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.