Thursday, December 31, 2020

My experience with CORE

I have just finished my first full term with CORE's "The Economy" (in the Spanish translation, "La Economía", with Catalan slides -available upon request) as the adopted textbook. 

The experience has been absolutely positive. I recommend all instructors who have not taken this step, to throw the old expensive and useless textbooks to the dustbin. The old books do not reflect the reality of the economics profession in the last 30 years and, what is more important, are not useful to understand many of the more pressing problems of humanity today, such as financial crises, pandemics, inequality or climate change. Although this academic year I will only be teaching the first (mostly micro) part, I hope to teach the whole material in the future. It has been a great experience and the feedback from students has been positive, and not only because the e-book is totally free. As I had expected, the uncertainty about the type of classes (eventually, mostly on-line) is easily accommodated by the nature of the material in CORE. The contents are better than in other textbooks and it supports and encourages better, more engaging, teaching methodologies. As I said in an article last summer, "The Economy" shows that Economics is not about supply and demand, but it is about understanding the world, and it is about changing the world. Fairness is at least as important as efficiency, and many times they can come together. 

By the way, I taught the course to political science and sociology students, and I think that I convinced at least a good fraction of them that they need to understand modern economics to be better at changing the world. As economist Colin Camerer recently said, "to change the rules, you need to understand the rules." 

Now I face the challenge of an online exam. Ideas are welcome. I conceive exams as part of the learning process. That is, the best exams are those with unforgettable questions, where you have to think hard and you keep thinking after the exam. One of the best examples I encountered on this was with Spyros Vassilakis, a professor I had in my PhD at the EUI in Florence. He used to give us the questions, leave the classroom and come back after two hours to collect the answers. He knew that talking and looking at materials was pointless, because the only chance of succeeding at the exam was to think hard for two hours."The Economy" is complementary of Sam Bowles' book "Microeconomics" (2004), and his and Halliday's forthcoming intermediate Microeconomics book. I hope to be teaching all these materials forever to become fully familiar with all of the contents and details, which nicely complement each other. The best way to learn something, is to teach it. Incomplete contracts and how they relate to the structure of power and inequalities in society are a common thread. There are interesting comparisons between "The Economy" and Bowles (2004) and the forthcoming micro textbook. The 2004 book gives the full picture, the new textbook presents it to intermediate undergraduates or early graduates (without the evolutionary bits), and "The Economy" presents the basic ideas to first year students or to others with similar backgrounds, although bits and pieces can be used in other years. 

"The Economy" is complementary of other materials such as this wonderful video by Sam Bowles and Wendy Carlin, where Bowles mentions in passing (in 2018) epidemics as a form of non-market interaction, and he associates Government to Fear and Market to Greed as examples of the coevolution between institutions and norms. Obedience to government and material incentives are important, but social norms and loyalty in communities are also to be incorporated in our prescriptions. What matters more cannot be bought and sold. Other related materials are this JEL article, this piece in the AER, and this one in VOX-EU/CEPR.

I hope that many economists join the mission to spread these ideas. What about that as a new year resolution? Happy 2021!

Sunday, December 13, 2020

BINO or chaos: the perplexity of an anglophile

As the supposed transition stage nears its end four and a half years after the referendum, I read from British sources (mainly, the BBC, The Guardian, and The Economist), that Boris Johnson has reached the end of his particular political one-way road. Now either he accepts that full access to the single market means giving up some sovereignty (but now, without a seat in the relevant table; this would be BINO, or Brexit in Name Only), or he plunges his country into a chaotic economic scenario of tariffs, disruption and social and financial decline. It is easy to put the blame on Johnson and his cabinet, but one should not forget that all this started with the irresponsible referendum called by David Cameron in 2016.

It is still diffcult for me, an anglophile, to understand how such an admired society can fall into this abyss. Yesterday I bought the novel "Middle England," written by Jonathan Coe, to try to understand it better. Perhaps I should look not far away from me, as the friend who recommended the book to me, told me that he saw clear analogies between English national-populism and Catalan national-populism, especially about the differences between dominant ideas and values in big cities and the countryside. Perhaps I have been only paying attention to what happens in big cities.

I don't have much more time today. I could quote articles published any day in the British media. Let me just select a couple of paragraphs from today's opinion pages in The Guardian. Columnist Andrew Rawnsley writes:

"The government’s own “reasonable worst-case scenario” planning warns of massive queues to ports and huge delays at them; shortages of food, drugs and petrol; price hikes on many essential goods; panic buying at supermarkets; violent clashes between British and EU fishing fleets; disruption to critical services; the compromising of law enforcement and counter-terrorism; and possible civil disorder. You would not want to be a Welsh farmer facing unsurvivable tariffs on lamb exports. You would not want to be someone with a medical condition that requires imported drugs. The government will probably manage to fly in Covid vaccines even if it takes the entire RAF to do it, but its own no-deal contingency planning raises the spectre of delivery problems with life-critical medicines. You would not want to be a manufacturer faced with sudden new tariffs on your exports and broken supply chains. You would not want to be one of the 300,000 people forecast to lose their jobs if a calamity Brexit is inflicted on an economy already ravaged by the coronavirus."

And conservative former politician Michael Heseltine writes:

"I don’t know exactly where all this posturing will end up by January; but I do know that – deal or no deal – we will in theory and in practice be outside the European Union. That is the policy on which the government was elected; they have a mandate and I would not vote against their legislation. I believe that it will be seen as a Tory measure and I will have nothing to do with it. This government will be – and should be – held responsible for quite simply the worst peacetime decision of modern times. I know of members of the cabinet who believe this as firmly as I do. I cannot understand their silence."

Sunday, November 29, 2020

Teaching sport economics in times of COVID-19

This term I am not teaching my usual undergraduate course on soccer and economics in the Study Abroad program at my University (not enough US students in Barcelona now), but I am teaching my usual four two-hour lectures in the joint Master of Sports Management between my University and the Cruyff Institute.

I gave my first lecture last Thursday, where I presented the basics of game theory and the taxonomy of goods as classified along the two dimensions of rivalry-nonrivalry and excludability-nonexcludability. We'll apply these concepts to understand why institutions are needed in organized sports, and what is their role.

What may be of special interest this time is to reflect about the impact of COVID-19 in some institutional aspects of the sport. I will ask my students to confirm (or otherwise) with recent data the preliminary results that show that, as expected, the home-field advantage has diminished, in soccer and other sports. More generally, one would expect that, to some extent, the sports industry, especially in soccer, has become less populist, as the fans have less short-run pressure on club decisions. For example, has managerial turnover decreased, as expected?

More importantly, the financial problems because of the reduced revenues, have put pressure to increase the number of games between top teams. One form that this could take, in soccer, is the creation of a closed European Superleague. This can take a variety of forms, and probably there will be some sort of arrangement with the incumbent institutions, as it happened with the introduction of the current format of the Champions League in the 1990s. This time, the interest of US investing institutions injects even more credibility to the attempts to secede of some of the top clubs, including FC Barcelona and R. Madrid. There was an article about this in the Financial Timesthis this week-end.

The horizon of a very lucrative European superleague (or enhanced Champions League) would facilitate a mutualized exit from the current crisis (as suggested by the economist Stefan Szymanski), and it would correct a clear inefficiency: more top games are feasible and there is willingness to pay for them. But there will be redistributive implications that will have to be addressed (by compensating the losers), and important cultural implications in the form of reduced importance of national championships, and increased importance of European competitions. It will be the soccer way to a federal Europe.

Saturday, November 14, 2020

A time-consistent left and a progressive time-consistency

I have spent a good deal of my research and teaching time talking about the Commitment or time-inconsistency Problem in Economics, and I still do it. This is the problem that monetary policy or regulation face in a democracy: there is the temptation of a short run popular policy, to the detriment of long run benefits (for everybody) in terms of lower inflation or higher investment. In a way, it is the collective version of the self-control problem in behavioral economics.

In a democracy, the collective temptation comes from pressures from the majority to redistribute resources in the short run, in many cases. The problem is there and will always be there. Populism can be interpreted as an attempt to give simple answers to this complex problem, or to behave as if it didn't exist. The challenge is to find forms of redistribution that are sustainable over time, taking into account political, economic and environmental constraints. Not easy.

When this problem is explained, some see in it the hidden agenda of trying to give certainty to big corporations and wealthy investors, to protect them from hungry mobs. But this would be misguided. Vulnerable people also need certainty. When scholars stop showing admiration for Trump and exaggerating the support he has among the poor, perhaps they will see the millions of individuals and families that have feared for their futures in panic of a second Trump administration. In other examples of national-populism, it was easy to perceive in Catalonia, in 2017 around the failed secession attempt, the fear of vulnerable people, mostly with origin in other lands, who where scared of losing citizenship, rights and future opportunities.

Populism has dangers. Covid-19 has shown them. Populist rulers have done very badly in managing the pandemic. But beyond it, and although at the macro level perhaps they have improved, there is typically a large cost to try to forget about constraints and burdensome institutions.

Happily in Europe, socialdemocrats and even Greens do not score high on populism. That is ground for hope, because the Ecologic and Digital transitions that leave no-one behind require investments today, meaning freeing resources from the present to devote them to the future. We must find ways to redistribute minimizing long run costs, and promote long run benefits without punishing today even more those that have been punished enough. A time consistent left, or progressive time-consistent policies and institutions, must be a fundamental part of efficient redistribution mechanisms.

Friday, November 6, 2020

Is populism about the elites?

Last week I had the opportunity to talk to Elias Papaioannou (who was giving a virtual seminar in my Department), the co-author of an excellent survey about the political economy of populism, which if I understand well is forthcoming in the Journal of Economic Literature. The article summarizes a lot of mostly empirical work on the features, determinants and consequences of political movements such as Trumpism, Brexit, and others that share similar characteristics. It does the best that can be done at this stage to present the state of the art of something that is still happening in front of our eyes.

As I told Elias, my interest in populism (no doubt a polysemic and multidimensional phenomenon) has three sources. First, I am interested in the commitment problem in economics, which I studied in several published articles in the field of economic regulation, where I discussed the advantages and disadvantages of indepenedent regulatory agencies (which are meant to isolate regulators from "populist" forces). Second, in several courses at the graduate and undergraduate level, on microeconomics or public economics, I always enjoy teaching a section on social choice and political economy, and results such as the median voter theorem and Arrow's impossibility theorem. Third, I have a personal interest in populism, as I see the Catalan secessionist movement as an additional example of modern populism in its (frequent) identitarian version.

The article is very good at explaining the different economic and cultural explanations of the phenomenon, and the mostly harming consequences of populists when they reach power. It also has a short part that summarizes useful, though scarce, theoretical work.

Since the phenomenon is on-going (as I write, I hear in the background the CNN with its unending program about the recent US election), new overviews will be needed soon. As I told Elias, in my view there is room for urgent work along two lines. One, although it may seem surprising, is to keep working on the definition. Papaioannou and Guriev settle into what they call the "lowest common denominator" of modern definitions of populism, which revolves into the separation of society between a virtuous people and a corrupt elite. In a way, this definition buys into one of the traps of populism, which constantly tries to disguise its true nature by accusing their opponents of their sins. They try to undermine democracy (now, in front of our eyes, Trump in the USA) in the name of democracy and the will of the people (conveniently defined, if necessary); or they say they are anti-elite and anti-corruption, when it is difficult to think of anyone as more corrupt than Trump and its entourage, or of a social group as more elitist than the pro-Brexit dominant branch of the UK Conservative Party, with Johnson, Gove, Rees-Mogg and others.

The other line of work that seems to me necessary and that would facilitate theoretical work (and therefore setting up meaningful hypotheses for empirical work) would be to connect work on populism with the theory of social choice. Although this theory mostly takes voters' preferences as given, some (such as William Riker on his classical book on Populism and Liberalism) stress that the indeterminacies of democracy are at the source of the evolutionary efforts of political parties to make convenient issues salient. The book by Hacker and Pierson "Let Them Eat Tweets" goes into this direction as arguing that Trump is an endogenous phenomenon.

There is a lot of work to be done. On the topic of regulation, the issue is not dead at all. Jean Tirole has a recent article arguing in favour of a middle ground between global technological monopolies and what he calls the populist temptation of a techlash. And to the extent that the previous research on independent regulators to which I contributed was inspired by the literature on Central Bank Independence, it is promising that there is already work trying to study how populism is affecting Central Banking.

Saturday, October 24, 2020

Plutocratic populism

The book by Jacob Hacker and Paul Pierson, "Let Them Eat Tweets", explains the presidency of Donald Trump in the US as an endogenous development. Specifically, Trump would be the result of at least two decades of efforts by the very very rich minority of individuals who benefit from an increasingly unequal economic system, to keep alive the economic and political program that consolidates inequality in a democratic context. This program in itself is unpopular, so to save it from democracy, the plutocracy must develop other dimensions of political mobilization, such as ethnic grievances and outrage. The development of these dimensions means sustaining a number of organizations, of which the Republican Party is just one of the tools. A fair proportion of these organizations are very mobilized radical groups, that are vocal on issues that have little to do with inequality. By talking about many other things, the very rich manage to keep alive the political machinery that sustains inequality.
The alliance with radical groups and the priority of keeping unpopular inequality alive even justifies in the eyes of the very rich the attack on, or the erosion of, democratic institutions.
This is not new, as Hacker and Pierson dig into the history of other places such as Germany or Latin America, to find examples where the very rich also decided to abandon attempts to find compromises with democratic forces.
The book goes into the historical details of how this has been possible in the US, and how, as economist Paul Krugman often says, the Republican Party has become the Trump Party, but not because the current president has bought the machine, but because the machine had become desperate enough to look for a character like Trump.
In this way, modern right-wing national-populism is just another mechanism by which the very rich manage to make at least the forms of democracy compatible with increasing inequality benefitting the top 1% or less, which is one of the paradoxes of our time.
The only thing I missed from the book is a development of the title, since social media, and Twitter in particular, is one of the preferred tools of plutocratic populists such as Trump. But besides this, the authors do a great job at showing that if populism is an attack on élites, it is only a superficial attack, because the real economic and financial élites are the ones promoting the movement and benefitting from it.
Altough in the US context, things are clearer than in other places because both inequalities and the radicalisation of the populist leadership are so extrem, the devolpment is not circumscribed to America. In the case of Catalan national-populism, the big increase of support for the secession movement around 10 years ago, also came as a result of supply side efforts of traditionally center-right wing nationalists who where under big pressure to defend themselves from attacks for their support of austerity policies and their involvement in very serious corruption scandals.
We must take Trump very seriously, even if he loses the US election in 10 days (which he might not). Not only because of the individual, but because the individual has roots into something that is deeper and more disturbing, and that will survive him. And not only in the USA.

Sunday, October 11, 2020

Integrating modern populism into modern political economy

One of the most important political phenomena of our times, with important economic implications, is populism. The fact that it is difficult to define, and that it comes with many forms, is not stopping many researchers in social sciences from approaching the topic as scientifically as possible. 
In my course on applied microeconomics in the Master of Applied Research in Economics and Business (MAREB) in my university, I include a chapter on political economy where we discuss traditional social choice results such as the Condorcet Paradox, Arrow's Impossibility Theorem, and the Median Voter Theorem, together with modern developments on corruption and incentives in the public sector. I frame this in terms of a balanced approach between market imperfections and government imperfections, to justify its inclusion in a Micro course. These are some random thoughts as I prepare for this session, which should take place soon.
Almost all social choice theory, which is still very useful to understand the challenges of democracy, starts with exogenous and given individual voter preferences, and the role of the supply side in politics is quite passive.
A recent article by Dani Rodrik on populism emphasizes the role of supply, and the distinction between levels and changes in the support for populism. Although cultural issues may explain some constant aspects, economic changes related to globalization may mobilize some of the cultural prejudices. 
The survey by Guriev and Papaionnou in the CEPR covers definitional aspects, evolution and the economic and cultural drivers of populism, as well as a brief overview of seminal theoretical models most of which incorporate behavioral aspects.
These behavioral aspects contribute to explaining the Paradox of Voting through social norms and civic duty, or identity group voting as suggested in the book by Achen and Bartels "Democracy for Realists."
A dynamic view of exploiting political rents to shape the preferences would be more realistic for political competition. Bonica et al.'s article on why democracies do not stop concentrating income and wealth on the 1% should add a section on how emotions and identities are mobilized to make new dimensions salient and try to manipulate the perception of voters that otherwise would vote for their redistributive preferences.
And one final note: the fact that some rich regions have top academics supporting secessionist national-populist movements should not stop other academics from developing case studies about these cases, alongside references to Trump, Brexit, Salvini, Orban, Modi, Erdogan… Because the parties supporting these movements are classified as clearly populists according to modern measurement efforts.
When the future of human societies as we know them is at stake, the traditional view that public policies and economics should stay away from influencing preferences perhaps could then be revised.

Friday, September 25, 2020

Can Capitalism be "Alone" and "Shrinking" at the same time?

The title of the last book written by Branko Milanovic is “Capitalism, Alone” (I interviewed him about it for the magazine Política & Prosa). Samuel Bowles and Wendy Carlin wrote an article with the title“Shrinking Capitalism,” more or less at the same time that the book was published, just before the current COVID-19 pandemic, and then they updated it in a shorter version for Vox-CEPR. These are three authors that I know, admire and respect. But can capitalism be “alone” in the world today, as Milanovic argues, and at the same time be "shrinking," as Bowles and Carlin say? I find this debate interesting, these days that some of us are starting new graduate or undergraduate courses on introductory economics, public economics or micro. 

I have to assume that they wrote their pieces separately and independently. “Capitalism Alone” was written before the articles about“Shrinking Capitalism”, so the book could not anticípate the arguments of the articles. And the articles do not mention the book. The three authors share an interdisciplinary approach to the economy, and a concern for a fair distribution of income, wealth and power. They know marxism and neoclassical economics, as well as more pluralistic and recent approaches. They share a concern for the renewal of the discipline of Economics as well.

I checked whether the different perspectives on capitalism are based on different definitions. Bowles and Carlin say that “a defining feature of  capitalism is that work produced using privately owned capital goods is performed under the control of an owner or manager in return for wages, producing goods to be sold for profit”. Milanovic characterizes capitalism in his book as following the principles of “production organized for profit using legally free wage labor and mostly privately owned capital, with decentralized coordination”. The definitions thus are very similar. 

Bowles and Carlin emphasize the role played by different mechanisms of resource allocation, and how these relate to different paradigms and narratives in economics. They argue that today with COVID-19 and climate change, as well as in the past with the Great Depression and the Second World War, a new paradigm in economics is needed. The growing importance of the knowledge economy and the care sectors (this is the "positive" side of their argument), makes it very difficult to mobilize resources appealing only to the material incentives typically associated with the market system. Although the pandemic will move ideas and policies toward a bigger role for government intervention in the one-dimensional continuum between state and market, a third pole is needed to open up new possibilities to complement incomplete markets, so that the intrinsic motivations and social norms of communities and civil societies can be mobilized. The old preference neutrality of the economics profession should be replaced in this context by an active promotion of cooperative values (this is the "normative" side of their argument), something that markets and governments alone cannot do.

Milanovic takes a more macro and global approach, thinking more in terms of socio-economic systems than in terms of mechanisms of resource allocation. As compared to 40 years ago, the capitalist system does not have rivals because communism has basically been eliminated, except for some marginal and uninfluential corners. Although the diversity of capitalisms goes probably, as a review in the New York Review of Books has argued, beyond the dichotomy between liberal and political capitalism (US vs China models) that Milanovic proposes, there is little doubt  that the diversity of models has been reduced by the expansion of markets and the profit motive. If anything, even the Western type of capitalism is becoming more similar to the Chinese type, with the expansion of authoritarianism and global corruption. Although in "Capitalism, Alone" the positive side dominates over the prescriptive side, there are some policy recommendations (focus more on pre-distribution rather than re-distribution) and one can see in Milanovic a dislike for some features of capitalism, such as the commodification of household activities and other examples of overreach of the profit motive. So probably Milanovic would agree with Bowles and Carlin at least on some normative aspects.

If a synthesis is possible, I would say that capitalism has defeated other socio-economic systems, such as communism (although it has not always been this way), but its triumph has been accompanied by some dysfunctions that make it, in its real current versions, hardly suited to deal with many of our local or global problems. To tackle the pressing issues of our time, capitalism should at least make room for cooperative social norms and a new narrative in economics.

Saturday, September 12, 2020

The Brahmin Left hypothesis

In a 2018 working paper, and in his book Capital and Ideology, Thomas Piketty uses the concept of the Brahmin Left to refer to the decline of the vote for the left among the voters with less formal education, and the rise of the vote for the left or center-left among the voters of the educational élite. The concept has been very successful, even before the article being published in a major refereed academic journal, reaching the pages of The Economist (last issue) in a Charlemagne column on “the last of the center-lefties,” which questions implicitly, though, that the concept applies to the surviving center left parties of Southern Europe and Scandinavia.

In the three great democracies closely analyzed by Piketty, namely France, the United States and the United Kingdom (extended to other countries, such as Israel, in more recent research), during much of the 20th century a political system that fairly closely followed a logic of social classes, gave rise to redistributive policies, mainly the result of the periods of left or center-left governments. The majority of voters with low income and education levels voted for left-wing parties. However, these redistributive policies have suffered a brake in recent decades, coinciding with the conversion of leftist parties into those preferred by educational elites.

The relationship between the two phenomena suggested by this coincidence, however, is only  mentioned as a conjecture by Piketty, since he does not present a detailed study by which the evolution over time and by countries of the change in the preferences of educational elites, and the brake on redistributive policies have advanced at the same pace, nor that a clear causal link can be established between them.

The theoretical model he presents, in line with other works on the existence of multiple dimensions in political dynamics, offers plausible arguments, similar to those presented by other authors such as John E. Roemer, in the sense that the redistributive dimension may not prevail at any given time.

It could be that the reversal of the higher educated voter pattern of behavior reflected the access of broad sections of the population to education (a phenomenon recognized by Piketty), or at least the fact that education stopped being tremendously elitist. Although in the empirical work the social origin of parents and grandparents is controlled for and the change in educational elites persists, this only means that for two voters with parents and grandparents of the same social level, the one who has accessed a higher level of education will tend to vote more to the left. But it could be that the interest of this phenomenon is not that education makes one a member of an elite that the poor perceive as increasingly distant, but it could also be plausible that a person of humble origin with a better educational level is more difficult to convince with populist and identity demagoguery. Piketty's empirical work does not distinguish between these two alternative hypotheses. The conquest of the lower educational classes by national-populists, to the detriment of the left,  is not universal, as Piketty himself in his book shows that some national-populist movements, such as the one in Catalonia, can obtain most of their votes from educational elites and upper-middle classes.

The data confirm that the influence of income has been reduced but not eliminated (except in 2017 in France because it places Macron on the left, and in 2016 in the presidential elections in the United States); on the other hand, the results of the reversal of the vote for education are much clearer. Those with less income and especially those with less wealth have not clearly come to vote for the right, although they do less for the left. It is true that the sectors with a higher education level now vote more for the left and less for the right than before, although the majority of historically discriminated sectors such as women and non-dominant ethnic groups also vote for the left.

The theoretical part and the empirical part of Piketty's work are of great interest separately but are only loosely related. The reasons why policies that emerge from democratic processes have lost some of their redistributive momentum (although this has been the case to different degrees in different countries) are various. Some may be related to globalization and technological change, others may be related to expectations of future improvement and potential to benefit from inequalities, or the growing weight of money in politics, or the weight of non-distributive dimensions (which are strategically used or introduced by the upper classes, in a conscious way or by trial and error). Piketty's work, which is part of the efforts made by the social sciences to process phenomena that are taking place in the present and on which we lack some perspective, presenting very interesting empirical findings, does not show that the parties of the left or the center-left are captured by unconcerned elites, although it does not allow us to rule it out either. A video like the one showing a conversation between Barack Obama and Kamala Harris, where the former complains about the scarcity of running treadmills in rural America, would be an example of a key member of the globalized center-left élite not speaking exactly the language of common people.

There is little doubt that the left is under big difficulties in those places where identity has conquered the political agenda, with Ireland and Israel being two clear examples. As the allure of identity increases, an existential question for progressives is how to stop this process. The left continues to have its fundamental hallmark in justice (not only with regard to income and wealth) and redistribution. Its future lies in fighting to be effective in correcting injustices, and this probably requires an agenda that facilitates redistributive policies at the relevant geographical dimension in a globalized capitalism.

Friday, September 11, 2020

Public Economics in times of COVID-19

Next week I start a new edition of a graduate course on Public Economics that I have been teaching in the last few years. It is a 10 session (2 hours per session) course in the Master of Economics and Business Administration (MEBA) of the Autonomous University of Barcelona. This is a training (not research) 1 year Master’s program with students coming from all over the world with a diversity of backgrounds. Although this time we’ll have less students than usual due to the difficult travel conditions and fears, it seems there are enough students to start again, using a classroom big enough to keep social distance (or using virtual tools if the pandemic gets worse again).

The experience of the pandemic has made me think about adapting the content and the methodology of the course to what we are learning in the present times.

The course is structured around three blocks: welfare economics, social choice and behavioral economics. In the first part, the more traditional one, we discuss the role of different mechanisms of resource allocation, the two welfare theorems and related results such as the Coase theorem and the theory of the second best. The second part covers the main tools and models of political economy and why when markets are imperfect, we cannot just hope that governments will perfectly fix problems. (These two parts sound very theoretical, but we discuss empirical applications and policy issues related to these theories).The third part introduces students to the relevance of psychological issues in the economic analysis of public policies.

I will start this time by showing students the graphs in the article by Bowles and Carlin about market, state and communities, and their relevance in the current pandemic. In political economy, we’ll reflect about how populism changes the assumptions (or not) of the median voter theorem and how the pandemic may affect the interaction between politics and economics. In the behavioral part, I will try to discuss how the article by Raj Chetty in the American Economic Review on a pragmatic approach to public policies (combining traditional tools and behavioral tools) can be adapted to COVID-19 debates. 

Beyond the Chetty article, I will probably keep the article by Svensson on Eight Questions about Corruption in the Journal of Economic Perspectives, and the Nobel prize lecture by Elinor Ostrom, but I will introduce the article by Herrmann et al. on Public Good experiments (and ask students to replicate the results and do related experiments following one of the empirical projects in CORE), and the debate about Randomized Control Trials between Banerjee/Duflo and Deaton.

In terms of methodology, I will try to use as many of the technological tools I have access to for example through Moodle or Teams, in order to create debates, chats, have online meetings and tutorials. My concern here is that these tools will be used only by the most enthusiastic students, so I will think of strategies to have these more enthusiastic students helping me to involve the others. 

Ideas are very welcome.

Friday, September 4, 2020

Should you think like an economist?

In some introductory economics textbooks there is a section called "Thinking like an economist." There is even a podcast with this title. Probably a lot of what goes below this title is very interesting. But sending the message that students, or the public in general, should think like an economist (as if economists had a special, and good, way of thinking), is something I find hard to agree with.

In a recent talk and in her last book with Banerjee, Esther Duflo pointed out that the profession of economist is dominated by white men. In the context of the black lives matter movement, this has facilitated the knowledge of examples of discrimination and racism in the profession. Some have even talked about a culture of abuse in some academic or institutional environments. Of course, not all institutions or individual economists are racist or abusive, but there are serious doubts that the "representative economist" is an exemplary thinking person.

In questionnaires and experiments, subjects trained as economists tend to be more selfish and less altruist than average subjects. Compared to other academic disciplines, economists are more insular and self-confident, and less prone to cooperate with professionals from other scientific domains. There are some exceptions to this, like the CORE project, but the fact that this project is causing an impact and is sold as something new, shows that the profession is dominated by the opposite trend. 

As Duflo argues in the above mentioned talk, one reason why economists have almost as bad a reputation as politicians is that they are very bad at making predicitons, as specialist Philip Tetlock explains in his work. That is because they think too much as hedgehogs and not enough as foxes. Also, economists tend to overrate financial incentives as opposed to intrinsic motivation, which dominates in communities that are good at overcoming free-riding problems. To alleviate such social dilemmas, one perhaps should think less like the average economist and more like many people who are not economists, but who think like the cooperative species that we are.

Economists should aspire to be just good scientists, and be open to the influence of a variety of disciplines, including humanistic ones. Once a question is posed or a hypothesis is formulated, the methods should be those of the scientific method. In the selection of topics, there will be different approaches, different ways to think. There are good and bad economists, honest and dishonest ones, left wing and right wing, nationalists and cosmopolitans. Think like an economist? Which one?

Sunday, August 23, 2020

Soccer populism

 Are there any lessons to draw from soccer populism to political populism? By soccer populism, I mean making decisions to satisfy the short run pressure of fans to the detriment of the long run interests of the same fans, sometimes to the advantage of those making the decisions. Increased managerial turnover is one of the manifestations of soccer populism, but it is not the only one. Another one is rushed use of the transfer market when there is windfall money available from unexpected sales (the money from selling Figo, or the money from selling Neymar, using the history of my team as a case study). Managerial turnover is usually accompanied by massive use of the transfer market to satisfy the wishes of the new manager, once and again. Soccer populism is a massive phenomenon because fans have a lot of political power, sometimes directly or sometimes through media outlets that appeal to their instincts. One would expect that with empty stadiums, club officials may take decisions without the immediate pressure of fans, but it is too soon to tell, because traditional media and social media are far from deactivated when spectators are not allowed into the stadiums. The victory of Seville in the Europa League for the sixth time may provide some hope that a club managed in the long run interest of fans is not only a viable financial proposition, but also a successful formula on the pitch. Some experts say that the type of smart use of the transfer market mastered by clubs like Seville (the Oakland A's of soccer, for those who are familar witht the movie and book "Moneyball"), is not feasible in big clubs such as Barcelona and Real Madrid, precisely because of fan pressure. But the two Spanish giants this season have not made it into the semifinals of the Champions League, and have been falling behind other top European teams at least in the last two seasons. So they might as well try something new. Other teams in Europe, such as Liverpool, Bayern Munich or Leipzig, have followed a more scientific approach, from what I gather from dispersed and casual reading. Perhaps the top Spanish clubs could try a more consistent long run approach. In the case of Barça (my team) there is some consensus that the time has come to rejuvenate the roster. But how will this be done? One temptation is surely to keep those experienced players that are more popular in the media, and instead say good-bye to players that are less popular but perhaps have had a more honest career. Will the new manager (Ronald Koeman) be as tough in his decisions as when he was a player? Are there any lessons from this for politics? Probably the main lesson has to do with commitment. Managerial stability, long-run development of credible club cultures and styles (as Barça used to have) have analogies with credible policies. But of course these need to be explained to the electorate, and politically managed (sometimes making concessions), which means that good politicians and good political organizations are needed. Sometimes populist club leaders use their high profile in the sports industry to launch their political careers. Of course, some populist politicians try to use sport to their political advantage. Perhaps one lesson is that sports executives and officials should stay away from politics, and that politicians should stay away from sports. 

Tuesday, August 11, 2020

The ethical frontiers of field experiments

The Nobel Prize in Economics for the leading practitioners of Randomized Control Trials (RCTs) has not ended the debate about the status of this methodology in empirical economics. Although the Nobel lectures of the three recipients, Duflo, Banerjee and Kremer, recently published in the American Economic Review, contained a brilliant defence of the benefits to be obtained from carefully designed randomized field experiments, a previous Economic Nobel Prize winner, Angus Deaton, has also made public an update of his criticism of the status of RCTs. Deaton is careful to admit that this methodology (consisting of treating a randomly selected part of a sample with some policy or remedy in the manner of medical experiments) should occupy a place in the toolbox of empirical economists, but this place should not be higher in the hierarchy relative to other more traditional observational methods that do not rely on randomization. His criticism includes doubts that many RCTs are able to split samples in a way that the only difference between the treatment and control groups can be isolated to be the treatment policy, and also concerns that the difficulties in administering the experiment may outweigh any statistical advantages of a "clean" experiment. But  the most troubling questions concern ethics, "especially when very poor people are experimented on" with experiments conducted by economists from rich countries, often financed by corporations or foundations of corporations from the first world. For example, an experiment in political economy may change the result of an election: why should economists from rich country universities interfere with the choices of poor voters? Additionally, the external validity of some RCTs, that is, the lessons to be drawn for contexts other than those where the experiment is conducted, should be treated with extreme caution. What "works" depends on for whom and for what purpose; what works involves values as well as facts. It is not unusual that populist (sometimes with autocratic temptations) or tribalist leaders, like Modi in India, clean their reputation by hiring experimenters that dress his policies as the result of technical solutions, intensifying the ethical dilemmas. Jean Drèze, in an article mentioned by Deaton, stresses the impossibility of trying to sideline politics in development policies. 
A recent working paper of the National Bureau of Economic Research in the US, written by Paul Gertler of UC Berkeley and coauthors, is a good example of the ethical risks of randomized control trials. This article, in its working paper version, reports about the results of an RCT where citizens of poor slums in Nairobi (Kenya) were randomly threatened with discontinuity of water service for not paying their bills. The experiment was conducted apparently with funds and cooperation from the local utility company, and the result of the experiment is that threatening to cut electricity is more effective than a soft campaign trying to convince citizens of the negative effects of not paying the bills. From ex post surveys on citizen activism, the scholars conclude that the threat and subsequent payment of bills would not have negative political consequences, something that will hardly convince anyone familiar with the commitment problem of utility investment in countries with deep poverty and inequality problems. The protest against the use of experimentation on poor people in this article in Twitter was such, that the authors felt under pressure to publish a comment on the ethical issues of their specific RCT, promising to clarify these issues in a later version of the article. The question here is how to address the real and acute problem of underinvestment of utilities in poor countries with really ethical research, that is, research that does not rely on arbitrarily and randomly upsetting the life of vulnerable citizens. There is a very extensive literature on the time inconsistency problem in regulation (my Google Scholar profile contains a sample of modest contributions) that may provide a guide to the difficulties and possible complex second best solutions that do exist. More recently, there is work by Ashraf, Glaeser and co-authors, which explain the difficulties (and also the benefits) of expanding infrastructure efficiently in developing countries with a theoretical model, and then apply the model to explain the existing challenges in places that go from New York in the 19th Century to contemporary African cities. Possible ways to alleviate the underinvestment problem include setting up efficient institutions (not easy, and certainly not an apolitical process) that are adapted to the institutional endowment of local contexts.

Saturday, August 8, 2020

The victory of progressive economic thinking

(This is the English version of an article originally publshed in El Triangle, where the Catalan and Spanish versions can be accessed)
We knew that the market as a mechanism of resource allocation is a powerful coordination machine. But we also knew that its results can be greatly improved when there are phenomena such as external effects (or externalities: effects of decisions on other people who do not participate in the decision) or public goods (those goods which cannot be priced because they can be enjoyed freely). Furthermore, even in the absence of externalities and public goods (but also, and probably more so when they are present), the results of the market economy can be very uneven and generate serious social injustices.
What we did not know was that the experience would put before us a very powerful example of the imperfection of markets. This example has been the Covid-19 crisis. This pandemic presents very clear externalities: the decisions that each person makes can affect many others. That is why purely individual decisions, which only think about oneself, cannot be glorified. And in this case, that of a pandemic of global scope, scientific knowledge is more necessary than ever; this knowledge is a global public good that once generated affects the whole world, and, therefore, cannot be priced. And, furthermore, as we have seen, the crisis negatively affects some groups much more than others.
That is why it has been necessary, everywhere, to try to deal with the pandemic with mechanisms of resource allocation other than the market, in this case the state, above all, and also the communities, that is, the actions of freely organized people who acted out of intrinsic motivations beyond material rewards. The market has continued to exist, we have continued to buy some things paying a price, going to the supermarket, buying something online, asking for a service with an app. But our life has been altered above all by decisions made by public authorities. These decisions have been decisions about what we could do and what we could not do; but also decisions to mobilize economic resources to socially support the most vulnerable sectors (through loans or direct aid such as the Minimum Vital Income in Spain), or to economically promote a recovery on new foundations through the Next Generation EU funds, an authentic historic step towards a more federal Europe.
Communities have complemented the role of the state with the action of volunteer groups, with citizen participation applauding the sectors that gave more and responding in general positively to public instructions, and therefore facilitating compliance with regulations and reducing the cost of their enforcement.
During the initial months of the pandemic, a consensus has emerged among the most serious economists in the sense that there was no dilemma between health and the economy, but that we could not recover if we did not stop first (with the coercive action of the state) the contagion curve and, therefore, if we did not prioritize health. Those who have spoken out in the opposite direction have made the loudest ridicule among economists, epidemiologists and other experts.
The crisis has also made it clear that public mechanisms have to operate at different levels, because the pandemic acts from the global to the local level. Therefore, a federal co-governance is appropriate. Hence it was very important that the attitude of the European institutions, and of the main government of the Union, Germany, was very different from their attitude in the previous crisis. At all levels, these public mechanisms will require an increase in tax revenues, which will have to be applied to reduce the enormous inequalities that already existed and which the crisis exacerbates, and to boost the economy on a more ecological and more democratic basis. This also implies, in the self-critical line of some lucid sectors of capitalism, refocusing the company's objectives beyond profit maximization, and taking into account a more ecological and social perspective, as well as facilitating workers' participation in corporate decisions.
Conservative economic thinking had already been on the defensive with the previous global financial crisis. But it was the Covid-19 crisis that left him in a technical KO. The appeal for austerity, for the miraculous effects of the markets, is over; the justification of inequality and the trivialization of climate change is over. Today the great adversary of progressive economic thought, the one that prevents the egalitarian reforms of social federalism, is no longer the neoliberalism of Friedman, Thatcher and Reagan, but rather it is the national-populism of Trump, Bolsonaro, Modi and their advanced followers in Catalonia. This national-populism has been defeated with the agreement for Next Generation funds in the European Union.

Saturday, August 1, 2020

Cultures of abuse and science fictions

All economists should read the post written by Claudia Sahm about the culture of abuse that she has experienced practicing the job of academic economist. Unfortunately, it is difficult to find an economist that has not experienced examples of abuse in this hierarchical and clubby profession. The experience is worse for women and for ethnic minorities. Anyone who is not a candidate for the Nobel prize (that is, most of us), and even some Nobel prize winners, have been victims of intimidation and abuse by the gatekeepers of the profession. I have been very lucky to know exceptions to this unfortunate trend, professors that did not need to be abusive or intimidating to keep high standards, thanks to whom I decided to have an academic career when I probably had other options in my life. But especially when you don't satisfy the stereotype of a typical profesional economist, when you have some stain, you will receive more or less subtle messages during your life that will tell you that you are not always welcome in the club. It happened to me when I received an intimidating and sadistic discussion in a seminar by a colleague PhD student in Florence, probably encouraged by a Professor who thought that, given that I had studied history before economics, and that I had a previous experience in politics, I deserved a lesson. That colleague student is today a Dutch right wing controversial politician that has led the opposition to the EU solidarity funds in his country (other Dutch colleagues have opposed him in the social networks). Other times, I have been reminded with patronizing comments that I was not a conventional economist, which to me is a compliment but not to the patronizers. In any case, I cannot complain, and perhaps as an academic I have later even incurred in less than friendly or altruistic behavior. Like a tweet that Sahm has received from a student of hers, we have all probably fallen at some point into the too many times dominant culture of success and hierarchy.
I am not sure that it is exclusive of economics. Perhaps there is a surplus of arrogance in economics as compared to other social sciences. There is certainly a culture of abuse in politics and other competitive activities, although in my personal experience I would say that politics today (at least center left politics) is less hierarchical and abusive than 30 years ago (is it because there are more women in important positions?), but of course I can only speak subjectively and with anecdotal evidence. In other academic disciplines, abuse and hierarchy are not infrequent. In his book "Science Fictions" scientist Stuart Ritchie speaks of intimidation even among medical doctors experts in the Alzheimer's disease, as some try to protect their favourite explanations of the illness. In this excellent book, the author gives plenty of past but also contemporary examples of non-random scientific errors (including in economics; Christensen and Miguel have an interesting article on how to minimize them in our field) due to fraud, incompetence, bias (including publication bias) or hype. All of us could add examples of unethical reporting of scientific economic results, to the few ones reported in the book. The competitive nature of scientific careers provides plenty of incentives to incur in unethical behavior. Of course, the answer is not to be skeptical of science, but to improve science, precisely because it is a public good about which we cannot afford to be skeptical. We need an ethical revolution in economics and other scientific disciplines, one that stops the culture of intimidation and abuse, opens science to all talents, and removes fraud and conscious or unconscious manipulation of scientific results.

Friday, July 24, 2020

COVID vaccines: an example of a most needed independent regulator

My modest experience in doing empirical work has taught me humility and skepticism. That is because often data tells you that what you thought was probably completely true, actually gets qualified a lot by empirical evidence.
That happened to me when I was studying the empirical effects of Independence in practice for telecom regulators in Latin America, with my friend and colleague Miguel A. Montoya (mostly in his PhD thesis, which I supervised). In my previous theoretical work on the topic, with Jon Stern and Paul Levine, we concluded that independent utility regulators were as important, if not more, than independent central bankers. However, once we accounted for a continuous measure of independence in practice (difficult), and once we accounted for the endogeneity of regulatory independence (difficult), the effect on investment in telecoms was significant, but very modest. There were probably things, at least in Latin American telecoms, that were more important for investment than the independence of the regulators.
There are many other examples of empirical results that disappoint the theoretical or policy expectations. That is the case for example of microcredits, as explained by Esther Duflo in her Nobel Prize speech (published in the last issue of the American Economic Review). Or it is the case of small class sizes to have a positive impact on learning results, as explained in the econometrics textbook by Stock and Watson. Does this mean that independent regulators, microecredits or class sizes never matter? No, they still may matter a lot in some cases, and actually empirical work can help understand the heterogeneous effects of these treatments.
Sometimes, we may  have to make a judgement about the effect of these treatments in particular cases, in the absence of data. It would be very interesting to study what is the impact of expert commissions on policy in general; my bet is that this impact is very small, as these commissions are many times an exchange of legitimacy for the politician for ego for the experts, but of course in some cases experts are a matter of life and death, like in a pandemic. One particular issue in which regulatory independence seems to me crucial now is in the approval and distribution of a vaccine for COVID-19 in the USA. The combination of a context where corporate lobbying is a massive phenomenon, vaccines are produced by private sector corporations, and there is a presidential election where the incumbent president is desperate for votes (and not known for his respect of democratic institutions) creates a context that will require, at least for once, really insulated Independence of the Food and Drug Administration, which, if I am not wrong, is the agency in charge of approving the vaccine. I can easily imagine a nightmare scenario where Trump accelerates the approval of a vaccine in collusion with a corporation to boost his election prospects some weeks before the election.

Sunday, July 19, 2020

Performance enhancing drugs and finances

The recent two chapter ESPN documentary about the rise and fall of cyclist Lance Armstrong (which I watched in a Spanish cable platform) tells both the personal story of the cheater and the psychological character behind him, and the institutional history of the struggle between a clean sport and doping. On the personal side, it shows the two faces of a mostly serial selfish man, who is capable of crying for his son, but at the same time is unable to remember the number of the T-shirt with which the son plays in a football team. Or who treats arrogantly and dismissively most of other riders in the peloton, but at the same time shows empathy and love for his main rival at the time, the (also disgraced) German Jan Ullrich. The conclusion one draws is that Armstrong shows many of the tendencies of normal human beings, and therefore one must not expect much from their individual heroic decisions to fight doping. Therefore, the need for institutions.
On this, the documentary explains how the world cycling federation, UCI, colluded with Armstrong until the last minute to protect him as a heroic cancer survivor who was a great magnet to draw fans from all over the world, and especially the USA. Although Armstrong took illegal substances from very early in his career, it was EPO, administered by the meticulous Italian doctor Michelle Ferrari since 1996 (after a short resistance by Armstrong when according to him EPO started to become widespread in 1993),  that probably put him under what he calls high octane doping. Then, by coincidence or not, he had a cancer that was very close to take his life, he survived, and he came back to win seven "Tours de France", the most prestigious cycling race. When he was still recovering, in 1998 the Festina scandal (the police arresting a team of cyclists in the French race) triggered the creation of the World Anti-Doping Agency, which is today the top global authority on illegal drugs in sport. Lance Armstrong became rich and powerful as a result of his victories and his heroic story, and it was not until 2009-2010 that he began to be investigated, not by sports authorities, but by federal judicial authorities in the USA, after several press reports had questioned his practices. Although this initial investigation was closed without conclusions, it was soon re-started by the US anti-doping agency, which finally found Armstrong guilty of doping after many former team mates testified against him.
In European soccer (football) there is not much talk of performance enhancing drugs, but there is talk of performance enhancing finances. The European football federation put in place some years ago the Financial Fair Play (FFP) regulations in collaboration with the European Commission, the European Union executive body. These regulations were meant to alleviate the unbalance produced by a series of huge investments in top teams that came from sources of finance located in sovereign or other funds of autocracies like Qatar, Abu Dhabi or Russia, investing in teams like Paris Sant Germain (PSG), Manchester City or Chelsea. The regulations establish that money invested in soccer should come form soccer revenues. The loophole is that these clubs have apparently found very easy to inflate sponsorship deals with brands that draw from the same funds, to be compliant with the letter of the regulation. That is why this week the Court of Arbitration of Sport (CAS) has ruled that Manchester City had not broken the rules, as previously established by UEFA, and would be able to play next season in the European Champions League again. Some authors like Stefan Szymansky have claimed that these regulations are unnecessary, because what these investments do is to increase the number of teams that credibly compete at the top level, reducing the dominance of traditional clubs like Real Madrid, Bayern Munich, Juventus or Barcelona. It has to be said that there is some hypocrisy about money coming from outside sources, as traditional teams in some cases have benefitted from tax privileges that have allowed them to sign and retain some of the best players in the world, or their countries have used other sources of tax payer money (like public broadcasters) to support their national champions. Is performance enhancing finance a big problem in European soccer? Yes, but it is very difficult to fight. The ethical doubts raised by the origin of the finances of clubs like Manchester City or PSG should probably be directly addressed by conditioning the participation of their clubs in European competitions to high ethical and human rights standards in their owners' other areas of business (namely, ruling their countries). After all, that is probably one of the main strengths of European institutions: their ability to put conditions to participate in European club goods.
What the history of performance enhancing drugs can teach to performace enhancing finances in sport is that fighting them is a long and winding road.

Sunday, July 12, 2020

Some light on populism

In his last book on "Capital and Ideology," Thomas Piketty dismisses populism as a category that deserves much attention, as according to him, it hides what is essential, which is how dominant sectors in societies build justifications for inequality throughout history. However, by so doing, he neglects the role that populism may play precisely as a tool used (with some risk) by dominant sectors to obfuscate domination and the true sources of injustice.
Some recent articles on the economics and politics of populism throw some light on this complex and evolving issue. At the end of 2019, the Journal of Economic Perspectives published some articles from a Symposium on the topic, including an article by Sebastian Edwards updating his early study of populism in Latin America, and comparing it to modern versions of populism. One of his conclusions was that the more recent populism is more about short-termism in microeconomics rather than in macroeconomics. In that issue, there is also a very interesting article by Yotam Margalit where the author suggests that cultural and economic factors interact in a subtle way in causing populism.
This week I became aware of two more recent articles, which deal extensively with the difficult issue of defining populism itself. Sergei Guriev and Elias Papaioannou, in a long survey of the literature, suggest a minimal definition based on aspects shared by most other definitions, centered on the twin concepts of anti-elitism and anti-pluralism. Anti-elitism in the name of the people would provide the justification to go against checks and balances, and anti-pluralism would be at the root of a homogeneous view of a virtuous "people." The part of the survey devoted to the complementarities between populism and modern social media is especially instructive. Similarly to Edwards, they compare old and new versions of populism, and they conclude that the new versions are less damaging for the economy, although they have a negative impact as well on investment, inflation and other magnitudes. However, the biggest damage caused by populism is not on the economy, but on social and political institutions, both formal and informal ones, as populism erodes the basic institutions of democracy, as well as trust and other social norms. In another article, just published in Comparative Political Studies, Meijers and Zaslove provide what is in my view the best summary of the empirical challenges of measuring populism taking into account all the dimensions of the phenomenon. To do that, they use the opinions of experts on a number of separate dimensions of populism (not their opinion on "populism" as such), and they provide measures and correlates of populism for 250 parties in 28 European countries.
Interestingly for phenomena I know (and suffer) well, these 250 parties include the two parties that lead the pro-independence movement in Catalonia (from the regional government), PdeCAT and ERC. The two parties score  on populism far above the Basque Nationalist Party and at a similar level as other parties at the national level in European countries that are well recognized internationally as clearly populist. At the beginning of the surge of the pro-independence movement in Catalonia in 2012, one of the arguments given by some academics close to this movement, was that independence would be used to build new and high-quality institutions that would replace the, according to them, weak Spanish institutions. However, today Spain scores very high in most dimensions of the quality of democratic institutions, and the pro-independence parties have eroded the self-government institutions and questioned the rule of law. Like it happens with other populisms in developed countries according to Guriev and Papaioannou, it has been the judiciary and other powers of government in our multi-level democracy that have prevented populism from causing more damage.

Sunday, July 5, 2020

Protected enclaves are not going to change the world

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

Sunday, June 28, 2020

Teaching economics for a better world

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

Sunday, June 21, 2020

In defence of (good) politicians

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

Sunday, June 14, 2020

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

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