Tuesday, December 27, 2016

The end of an exceptional period in regulation?

Jon Stern has published a nice working paper comparing developments in the economic history of network infrastructure industries with recent developments in the regulation of braodband/communications and energy in the United Kingdom. Regulation of network industries in the UK, since the privatization experience of the Thatcher period, has been characterized by a focus on efficiency and the more or less declared goal of replacing regulation with competition as soon as this was possible. However, for most of the history of network industry regulation since the beginning of railways regulation, this was motivated by distributional and affordability concerns. In the UK, the desire to expand the information revolution to everybody and the combination of increasing fuel prices, climate change concerns and the economic crisis since 2008 has produced an environment where focusing regulation only on efficiency concerns has proven increasingly difficult. Many economists were enthusiastic about this exceptional period of a single-minded focus on efficiency, not because they thought that distributional concerns were not important, but because they thought that these concerns could be better addressed by other instruments such as taxation and social security. For some reason, traditional economists love separation arguments. But sometimes separation is difficult. After all, taxation is a multi-goal activity itself, and more often than not, it does not achieve satisfactory distributional goals due to a concern for efficiency or because of informational, macroeconomic or other reasons. An additional reason that makes separation difficult in regulated industries is the demonstrated importance of behavioral biases by consumers, which introduce difficulties in the introduction of competition for retail consumers, difficulties that cannot be easily overcome with transfers. Something Jon Stern does not address in his paper, and which perhaps can be a path for future research, is the impact of the increased concern for distribution on the evolution of the institution of independent regulation itself. After all, the accountability of an independent regulator, and its rationale, are faciltated by the fact that the regulator is supposed to be single-mindedly pursuing efficiency, and not other objectives for which insulation from a democratic political process is perhaps less justified. Distributional concerns may actually not only undermine at least partially the status of the independent regulator, but also of other regulatory institutions that prevail in other countries. Writing this from Chile (the country that with the UK started the privatization movement in the 1980s), here the lower chamber of Parliament just approved (by unanimity) a resolution proposing to change the structure of the panel of experts that arbitrates disputes in the water sector, among other measures trying to put downward pressure on the tariffs of water and sanitation companies. Although the package has still to go through the upper chamber (the Senate) and the executive has expressed its disagreement with the lower chamber, the stock price of the water incumbent company went down by 14% on the day of the vote.

Saturday, December 24, 2016

Economists for a wide audience, according to Tirole

Jean Tirole, the 2014 Economics Nobel Prize, has written a book in French for a wide audience, "L'economie du bien comun." It is a long book, and I am reading it in a disorganized way, since most of it is a popularization of his research, and I am quite familiar with his work since my years as a graduate student. One of the parts of the book that I enjoyed more is the one devoted to discuss the relationship of the research economists with the wider public. Tirole argues with the clarity that characterizes all his work that applied researchers in the social sciences face many demands and opportunities to interact with the media, politics and private interests. He is very open about the risks (including the ethical ones) involved in these relationships. Research is about nuances, debates, doubts, small steps towards the truth. Instead, media, politics and business controversies are about strong opinions and personalities. Tirole, especially since he was awarded with the Nobel Prize, has been reluctantly dragged more towards this aspect of his work. The book is precisely a result of this pressure. Although these books are aimed for a wide audience, in practice they end up being read by other economists that are curious or want to have a shortcut to the ideas of great researchers without paying the cost of reading the scholarly articles. This great economist argues nevertheless that interacting with the outside world is necessary as long as one does not exagerate his or her wisdom especially in areas that are far away from the topics of research expertise. In the media markets and in the political and business worlds there is not much demand for nuance and seriously critical minds. There are few economists turned celebrities that are as open as Tirole about the risks of engaging with the open world. These days the risks of exagerating and jumping into conclusions are enormous with social networks, blogs and 24 hours news channels. We should all spend less time with current events and more time with deep knowledge, although we know that by doing this we are leaving all the floor to charlatans and useful idiots.

Sunday, December 18, 2016

A white elephant on a green mountain

2017 will be the 25th anniversary of the Olympic Games of Barcelona. I lived these games as a very young city councillor and obviously have great memories of the event, not least from running 50 meters with the Olypimc torch the night before the inauguration. Everybody has actually good memories of the Games, whether they ran with the torch or not. The games were very successful and have been praised even by the now almost consensual literature on the drawbacks of big sports events, for example the book by Andrew Zimbalist "Circus Maximus." However, even those very successful games give examples of the big problems of these events. Barcelona 1992 was also plagued by cost overruns (check the work by Bent Flyvbjerg) and have left a legacy of white elephants. Most of the white elephants are in the Montjuic mountain, this being one of the two hills than delineate the perimeter of the city. Anyone who has come to Barcelona knows that Montjuïc is a hill almost totally occupied by an urban park very close to the center of Barcelona. It is like Central Park on a small mountain, something very hard to make excludable. The Olympic Stadium, the swimming pool, the main sports pavillion (Palau Sant Jordi) are there, being well maintained and with the irregular use provided by concerts, family events and the occasional sports tournament. This contrasts with the other hill surrounding the city, Tibidabo, farther away from downtown, with no olympic faciltities, and with an excludable fun park at the top that is managed by a municipally owned operator (which resulted from the failure of a corrupt private operator in the 1990s). The Montjuïc White elephant is costly, very costly, but there is no way back given that we were very happy to organize the games, which contributed to a huge urban transformation. Now, some months ago it was announced that a private-owned company (with good political connections) would run a sort of theme park, called Open Camp, in the Montjuïc olympic facilities, by which visitors would pay a ticket and enjoy the facilities by practicing their favourite sports. When they presented the project, they claimed to be endorsed by an "economic impact study" by Universitat Pompeu Fabra. When I saw the ill-defined concept "economic impact study" and I saw that the supposed study was not backed by any name of any individual academic that put her or his reputation at stake, I became suspicious. I looked for the supposed study in the Internet and I couldn't find it. Since I also still have some political connections from my times in the City Council, I told them my opinion, including my prediction that some time from them Open Camp would ask to be bailed out. Since this week in the local press there was a piece saying that the request for a bail out had already been made, I felt in the need to write this post.

Wednesday, December 14, 2016

Are nation-states necessary to preserve cultures and languages?

Branko Milanovic has written an excellent post on the trade-off between global equality and the preservation of cultures, traditions and languages that results form the preservation of "countries". The argument is that if we allowed free migrations, global income equality would increase but some small countries would de facto disappear because a majority of the population would abandon them. But then some traditions, cultures and languages that are preserved by these countries would disappear. If we accept that this disappearance would have such a cost, then we have to integrate this cost in the social evaluation of a policy of free migration. I agree that losing cultures, languages and traditions has an enormous social cost, as well as the extinction of animal species is a cost for nature and the environment. However, I would question the principle that nation-states ("countries") are necessary to preserve languages, cultures and traditions. Actually, nation-states have been as effective preserving languages as destroying them, as only a few nation-states have been able to promote the linguistic diversity that characterizes most of them (certainly not Spain under Franco). The pattern of one country, one flag, one language, one culture, one army, one currency, is something that hardly exists anywhere in the world (certainly not in Europe). I also feel uncomfortable with the practice of associating one language with one national flag, which is quite common in the Internet. What is the flag of the Spanish language, spoken in so many countries? What is the flag of the English language, spoken as a first language in many countries and as a second language in many more? Even my own mother language, Catalan, is not only spoken in the administrative autonomic region of Catalonia, but also in other Spanish territories, as well as in regions of France or Italy. Is there any language whose borders coincide with a nation-state? Perhaps yes, but none comes to my mind. If we are serious about protecting language and cultures, these should be preserved by good federal international and local institutions that have as objective the preservation and promotion of most of them if not all (at a reasonable cost), and not the conflict between them. There are more than 4000 languages in the world, and we cannot have one country for each of them, but they are part of the cultural wealth of all humanity. I would like Catalan to be one of the great European languages, and this can only be achieved by a multi-institutional effort with the cooperation of agents from several territories.

Tuesday, December 13, 2016

Zakaria, immigration and Spain

Journalist Fareed Zakaria, in his weekly program in the CNN and his article in the Washington Post, established last Sunday a positive correlation between immigration and the right wing populist vote. He cited as evidence a scientific article which is an "empirically motivated theoretical model" presenting it as if it were real empirical evidence. The article is an interesting simulation where the units of analysis are member-states of the EU, and Zakaria supplemented it with examples. Thus he said that in Japan there is minimal immigration and no far right surge, and in Spain immigrants are mostly from Latin America so that they are not felt as really alien and as a consequence there is no far right populism. Although the article by Podobnik et al. cited by Zakaria is interesting because it raises the issue of the importance of non-linearities and tipping points, I am not sure that the same conclusions would be reached with real empirical evidence if we used as units of analysis regions or metropolitan areas. For example, London is the region (or metropolitan area) of the UK with the highest proportion of immigrants, but it has a mayor of Pakistani origin and is a stronghold of the anti-Brexit vote. In Spain, in my city, Barcelona, there are important concentrated groups of Pakistani, Romanian and Chinese migrants, and, although there have been minor racial tensions and some attempts to take political advantage of them (for example by a local leader of the ruling Popular Party, later promoted to regional leader, in the suburban city of Badalona), there is no big surge of racist parties. Therefore, although it is true that right wing racism is not salient in Spain, the main reason may not be that most migrants are from Latin America. Another reason may be that the mental instincts conducive to racism are satisfied by other proposals in the supply side of politics in Spain. Spanish nationalists in the Popular Party (although not exclusively) that inherited a culture of uniform centralized identity satisfy part of these instincts to many voters. Other voters are satisfied by radical nationalism in Catalonia or the Basque Country. Although Basque nationalism has moderated in the recent past, Catalan nationalism has radicalized (with a tipping point around 2012) and has the support of right wing populist parties such as the Northern League in Italy (soon to be renamed as the Nationalist League) or the right wing populists in Finland. The picture that illustrated the last article by Zakaria in the Washington Post had the leader of the Northern League holding a banner with the slogan "Voto Subito" (Vote Now), which is also a usual demand of nationalists and populists in Spain, in our case asking for a referendum of self-determination of some Spanish regions. The emphasis of the neo-populists on direct democracy is also another potential explanation of their modern appeal (and their danger). I completely sympathize with the conclusions of Zakaria in his "take" last Sunday (we should come to accept immigration and manage it wisely), but the details matter if we are serious about making globalization compatible with democracy.
And this is what Aditya Chakrabortty has to say about the Brexit referendum today in The Guardian: "One of the canards about the referendum is that the decisive swing came from working-class voters furious at high immigration, and that therefore the primary issue that needs to be resolved in the next few years is who gets to stay in Britain and how. Whenever I hear that, I think of the voters I spoke to in south Wales just before the vote. True, all the leavers volunteered immigration as their main justification. But the longer we talked, in this area that remains almost exclusively white, the more it became clear that they were angry at something else – not the invisible refugees, nor far-off Brussels. One, Gareth Meek, told me: “I’m angry at the British government. They sold the country out. There’s nothing we own any more.” A multitude of frustrations, pushed through a binary vote."

Friday, December 9, 2016

"Rally round the flag" without violence

"The Rally round the flag" phenomenon has been studied in the context of terrorism and violence. One of the star papers in this year's economists' job market has been written by Juan Morales from Toronto University. He explains how some Colombian politicians (especially incumbents and right wing leaders) have been good at exploiting violence to increase their electoral support. However, non-violent conflicts can also be used to try to rally voters round the flag. The peaceful version of the phenomenon may actually be more difficult to defeat, because it is more subtle and less blatant. The economist Paul Krugman has already experienced the accusation of being insensitive to regional identities because he does not believe some of the miracles that are promised to revive some regions. Those of us that are critics of nationalist movements in Europe are under the same pressure every day. It is good to see that we are increasingly in good company. By the way, the non-violent "rally round the flag" phenomenon also explains why in Spain we don't need openly xenophobic political forces: similar instincts are fed by a long cultivated tradition of cultural indoctrination, of which not removing the graves of our ancestors is a key part. This is very well explained in an article today in the New York Times by Dan Hancox. He says: "As a new generation of fascists gains influence with governments from the United States to Hungary, it may be the source of some surprise that Spain has no equivalent to Greece’s Golden Dawn or France’s National Front, especially given the desperate and long-lasting effects of the economic crisis in Spain. In part the absence of a major contemporary Spanish far-right party is a legacy of the civil war and dictatorship, and the mass killings that ensued, which loom over the country to this day. In part — and this is the other reason Mr. Rajoy would prefer to look to the future — it is because the governing Popular Party absorbed much of the Francoist political machinery. The party’s founder, Manuel Fraga, had been a government minister under Franco."

Wednesday, December 7, 2016

Public-private partnerships without public-public partnerships?

Some conservatives are delighted to support an agenda of private involvement in infrastructure financing and operation, usually in the form of so-called Public-Private Partnerships. The academic literature, well summarized in a book by Chilean authors Engel, Galetovic and Fischer, stresses that for these partnerships to achieve good social results, they must be accompanied by a robust regulatory system and by an institutional framework that guarantees public control and accountability at all the stages of a project. Something that is missing in most analyses (perhaps because Chile is a centralized democracy behind the Andes) is the public-public dimension of such control and accountability mechanisms. Many of the operators involved in PPPs are multinational corporations, and many of the PPP projects go beyond traditional administrative boundaries: they cross state lines in federal countries, or they cross national boundaries in continents that make an effort to integrate their economies, or they cross old municipal boundaries to integrate metropolitan areas. Many conservatives are less comfortable with this part of the deal. Some progressives also seem to live in a simple but no longer realistic world where they believe that by switching from some form of ownership to another at the purely local level is going to change the world. They would all like to work in a simpler world with public-private partnerships or pure public operation without public-public partnerships. But we live in an interconnected world. A key dimension of the public-public partnerships that are required for a good regulation of public-private partnerships is the checks and balances provided by multi-layered government, as many in the USA are discovering as a way to avoid becoming a huge banana republic under Donald Trump.

Tuesday, December 6, 2016

A populist: "I am not a populist"

Minutes after conceding defeat against his progressive rival in Austria, the person that everybody else calls a far right populist leader, Norbert Hofer, was trying to distance himself from the wave of populism that is sweeping democracies the world over. By populism I understand an appeal to the popular classes proposing simplistic solutions to complex problems using demagoguery and making an opportunistic use of democracy. Using a very polite style, he was claiming that he was a very respectful politician. The same day, the dethroned (but not retired) leader of the Catalan secessionists, Artur Mas, wrote an article in the main newspaper of the Catalan bourgeoisie claiming that his sovereignism was not populist, but based on objective grievances. Of course, all these leaders have differences among themselves. Not all of them are open xenophobes or sexual predators like Donald Trump. Not all of them are openly europhobic like Marine Le Pen. But all of them administer a clever recipe of scapegoating (against Muslim people, immigrants, or bureaucrats in a supposedly distant capital) and disdain for the restraint and social norms that used to accompany good democratic practices and the respect for the letter and the spirit of the law. It is social conventions, which are different from place to place, that mostly constrain them to still respect some written and non-written rules. I have been reading a report in The New Yorker  about the Philippino leader, Rodrigo Duterte, about his apparent changes of opinion, his contradictions, his constant playing with legality, his permanent postponement of all his plans blaming his delays on the scapegoats and extending the times that become permanently extraordinary (similarly to Mr. Mas, whose political party holds regional political power since 2010 with a very poor record beyond the secessionist rhetoric). In all these places, these leaders are supported by some decent people, and their rise is also the responsibility of many in the left that have not been wise enough at channelling the frustations of many people. But they pose a threat to democracy and fraternity by making identities salient and undermining cooperative efforts at finding solutions. I've heard Le Pen, Farage, Wilders, the Northern League in Italy and many others distancing themselves from each other. This is just another thing they have in common.

Saturday, December 3, 2016

Understanding Italy

When I lived in Italy, the then leader of the party of the left that had inherited the structure of the Italian Communist Party and that had occupied the space of the Socialist Party after the corruption scandals of the 1980s, Massimo Dalema, wrote a book under the title "Per un Paese Normale" (for a normal country). For good and for bad, however, Italy is still a very special country. Tomorrow, the Italians will vote in a referendum that has atrracted the attention of the global media. I am not sure that the coverage has done a good job at facilitating the understanding of what is happening. A Constitutional reform to increase centralization and diminish the role of the Senate has become a plebiscite about the Prime Minister, Matteo Renzi. According to The Economist, the reform does not deserve a Yes vote, but the political beneficiaries of a No victory would probably be the Five Star movement, which is led by a eurosceptic comedian. To be honest, I don't know what would I vote, I don't like Matteo Renzi, but I dislike the most likely alternative even more. I would like Italy to be dominated by the modernized left that seemed to be advancing in the mid ninenties when I was there. But I have missed a lot since then, although I read La Repubblica every Sunday. Europe needs a reformed Italy, not any more of its clowns and charismatic leaders. Not more miracles, please.

Tuesday, November 29, 2016

Evolutionary managers

David Sumpter in his book Soccermatics simulates an process of tactical evolution in soccer. Teams in a 20 club league are initially equally divided by the use of four different styles of play. The last six teams in each season are replaced by teams with the same style of play of those that finished in the top six spots the season before. Over time, some styles disappear, but for more than 40 simulated seasons at least two styles survive: it is an example of polymorphism. In evolutionary processes, agents do not consciously decide, but they are one type or another, and the most successful types expand in the population. European soccer has lived its own evolutionary process. FC Barcelona started to import Dutch managers in the 1970s because they were successful in Europe. Rinus Michels, Johan Cruyff, Louis Van Gaal and Frank Rijkard tinkered with a similar model, total football (which had roots in several European traditions), following a trial and error process. Rijkard, not a particularly gifted manager, introduced perhaps by chance (a mutation?) a key innovation: replacing the offensive, short and technical central midfielder of Cruyff and Van Gaal by a more defensive player (Davids, Cocu), and sending Xavi Hernández closer to the penalty box. Then Guardiola found the perfect player for the position of defensive midfielder, Sergio Busquets, and had Xavi and Iniesta in the other two positions in the midfield at their best ages, accompanied by a young and energetic Messi. Now Xavi is no longer there, and Iniesta is ageing. The team is too dependent on three fantastic forwards, and somehow the rich total football game based on short passes and small spaces is being left behind. But not for long, if Xavi Hernández completes his training as a manager (please, no need to sack Luis Enrique before) and we soon recover the evolutionary thread that started in the Netherlands in the 1960s, arrived in Barcelona a few years later, and marvelled the world in the first decades of the European Champions League.

Sunday, November 27, 2016

The real choice of California

I have a group of very nice American students in my course on the economics of soccer in Barcelona. I try to make my course interesting not only by talking about soccer, but also using soccer as an excuse to talk about other interesting issues. In our last class we discussed the implications of Brexit and secessionist debates for the future of  sports leagues and institutions. They seemed intrigued by the debate in the United Kingdom and the debates in other parts of the world that have nationalist tensions. I suggested that to think about the implications (not very important in my view, as sports borders should not be necessarily related to administrative borders) they should just wait and see about what will happen in California if secessionist voices keep getting louder. Most of my students started to laugh, as if believing that the demands of Californian independence after the last US presidential election are nothing more than a joke. I was relieved by that, but at the same time I wished that they don't have to suffer a humiliation like the one suffered by the members of the European Parliament when they had to listen to Nigel Farage after the Brexit referendum saying "You're not laughing anymore, are you?" To prevent that from happening, they'd better stay alert and do everything they can to help Californians make the right choice. I don't mean the choice between being independent or not, which is not something they have to decide in a meaningful way in the immediate future, but the choice between even starting such a campaign or devoting their immense resources to more productive uses. Perhaps one day they will really have to choose between being an initially rich isolated node, or being part of a cooperative decentralized network (that is what rich societies should be). But now what they have to choose is whether they start descending through the slippery slope of a debate on independence that divides their society and gives the front pages to the worst characters and their low instincts. Please don't do that, we need the best from California.

Friday, November 25, 2016

Water regulation in times of climate change

I participated yesterday in Madrid in a very interesting forum about the economics of water. The keynote speech was given by Gro Harlem Brundtland, former prime minister of Norway and UN leader on a number of initiatives related to public health, development and climate change. There were also several experts from a diversity of countries and perspectives. In the roundtable in which I participated I argued that a key issue was to have a robust system of regulation with the optimal degree of independence. I tried to explain that the ideas of authors such as Ostrom, Spiller and Akerloff are important in the field, for different reasons. Elinor Ostrom emphasized in her work the need for community owned solutions that are taylored to the specific problems, and one of the historical examples he gave was that of the river basin organizations in Spain. Pablo Spiller stressed the importance of mechanisms that are well adapted to the instititutional endowment (which is different for different times and places) that facilitate credible regulatory commitments that make sunk investments posible. Akerloff in his recent books on behavioral economics argues that narratives that convince the public of what is in their common interest must play an important role in public policies. In water, in these times of climate change where there will be geographically localized shocks in water supply and demand, it is more important than ever to have regulatory packages that are well adapted to the physical and geographic nature of the resource, taking into account the whole water cycle. Tayloring to geographic characteristics and to local preferences may be an argument in favor of functional jurisdictions similar to the water districts in the USA, but being aware that citizens face a fixed cost of monitoring and following the realities of too many authorities. Water is a typical sector in which several levels of government will need to intervene and do intervene, but must do so in a common framework and in a spirit of cooperative federalism. Agencies with a degree of independence are a key input in a robust regulatory system, taking into account the advantages (credible commitment, expert knowledge) but also the disadvantages (lack of coordination and political leadership) of expert insulated agencies. Independent regulators do not fully solve, but relocate, the commitment problem, which with independent agencies becomes a problem of the government and the political "principals" to commit to respect the independence of the regulator. There is no shortcut to the need to engage citizen/voters and their political representatives and convince them that water is a resource that must be managed efficiently and shared (while the effort is coordinated with efforts to fight poverty and environmental challenges) if we want to preserve life in our planet.

Sunday, November 20, 2016

A world of "free" nations stumbling in the dark

The utter confusion and chaos that prevail in the UK after the Brexit referendum is just a taste of what may follow if the politics of nationalism and identity keeps making advances in the public opinion. The first thing we should worry about is the use of the referendum as a privileged tool of democratic decision making. National-populists love referendums both when they win and when they lose. Referendums are not bad per se. It was through plebiscites that Spain advanced to democracy in the 1970s and that Chile defeated Pinochet in the late 1980s. But it was also through plebiscites that Hitler cemented his monopoly of power in Germany. His 1933 referendum wad the last one in Germany, and not even German reunification in 1989 was approved or ratified in a popular direct vote. In Scotland, although the nationalists lost the vote in 2014, they used it to mobilize and to basically eradicate the left from the political landscape (as the nationalists have done in Ireland and Israel), so that they could have a huge victory in the next general election. In the UK, if Brexit had narrowly lost, they would also have achieved the great political objective of mobilizing and making their preferred issues prevalent in the public mind. Perhaps they would even have preferred to lose the referendum, given the mess in which their country has plunged subsequently. The second thing we should worry about is the thought that the relevant unit of freedom and democracy is the nation, or the nation-state. These are obsolete categories that only work in the mind of human individuals, but that are ill-adapted to solve the problems of today's world. A planet of communities dominated by people who believe that they belong to somehow "free" nations would be a planet that would not solve problems like climate change, fiscal havens, financial instability, Internet regulation or global migrations.

Thursday, November 17, 2016

Nationalism as a social danger

Nationalists everywhere try to convince voters that they are guided by social concerns (mostly limited to their co-nationals, of course). But an editorial of The Economist that has just been published explains very well how the new cohort of nationalists pose a big danger to society (because of climate change, failure to address migration issues, lack of concern about tax competition, etc):
"The last time America turned inward was after the first world war and the consequences were calamitous. You do not have to foresee anything so dire to fear Mr Trump’s new nationalism today. At home it tends to produce intolerance and to feed doubts about the virtue and loyalties of minorities. It is no accident that allegations of anti-Semitism have infected the bloodstream of American politics for the first time in decades.
Abroad, as other countries take their cue from a more inward-looking United States, regional and global problems will become harder to solve. The ICC’s annual assembly this week was overshadowed by the departure of three African countries. China’s territorial claims in the South China Sea are incompatible with UNCLOS. If Mr Trump enacts even a fraction of his mercantilist rhetoric, he risks neutering the World Trade Organisation. If he thinks that America’s allies are failing to pay for the security they receive, he has threatened to walk away from them. The result—especially for small countries that today are protected by global rules—will be a harsher and more unstable world.
Mr Trump needs to realise that his policies will unfold in the context of other countries’ jealous nationalism. Disengaging will not cut America off from the world so much as leave it vulnerable to the turmoil and strife that the new nationalism engenders. As global politics is poisoned, America will be impoverished and its own anger will grow, which risks trapping Mr Trump in a vicious circle of reprisals and hostility."

Wednesday, November 9, 2016

We, the losers

The only satisfaction that accompanies the triumph of Donald Trump is that this time being a loser will not be a lonely experience, as it is sometimes when you only lose against local national-populists. Most of European leaders, tens of millions of American citizens (among them all their best intellectuals and academics) and all the decent media in the world, were against the winning candidate. A dark period is in front of us, and the obligation of anyone with a minimum degree of dignity is to start the fight for the democratic defeat of Mr. Trump as soon as possible, as we defeated Berlusconi in Italy not that long ago. Some will blame Hillary Clinton, the center left and the intellectual global elites. I wonder if the victory of Hitler in Germany was also accompanied by the same blaming game. Of course we have to think seriously about how to defeat the national-populist monster, but it will be easier if all those in favour of freedom and justice feel that they are in the company of many. This time it is not "we, the people..." but "we, the losers..." How the same society can elect a high quality leader like Obama one day and replace him with Trump four years later will remain a mystery. I guess the new president will not keep claiming now that the system is rigged. These are sad days, but life continues and at the collective level never ends. We should not content ourselves with the idea that we sided with the decent people when this happened. We must also join the millions that are willing to peacefully and democratically fight in making sure that this will be a short exception or a costly distraction in the route to a better world. As Krugman says, it is time to rethink, but not to surrender.

Monday, November 7, 2016

Thank you, Maria (and all decent Americans)

When my family and myself spent eight months in Berkeley (California) in 2008, we had a "host family." This was the Watt family, with Dennis and Maria Watt. Their generosity was unforgettable, and they represented for us the best of their society. In those days, Maria was an activist, always siding with the causes of solidarity and freedom. In the 2008 presidential campaign, she helped with the get out the vote drive in Nevada (if I remember well), because California was a safe state. In the recent past, we have learned that Maria has been losing memory. But we have not lost the memories of her hospitality and friendship. I have thought of her when I just read these words by economist and columnist Paul Krugman:
"...in the days ahead it will be important to remember two things. First, Mrs. Clinton has actually run a remarkable campaign, demonstrating her tenacity in the face of unfair treatment and remaining cool under pressure that would have broken most of us. Second, and much more important, if she wins it will be thanks to Americans who stood up for our nation’s principles — who waited for hours on voting lines contrived to discourage them, who paid attention to the true stakes in this election rather than letting themselves be distracted by fake scandals and media noise.
Those citizens deserve to be honored, not disparaged, for doing their best to save the nation from the effects of badly broken institutions. Many people have behaved shamefully this year — but tens of millions of voters kept their faith in the values that truly make America great." Maria has always been one of these. If tomorrow the USA makes history and elects the first woman as President it will be because the Marias of the USA have always been there. If the alternative prevails and we enter a dark, dangerous and hopefully short period of hate and division, we will all wish to forget like Maria, but will keep fighting from wherever we are to honour the values that she has spoused all her life.

Bounded rationality incentives and institutions in sport: links and lessons

I am putting together three topics for my part of the course on the economics of sport at the joint Johan Cruyff and UAB new master on sports management: institutions, incentives and rationality. What is the link? Bounded rationality fans exert a lot of pressure and experience sport fandom as addictive (not very rational). That is behind some inefficiencies such as an inefficient transfer market and hugely inefficient mega-sports events. Players and managers respond to incentives (both extrinsic and intrinsic), which implies that with increasing stakes (three points per victory, larger markets) they have incentives to win by any means, which involves higher quality perhaps but also more incentives for doping and corruption. Governing bodies and holders of the rights of tournaments have incentives to put together bigger and better tournaments (more teams in the world cup), which means more temptations to corrupt themselves. Since some of these governing bodies are global unregulated monopolies (FIFA, IOC), the only thing we have to constrain them is the FBI, Swiss Courts and perhaps the reputational concerns of sponsors. At least until we wait for a global democratic and federal government...

Countries as "Lego" blocks

I feel a lot of empathy for Branko Milanovic when he writes this (even if not everything he says is an endorsement of my current positions -I would rather have said that the break-up of Yugoslavia was another failure of the arrangements that tried to solve the nationality problem, but of course he knows much more than myself about it):
"I know of many people, myself included, who for several decades had one national identity, and then within months had to start believing they had another one. Anyone who thinks it is a simple process and that people can, at the drop of a hat, start believing the opposite of what they believed for several decades is deluding himself. Anyone who believes that countries are lego-blocks that can be, with ease, put together or broken  apart, is deeply wrong. Just look at the Scottish referendum, Brexit and Catalan strive for independence.

The India-Pakistan Partition in 1947 was and remains a defining moment in the lives of many Indian and Pakistani families, regardless of the fact that it is now almost 70 years old. The break-up of countries (or unification, in the case of Germany) likewise remains a defining moments for many people who had lived through the 1990s in Eastern Europe. Despite my pro-federalist and pro-Yugoslav feelings at the time, I am glad—today—that Yugoslavia no longer exists because I became convinced that managing it would have been impossible. Of all the books on the break-up of Yugoslavia, the most influential for me, was AJP Taylor’s “The Habsburg Monarchy”. It shows the failure of all constitutional arrangements between 1809 and 1914 that tried to solve the famous “nationality problem” in the Empire. Each arrangement solved one problem at the cost of opening another one. Taylor ends the book by pointing out that success or failure of Tito’s Yugoslavia will answer that perennial question of whether it is possible to have a multiethnic federation in Eastern Europe. We know the answer today.   

But the opinion about the inevitability of the break-up that we may hold today, cannot make us forget not only how traumatic and bloody the process was, but also how many of the newly-created countries, from Ukraine to Bosnia, remain utterly fragile and, it seems, permanently suspended over the precipice of yet another war. And how the past extends its long shadow over the present." 
I also read the article by Kuper he mentions. Anti-communist leaders discovered that there are more nationalist than liberal votes, he says. Unfortunately, what is true for the liberals is also true for the social-democrats. I guess some of us try to push for a Europe that slowly becomes more like the Obama's USA than the former Yugoslavia. Perhaps what keeps us hopeful is just a fantasy.  Something else: I can still see the former federalist in much of the work by Milanovic recently and up to today: a paper he has on how a global federalism would look like to improve global transfers, his comment in "The Haves and the Have-nots" that a democratic China would not survive in the absence of a federal system, his comments in the last book about identity politics...

Friday, November 4, 2016

Brexit: confusion, uncertainty or chaos?

The decision of a High Court to allow Parliament to intervene in a Brexit decision has increased even more the utter confusion that involves UK politics, and for which no one in the leavers camp had prepared anyone. Nigel Farage said that the day after the referendum would be remembered as Independence Day. But it took several months to Prime Minister May to announce that negotiations with the EU would start on March 2017. These negotiations will last for two years. Now it seems that even this calendar is not credible any more. The Economist says:
"Although Brexiteers campaigned on the promise to take back powers from Brussels and Luxembourg to Westminster, they have resisted the closer involvement of Parliament in the process because a large majority of MPs in the House of Commons and of peers in the House of Lords backed the Remain side in the referendum. Yet since the referendum produced a clear majority to Leave on a very high turnout, it seems unlikely that Parliament will actually block Brexit.
The prime minister has promised to keep Parliament informed over her plans for Brexit, but not to give a “running commentary” for fear that this will undermine her negotiating position. Yet she has also promised a Great Repeal Bill that will give domestic effect to most EU law after Britain leaves the club. And it is also clear that Parliament will need to approve the terms of Britain’s departure and of its future relations with the EU.
The Supreme Court may well endorse the High Court’s judgment. But even if it does not, the political argument for giving Parliament greater say both in the triggering of Article 50 and in the lengthy negotiating process that will follow now seems unanswerable."
And the New York Times says:
"If the High Court decision added another twist to an issue that has profoundly divided the British, it also contributed a sorely needed dose of democratic and legal clarity. The referendum date was set in February by Prime Minister David Cameron, in the hope that it would silence pro-Brexit members of his Conservative Party. Instead, the vote ballooned into an impassioned plebiscite on globalization, economic dislocation, migration, identity and other issues that have galvanized citizens not only in Britain, but across Europe and the United States as well. Mr. Cameron lost the vote and his job.
A mantra of the Leave campaigners was that Britain has ceded too much authority to Brussels, and that the British Parliament needed to “take back control” over British affairs. The court’s ruling follows this logic — that only Parliament has the power to alter British law and therefore only it can choose to leave the bloc.
Although there will be an appeal, the lower court’s decision already underscores what the Brexit process and other populist movements in Europe and the United States have demonstrated: that elected officials in representative democracies abrogate their responsibility for tough decisions at their own peril, and at peril to their country. Britain’s Supreme Court may come to a different interpretation of legal precedent, but the political lesson is not likely to change."

Tuesday, November 1, 2016

A simple message to those willing to defend a "social" nationalism: don't

Branko Milanovic is right that social democracy will not survive or return unless it addresses a number of structural challenges, namely multiculturalism, the end of fordism, demographic changes and globalization. All these together make both the politics and the policies of the social democratic movement problematic, unless there is a huge effort of experimentation and thinking to address these quite objective challenges. However, social democracy remains the egalitarian ideology and movement that has provided more welfare, to more people, during a longer time, than any other ideology or movement. The alternatives in the left, for example communism or currently bolivarianism in Latin America (with sympathizers among the Corbynists and Podemos), do not stand a comparison (no butter in Moscow in the 1970s, no toilet paper in Caracas today). It is true that the difficulties of social democracy may be taken advantage of by nationalists and opportunists that try and often manage to convince working class people that a return to identity and ethnic politics may be better for their interests. Milanovic himself has addressed the social determinants for the demand of sovereignty in his past research. John Roemer already said before that the mobilization of identities may be one reason why the poor do not expropriate the rich in democracies. Motivated believes and other forms of bounded rationality (like the role of stories, narratives and ideas emphasized by Rodrik) also help explain why many today may find it more comfortable to believe that they can improve their welfare more quickly if they support nationalists and demagogues like the Brexiteers or Donald Trump. The leaders of the national populist parties know this and that is why they have made a "social" turn, emphasizing that they want to build inclusive societies, as Theresa May said in the recent Conservative convention. The same is being done by the Catalan secessionists and by Marine Le Pen. We should not let them win this argument. If a world separated by walls and identities succeeds, it will be much more difficult to fight global inequalities, even national ones; it will be more difficult to fight fiscal havens; to stop climate change; to reduce international financial instability that hurts especially the most vulnerable. Let's better work on making the survival of social democracy (or something similar) feasible, by responding to the challenge of adapting it to a changing world.

Saturday, October 29, 2016

The Canada-EU agreement: good news

It seems that finally the democratic institutions of Canada and the EU will sign a free-trade agreement that will allow us to increase our exchanges wuth the great North American country. A free trade agreement that has conditions that makes it acceptable for local communities is a big achievement these days that globalization and openness are questioned by national populism. Trade agreements must be accompanied by mechanisms of adjustment and conditions that make sure that labour and environmental standards are not lowered. This particular agreement is especially good news because it will allow us Europeans to be in closer contact with a large democratic, federal aggregate that should be an example for all of us for its openness to foreign ideas, immigrants and refugees. This agreement and agreements like this would be much more difficult if Donald Trump were to win the US presidential election (or Marine Le Pen the French election). It is true that the Democrats in the US and social democrats in Europe have also shown increased reluctance to accept trade agreements, but the opposition has always been conditioned, and still today President Obama is in the forefront of efforts to reach agreements that are acceptable. International trade is one of the factors that has facilitaded economic growth in the last decades. It may also be a source of uncertainty and decline if conditions and adjustment mechanisms are not attached to it. That is why a reasonable position is to say yes with conditions to free trade agreements. And a special yes to an agreement with a federal democracy, Canada, from which we have so much to learn.

Thursday, October 27, 2016

Rodrik expands on Roemer

In a recent post about what the left could do to recapture working class voters that are now captured by national populism, Dani Rodrik stresses the importance of ideas and narratives more than concrete policies. He links to two recent papers of himself on these issues. The two papers are very interesting and open new avenues for research. They touch on the old topic of the role of ideas as worldviews, but also on the topic of how identities can be made salient to convince for example the poor to vote for the rich that share the same identity. This topic was also addresed previously by John Roemer and somehow also by Branko Milanovic, which is why it is surprising that their work is not mentioned in the references. What Rodrik does is adding behavioral issues that have to do with the endogeneity of preferences, something also mentioned by Samuel Bowles in his recent work. A very simplified way to describe what Rodrik does in these articles is "Roemer+behavioral political economy," or adding psychology to the re-invention of the wheel. Something the reader interested in identities might suggest to Rodrik is to apply to himself his idea that his approach can be used to build bridges between normative and positive economics. For example, his recent view that we should stop globalization and focus on the nation-state perhaps can be qualified by thinking about the impact on preferences of making salient that frontiers are again important. But overall the articles are interesting and important and point to directions that deserve to be followed. Rodrik finishes his post on these issues with these words:  "Progressives need to shape the narrative that structures voters’ interests. They need to be able to appeal to identities beyond race and gender – occupation, social class, income status, and patriotism. They need to convince the electorate that it is their interests they have at heart – not those of bankers or of large corporations.  They need to forge a story line that will shape a package of policy proposals into a politically appealing whole. Progressives need not give up on the white, male working class. But they need to understand that politics is as much about redefining perceptions of interests as it is about responding to those interests."

Sunday, October 23, 2016

A real Brexit would be a tragedy for academia

I spent two and a half years in London with a EU postdoctoral fellowship. I had a labour contract like the ones I've had in Spain. As a European worker, I had the same rights as everybody else. In London and other places in the UK there were and there are still hundreds, probably thousands of academics from other European countries. If those in favor of Brexit prevail and achieve something resembling a hard Brexit, that will no longer be possible. That will be very negative for all. It will be a big loss for all of us, European academics, because we will cease to enjoy the freedom that has always been the norm in British universities. And it will also be very negative for these universities and for British society at large. The history of institutions like the London School of Economics, Oxford or Cambridge would be very different without the presence and contribution of academics from all over Europe. As Martin Paul said after the referendum "Brexit will limit the mobility of researchers, educators and students. The UK will join the ranks of other countries such as Switzerland, the US or Russia. This also may not be a huge problem. What I am more concerned about is that the common European academic landscape is coming under threat. Up until now, it always felt that the EU was our “academic homeland”. It didn’t matter where you come from; it’s been a united Europe for our world. I predict that a referendum under British academics would have resulted in a big win for the anti-Brexit forces. But others have dominated the vote and I am concerned that it could be just the beginning: other countries may follow." 

Wednesday, October 19, 2016

What's behind the structure of government

Legal scholars Kovacic (former chairman of the US federal Trade Commission) and Hyman have a series of articles on the determinants of regulatory agency structure. Their insights are of interest to those interested in the structure of human organizations in general. To form a new public agency, they argue that one must answer five basic institutional questions: (1) what will be the agency’s substantive mandate; (2) where will the agency reside within the existing framework of government entities; (3) how broad will the agency’s jurisdiction be (e.g., the entire economy, or only selected sectors); (4) how may the agency execute its duties (e.g., by gathering data, issuing reports, filing cases, promulgating rules, educating businesses and consumers, conducting administrative adjudication); and (5) how should the agency be governed (e.g., by a multi-member board, or by one chief executive)? Four basic processes serve to allocate regulatory tasks to public agencies. The first is direct assignment by statute.  A second source of regulatory authority is accident or fortuity. A third process is deliberate expansion into an unoccupied policy domain. The fourth way to allocate regulatory tasks is divestiture or dissolution by statute. Seven criteria help understand the specific structural form of regulatory institutions in a given jurisdiction:
-Policy coherence.
-Branding and credibility.
-Capacity and capability.
-Collateral effects on the regulatory ecosystem.
-Political Implications.
The authors argue that the most important of these criteria are the political implications, which they illustrate looking at the creation and evolution of antitrust and consumer protection agencies in the US. Being more familiar with the experience of sectoral regulators in Europe and Latin America, I agree.

Thursday, October 13, 2016

Property rights and sub-economies

Of all the work of Oliver Hart and Bengt Holmstrom there are two articles that I have discussed with my students and mentioned in my own work and classes, and that I think are especially relevant. One is the article by Hart (co-auhtored with Shleifer and Vishny) on prisons, and the other is Holmstrom's article on the firm as a subeconomy. The first is an application of Hart's theory of incomplete contracts to the problem of privatizing prisons. The theory of property rights with incomplete contracts argues that, when a contract that contemplates all possible contingencies cannot be written or enforced, then the allocation of property rights is a crucial ingredient of the provision of incentives. Property rights confer residual rights of control, which are accompanied by rents when the parties bargain if unforeseen contingencies arise. Then if quality is difficult to measure and therefore cannot by specified in the contract, then the party with the residual control rights will economize on quality if this is costly to provide. This is very dangerous in sectors where quality is important, like prisons. In general, property rights should be allocated, if the objective is to maximize social welfare, to the party that can do more to promote the social good when unforeseen contingencies arise. For example, in some firms where the protection of the rents from talent is important, talented professionals should have the residual control rights (law firms?). If no private party can be found that promotes dimensions that are socially valuable but not contractible, then things should remain in the public sector and rely on intrinsic incentives or external monitoring. In the article by Holsmtrom on the firm as a subeconomy, he argues that efficient managers are those that internalize externalities, and efficient firms are those that better coordinate the complementarities of the different units, or that best alleviate the negative externalities that may arise between these units of the firm. Shopping malls or sports leagues are good examples of firms that operate like sub-economies. It is nothing more than a formalization of the old idea by Ronald Coase that firms are just one type of hierarchy that are better than market-based transactions when they minimize all costs, including transaction costs. These are all very important aspects in modern economics, which illustrate that this branch of social sciences is much more than supply and demand.

Tuesday, October 11, 2016

The 2016 Economics Nobel Prize and Social Democracy

Avner Offer has a recent book that I am about to read about the conservative origins of the Economics Nobel Prize. He has summarized his arguments in a recent article in The Guardian. After this book and article were published, this year's Economics Nobel Prize has been awarded to Oliver Hart and Bengt Holmstrom (two immigrants in the US, as most Nobel prize winners of all disciplines are). Their theories of property rights and incentives are certainly not the Bible of social democracy, but should be an ingredient of any modern version of it. For example, Hart's insight that quality issues are not automatically well dealt with in a privatization has been influential in reversing the trend towards prison privatization in several countries, including the United States. And Bengt Holmstrom contributed to a very interesting report a few years ago about "The Nordic Model." In this report, the authors, including Holmstrom, wrote very much in defense of the great achievements of Scandinavian social democracy, and presented a number of proposals to update the model to keep its essential features in the face of globalization. Prof. Holmstrom wrote the parts on the need to improve the productivity of the public sector, and how carefully thought incentives and public private partnerships could contribute to this objective. I don't know if the current Nobel committee leans more towards social democracy or otherwise, but it clearly likes research on incentives, as Holmstrom and Hart are just the last in a list that includes Mirrlees, Hurwicz, Tirole and others. Perhaps in the future they can also have a look at theories and empirical evidence that looks at intrinsic and non-monetary incentives and how institutions shape and provide context to performance-based incentive contracts. Then they would have to give the Nobel probably to some really left wing economist and Avner Offer would have to write a new book.

Wednesday, October 5, 2016

The crisis of the referendum as a democratic mechanism

After the Brexit referendum and the one in Colombia, both of which instead of contributing to finish a period of uncertainty have contributed to exacerbate it, most observers are seriously questioning that referendums are the best way of solving complex democratic problems. Today the New York Times has a very good piece, based on scholarly research, about "why referendums aren't as democratic as they seem." According to Amanda Taub and Max Fisher, the last round of referendums, "though voters upended their governments’ plans, eroded their own rights and ignited political crises, they all accomplished one thing: They demonstrated why many political scientists consider referendums messy and dangerous." Referendums are almost never a good idea, says a political scientist, are divisive and create instability. The issues are typically not discussed in a rational way, but "politicians or other powerful actors will often reframe the referendum into simplistic, straightforward narratives. The result is that votes become less about the actual policy question than about contests between abstract values, or between which narrative voters find more appealing." The real will of the people has little to do with what emerges from a referendum: "National referendums can also be extremely volatile, driven by factors unrelated to the issue’s merits and outside anyone’s control. Opinion polls are often misleading because people do not form their opinions until immediately before the vote. Tellingly, they often abandon those views just as quickly. Professor Marsh of Trinity College Dublin said he had found, in some cases, that “most people can’t remember any arguments for — this is about a week later — they can’t remember any arguments against, and they’re not really quite sure why they voted yes or no.” The fans of the referendum should surrender. They won't.

Sunday, October 2, 2016

They are not fascists

Donald Trump, Marine Le Pen, Nigel Farage and the rest of national-populists that proliferate these days (including Catalan and Spanish nationalists) in many countries of the developed world, are not fascists like Hitler or Musolini. First, it is important to acknowledge that degrees of evil are relevant, otherwise we would be trivializing the worst of our past. Second, the context is different. There are aspects in common with the 1930, like a big financial crisis that has as political consequence political fractionalization and division. But the current leaders of national populism do not advocate for military rule or extermination. They speak in the name of democracy. Many of them are racists, or at least find it very easy to find scapegoats in neighbours or people from specific national, ethnic or religious groups. At most, they want to deport them. Bad enough, no doubt. What is very specific of these new political forces is the opportunism they use in manipulating the mechanisms of democracy. They use referendums as a tool not so much to decide much, but as a propaganda instrument, like today is being used in Hungary. Not all referendums are bad, sometimes they may be used to ratify broad agreements and serve a goal of fraternity and reconciliation (fingers crossed in Colombia, also today). Of course, they pick those aspects of democracy that better serve their purpose of exciting our worse tribal instincts. They could pick other aspects, like respect for human rights, deliberative mechanisms and the use of reason. If we are to defeat them, we must show that the mechanisms they do not like are the ones that will better bring us hope and a better world.

Wednesday, September 28, 2016

The decline of clientelism in politics?

I love this paragraph in the article by Bardhan in the Journal of Economic Literature: "As incomes rise and markets develop, the need for political connections for jobs or personalized help may decline (though rather slowly, as many cases in southern Italy suggest even now); also, voters become more expensive to buy. With the spread of education and information, the importance of the local vote mobilizer who provides selective benefits (the proverbial ward captain in Chicago precincts) diminishes, and herding of voters by ethnicity or regional affinity may also decline. With the development of transport and communication, the reduction of territorial insulation allows for supralocal affinities that may diminish the importance of the local patron." Something similar could be said about clientelism inside political parties: party members' loyalty now is more expensive, and at the same time party bosses in mainstream parties have less to offer because voters' support is eroding. The problem is that it is not automatic that clientelism will be replaced with something better. Are plutocracy and populism the only alternatives?

Saturday, September 24, 2016

Let's talk (and fund) federalism in Brussels

The association to which I belong and in which I have been active in the last years, Federalistes d'Esquerres (Leftist Federalists) organizes two important events in Brussels this coming week, on Tuesday 27th and Wednesday 28th. Although I personally will not be able to be there this time, more than thirty of my colleagues will be joining the members of the European Parliament Javi López and Ernest Urtasun, two great federalists, in promoting the ideas and solutions of federalism, for a more united Europe and for a solution to identity and institutional problems, based on respect and solidarity. Federalism offers solutions to the economic crisis and to the crises of refugees and migrations, it offers mechanisms to reduce inequalities and to fight climate change. On Tuesday, there will be a fund raising event for the documentary FEDERAL, produced by our association and the award winning director Albert Soler. Everybody is welcome to this event, which has as explicit objective to raise funds to promote our ideals in the movie theaters. Do not forget to bring your wallet (it's a metaphor: you can pay through a crowdfunding platform or by money transfer). On Wednesday 28th, there will be an event at the European Parliament, hosted by the two parlamentarians, where our association will introduce itself and have a dialogue with our representatives and other attending people. In Brussels, my colleagues will have the occasion of continuing our dialogue wth other European federalists, such as those in the Union of European Federalists, to strengthen our cooperation and plan for future actions together. We are more committed than ever to make true the dream of our founding fathers: the federal United States of Europe.

Friday, September 23, 2016

Expanding institutional economics

In the last issue of the Journal of Economic Literature, Pranab Bardhan makes a number of criticisms to contributions by new institutional economists, including Acemoglu and Robinson. The most important of these criticisms, in my view, is that this literature does not give sufficient attention to the contradiction between committing to respect property rights and political accountability. Another important criticism is the resistance in this literature to consider other functions of government beyond respecting property rights such as providing coordination for example in the context of modern industrial policy. The criticisms of Bardhan elaborate or complement previous criticisms of the same literature by Clark, Chang, Allen and McCloskey. In my view, the arguments of these authors do not invalidate the work of authors such as North, Weingast, Spiller and others, who build on the seminal work by Coase and Williamson, but actually expand their focus and conceptual framework. At the end of the article, some suggestions are given for future research, among which I particularly liked this one: "An important, yet largely unresolved, issue is to find clear directions from empirical data about when democratic processes lead to long-term investments in public goods serving the poor and when they instead degenerate into short-term populism and clientelistic patronage distribution. What, empirically, is the pattern of the dynamics of erosion of political clientelism, and why does it vary so markedly between countries or even regions?"

Sunday, September 18, 2016

Michael Gazzaniga and the illusion of self

As recommended by Louis Putterman in the WINIR 2016 Conference in Boston, I have been reading neurologist Michael Gazzaniga. In particular, I read the book "Who is in Charge." This scholar is famously expert for his study of the parallel work of left and right hemispheres in our brain. As a byproduct of this work, he has a powerful theory of how consciousness is just an emerging property that has been evolutionarily useful, but that results from the interaction of specialized units of our brain that follow physical laws. In reality, there is no-one in charge, and no unique self calling the shots. For example, some hours ago, I was writing something related to economics in my computer, my daughter came into my offcie, said something related to an agenda and, when she left the room, I noticed that "I" had typed in my computer the word "agenda", which was completely unrelated to my writing before she came in. "...Consciousness involves a multitude of widely distributed specialized systems and disunited processes, the products of which are integrated in a dynamic manner by the interpreter module. Consciousness is an emergent property. (...) Our conscious experience is assembled on the fly, as our brains respond to constantly changing inputs, calculate potential courses of action, and execute responses like a streetwise kid." We are like other complex systems, such as an ant hill, made of self-organizing units. As a scientist that I heard in a BBC documentary said, we are just put together in a way that makes us look smarter. Therefore, the idea of a rational self that is free to make decisions is not only eroded from outside, by social forces whose role is increasingly recognized by social psychology and other behavioural sciences, but also from inside, as increasingly noted by neurologists like Gazzaniga. The rest of the book is about how "this post hoc interpreting process has implications for and an impact on the big questions of free will and determinism, personal responsibility and our moral compass."

Thursday, September 15, 2016

Is it ultimately about race and cultural anxiety?

In an interview with Christiane Amanpour, Paul Krugman has just said in the CNN, mostly inspired by politics in the US but refering also to Europe, that the increasing success of national-populism, contrary to conventional wisdom, may not be so much due to worsening economic conditions of workers in developed countries due to globalization, but due to race and identity. White people would feel threatened by multiculturalism and population movements. This coincides with work that has questioned that the graph called "Milanovic's elephant" justifies the interpretation that inequality is caused by globalization. A study has analyzed in-depth the data behind the elephant and, although the most important features of the graph survive (China's middle class being the big winners in global income distribution between 1988 and 2008 although not becoming richer than us yet, and the very rich doing much better than the working and middle class in developed countries, although this seems to have slowed down in the crisis), in turns out that in individual countries we see very different evolutions of the poorest deciles of the income distribution depending on government policies. The nuances of using the available data from countries to construct the final graph were already discussed in the background academic article by Milanovic and a co-author. Then it would be that the main determinant of inequalities would not be so much globalization but national economic policies. In any case, globalization poses huge challenges and constraints to national policies. In addition, if the main reason of political backlash is ethnic or cultural, this begs the question of what are the political and economic mechanisms that make a strategy of appealing to race and identity successful as opposed to a strategy based on class and redistribution. Branko Milanovic and John E. Roemer would be well placed to undertake such political economy study at a global scale, since both have done past work that speaks to this issue. Milanovic did work in the past about the determinants of ethnic voting, and Roemer explained why the poor do not expropriate the rich in democracies (answer: because the rich are able to make other dimensions more salient). One hopes that their recent and promising paper about national and global income distribution is just to whet our appetite. The elephant graph is still great and I have used it in my first class in a couple of courses to motivate the interest of the students in the controversies surrounding globalization, markets and inequality. I should also say to my students that to study the really important problems with real data is very challenging and a single graph can never close a debate.

Saturday, September 10, 2016

We should make Europe popular

The debate goes on about how to reform Europe to make it more efective and democratic. The Robert Schuman Foundation has published a report with some proposals. Some of them must be left for a Treaty reform, but others can be done in the current legal context. It mentions that "the think-tank Bruegel recently recommended, in a written contribution, a few actions that are legally possible within the framework of the present EU Treaties:
- avoiding excessive budgetary adjustments in the countries in crisis, by accepting a certain restructuring of the sovereign debt,
- conferring upon the future European Fiscal Board the task of guiding budgetary policies during exceptional periods, good or bad, when budgetary coordination would be necessary,
- asking for more stabilizing national budgetary policies,
- even providing for the creation of a European unemployment (re-)insurance scheme targeted at large asymmetrical shocks. This mechanism would have to be created via an intergovernmental agreement.
Hence these measures, not requiring a revision of the EU Treaties, could be implemented rapidly."
Europe will keep evolving slowly, but it is important that measures are taken rapidly to restore confidence in the European project. Otherwise, nationalism and opportunism will keep spreading in the public opinion and in sectors of the political elites, and the final result could be the collpase of the Union through a series of referendums that, in the name of democracy, end up destroying the supra-national European institutions that today make Europe possible.

Sunday, September 4, 2016

Increasing circles of solidarity

Today is the last day of the Conference WINIR 2016 on Institutions and Human Behavior. To me, the best moment was the presentation by Louis Putterman from Brown University about a new unpublished paper on "Democracy and Collective Action." Since I volunteered to be the chair of his session (because I wanted to meet him) I could overcome my shyness to approach him at the end and not only ask him to sign a copy of his book "The Good, the Bad and the Economy" but also ask him a question about his presentation. In his new paper he addresses the topic of the sustainability of democracy, which was absent from his book. According to Putterman, the assumptions of traditional economics would make democracy unsustainable, because of the free-rider problem. That is, if all of us are selfish utility maximizers, given the costs and benefits of getting involved in collective action, nobody would pay the cost of getting informed or participate in the political process as voters, demonstrators or candidates, and democracies everywhere would be in the hands of thieves. There is little doubt that politics is in the hands of thieves in several places, and some thieves are running as candidates in some places. But it is also true that in some cases democracy has reasonably provided public goods such as health, infrastructures and basic education or law and order. Putterman says that democracy is possible because we are not like the economics textbook individuals, but we are social and political animals, as Aristotle had established long ago. We have evolved to be social like many social animals. My question to Putterman was that if we are social in the way that many social animals are, that should be good news for politicians like Trump or Farage, because the solidarity of individual animals does not go beyond the local group, and it has the dark side of violence against other groups even of the same species. Putterman briefly answered that over the history of humanity we have developed an ability to increase the circles of solidarity and that he hoped that we didn't need a threat from another planet to develop some sort of global altruism. Perhaps global climate change will do the trick. I'll read the paper of Putterman more in depth when I land on the other side of the pond and I'll look for some references he mentioned. And perhaps I'll ask him by email for more details about his idea of increasing circles of solidarity. This and a bit of feedback for my own research is what you get in these conferences.

Wednesday, August 31, 2016

The Trump possibility

I am spending a few days in the US (leisure plus an academic conference). When I arrived at the Boston airport a few days ago, just after leaving the aircraft we were stuck in a very slow line that ended in the immigration interrogation. Above the line there was a TV screen with the CNN on, precisely at the moment in which Donald Trump was giving a speech about "securing our borders." At that moment, it seemed to me difficult to secure the borders even better than they are. Even if Trump were to win the election, the system of checks and balances, I believe, would make it very difficult to introduce dramatic changes in a system that is relatively strict already in my view. More than the immediate policy concerns, my worry is the deterioration of political discourse and social trust that politicians like Trust implie. His probability of winning the election according to the best political statisticians is now around 22%. If the election was today, he would not win. But incorporate to the statistical model a couple of public relations tricks and a big terror attack and the probability can easily jump, in a very volatile political atmosphere. Before the party conventions in July, the probability was close to 50%. Trump is just one chain in the global exchange program of national-populism. He was visited recently by Nigel Farage and by the leader of the Italian Northern League. Rumours of Vladimir Putin supporting Donald Trump are consistent with financial links between the Russian leader and some Trump aides, as well as by statements of the American tycoon praising Putin. The main message of all these populist leaders is that "good fences make good neighbours." The policy details are scarce and usually inconvenient to them: "I will fix this and that; we will take back control"... It is not easy to see how all this wave is going to be stopped. As Louis Putterman (someone I expect to meet at the Conference I am attending this week-end) says in "The Good, The Bad and the Economy", what is wanted is this: "idealists who are not satisfied with easy answers."

Friday, August 26, 2016

Small differences that kill

In the last issue of the Journal of Economic Perspetives, Golman et al. have an article about the preferences for believe consonance, where they explain the reasons for the potency of small differences: "Some of the most vociferous disagreements occur between people who—at least from an outsider’s perspective—would seem to have very similar beliefs. In the studies just cited examining the source of armed conflicts in the world, for example, almost half of these conflicts were between different sects of groups within the same broad religious tradition. Drawing attention to the nastiness of disputes between people holding nearly identical views, Sigmund Freud referred in The Taboo of Virginity (1917 [1991]) to the “narcissism of small differences,” commenting that “it is precisely the differences in people who are otherwise alike that form the basis of hostility between them.’’ The sociologist Pierre Bourdieu made a similar point in his treatise La Distinction (1979, English translation in 1984, p. 479), observing that “social identity lies in difference, and difference is asserted against what is closest, which represents the greatest threat.” Empirical research from social psychology and anthropology has documented the surprising potency of small differences. In a 1982 overview article in social psychology, Tajfel summarizes the results of three experimental studies that all find evidence for the importance of small differences for intergroup hostility (Turner 1978; Turner, Brown, and Tajfel 1979; Brown, as reported in Brown and Turner 1981). The studies find that groups with similar values display more intergroup discrimination in competitive situations than groups with dissimilar values. They also show that group members are more ready to sacrifice self-interest for the collective benefit of the in-group when they are dealing with outgroups that are more similar to the in-group. Further evidence of the potency of small differences comes from research by psychologists on “horizontal hostility.” In a series of surveys, White and Langer (1999) and White, Schmitt, and Langer (2006) find that members of minority groups express more unfavorable attitudes about members of other minority groups than about members of majority groups. In particular, people express more hostility toward other minority groups when the other minority groups are more mainstream than their own group. The pattern of horizontal hostility is also evident from a study of members of political parties in Greece by White, Schmitt, and Langer (2006). The authors asked eight party members from each of the four main parties to give a 10-point rating for the social traits of honesty, intelligence, fiscal responsibility, and attractiveness of hypothetical candidates from different parties. Again they find strongly negative evaluations of potential members of similar, but more-mainstream, parties.

In real conflicts, the most comprehensive and systematic investigation of the importance of small differences was undertaken by the Dutch anthropologist Anton Blok (1998, 2001), who drew on existing datasets and empirical findings on the basis of which he concluded that “the fiercest battles often take place between people who have a lot in common” (Blok 1998). In the civil wars in the former Yugoslavia, for example, the most severe fighting took place in the regions that had the smallest differences in ethnic and religious composition between groups and the highest incidences of mixed groups and intermarriages (Blok 2001; Hayden 1996). The differences that divide the fighting parties in many other conflicts are also minor: for example, between the Uzbek minority and the Kyrgyz majority in the conflict in Kyrgyzstan; between Indians and Pakistanis in the conflict in Punjab; between the Greeks and the Turks in the conflict in Cyprus; and between Tutsis and Hutus in Rwanda. The historian Gerard Punier (1995) argues, in his book The Rwanda Crisis, that the genocide in 1994 happened after a period in which economic and social differences between Hutus and Tutsis had narrowed. He discusses how the two groups had long lived side by side, had been involved in intermarriages, and how they neither have had separate homelands, languages, or religions. In all these conflicts, subtle differences in beliefs are often the major distinguishing feature, and in some cases the only difference, between the fighting parties. Hatred and suspicion based on these belief differences seem to increase in intensity the more similar the groups are on other dimensions."

Monday, August 22, 2016

My medal count: EU, 325-USA, 121

If the European Union had competed with a single team in the Rio Olympic Games it would have obtained a total of 325 medals, including gold, silver and bronze. That would make team Europe the leader of the medal count. The second would be the United States with 121 medals, far behind. This is obtained from adding the total number of medals of each EU country in the games that finished yesterday. That includes Great Britain, which is still today a member of the EU, because despite the (very narrow) result of the Brexit referendum, the United Kingdom is still a member of the Union, since their leaders are reluctant to invoke article 50 to start real exit negotiations. If we (incorrectly) substract the British medals, the EU would have 258 medals, still 137 more medals than the US. It is European fragmentation that creates the sensation of US absolute global dominance. In fact, Europe is richer and stronger, except that lack of cohesion and nationalism prevents us from showing a more united and stronger front. Moreover, if the EU had a common sports policy, European team sports would be much better, assembling really competitive teams in basketball (combining the best Spanish, Croatian, Greek, French and Italian players), in soccer (combining the best German, Spanish, Italian and other players) and in other sports. Of course, having a EU team would reduce the number of countries in the Olympic games. This would be a good thing: the opening and closing ceremonies would take shorter and be less boring, and the scale of the games would be reduced, diminishing the power of the sports governing bodies and their incentives for corruption. Narrow-minded nationalist comments by local broadcasters would be kept to a minimum, and economies of scale would reduce the amount of waste that goes into professional sports subsidies in European countries. Additionally, some US swimmers would feel less arrogant and consequenlty would tell less lies.

Thursday, August 18, 2016

The federalist message of Star Trek

Now I understand why I always liked Star Trek. It makes me happy that the message of people cooperating at different levels is not limited to Planet Earth, but it goes beyond our own galaxy and extends to the whole universe. The screenplay writer Simon Pegg explains in an interview that the new productions of the mythical series make more explicit than ever a federalist message opposed to populists of the sort of Boris Johnson, one of the leaders of the Brexit campaign and the current Foreign Affairs secretary of the UK. I have to go and see the new movie. The starship Enterprise was like a federalist capsule in my youth navigating the universe trying to bring harmony and reason to rogue planets and tribes. The members of its crew were representatives of diffirent planets and civilizations, and they were helped by a humanoid android, Mr. Data. I guess that lots of people will like the message of Star Trek as it applies to other planets, but many spectators will still be reluctant to apply the same principles to their own countries. I can even imagine Mr. Johnson praising the new movie and the whole series and arguing that he has nothing against applying federalism to the universe, as long as the UK keeps full control of immigration, or something of this sort. That is the main strategy today of national-populism: global federalism is fine, as long as we apply it to others.

Monday, August 15, 2016

Dani Rodrik, global governance and the nation-state

In my modest opinion, economist Dani Rodrik is taking the wrong exit to his own trilemma. It is absolutely true that there is a tension between democracy, the nation-state and globalization. In theory, one solution is to try to stop globablization and focus democracy on the nation-state, as Rodrik seems to try to be arguing for. He talks about the false promise of global governance, and there is little doubt that there is little democracy currently in global governance. But we have little choice but to try to improve it. It is not that democracy in nation-states is all that wonderful. Democratic countries are still a minority. Non-democratic ones are scary, and they are more scary the less well developed and democratic global governance is. Nation-states promote nationalism, which has proven not to be very healthy for civilization. Many borders are disputed and there are secessionist tensions that undermine democracy pursuing the myth of the free nation-state. The Balkan wars are a sad reminder of that. Rodrik argues that "perhaps the biggest policy letdown of our day is the failure of governments in advanced democracies to address rising inequality. This, too, has its roots in domestic politics – financial and business elites’ grip on the policymaking process and the narratives they have spun about the limits of redistributive policies." But increasing concentration of wealth is an international phenomenon that has its roots in the free international mobility of capital. Rodrik only accepts climate change as an argument for global governance, as if climate change and threatening refugee crises derived from it were not enough of an argument. But there are many more, and increasingly more, global problems that require global democratic action. Branko Milanovic and Charles Kenny have listed some of them in twitter after Rodrik's last article: technology, climate, oceans, biodiversity, infectious disease, nuclear and biological weapons, intellectual property rights, tax evasion, "fair trade", child labor, Internet protocol, airline regulation, time zones...