be massive. The poor will suffer more, and both developed and developing countries will have to introduce dramatic changes in the way people behave. All these issues will be discussed in the UN meeting starting tomorrow in Paris. Nation-states are ridiculous instruments in the face of this challenge. Humanity has to act cooperatively. This is what British writer Will Hutton has to say about the event today in The Guardian: "The most obvious response to climate change should be to transform the way the world generates energy. Living standards have risen 40 times over the last 250 years in the west, driven neither by the small state beloved of conservatives nor the large state favoured by socialists. Rather, the growth has resulted from a complicated interaction between capitalism and science and technology, of necessity publicly funded, creating wave after wave of transformations in the character of our economic base and the quality and quantity of what it produces. The same now has to be done for the world’s energy production. It needs to be technologically transformed to become as near carbon-free as possible, which will only work if there is a substantive global research and development effort led by governments, matching those of conquering space or winning a war, to explore the necessary technologies. Embracing global political solutions such as a global carbon tax or global emission caps are beyond political reach, given the range of entrenched interests, not to mention the stubborn refusal by many conservatives to accept climate change science. It will be innovation that will save the planet. This is the blisteringly obvious truth that should be written in neon in the skies above Paris at tomorrow’s launch of the 2015 UN climate change conference. Its goal is to try to agree binding agreements to limit the increase in global temperature to two degrees centigrade by 2100."

Woodrow Wilson, the racist

Since US President Woodrow Wilson is widely admired in pro-independence Catalan circles, because of his supposed position in favour of the self-determination of small nations, I thought some members of these circles might benefit from reading today's piece in the New York Times about his racist positions (after the piece, the paper has reinforced the point with an editorial):
"Perhaps best known for leading the United States during World War I and for trying to start the League of Nations, Wilson as president rolled back gains blacks had made since Reconstruction, removing black officials from the federal government and overseeing the segregation of rank­andfile workers. Raised in the South, he wrote of “a great Ku Klux Klan” that rose up to rid whites of “the intolerable burden of governments sustained by the votes of ignorant Negroes.” During Wilson’s tenure as president of Princeton, no blacks were admitted — “The whole temper and tradition of the place are such that no Negro has ever applied,” he wrote — though Harvard and Yale had admitted blacks decades earlier. Princeton admitted its first black student in the 1940s."
Although his position in favour of self-determination was basically a plot to weaken the losers of the first world-war, to the extent that it led to the sacralization of small nationalisms, it paved the way for subsequent catastrophes (including ethnic cleansing) some of which survive today, as the late historian Tony Judt came to acknowledge in a famous article about Israel and Palestine. The positions of Wilson on small nations and on racism may be completely unrelated. Or they may not.

The challenge of Durlauf to Piketty, in context

The mild criticisms of Steven Durlauf, editor of the Journal of Economic Literature, to Thomas Piketty in two debates in New York and Chicago would not lead one to anticipate the very tough review by Durlauf and his co-author Blume published in the Journal of Political Economy of the now famous book "Capital in the Twnety-First Century," by the French economist. The critique of the book has several fronts, including data, theory, policy, and the overall "methodological" approach of the book. The theoretical criticisms are to some extent already present in the reviews by Lindert and Milanovic, among others. This is not my field of expertise, but they point to the theoretical difficulties of making predictions about inequalities of personal income based simply on the rate of return on capital and the growth rate of the economy, as Piketty does. Blume and Durlauf's theoretical criticisms go beyond these macroeconomic issues and expand to the theory of justice ("lack of serious engagement with political phylosophy"), pointing out that there is nothing in the existing theories (both traditional and more recent such as in Sen or Roemer) that justifies basing a policy framework on claims about the 1 or 10% of the population instead of the other 90 or 99%. The data criticisms of Blume and Piketty have several fronts, but to me the most important one is the lack of consideration in Piketty's work of data on the distribution of welfare coming from the consumption of public goods. The criticisms on policy are basically about how Piketty neglects policy instruments against inequality that could go beyond taxation, such as political reforms that could reduce the weight of the rich in politics. But they also challenge some of the specific prescriptions of Piketty on some of these non-tax issues, such as policies on education financing. The reviewers dismiss the supposed erudition of Piketty that has been praised by some of his admirers, for example by blaming him for not being systematic in using literature as an evidentiary source (footnote 10 of the review, p. 755), and by writing that "when Piketty moves to topics for which he has not done original research, he is careless with theory, and empirical evidence is presented in an unreflective and selected fashion."
I have to say that I came to know the work of Durlauf very recently. His name just sounded familiar to me until I started reading his papers about complexity and economics, and about social capital, which are excellent pieces of scholarship and criticism, in my modest judgement. He and his co-author Blume claim to share the liberal (progressive) values of Piketty. So do I. Then, what does survive of Piketty after Durlauf's attack? In the view of this blogger (who has shared in the enthusiasm of seeing a book on inequality becoming a global best seller), a few important contributions still survive:
-The existence of strong inequality trends, derived from Piketty's and his co-authors research on top incomes from fiscal sources.
-Policy intuitions about the need to use policy instruments and institutions that go beyond the nation-state (like international taxation), which go beyond Acemoglu and Robinson in spite of Lindert's attempts to call for a synthesis in his review. Although Piketty himself downplays the importance of the fourth part of his book on policies, perhaps it will turn out to be his most enduring legacy.
-The need, as Milanovic claims (mentioning Freakonomics and "randomistas") to ask important and not trivial questions in economics, even though the answers should be more qualified (especially if Steven Durlauf is reading).

‘What do you want?’ ‘Cake!’ ‘Then we’ll serve cake.’

Today in the New York Times there is an article by racist Dutch politician Geert Wilders (one wonders what are the selection criteria for articles in the liberal media) where he asks for a national direct binding referendum on refugeee policy. He also criticizes political elites in the name of ordinary people, asks for his country to leave the European Union, and a return to national sovereignty (three of these points -namely direct democracy, national sovereignty and elite bashing, not the others -namely europhobia and xenophobia, are also made by Spanish leader of leftist populist Podemos party, Pablo Iglesias). This makes sense from the point of view of racist politicians: in the first year of Hitler in power, there where three referendums, as this is a great democratic method for demagogues in chaotic circumstances. Yet, as Nicholas Kristof reminds us in the next page in the New York Times, in January 1939, Americans polled said by a two-to-one majority that the United States should not accept 10,000 mostly Jewish refugee children from Germany. That year, the United States turned away a ship, the St. Louis, with Jewish refugee children; the St. Louis returned to Europe, where some of its passengers were murdered by the Nazis.

There is hope though. Here’s what Financial Times journalist Simon Kuper had to say about The Netherlands two weeks ago: “ The other day I was back in Leiden, the sleepy Dutch town where I grew up, listening to a rare politician tell a pro-refugee story. Ahmed Aboutaleb landed in the Netherlands from Morocco aged 15. Now he’s Social Democratic mayor of Rotterdam and, according to a poll in March, the most popular Dutch politician.

Aboutaleb walked into Saint Peter’s Church in Leiden flanked by enormous blond bodyguards — a scene unthinkable in the placid Netherlands of my childhood. He greeted the VeerStichting symposium with, “Nice of you to give this refugee shelter today.”(…)

He always listens. He says people want to know, “Are you still paying attention to me?” However, he adds, leaders then need to decide for themselves. Democracy, he says, isn’t opening your window and shouting, “‘What do you want?’ ‘Cake!’ ‘Then we’ll serve cake.’”

When it comes to refugees, Aboutaleb isn’t serving voters cake. In Leiden he quoted from the Koran in Arabic. He also noted, “A lot of talent from around the world flies over our heads to New York and London,” because many foreigners feel unwelcome in the Netherlands. And he said: “I think it’s fantastic to be in a position to help others.”

Aboutaleb discussed the refugee influx in practical, undramatic language as something the Netherlands can handle. The nearly all-white audience gave him a standing ovation.”

Fuzzy independence and wishful thinking

An interesting phenomenon of intellectual and political debates is how high calibre scholars are unable to apply the standards they use in their academic job when they participate in political debates. I knew of an example of this last week, after participating in Girona in an event about the future of fuzzy logic. I participated in this event as a result of a book chapter I wrote on "Fuzzy Logic and modern economics". I am basically an outsider to the field, but besides having an interest in the topic because my father is a great specialist in it, I have genuinely come to believe that there are some ideas there that can be useful for behavioural economics and related fields. At the end of the conference, I was told by one of the participants that two other scholars, also experts in the discipline, had been politely discussing with him about the desirability of the independence of Catalonia, and that the discussion had finished with a bet: if Catalonia is not independent after a reasonable period of time, the two pro-independence "fuzzy" scholars will invite the first one, who is not pro-independence, to have dinner. After thinking about it, I realized that this is probably in contradiction with fuzzy logic, to the extent that the category "independent countries" is a fuzzy set in XXI century Europe (that is, membership to the set is not a zero-one thing, but it is a matter of degree). If being independent means being an internationally recognized member state of the European Union, I would also bet that the two pro-secession scholars will lose their bet. But as things stand, EU member states these days are less and less independent, and less and less sovereign (ask the Greeks). Catalonia can be more independent, or less independent after the current drive. I think that today it is less independent than when the drive started three years ago. I honestly do not know if in two or three years it will be more or less independent. I wish that the degree of independence does not change substantially, but that the quality of its institutional relations with overall Spain and Europe improves. Of course, the scholars' bet had also a component of wishful thinking. Here's how to avoid it: talk to more people who disagree with you and open your mind. (By the way, I tried to do precisely this to predict the result of this Saturday's game between R. Madrid and FC Barcelona. In my economics and soccer class this week, I started by asking the students in my two classes to write down their estimated probability that RM would win. In one class, very few people wrote a figure above 50%, but in the second class they were more than half. I first wrote myself 40%, and after talking to them because they are more objective than myself, I updated my probability to 45%. Later, I checked information about the last 25 games in Madrid between the two teams, and it turns out that R. Madrid has won 44% of them. I also checked the betting markets, and these were assigning a probability of R. Madrid winning slightly below 50%. I wished it to be lower, but these are the facts after de-biasing myself. But at least the game is on Saturday and we will know: there will be clear feedback because soccer outcomes are less fuzzy than other categories. In comparison, the evolution of the institutional architecture of European nations and states will be a fuzzy never ending story in our post-Westphalian world).

Stanley Fischer on Central Bank Independence

Stanley Fischer is a rare economist who has the double condition of being a top academic economist (and co-author of my first textbook on macroeconomics) and having had very substantial experience in his field of expertise as a policy-maker in two countries. He was the governor of the Centrral Bank in Israel between 2005 and 2013, and he is currently the Vice-President of the US Federal Reserve. In his last published speech, he provides an excellent synthesis of the literature and practice of Central Bank independence. He explains very well how in a democracy strategic delegation into an independent authority must be accompanied by mechanisms of accountability. He explains how this is achieved in different ways in different countries, and in the particular case of the US, how many of the reforms that have taken place in the last 10 to 20 years have been about increasing transparency and accountability. These reforms have facilitated a positive contribution of the independent Federal Reserve in the last crisis (although he says nothing about the likely contribution of the institution to the previous financial bubble). One should be careful when it comes to making proposals to radically change the current mechanisms, because they have evolved by trial and error amidst enormous difficulties. In his speech, Fischer analyzes how this last financial and economic crisis has expanded the number of tasks of Central Banks. This challenges the old prescription of Jan Tinbergen of a tight correspondence between the number of objectives and the number of instruments. It also makes it more difficult to introduce powerful incentives for central bankers. In this context, he establishes an interesting distinction between Central Bank Independence and Monetary Policy Independence. For example, he argues that different functions in the same Central Bank can have different degrees of independence, typically more independence for monetary policy and probably less independence in the case of financial stability and supervision. But he admits that much more work and experience is needed to understand the implications of this multiplicity of tasks.

The politics of manipulation and deception

In the excellent last book by Akerloff and Fisher on the economics of manipulation and deception, there is a chapter on how the political arena is also full of incentives for manipulation and deception. However, after reading that chapter, one is left with the impression that they could have done a better job. A comprehensive treatment of the issue is yet to be done, but it is getting urgent. When I woke up this morning and watched the news on the Spanish public broadcaster while I was having breakfast, I was amazed to see that the 5 first headlines were devoted to the conflict between the central government authorities and the pro-secession Catalan regional government. My views on this particular topic are clear enough from previous posts in this blog. But it is quite clear that the central government (who has a tight grip on the public broadcaster, as the Catalan government has a tight grip on its own regional broadcaster) is manipulating media attention because it knows that a patriotic controversy has the potential of leaving corruption and austerity in the dark. A recent article by the New York Times on increasing censorship in Spanish media can only increase any democrat's concerns. This is part of what the NYT has to say:
"Newspapers almost everywhere have struggled to adjust to digital technology and declining advertising revenues.

But in Spain, the rapid restructuring of a shrinking industry — more than 11,000 journalists have lost their jobs here in seven years — has also prompted mounting concerns over whether Spain’s most established papers have lost their editorial independence amid the financial squeeze.

The industry here has faced a perfect storm that has included huge debts and the assertiveness of a conservative government under Prime Minister Mariano Rajoy and his Popular Party that has aggressively countered public criticism.

Mr. Rajoy’s government has been assailed by opponents for its passage this year of what has become known as “the gag law,” which imposes steep penalties for unauthorized political protests or the publishing of amateur video footage of police officers. On Thursday, a group of international media watchdogs published a joint report expressing concerns over media freedom in Spain and calling for repeal of the law and a loosening of the government’s control over the national broadcaster."

Complex humans

In the last book of the trilogy of JM Epstein about complexity and agent based modelling in social sciences, he presents a model of human decision making based on three components, which are well grounded in modern neuro-sciences:

-Affect (emotions). This is the mostly automatic mechanism by which our amygdala processes external inputs and delivers physilogical outputs (such as increased blood pressure or hormone production), for example as a result of fear. We developed this ability in our evolution as species thousands of years ago.

-Deliberation. As superior primates, we have the ability to spend time and neural resources thinking carefully about some issues, evaluating costs and benefits of certain courses of action. Of course, this "slow thinking" is also prone to biases, but it gives us the possibility of learning and computing.

-Social influence. We are also sensitive to the opinions, values and judgements of others. We belong to social networks, where the links we have to others and the strength of these links determine to some extent our disposition to acquire what we think are our own beliefs.

Of course, these three components interact, as some of the emotions are related to groups we belong to. Also, one component sets contraints on another one, for example deliberation setting limits to what we would be inclined to do purely by emotion. 

Epstein sets the stage for lots of applications of this framework, which itself connects with many branches of the existing literature on social and behavioural sciences.

How complicated is complexity?

Since I read the books by Samuel Bowles on "Microeconomics" and by Beinhocker on "The Origin of Wealth" some years ago I felt attracted to ways to model complexity in economics, for example by using agent-based modelling. I even have a chapter in my course on the economics of soccer on "last frontiers" of research devoted to examples of evolutionary social sciences, complexity and neuro-sciences. I keep reading about these issues. I took today from the library the three books in the trilogy by Joshua M. Epstein, and I printed two papers by Durlauf, one on the relationship of complexity economics to empirical methods, and another one on its relationship to public policies. What makes this combination of readings interesting is that Durlauf is quite critical of some of the work of Epstein. I'll read all this carefully. Meanwhile, I'm interested in finding ways to introduce evolutionary dynamics in the way that some aspects of public economics unfold, such as the fading nature of some units (nation-states) or the evolution of regulatory agencies. These idea of changing boundaries and endogenizing the existence, size and structure of agents has also been present in some of the work of Swedish scholar Lars-Erik Cederman. The good side of Durlauf's message is that complexity economics is less of a departure from mainstream economics. If after all these years I managed to understand some of mainstream economics, perhaps it is not too late to be able to understand and use techniques and insights from the economics of complex systems to see if they can help explain some of the phenomena I'm interested in about political economy, regulation, institutions and related fields.

Thinking about PPPs

I am helping to draft a guidelines document for Public Private Partnerships, and I just wrote this: "Both developing and developed societies face the challenge of improving productivity in the provision of public services and of innovating in areas such as urban and broader mobility, energy, communications, health, education, or other social services. By the nature of these sectors, it is unthinkable that these challenges can be addressed either by the private sector alone or by the public sector alone.

The private sector and the public sector have specific advantages. Private operators have very specific objectives, which facilitates the introduction of explicit incentives. They can also have the ability to attract highly qualified personnel in fast moving industries. And they have the experience of operating in market contexts. In an increasingly globalized world, private operators can have access to inputs or experience from a diversity of regions or countries. The public sector has the ability to take into account broader objectives, the legitimacy of democratic mechanisms (in democratic societies) and it can also mobilize vast resources if necessary due to its potential legitimate use of coercion. At the same time, in some sectors where long run professional commitments are needed, the public sector has shown an ability to attract personnel endowed with intrinsic preferences (these are also a feature of not-for-profit organizations). Both the public and the private sectors are necessary to tackle societal objectives in a well-functioning modern economy, and both are necessary to develop modern smart and sustainable cities. As argued by Grout (2003), “reforms focus on the improvement of incentives; but while incentives are critical, the special characteristics of public services (and the people who provide them) must be recognized in the implementation of new structures and incentive schemes.”

We are all cousins

I'm reading the second volume of Richard Dawkins' authobiography ("Brief Candle in the Dark") without having read the first one. My apologies for this lack of reading discipline. Well, actually, to be honest I bought it today in the science museum of Barcelona ("Cosmocaixa"), which offers the best combination in town of restaurant and bookshop. This famous scientist links many anecdotes using the sequence of his experiences as an academic and writer. Explaining how he interviewed prospective students at Oxford, he says: "Another favourite question to test their biographical intuition began: How many grandparents do you have? Four. And how many great-grandparents? Eight. And how many great-great-grandparents? Sixteen. How many ancestors do you think you had two thousand years ago, in the time of Christ? The brighter ones tumbled to the fact that you can't go on doubling up indefenitely, because the number of ancestors rapidly overtakes the billions of people in the world now, let alone the number that were alive in the time of Christ. That proved to be a good line of reasoning to coax them to the conclusion that we are all cousins, with numerous shared ancestors who lived not so long ago." This paragraph, together with the one where he calls the double college and department system at Oxford and Cambridge a "federal university" suggests that the famous atheist Dawkins is right in at least two lines of thought. Having said this, I will keep The Guardian's ironic book review in mind while reading the rest of the book.

Biases and capture after the book by Carpenter and Moss

We can speak of a number of deviations from bounded rationality that affect the behavior of regulators and agents who interact in the political arena:
-The difficulties of optimizing behavior, either because regulators stop at a satisfacing performance without reaching the optimum, or because they simply behave adaptively, for example acting only when there is an event of great visibility. As the referees in sport, in normal times the regulators would not be carried away because of the "omission bias."
-The existence of intrinsic preferences, either because regulators are moved by an ethos of public service, or a concern for their reputation, or to remain faithful to a rooted belief that comes from the educational process.
-Expert biases, such as confirmation bias, or overconfidence in their own expertise. For example, in Chile the expert engineers who designed the system called Transantiago for the buses in the capital, did not ask the opinion of politicians or ordinary citizens, and this probably led them to overlook the enormous transaction costs that the sudden introduction of a whole new system implied, resulting in a huge social and political scandal.
-The importance of the processes, so that those involved in a particular reform may be more inclined to accept its results, regardless of the exact outcome, if it has been preceded by a fair and participatory process.
-The possibility of cultural capture, because of identity reasons, or again regulators' beliefs forged in certain training institutions, or the status in relation to a particular group or market or professional relationships in the context of a particular social network.
Some biases bring regulators closer to the possibility of regulatory capture, and others away from it. Something similar could be said regarding the possibility of achieving credible commitments. Non measurable cultural aspects related to institutional quality and prevention of capture are closely related to those sources of bias, and take on greater importance than in more traditional analyses.
It is interesting that the possible mechanisms for preventing capture and minimizing its effects are very similar to de-biasing mechanisms (see the excellent book on capture by Carpenter and Moss): have mechanisms that make it necessary to find evidence that "dis-confirms" the held hypotheses, have internal mechanisms of devil's advocate, systematic assessment of ex post decisions, transparency and the obligation to explain decisions, etc. Institutional diversity itself can be a good recipe to experiment and innovate before generalizing possible solutions to the problems of regulation and antitrust in a context of uncertainty and technological complexity.

An excellent The Economist

The issue of The Economist published on October 17th has been one of the best I have read in the recent years. It includes very useful material about the "Brexit" hypothesis and the political situation in Britain. It has a remarkable article subtitled "The soft autocracy of nationalist Scotland" about the departures from a perfect democracy in Scotland under the rule of the nationalists (I would encourage the magazine to do a similar report for Catalonia; the Scottish limits to democracy are nothing in comparison). But the best part of the issue is the very informative special report about the hypothesis of the UK leaving the European Union and the risky gamble of David Cameron calling an in-out referendum. The best piece of this special report in my view is the article about the alternative possibilities for partnership with the single European market. It explains how even countries (such as Norway or Switzerland) that are not members of the Union but that have other forms of association to enjoy the benefits of the common market, have to contribute to the EU budget in substantial amounts of money, although they cannot participate in the rule-making process. Or how countries that are supposed to keep a high degree of sovereignty by staying away form the Union but keeping some association with it, like Switzerland, have difficulties in deciding things on their own. It seems for example that the results of the Swiss referendum that restricted immigration from the EU have been difficult to apply because they require the agreement of the Union. I am pro-European and anglophile. My life would have been much less interesting without a EU fellowship that allowed me to live in London for two and a half wonderful years. That is mainly why I don't want the UK to leave us. But after reading this special survey, I not only have a feeling, I also have some powerful arguments.

"Superforecasting," by Philip Tetlock

Some years ago, Philip Tetlock published "Expert Political Judgement,"a book that reported the results of a research project showing that, on average, expert political scientists and economists were no better at forecasting important events than monkeys randomly throwing darts. All averages report incomplete information, and some years later Tetlock started a new research project trying to show that some people are better at forecasting than others. The new book, subtitled "The Art and Science of Prediction," shows the results of this new project. Tetlock and his colleagues found a new category of super-forecasters, individuals who were much better than others at predicting important events. These individuals are more modest than typical media pundits. They are not famous and they are not even on demand by broadcasters or newspapers, because they are bad at providing headlines. Tetlock is very good at showing with grace the errors of New York Times columnists. One wonders what would he think of our more local pundits. Instead, super-forecasters are good at assigning precise probability ranges, which they are able to update in the face of new information. They are also good at team-working and at being open to adversarial views. Another thing they do well is to be attentive to the outside view. For example, in front of a question such as would a given family buy a new pet, instead of giving priority to information about that particular family (the inside view) super-forecasters would look at what percentage of similar families had adopted pets in the recent past (the outside view). Tetlock also addresses the criticisms of behavioural sciences giants such as Daniel Kahneman or Massim Taleb. He shows respect for them, and their criticisms made him qualify his views. Kahneman argued that super-forecasting is cognitively exhausting, and that makes him pessimistic about whether their example is going to expand. But Tetlock says that precisely this point should make us reflect on ways to make institutionally lest costly to introduce good forecasting practices where they are needed. Taleb argued that most important phenomena are impossible to predict (such as "black swans"), but the irreducible uncertainty that exists calls as Taleb argues for "anti-fragile" institutions, and where to build such anti-fragility requires some degree of forecasting. In addition, Tetlock argues that although it is true that individual events (where will the next terrorist attack take place) are impossible to predict, what is possible is to predict slightly broader phenomena, such as the degree of risk of a terror attack. A wonderful book.

The last book by Akerloff and Shiller

The recently published book by George Akerloff and Robert Shiller, "Phishing for Phools" as its subtitle says, is an analysis of "the economics of manipulation and deception." It can be read as the second part of "Animal Spirits," published in 2009, which is the bible of behavioral macroeconomics. The new book is more about behavioral microeconomics, but as the authors argue, they add two new perspectives to what has been previously written by other authors in the field. First, they explain how widespread deception and manipulation of consumers by corporate interests is a natural result of an equilibrium process, where rational firms in competitive markets must exploit any opportunity to manipulate and deceive. Second, and following a line of thought that was already present in "Animal Spirits," they convincingly argue that the multi-dimensional exploitation of the psychological biases of ordinary people has a common thread, which is the wise manipulation of the "stories" that people build to make sense of their experiences. Humans need coherent stories to explain the complexity of the world, although these stories fall short of explaining reality. Then powerful interests are very good at  changhing the focus of these stories in ways that suits their interests, in a similar way as magicians change the focus of their public when they perform a trick. Akerloff and Shiller argue that this common thread based on stories and focus is based on the work of anthropologists and sociologists more than psychologists, as it had been usual in other contributions of behavioral economics. It has to be said that they are not totally pessimistic, as they give examples of public servants, regulators and other leaders, who have raised their voice against these powerful interests in socially beneficial ways. They also have a chapter on how manipulation and deception works in politics. But one feels that they did not go enough in depth in this particular field. It seems to me that there is much more to be said about the role of stories and manipulating focus in the political arena.

"The Morning After," and the myth of the independence referendum

"The Morning after," a book written by Canadian journalist Chantal Hébert, is a thought experiment about what would have happened if the Yes had won the sovereignty referendum of Quebec of 1995. Instead, it was the No vote that won (against all predictions in the last days of the campaign), although by an extremely narrow difference. Hebert analyzes the "what if" scenario by reporting the results of her interviews, twenty years after the event, with the main protagonists of that referendum campaign, from the two sides, and from the perspective of Quebec, the Canadian government and other Canadian provinces. The main message of the book is that neither the yes side nor the No side had a clear idea of what would have happened in case of a yes victory. The referendum question was confusing, and it could as well be interpreted as giving a mandate for the negotiation of a new status of Quebec in the federation. But neither the sovereignists nor the federalists in each camp were united about this: some sovereignists were in favour of a new agreement, and others were in favour of plain secession. Analogously, some federalists were in favour of a new agreement in case of a yes victory, and others were in favour of letting Quebec go. It seems that it was not easy to simplify preferences in a Yes-No dichotomy. The book gives a very complete perspective to the atmosphere in those decisive days. It seems that financial concerns were a big issue, because of the potential costs of uncertainty in case of a yes victory. The international scene was also a key dimension: it seems that France and the "Francophonie" were in a position to recognise an independent Quebec, although the USA government was in permanent contact with the Canadian federal authorities and supporting them. The attitude of the other Canadian provinces was also a key component of the overall equation, and their pressure was decisive in the subsequent approval of the Clarity Act, by which the conditions for a new referendum are now more strict: the question must be clear and to trigger negotiations, the Yes majority should also be clear (although what a clear majority means is open to interpretation). After the Clarity Act, the support for independence and for an independence referendum has substantially declined. For example, it is no longer an issue in the election that precisely today takes place in Canada. The behaviour of the other provinces was also important in the last hours of the campaign in 1995, because the federal government organized a pro-Canadian event in Quebec with the attendance of thousands of people from other provinces to show their love for the province. The influence of that event in the final result is still today a matter of controversy.

"Danubia," by Simon Winder

I have been reading "Danubia: A personal history of Habsburg Europe," by Simon Winder. It should be added to the collection of great books about the disfunctions of the nation-state in Europe, together with "Danube," by Claudio Magris, and others. Although the problems of overlapping ethnic groups have been specially tragic in Eastern Europe, they are not exclusive of that region. For example, it would be really challenging to exactly define the boundaries of the Catalan nation relative to the Spanish nation (if such nations exist). That is not the only analogy that I find with more familiar territories from reading the book. A permanent criticism here and there in "Danubia" is that historians and social scientists have been ready in many places to dance to the tune of nationalist leaders when tensions have been acute, without much concern about the collateral damage (which has been huge). Does that sound familiar? Tim Judah reviewed this book nicely in The Guardian, including some criticisms. Here are a couple of paragraphs of this review:
After the revolutions of 1848, he argues, "much as the new regimes tried to pretend otherwise, everything became about national identity". Groups were in competition for "authority, autonomy and economic control". It is impossible, he says, not to feel a "sense of dread about the gap between the excitement of 1848 and the degree to which we now know it was firing the gun that would initiate many of Europe's most terrible events".
No one would want to go back to the aristocratic and feudal world of those decades, Winder contends, but still he is clear about the odd process by which the Habsburgs began to be regarded as the liberals who had successfully juggled competing nationalities, while after 1918 came the "small and dirty cages of the new nation states".

Deaton, Zucman, and what can you do

The award of the Nobel Prize in Economics to Angus Deaton is a big endorsement to research on inequality, not only by him, but by many others such as Piketty, Atkinson, Bowles and Milanovic. All these great economists have argued that inequality is important in addition to a concern about poverty, mainly because of the political consequences of inequality and the dangers it poses to democracy. An example of this is in the difficulties of fighting against fiscal havens, as explained by Gabriel Zucman in a recent article and book. In the article in The Guardian, this economist gives a good reason to give a conditional yes to free trade agreements. These agreements should be endorsed as long as they are accompanied by mechanisms to fight fiscal fraud at the international level. There was a time where talking about inequality was not polite, but now thanks to all these scholars and to the Nobel Prize, what is not polite is not to talk about inequality. It would be a shame if the example of these economists was not followed by the voters in democracies. Voters should listen to these voices and be able to understand, through the fog of nationalism and populism, that powerful people do not want them to listen. It is just embarrassing that in countries where inequalitites have increased during the last crisis, like Spain, some popular media still sees a witch hunt when famous footballers (or their agents or their clubs) are investigated by the fiscal authorities, guess why. Because they have allegedly tried to avoid paying millions of euros in taxes using fiscal havens. What can you do? To start with, vote for reasonable left wing parties, and denounce the hypocritical behaviour of our sports stars.

FIFA: How to reform a global, de-regulated, olygarchic monopoly?

Andy Robinson, in the Spanish newspaper La Vanguardia, mentioned in a recent article that Rogan Taylor, a professor from Liverpool University, had proposed a democratic voting system to reform FIFA, the global governing body of football (soccer). I contacted Mr. Taylor by e-mail to see if he had recently written something about it that I could share with my students of the course on soccer and economics that I teach in Barcelona, but he replies that “I know I've been discussing these kind of issues since I launched the Football Supporters Association in 1985!” but “There are no papers or material I can send you (none I can remember anyway!)”.The president of the International Olympic Committee is more modest in his reform ambitions, and justs asks for a credible external presidential candidate to replace Mr. Blatter. Would that be enough? Or would a world democratic election be feasible and effective? Actually, a lot of soccer is already very democratic (clubs like FC Barcelona or many German clubs), but that does not guarantee good governance. Meanwhile, FIFA is a monopoly for good reasons (only one set of rules is desirable in a global industry), and it operates like a guild or a standard-setting institution (about which there is an interesting economic academic literature). The problem is not that it is a monopoly, but that it is unregulated and that it is olygarchic and non-transparent. However, good standard-seting institutions are not democratic in the sense of being elected by the people, but in the sense of being accountable to democratic institutions, although themselves they are managed by carefully selected and trained experts. That should be the future of FIFA, to become an expert, technical, monopolistic governing body regulated by global democratic institutions. It will take time, I know.

Weingast, countermajoritarian institutions and Spain

In his recent paper on countermajoritarian institutions, Stanford's scholar Barry R. Weingast explains the advantages of limits to majority rule to facilitate democratic stability. I agree with the view that the dynamics of democracy are important and that institutions that limit what majorities can do are necessary. Weingast illustrates most of the benefits of these institutions with the Constitutional history of the United States, which he knows very well as shown in much of his previous work and also in this recent article. He also mentions some other examples from other countries. In pages 17 and 18 of the paper, he mentions Spain, and how some countermajoritarian constitutional provisions made it possible the consolidation of democracy after the Franco dictatorship in the 1970s. He mentions in particular the malapportionment of seats in Congress (even more in the Senate, the other Chamber in Parliament) giving rural voters an advantage, the privileges granted to the Catholic Church, and the establishment of a quasi-federal system of decentralized regional autonomies. I agree that countermajoritarian institutions were important in Spain, but I also believe there is room for improvement in the list of Prof. Weingast. Privileges for rural voters and the Catholic Church certainly contributed to facilitate the support of the Spanish right to democracy. I see however the quasi-federal system more as a concession to new regional majorities that had been discriminated in the Franco period than a concession to the right, although combined with the privileges to rural voters, quasi-federalism might have contributed to the creation of new conservative elites in the regions, which probably helped to consolidate democracy. In general, however, the concession to powerful minorities was more in the "quasi" rather than in "federalism," something that many are now trying to correct on occasion of the debate about secessionism vs federalism in Catalonia. Finally, I believe that Prof. Weingast should incorporate in his Spanish list of countermajoritarian institutions the role of the monarchy. The restablishment of the Spanish monarchy (something that had been carefully planned by Franco himself) and the constitutional provision that the king would be the supreme leader of the army, was a concession that the left and most democrats had to accept to gain the support of many conservatives to democracy. There is a lively debate now on the need to adapt the Spanish Constitution and reform it that surely would benefit from a better knowledge in Spain of the work of scholars of the calibre of Barry Weingast.

The time-inconsistency of a referendum on independence

I have done work (with Paul Levine, Jon Stern, Jordi Gual and M.A. Montoya, in different papers) on time-inconsistency in regulation as compared for example with time-inconsistency in monetary policy. A decision is time-inconsistent when the decision maker would have taken another decision if she had been able to take and maintain that decision ex ante, before other players had made long lasting decisions. The following situations would be described as time inconsistent behaviour by a regulator:  a regulatory decision is made that could not have been predicted, is the opposite of what had previously been decided (and communicated), and sunk investments had taken place based on the previous decision. For example, a national government expropriating a foreign-owned electricity firm without sufficient compensation would be time-inconsistent.  Or a regulator fixing motorway tolls lower than those that had been committed to at the time of contracting with third party construction/operators, would be time-inconsistent. I would argue that the idea of time-inconsistency can be applied much more generally, and that it is a risk inherent in majoritarian decision-making. Unanimity or super-majorities are required in most democracies to avoid reneging on important commitments. For example, as I argue here, a secession referendum of a relatively rich region divided across ethnolingüistic lines is not necessarily a good idea, despite its popularity. It creates the risks of reneging on the investments by potential losers on human capital, and other assets whose value depend on the stability of institutions. Given a flat-out choice between “yes” and “no” to independence, Catalans for example would be forced to choose between extremes. This would unfairly eradicate the significant middle ground that exists between the two black and white options. Under a federalized system, Spain and Catalonia could continue to enjoy the benefits of union, and Catalans could operate with the enhanced autonomy they desire, without breaching any explicit or implicit contract. By forcing voters to choose between two extreme views, an independence referendum favors extremist thinkers and movements, rather than those seeking to compromise. This will empower those who are intolerant of the opposing side, raising tensions within Catalonia, further creating uncertainty, as well as those between Catalonia and the Spanish state. In addition, by being forced to choose sides, anti-secessionist leftists are pushed into an uncomfortable alliance with rightists who partially share their views on the issue. A referendum on independence is a democratic tool. A deliberative process that ends in a broad compromise, followed by a referendum, is as democratic as that, and scores much higher in terms of commitment and stability. You might be tempted to think that I am like those that when they have a hammer, they think everything is a nail, but I learn these arguments from the readings of great economists and social scientists. Weingast argues here that "unfettered democracy fails to provide the conditions for democratic stability." And Silvestre vindicates the virtues of unanimity or at least qualified majorities as a principle of social justice as defended long ago by Wicksell.

Europe urgently needs a stronger narrative

There is a growing consensus among intellectual and political elites that Europe, and especially the euro zone, should make progress towards a more federal structure. The European Union has already many federal features, like a common currency for most of the countries and an elected European Parliament. But progress to a fiscal and political union is slow, and some specific social policies badly need a European dimension, non the least a common asylum-refugees-immigration policy. As a consequence, a number of policy and institutional proposals are being circulated to accelerate the federalization of Europe. I welcome all this. However, this is not enough on the ground to fight the forces of populism and nationalism that threaten to divert our energies towards a further fragmentation of sovereignty, instead of working towards a better democratic organization with reasonable transfers of powers to a democratic European government. We need more than policy and institutional proposals. We need a narrative. We need to win the battle not only of the minds but also of the hearts. At the end of the day, people have to vote, and if they are only mobilized by nationalism we will see how Europe becomes a struggle between those that want to create new sovereign-states and those that want to save the current ones. Instead, we should reinvigorate the ideas of peace, solidarity and tolerance, the idea of strength in the unity and diversity that are at the core of the founding fathers of the European Union. We need to go beyond a Europe made only of strong sovereign states, and accept a Europe of institutional diversity. Before 1500, Europe was characterized by institutional diversity: there were city-states, leagues of cities, empires, monarchies, chrurches. Then the sovereign state won the battle for supremacy, because it was functional to the new world of increasing market economies. But nation states have ceased to be functional. We should go back to a world of institutional diversity, with peaceful diversity below a united Europe, this time in a democratic context (which is much more than voting). When most people are asked to think about this, they agree, it is just that they are not even asked to do so. If they were, perhaps the battle against nationalism would be less uphill.

Nordhaus, the Pope and the Market

William Nordhaus has criticized the hostility of Pope Francis to the market mechanism in his last encyclical, in an article in the New York Review of Books. This article explains to the Pope that markets are certainly not perfect, but they have more potential than that acknowledged by Francis. Markets and public intervention sometimes are complementary, as in cap and trade to fight climate change. A good aspect of the encyclical is that the Pope acknowledges the scientific reality of climate change. I had an interesting discussion of this article with my students at UAB's Master in Economics and Business Administration. One of them defended the attack of the Pope on consumerism, and said that he should accordingly recommend influencing the demand curve as a way to reduce negative externalities as well. A good point. Here's how Nordhaus' articles ends:
"Given the successes of cap-and-trade and other market mechanisms to improve the environment, it is unfortunate that they are the target of Pope Francis’s criticism. Permits for emissions are traded like other financial assets, and indeed they are often highly volatile; but there is no evidence that they are the favored instrument of financial speculators. Rather, they are volatile because future economic conditions (such as electricity demand or natural gas prices) are uncertain.
Perhaps no one will attend to Pope Francis’s attack on trade in permits and implicitly on carbon pricing. Perhaps his endorsement of climate science and the reality of warming and environmental damage will be effective in turning the tide toward strong actions.
But he has missed a unique opportunity to endorse one of the two crucial elements of an effective strategy for slowing climate change. He does indeed acknowledge the soundness of the science and the reality of global warming. It is unfortunate that he does not endorse a market-based solution, particularly carbon pricing, as the only practical policy tool we have to bend down the dangerous curves of climate change and the damages they cause".

The impressive article in The Guardian by Timothy Snyder

The historian Timothy Snyder has published an impressive article in The Guardian. Those who feel morally superior or very distant from the worst disasters of humanity should read it. Here's a selection:
"It was 20 years after I chose to become a historian that I first saw a photograph of the woman who made my career possible. In the small photograph that my doctoral supervisor, her son, showed me in his Warsaw apartment, Wanda J radiates self-possession, a quality that stood her in good stead during the Nazi occupation. She was a Jewish mother who protected herself and her two sons from the German campaign of mass murder that killed almost all of her fellow Warsaw Jews. When her family was summoned to the ghetto, she refused to go. She moved her children from place to place, relying upon the help of friends, acquaintances and strangers. When first the ghetto and then the rest of the city of Warsaw were burned to the ground, what counted, she thought, was the “faultless moral instinct” of the people who chose to help Jews.
Most of us would like to think that we possess a “moral instinct”. Perhaps we imagine that we would be rescuers in some future catastrophe. Yet if states were destroyed, local institutions corrupted and economic incentives directed towards murder, few of us would behave well. There is little reason to think that we are ethically superior to the Europeans of the 1930s and 1940s, or for that matter less vulnerable to the kind of ideas that Hitler so successfully promulgated and realised. A historian must be grateful to Wanda J for her courage and for the trace of herself that she left behind. But a historian must also consider why rescuers were so few. It is all too easy to fantasise that we, too, would have aided Wanda J. Separated from National Socialism by time and luck, we can dismiss Nazi ideas without contemplating how they functioned. It is our very forgetfulness of the circumstances of the Holocaust that convinces us that we are different from Nazis and shrouds the ways that we are the same. We share Hitler’s planet and some of his preoccupations; we have perhaps changed less than we think.(...)
States should invest in science so that the future can be calmly contemplated. The study of the past suggests why this would be a wise course. Time supports thought, thought supports time; structure supports plurality, and plurality, structure. This line of reasoning is less glamorous than waiting for general disaster and dreaming of personal redemption. Effective prevention of mass killings is incremental and its heroes are invisible. No conception of a durable state can compete with visions of totality. No green politics will ever be as exciting as red blood on black earth.
But opposing evil requires inspiration by what is sound rather than by what is resonant. The pluralities of nature and politics, order and freedom, past and future, are not as intoxicating as the totalitarian utopias of the last century. Every unity is beautiful as image but circular as logic and tyrannical as politics. The answer to those who seek totality is not anarchy, which is not totality’s enemy but its handmaiden. The answer is thoughtful, plural institutions: an unending labour of differentiated creation. This is a matter of imagination, maturity and survival".