The Paradox of "Don't Look Up"

OK, I already watched “Don’t look up,” the Netflix movie that presents a caricature of the relationship between scientists, politicians, business tycoons and the media in the hypothetical event of the extinction of Planet Earth. It is a bad movie with very famous actors and actresses (my opinion, but also the opinion of the experts on cinema that I read).

The paradox is that so many people has taken the caricature seriously. The social media and the traditional media are these days full of pieces of very serious journalists or even scientists stressing the “lessons” that can be learned from the film. Most (not all) of them acknowledge that “Don’t Look Up” is not a realistic description of what would happen in similar circumstances (if similar circumstances could ever happen), but after this brief acknowledgement, they go on with some very serious thoughts about the need of evidence-based policies, of a rigorous media, of scientists that communicate well, of honest politicians… I read in a local newspaper, for example, that “it is one of the works of fiction that best describes what we call the world of today.”

It is a paradox because although the film doesn’t have any more rigour than a cartoon to make children laugh, the really interesting story (the meta-film, perhaps) is that, in a way that maybe Orson Welles would have enjoyed, it has been taken seriously by relevant sectors of the scientific, political and media community.

In the Spanish newspaper El Pais (also in its English version) there is a very good piece by Javier Salas, who usefully reminds the reader that the film is a comedy, and that in the real world, it wouldn’t be precisely lone scientists like the character interpreted by Leonardo Dicaprio to warn us about an apocalyptic event. The human species, as explained by Salas, has actually developed quite sophisticated global public goods that work very differently from what is explained in the movie. It could be added that most politicians in democratic countries and international institutions are not like the character interpreted by Merryl Streep, and even when they are (like it happened with Trump), there are still relatively well-functioning checks and balances that address the issue, and perfectly dressed scientists like Anthony Fauci who remain in their positions even after the democratic mechanisms dispose of the disfunctional president. It could also be added that there are media institutions like the CNN or the BBC (or El Pais) who do a pretty decent task of communicating the scientific truth and who are not neutral between posttruth and democracy. It could also be added (and many examples could be given of it) that there is a fluid relationship between the realms of politics and science, with many scholars (for example, in my discipline, economics) crossing the boundary between both from time to time in one form or another. Needless to say, this does not mean that we leave in a perfect world, but we are not going to find clues about how to seriously improve upon it in this absurd movie.

It is a paradox that some people who pretend to see in the movie a criticism to some negative trends in our society, have given an example of seing in it exactly what one wants to see (also called confirmation bias). Others have complained about the banalization of politics when by taking the movie seriously they have been the first to contribute to the phenomenon. I admit that it is also a paradox that I am wasting my time commenting on this.

I agree with what the young Spanish economist Monica Martínez Bravo has said in a tweet: "What we need is to figure out how to "speak to" the skeptics, those that feel "left-behind" by the political and economic system and find appealing incompentent/populist leaders. Not sure this movie will help on that..."

And to speak to the skeptics some more action will be needed out of the comfort zone, but using the real world as a starting point. To me the movie though has a couple of optimistic messages for middle aged men: Jonah Hill can lose weight and Leonardo Dicaprio can be ugly. And that’s it. Happy new year!

Regulatory commitment in twenty-first century democracies

It is well-known that one of the key challenges in utilities’ regulation (to some, "the" key challenge)  is the commitment problem. Regulated firms have the opportunity to undertake massive long-lived specific investments, and then the regulator, once the investment has been sunk, decides whether and to what extent to remunerate the investment. In democratic societies, regulators face strong political pressure not to remunerate the sunk investments, or at least strong political pressure to remunerate them below the opportunity cost of capital. This is so especially in low or middle income countries, where there is a strong demand to use the utilities’ quasi-rents to fund social programs or to address other urgent political priorities. Anticipating this behavior by representative regulators, the regulated firms are tempted not to invest in the first place, leading to an underinvestment problem. Although there is investment in utilities, for this reason it is almost surely sub-optimal.

Throughout history, different polities have developed different institutions to alleviate this problem, from public ownership to independent regulators. I wrote about it here, among other places. Pablo Spiller and his co-authors emphasized that each country tries to fix this problem according to its institutional endowment. The recent book by Auriol, Crampes and Estache addresses this and other pressing institutional problems in regulation in a specific chapter.

Last week I was in Chile to attend an event on water regulation where I gave a presentation on some ideas about how the Chilean regulatory model may evolve after the crucial presidential election they hold this week on Sunday. Of course, much will depend on which of the two presidential candidates wins in this very polarized vote (between the right-wing Kast and the left-wing Boric), but both the two contenders and the candidate who was third in the first round can fairly be characterized as different brands of populists.

The Chilean case in the Spiller framework about commitment institutions that are adapted to the institutional endowment (in comparison for example with the UK, where commitment is based on licences and independent regulators), consists of achieving commitment through detailed legislation (guaranteeing a safe rate of return to private investors) and legislative institutions where it is very difficult to introduce legal reforms. These legislative institutions are based on the Guzmán Constitution of the General Pinochet years, which has been the main motive of the social mobilizations that have triggered the political changes that is experiencing the country: the Boric movement, the Kast reaction, and the Assembly to write a new Constitution. The text of the current Constitution can be interpreted as just one aspect of a system of extreme protection of private property rights that was the legacy of the military dictatorship.

This framework has not prevented Chile (some may even say that it has facilitated it)  from achieving high levels of service availability in water (and other utilities), although now it faces serious challenges in terms of droughts and climate change. The protection of property rights and the center-left governments immediately after the dictatorship that prioritized the eradication of poverty allowed for the extension of service, but probably are not enough today to guarantee the levels of private and public investment and government intervention that are going to be needed to fight climate change, severe drought and water imbalances.

Chile is a good example where the second best institutional fixes to the commitment problem do not really solve, but they relocate, such commitment problem, which becomes a problem of the political system committing or not to preserve these second best institutions. For example, the straightjacket on Chilean legislators has not proven robust to a generation of citizens that are less ready to support with their votes an extreme level of protection of property rights.

It will be very interesting to analyze how the Chilean regulatory model evolves in this disruptive, but happily democratic, times. Second generation commitment devices will be needed if underinvestment is to be avoided. Some experts on the relationship between populism and economics have claimed that the risks of the current wave of populism are more microeconomic than macroeconomic as they were in the past (perhaps climate change denial on the right, and property fetishism on the left?). The younger and left wing candidate, Gabriel Boric, has been advised for the second round by what the Chilean media has called a center-left technocrat, former Yale academic and current professor at University of Chile, Eduardo Engel, co-author of a widely read book on public-private partnerships. One can see that the existence of a second round is also a commmitment device to avoid extremisms… although the new Constitution could in theory also change that.

Worker Cooperatives in the Classroom

"Was John Stuart Mill wrong?" This is the question of an exercise of the e-book The Economy (CORE Project), which I discussed last week with my introudctory economics students in the new degree on History, Politics and Economics at my university. Mill had said that in his times, there were no more worker cooperatives because workers lacked a good enough education, but he added that with the universalization of education, workers would be better prepared and worker cooperatives would expand. However, the puzzle remains today about why in a democratic society with universal education, the working majority have not been able to generalize an economic organization where this majority has the power.

My students had to do some research and they came up with some standard reasons: the combination of scale economies and financial imperfections, the accummulation of risk for worker-owners, the fate of takeovers by conventional forms, incentive problems because of free-riding in team effort, and the improved outside options (as compared to Mill’s times). They also pointed out systemic effects: competition with lower salaries from conventional firms, lack of accompanying institutions…

These problems are compensated by many benefits, otherwise it is hard to understand why there are still so many cooperatives or firms with intermediate forms, like those with worker representatives in relevant boards (like in Germany), or those with participation of workers in the ownership of an otherwise capitalist organization (shared capitalism).

Cooperatives are still more democratic than conventional firms, and in some cases they are more efficient or at least not less. In the knowledge and care economy, where intangibles are more important than in the past, they may increase their relative importance. As Dani Rodrik said, firms with worker participation may be better at internalizing the effects of production in local communities and at creating good jobs in complementarity with place-based policies.

Specific cases, like self managed firms in Yugoslavia, may have ultimately failed not because of self-management being a bad idea, but because of the weight of a single-party system and the lack of outside options.

A student said that a social revolution is necessary to make cooperatives sustainable. That’s perhaps too strong a statement, but he is probably right in that to have an environment more friendly to cooperatives some global changes are necessary.

There IS such thing as society

There is a famous quote by Margaret Thatcher, where she said that “There is no such thing as society.” Although what she exactly said was more nuanced than the literal interpretation that is usually given, the sentence came to symbolize the idea of an atomistic and individualistic human world, where each one should basically care for him or herself. 

The Covid-19 pandemic has shown instead that there IS such thing as society. It is precisely because we live in society for many good reasons (and in contact with non-human animals), that we are vulnerable to diseases. And only through collective action we can defeat the pandemic, that is through a combination of the coercive action of government at all levels and the consent and civic participation of citizens.

John Gowdy has the opposite view of Thatcher, and he argues that we are an ultrasocial species. Like ants and other social insects, according to this scholar the human individual is now subordinated and guided by the blind will and reproductive instincts of the species, to the detriment of free will and happiness.

Whether we are a social or an ultrasocial species, we have at least cooperative instincts, and that is key to understand why we have adapted to most of the Planet, and also why we may be in the course of destroying our own life in it. The expanded role of government that even the liberal magazine The Economist (in its last issue) has come to accept as a necessary fact of life with the pandemic, will if anything consolidate with the need to stop climate change.

Our social instincts have their origins in the hunter-gatherer groups of our ancestors, and have been applied with success in families, nations and other groups. The challenges ahead force us to apply the same instincts to the whole planet. Following Amartya Sen in “Identity and Volence,” it would be the wrong kind of federalism to accept that we live in a federation of pre-defined communites, cultures or religions. We all have multiple identitities, and it is this pluralism (and not a naïve view that we are all the same) that can make us aware that we share some identity dimension with someone with whom perhaps we do not share other dimensions.

We need more socialdemocracy in a multi-ethnic society: we should have the solidarity of Scandinavian countries in communities that are as diverse as the USA. Eventually, and as soon as possible, we should have world solidarity –or face extinction.

Teaching economics as if nothing happened inside the firm?

For many decades, economics textbooks treated firms (and government agencies, and other organizations) as black boxes. It is strange that a person who studies economics in the university can be introduced in microeconomics, and in the discipline in general, without analyzing the relationship between employers and workers, which is, perhaps, the core relationship that defines our economic system. It is as if one wanted to keep youth protected from intellectual and political debates, and the ideologies that have shaken mankind in the last two hundred years. 

All they will see, if they use any of the so far dominant textbooks (until the publication of the CORE’s Project free e-book The Economy) is the same graph of supply and demand in a perfectly competitive market, typical of some consumer goods, applied to the supply and demand of labor. Apart from this graph, in the up to now dominant textbooks, nothing is said about what occurs within the firm between owners or managers, and the workers, nor on the implications that this relationship has for the structure of the whole society. 

However, as Coase and Simon stressed, many, perhaps most, of the relevant trasactions and decisions in an economy take place inside the firm and not in markets. Decisions about working conditions, job allocation, promotions, hiring, outsourcing, plant closing… take place inside the planned economy that is a capitalist firm. The incomplete nature of labor contracts introduces the role of power and authority, something that both Marx and Coase, from different perspectives, emphasized.

The allocation of talent, the internal organizational design and the allocation of effort to different tasks, which happen inside the firm and other organizations, determine not only the opportunities that different individuals have (and hence have distributional implications), but also the efficiency and productivity of the whole economy. 

This is why, if you use the e-book The Economy with your students (as I do), these will be exposed to what happens inside the firm, opening the black box, before they see a supply and demand graph.

Public-private projects and beyond

I gave yesterday a lecture on public-private partnerships at a Master for public servants. I gave them material on the literature about formal and conventional infrastructure public private partnerships from economists and business schools, but we spent most of the time talking about their own experience in the local and regional government with projects that involved both the public and the private sectors. It was easy for the students/public servants to come up with examples of projects with public and private inputs.

It was clear from both the examples and the literature that both the public and private sectors had by their nature strengths, weaknesses and common challenges. We concluded  that we need high capacity governements at all levels and that strong governments are complementary of good public-private projects.

We focused also on problems of cost underestimation of infrastructure projects, renegotiations and corruption (which are interrelated). Some of this is covered in the work of Chilean economists Engel, Galetovic and Fischer, including their 2015 book on PPPs and their more recent article (with Campos) on the Odebrecht case. Bengt Flyvbjerg has a recent very interesting article on the persistent bias of cost-benefit analysis of infrastructure projects to underestimate costs and overestimate benefits. To counter this trend, he proposes to introduce statistical and institutional measures to de-bias estimations, to punish (with jail if necessary) the more scandalous cases of mis-estimation, and to democratize the evalutaion of public projects along the lines of the work of social psychologist Slovic instead of the technocratic cost-benefit analysis promoted by authors such as Sunstein.

We will need more and better public intervention, complementary of civic participation and consent, to face pandemics and the climate emergency. We need to increase the efficiency and productivity of public projects, and mobilize all the resources of society in a transparent and fair way to face these challenges.

We had everything

(This is an English version of my review of "Barça," the book written by Simon Kuper. The book review is originally published in Catalan in the paper version of the November issue of the magazine Política & Prosa)

Barcelona is a city that has everything, prosperous and powerful. It is one of the best places to live on the planet, if you can afford it and you have the opportunity to do it. It is the place they chose to work and live some of the great talents of football, such as Cruyff and Messi. The love story between Barcelona and the great talents of world football is told by journalist Simon Kuper in his book about Barça, published in the summer of 2021 after two years of research. Kuper came to study the success of the club, and has also ended up writing an extraordinary chronicle of its sporting, organizational and social decline. 

Between 2008 and 2012, with a prelude in 2006 and a brief resumption in 2015, Barça became the most successful football team in the world and the one that played the most attractive game. The human and random roots of this prodigy are explained in this book, and have little to do with the skills of the officials who ran the club during those years. On the contrary, the last chapters of the book explain how the directors who presided and continue to preside over the phenomenon, were and are unable to govern the cycle and give it continuity, and have led the club to a decline that has already begun, of unpredictable duration and dimension. 

Sometimes it takes an outsider to tell us the truth, like in the movie Spotlight (where a Jewish journalist from Florida shook the waters of Catholic and inbreeding Boston), or like the BBC with the attacks of March 2004 in Madrid, or as the New York Times with the Russian connection of the Catalan independence “process.” The publication of the book coincided with the traumatic departure of Messi, about which neither the board that finally announced it, nor the local media, had been able to warn in time of its inevitable nature (if Kuper had the data of the financial collapse, current President Laporta also had to have them in the fall of 2020 when he ran for the job). Kuper is an unashamed cosmopolitan (what some contemptuously call a “globalist”), immune to identity demagoguery and capable of valuing diversity and imagination. To write the book, he spoke empathetically with half of Barcelona (and valued its plurality) and had wide access to the club and its protagonists. 

The football of the last 50 years will probably be analyzed in a while as the result of two shocks. The first shock, produced by the confluence of the Bosman Ruling and the new television and competitive formats in the 1990s, took Barça very well prepared, and laid the foundations for successes, which also had a random component (a difficult to reproduce generation of players from the academy), around 2010. The second shock, however, that of the Covid-19, with the sudden reduction in revenue (and the consequent desperate search for new formats such as the Superleague or the World Cup every two years), has taken the club at a very bad time, and may negatively condition its performance in the coming years. 

The good years were based on an academy that had been solidifying in the 1980s and 1990s, based on good coaches and infrastructures, which made Barça an attractive place for Messi or Iniesta. And they relied very fundamentally on a tradition of good football that had arrived in Barcelona from the Netherlands in the early 1970s, first with Michels and then with Cruyff the player. The arrival and slow consolidation of Barça as a hub for Dutch "total football" was the result of a process of trial and error, testing what seemed to be successful elsewhere. Between Michels and Rijkaard (from whom it can be said that there have only been pro-Dutch head coaches, with the exception of Tata Martino, although before Guardiola there was speculation with Scolari and Mourinho), the best coaches were signed, be they German, English, Argentine or Spaniard. Kuper expresses his admiration for Cruyff and Guardiola as coaches, and more generally for Dutch football. Cruyff was a genius who revolutionized tactics (radicalizing Michels’ offensive concepts) and Guardiola systematized and professionalized the bet. The author of the book draws a parallel between football innovation and Schumpeter's concept of "creative destruction" in economics. Van Gaal, an intermediate step with much worse press than Cruyff and Guardiola, who made Xavi, Puyol, Iniesta and Víctor Valdés (mainstays of Guardiola's Barça) debut in the first team, as the author of the book says, was a “cruyffista,” though he would never admit it.

Admiration for Cruyff is not blind and uncritical. Kuper explains his misunderstanding with the Dutch star in an interview, and recalls that Cruyff was lucky with some of the titles he won as Barça coach, and that, like other football superstars, he was surrounded by chamber journalists and flatterers (“yes-men”). Perhaps one of Cruyff and Guardiola’s main innovations was to value short, relatively fragile players, who were traditionally undervalued by clubs. As in the book and film Moneyball (where Michael Lewis explains how manager Billy Beane revolutionized the baseball transfer market), the tradition was based on prejudices about the physical appearance of the players, that Cruyff and Guardiola's Barça (and also of Van Gaal and numerous coaches of the academy) left behind. Another virtue that Kuper praises is that Guardiola was influenced by ideas from other sports, something that a multi-sports club like Barça facilitated. The fact that Kuper is not as uncritical as the local press does not prevent him from sometimes exaggerating his praise a bit. For example, when he says that Guardiola (a coach whose successes have always been accompanied by huge quality players) "like Cruyff was only trying to sign players who were in the top ten or who played in places that the Masia could not cover" . Certainly when he wrote this he did not have in mind the names of Romerito, Korneiev, José Mari (signed by Cruyff), or Chigrinsky (signed by Guardiola). 

Barça does not escape some empirical regularities of football: the economy of the superstars that shake the finances of the clubs, the populism of the directors, the need to share income with rivals… But, in addition, the directives from the successes around 2010 succumbed, perhaps understandably, to the “hybris” of thinking that they were endowed with a magic wand, and they never thought that bad years would arrive, as if that success were not absolutely extraordinary. Barça has become a case study of how to fail in the preparation for the future. The financial pressure of the big stars reached its climax in the second decade of the 21st century with Messi, the best player in the world, and the financial and sports discipline was relaxed. No one dared to tell Piqué, Busquets or Alba that their time had come. Although Barça ranked as the highest-revenue club in the world, it also ended up as the most indebted. This happened especially with Bartomeu as president ("a gazelle among lions", perhaps because of all the recent presidents he has been the farthest from the cores of football corruption), but his weakness also stems from an environment uncritical with the big stars and a Cainite climate among the families of the bourgeoisie who want to preside over Barça, a club that combines the democracy of the members and the oligarchy of the leaders (one must have enough collateral to be one). If Kuper does not fall into the false dichotomy between Cruyff and Van Gaal, he falls even less into the supposed contrast between Rosellistas or Laportistas (derivatives of the names of two presidents), so familiar to the Catalan press. They are all members of what journalist Cristian Segura has called the Upper Diagonal (the rich neighborhoods of the city) in the book "Gent d'Ordre." Over time some of those who have praised Cruyff so much have forgotten key aspects of his legacy, such as that the academy is about traing and its coaches should not be punished when the teams do not win what they are expected to, or that the dressing room is inviolable. 

At some point, Barça as an organization stopped learning and being open to the best of what was happening in the world of football. If Spain gave a Dutch Football lesson to the Netherlands at the 2010 World Cup, Bayern gave Barça a Total Football lesson in Lisbon, still with Messi, Suárez and Griezman. Today, the best Total Football is played in England and Germany. Meanwhile, Barça no longer have distinctive features and has become a club with the defects of so many others, returning from hunting without any piece in recent times, as influenced by the inertia of Catalonia in the independence process: “the unarmed army of Catalonia fights against himself,” says Kuper in a description of the extraordinary political climate, which highlights the risk that a Barça with an openly pro-independence president (like Laporta is) will stop uniting Catalans. The book was just written coinciding with Laporta's accession to the presidency in 2021 after a campaign in which he promised that Messi would continue (it would be so easy for him to convince the Argentinian), and before Messi's departure, that no one in the local press could anticipate. Kuper has no illusions about the ability to manage of an impulsive Laporta, who is remembered in the book for an unfortunate sexist incident on election day. 

Possibly the success of 2008-2012 was a unique mirage, but if talent could not be retained, much more could have been done to maintain the ability to produce, acquire and retain it, or plan the succession. When Cruff, Maradona, Rivaldo, Ronaldo, or Ronaldinho left as players, Barça continued to win titles. It will be difficult for it to happen again, because the shock of the pandemic has hit Barça at a bad time. But it is not written in stone that it can never happen again, because there is still a rich and powerful city that attracts with its magnetism, and a large community of fans with a feeling passed down from generation to generation.

"Apeirogon" and "Haifa Republic"

The novel “Apeirogon,” written by Colum McCann, is about the friendship and activism of the Palestinian Bassam Arami and the Israeli Rami Elhanan, united by the tragic loss of their daughters in acts of violence. I thank Marta Fraile for convincing me to read this fantastic book, from an article she wrote in El País.

The novel is based on real facts, and uses an absorbing narrative technique made of short 1001 chapters (counted in ascending order from 1 to 500 and then in descending order from 500 to 1, with an isolated page 1001 in-between) of very variable extension, where time goes back and forth,  and a diversity of interconnected fields (from biology to mathematics) are touched. One chapter for example just reports that the average life expectancy of Palestinians is 72.65 and the equivalent for an Israeli is almost ten years longer.

Bassam and Rami also have in common that they are treated as traitors by others in their communities. They know from experience what is attributing evil or hidden intentions and motivations to the critics. The story, as Marta Fraile explained, is a homage to empathy and the hope of peace. It is also an impressive description of life in a small land dominated by walls, check points, fear and discrimination.

Anyone who has a direct interest or just curiosity about the complexities and tragedies of national conflicts should read books like “Apeirogon” (literally, a generalized polygon with a countably infinite number of sides), and be interested, without being naïve, in exploring possible solutions. That the solutions are very difficult to come by in Palestine/Israel is illustrated by the fact that the mediator that was key in finding a (temporary at least) solution to the very complex conflict of Northern Ireland, Senator Mitchell of the US, could not find a similar broad and effective agreement in the Middle East.

That is why I am very cautiously attracted to attempts to revive a proposal by the late historian Tony Judt in favour of a one democratic state solution, given the failure of the two-state solution that is still routinely endorsed officially by many well-meaning parties. One such attempt is the book “Haifa Republic,” written by Omri Boehm, and reviewed by Peter Beinart here. Following the ideas of Judt, Boehm proposes a federal binational Republic shared by Palestinians and Israelis (it’s too small a land to have two viable states). The author argues that this would follow and old and somehow forgotten Zionist tradition that distinguishes between self-determination and sovereignty. Both Palestinians and Israelis can have self-determination for their culture, religion and language in the context of one shared state where every individual has full citizenship, everyone is educated in the past tragedies of each people, and everybody learns at least two languages: Arabic and Hebrew.

The name of the book comes from the admiration of the author for the city of Haifa, which he prefers to the divided Jerusalem or to the Jewish dominated Tel Aviv. Haifa seems to be an example of coexistence and diversity, which reminds me of my home city of Barcelona, where the constant threat of divisive nationalism has so far not prevented people from different origins and using different languages (in this case, both, Catalan and Spanish, coming from Latin) to be friends and to set up families. I just hope that Haifa does not become a new Sarajevo (with which the City Council of Barcelona has had links before and after the war), also shown as an icon of multi-culturality before suffering a horrible ethnic conflict in the 1990s.

Perhaps the examples of Haifa and Barcelona will help us promote an even more ambitious idea than the binational federation, and that is the idea of a postnational federation, where individuals are not tagged by their belonging to one side or the other, but they can just be everything and more at the same time (in the spirit of the Apeirogon concept).

 

Why democracies are not stopping climate change

There are at least five reasons why democracies are finding it difficult to stop climate change (I’ll discuss this with my undergraduate and graduate students and see if they find more reasons). Two of these reasons can be labelled institutional (1 and 4), two of them behavioral (2 and 3) and one redistributive (4).

1. Absence of a key constituency. Those that will suffer more the consequences of climate change (future generations) are not here to vote or express their opinion. The current young generation is starting to strongly mobilize to address the climate emergency, but they are still a basically powerless minority.

2. Lack of urgency. Like in many intertemporal problems, our short run self disagrees with our long-run self. Although we are aware that climate change is happening and we basically know the solutions (changing our lifestyle with a mixture of taxes, regulations, subsidies, innovation…), we are unable to take the short run sacrifices that are necessary to implement them.

3. Nudges and other small interventions are crowding out support for strong intervention and relieving the burden of taking costly action. Make no mistake: nudges and small interventions are necessary –but a small part of what it takes to stop climate change.

4. Lack of institutions to enforce international agreements. Global consensus has been reached several times, but then it is not enforced, because of lack of global institutions that mandate the policies that result from the agreements. These institutions should not only be international, but truly transnational and global, with current and future citizens represented somehow. Climate games between countries have the structure of a prisoner’s dilema (“The Economy” chapter 4): the joint payoff maximizing solution is not a Nash Equilibrium, so it requires constant external enforcement.

5. And last but not least (and related to the previous point), redistributive problems make it difficult to enforce some agreements if they are reached at all. Developing countries will not stop their environmentally unsustainable development unless they are compensated, and the same happens with working and middle classes in rich countries. Lobbying can be also interpreted as a distributive problem. Corporate interests in favour of polluting activities weigh more than the interests of ordinary citizens, although they are losing the battle of public opinion.

Unless we address (at least and at the same time) these five challenges, we will face a climate catastrophe.

Good economic models

Explaining Unit 2 of CORE’s e-book "The Economy" in the new degree on History, Politics and Economics at my university, I’m discussing with my students what is a good model in economics, and they have to do a task about it.

Models can be in text (like with Ronald Coase), in graphical or mathematical form, and usually come in a combination of these different languages. Marx worked with models and some economic concepts are models implicitly, like the use of GDP to measure the standards of living: good for some questions (inequality, growth), very imperfect for others, like welfare. There are many different models.

"The Economy" says that a good economic model has four attributes:

• It is clear: It helps us better understand something important.

• It predicts accurately: Its predictions are consistent with evidence.

• It improves communication: It helps us to understand what we agree (and disagree) about.

• It is useful: We can use it to find ways to improve how the economy works.

The economic historial Robert Allen (in a great article linked in unit 2 of "The Economy," reviewing the work of another economic historian, Gregory Clark) says that “models can help to organize and guide the collection of information, but they are no substitute for research.” I couldn’t agree more.

Sometimes it is said that an economic model is like a map. It is true that it shares with a map the fact that it is a simplification, that it focuses in what is important for some purpose and leaves aside other unimportant details. However, models are logical constructions which do not try to mirror reality ex ante (although to be relevant they must be related to real facts), but to be able to ask relevant questions and hypotheses. Everything in a map should be true (at scale), which is not a priori the case in economics. An economic model might explore a hypothetical case: what would it happen if… which is not the case in a map. But once I said this in a CORE workshop and several colleagues disagreed, so perhaps I have unjustifiably less faith in the map metaphor.

Definitions in social sciences

The e-book “The Economy” of the CORE Project (which I’m using in my classes) has an interesting discussion about definitions in social sciences in its first unit.

For example, ‘Capitalism’ refers not to a specific economic system, but to a class of systems sharing some characteristics. How the institutions of capitalism—private property, markets, and firms—combine with each other and with families, governments, and other institutions differs greatly across countries. “Just as ice and steam are both ‘water’ (defined chemically as a compound of two hydrogen atoms bonded with one oxygen atom), China and the US are both capitalist economies. But they differ in the extent to which the government influences economic affairs, and in many other ways."

One might think that humans are too complex. But I guess that if other animals had evolved an ability to use definitions to try to explain what happens to them, they would have run into similar problems. But as far as I know (non-human animals always surprise you), they have not. They have evolved other equally intriguing and very complex abilities, such as flying or having a radar system.

“Some people might say that ‘ice is not really water’, and object that the definition is not the ‘true meaning’ of the word. But debates about the ‘true’ meaning (especially when referring to complex abstract ideas like capitalism, or democracy) forget why definitions are valuable. Think of the definition of water, or of capitalism, not as capturing some true meaning—but rather as a device that is valuable because it makes it easier to communicate.” And ask questions about the world.

"The Economy" adds that “definitions in the social sciences often cannot be as precise as they are in the natural sciences. Unlike water, we cannot identify a capitalist economic system using easy-to-measure physical characteristics.”

And later on, “We should be sceptical when anyone claims that something complex (capitalism) ‘causes’ something else (increased living standards, technological improvement, a networked world, or environmental challenges).”

An economy is made up of the interactions of millions of people. We cannot measure and understand them all, and it is rarely possible to gather evidence by conducting experiments. But the things we observe in the world can help us investigate causes and effects (and just describe!) through a variety of techniques -always with great caution.

The same that happens with “capitalism,” happens with democracy, socialism, freedom, federalism…

"It's the politics, stupid"

 It is well-known that political strategist James Carville said in 1992 in the context of a political campaign that “it’s the economics, stupid.” The idea was that if you keep the attention of the voters focused on the economy, that may win an election, at least then. The political solution was to focus on the economy.

However, for many contemporary problems, it’s the opposite; the economic solution is better politics. For example, the solutions to address climate change are well-known, but there are incredible political obstacles to get to them, most notably international coordination, but also others.

The economist Jan Eeckhout has written an excellent book on the macroeconomic and distributive implications of market power, which I recommend (“The Profit Paradox”). The book has been deservedly praised in many places.  I will focus my comments here on chapter 12 of the book, which proposes policies and changes to alleviate market power. One of the proposals is to create a centralized independent Federal Competition Authority in the US, with a much larger budget that the current agencies have. The emphasis of the author is on the importance that it should be an independent institution, like the Federal Reserve or other Central Banks.

Independent regulatory agencies have advantages and disadvantages when they face simple tasks for which there are no major distributive problems, but only a problem of expertise or commitment. Independent Central Banks are now accepted in most democracies, but they are not uncontroversial, for example as a result of their passivity and blindness before the 2008 global financial crisis.

I am not sure that you can or should totally separate politics from policy (as suggested by the author) in democracies, but there is a great sentence in "The Profit Paradox" about which I totally agree: "If markets were totally free, everything would be stolen." It’s true, markets must be regulated and must be complemented and sometimes replaced by public policies to deliver public goods, correct externalities and market power and redistribute resources. Of course, this can be done in many different ways.

For a book that has as its strongest point that market power has important distributive implications, the idea of a strong independent federal competition authority  has the problem that delegating into independent agencies is not the best idea precisely when problems are distributive, because there will be no consensus on which is the appropriate policy.

Some of the best central bankers themselves are also politicians. Some become politicians after being central bankers like Janet Yellen or Mario Draghi. Some are politicians before being central bankers, like Christine Lagarde. I believe that they are aware that some problems must be fixed by politics. 

The main argument of Eeckhout is that a strong independent agency is needed to confront lobbying by large corporations, because the latter use their extraordinary profits to buy the political process. Which is true. But there also examples of captured independent regulators, and there are many other policy areas for which there is massive lobbying, like in those policies where externalities should be corrected, or in taxation. If we had to expand the institution of independent agencies to all those areas where there is lobbying, almost all government agencies would be independent, and democracies would lose all meaning.

As the author acknowledges, “this is all very idealistic, and it would take a lot of political will to implement.” The need for international coordination makes political leadership even more necessary, ”a project as big as putting a man on the moon or as urgent as the Manhattan Project.”

Do we need to keep money out of politics? Yes, and there are many proposals around to go into this direction.  Do we need to keep politics out of the economy? Certainly not in a democracy. Some of the countries with the best economic indicators in all fronts, Scandinavian countries, have achieved their status by the political action of trade unions and political parties. Then the solution is to reform politics, not to eliminate it.

Distributive problems and multidimensionality make Independence more problematic than for consensual unidimensional issues. With more that one dimension, the control of the agent (the regulator) by society becomes more difficult, like in any principal-agent problem. This is also putting pressure into the Independence of central bankers after the global financial crisis, where the dimensionality of the central banker's task has increased.

The birth of the antitrust movement in the US was political. As mentioned in the book, it was the decision of President Theodore Rosevelt to create the first strong federal antitrust policy, and it was because of the mobilization of several groups in the so-called Progressive Era. More recently, it has been Biden and the Democratic Party, and especially Senator Elizabeth Warren, to put the issue back into the political agenda.

The successful antitrust policy of the European Union is led by a political commissioner with a strong institutional framework that is the result of a political equilibrium.

Historians like Snyder or Applebaum have recently warned about the challenges that democracies face in many societies, including Europe and the USA. Applebaum recently said in an interview in a Spanish newspaper that “for democracy to work, much more participation is required. We should join political parties or pressure groups.” The pressure from the powerful do not come only from lobbying, but also from disrupting the political process through populism or social media strategies.

There is room for independent agencies but there should be a debate about their scope and role. The World Health Organization is important, but more so is the G-20 to reach an agreement to distribute vaccines all over the world.

There are no shortcuts to a better politics. Resistances to policies that benefit the majority are defeated by democratic mobilization and political participation.

Plutocratic populism, sadopopulism and democracy

Populism is not a homogeneous movement against the elites (as it is sometimes defined), but a toolbox used by one sector of the elite to go against other sectors, using the citizenry as hostages.

In a previous post I mentioned the concept of “plutocratic populism,” which reflects much better the idea that some olygarchies resort to political disruption (emphasizing grievances and identities) to make noise and convince majorities to vote against their interest.

An extreme version of plutocratic populism I sadopopulism, as explained by historian Timothy Snyder in this video. When quite blatantly the populists convince citizens to hurt themselves, we enter the region of sadism combined with populism, that is, sadopopulism. Trumpism, convincing people to make America great again by voting him, but then lowering taxes on the rich and undermining democracy, is a clear example. But there are many other movements around the world that follow a similar logic.

Trump was defeated, but he will try to come back, and take advantage of the now lower popularity of Biden to counter attack in the midterm elections of 2022.

Sadopopulism being sadistic, its horizon is to undermine democracy, because ultimately it is not possible to rule against the majority in the long run. Therefore the answer is to strengthen democracy, through better public policies, better political parties and a strong civil society.

It is interesting that a more farsighted sector of the elites (typically technocrats in international institutions) is proposing a new social contract that addresses climate change and inequalities. Representative of this line of thought is the book by the Director of the London School of Economics (and former executive at the World Bank and the International Monetary Fund), Minouche Shafik, “What We Owe Each Other.” This idea is welcome, although this global elite of policy makers tends to over-emphasize policy by contract and consent at the national level, tending to forget that undermining the existing privileges requires democratic conflict and empowering not the elites, but the majority of the population, and not only at the national level.

The tragedy of Afghanistan, vaccines and global passports

 The CNN correspondent in Kabul during the recent Taliban entry into the city, Clarissa Ward, explained in an interview that she found difficult to justify why she could leave the country based on her US passport (that “little blue thing”), but others would be left there because they are non-eligible to take a rescue flight.

The BBC Newsnight program also reported about the arbitrariness of the selection of people who could board a plane in the Kabul airport. The British government’s position (similar to other Western governments) is that they prioritize British nationals and “eligible Afghans.”

The allocation of basic human rights thus depends on which national passport you have. As a criterion to allocate such a precious good, it could not be less fair. The same happens with Covid vaccines. For developed countries, all their nationals have access to a free vaccine (now even a third dose is discussed). The allocation of some goods is decided by markets; the allocation of other goods is decided by governments, or by lotteries. But whether you have a free life or a free vaccine is decided by your passport. This would not be a problem if all passports gave access to the same basic rights. But reality could not be farther away from this.

The fall of Kabul and other Afghan cities also illustrates what happens when the state disappears, at least for a while: scarcity of food and money and abundance of crime, terror and arbitrariness. We need more state, that is, more and better government, but less nation-state. There are alternatives to this obsolete institution, as explained by political scientist Hendrik Spruyt in a book. The European Union is one of them, but the Afghan crisis shows that for global problems, it is not enough. At least for some life or death problems, we need global public goods such as a global Passport that gives everybody access to basic human rights and basic health services.

Philippe Sands explained it in an article in The Guardian some time ago: “Bedazzled by the power of statehood – that most artificial and fake of constructs – are we not also citizens of our home, our street, our borough, our city, our Europe and our world? The reform is clear: to recognise that our essential rights flow not from the happenstance of nationality – and certainly not just from our national passport – but from our essence as individual human beings. That’s what the 1945 moment said, that we are citizens of the world.

We should have, beyond our national passports, a global passport. Over time, the withering of the monopoly power of the nation state, and the oppressive, absurd, monopoly power of the national passport – that would be my reformation.”

The possibilists’ compass: the overlapping trajectories of Hirschman and Sen

In the last few weeks I have been reading the biography of Albert O. Hirschman (written by Jeremy Adelman –and reviewd by Claus Offe here) and the autobiography of the first part of the life of Amartya Sen. It’s been a nice way to get inspiration for the course I will teach on introductory economics (using the materials of the CORE Project) in a new degree on Contemporary History, Politics and Economics at the Autonomous University of Barcelona starting in September.

In several ways, the lives and ideas of Hirschman and Sen overlap. Sen married Hirschman’s niece, Eva Colorni (who died relatively young) the daughter of Ursula Hirschman and the Italian Eugenio Colorni, a socialist politician and scientist, and a person that Hirschman admired and who was killed by fascists at the end of the Second World War, after being one of the authors of the Ventotene Manifesto for a Federal Europe. Hirschman dedicated his most famous book, “Exit, Voice and Loyalty…” to the memory of Colorni. 

Sen “inherited” the office of Hirschman at Harvard (as if passing the baton), and later they became friends and relatives. Sen wrote a foreword to another of the great books of Hirschman “The Passions and the Interests”, and, when Hirschman had already passed away, Sen received in 2016 the “Albert Hirschman Prize” awarded by the Social Science Research Council.

Hirschman had an amazing young life. As a member of the youth of Germany’s Social Democracy, and as a jew, he was in danger when Hitler took power, and left for Paris in 1933. There he got in touch with Italian anti-fascists such as Colorni, and with some of them he spent some weeks fighting for the Republicans in the Spanish Civil War in the front of Aragon. He studied economics in Paris and Trieste (although he never studied a conventional PhD), and in the Second World War he ran clandestine operations in Marseilles to help refugees flee to the US. He migrated to America, married a woman from Russian origin, Sarah, just to immediately enlist in the US army (probably to obtain the US citizenship) to go to Africa and Europe when the Americans joined the Allied effort. When the war finished, he went back to the US, and was in the administration involved in the Marshall plan for Europe. He perhaps could have had more important positions in the US government, but the FBI opened a file for him due to his past left-wing activities. The rest of his very productive life is a measure of the opportunity cost of all those intelligent people that spend time in positions of power (something Hirschman could probably have done in the absence of the FBI file). He started a new life as an advisor of developing countries' governments and firms, first in Colombia and later in other Latin American countries, an activity that he combined with appointments at some of the best US universities (Berkeley, Columbia, Yale, Harvard –where he felt closer to young radical scholars such as Bowles, rather than to more established academics, Stanford and Princeton). He developed there an impressive intellectual trajectory as author of books and articles, although he hated teaching –which provoked vomits and diarrhea to him. Michele Alacevich has just published an intellectual biography (this is for homework) describing the broad scope of his contributions to international trade, development, political economy and economic thought.

Sen learned from a young age about the dangers of exciting identity feelings and of not addressing inequalities, poverty and famines. He was traumatized by the partition between India and Pakistan and by the artificially encouraged divisions between Muslims and Hindus. He has a deep knowledge of secular and religious traditions in India and Asia that promote peace, multiple identities and dialogue. He was born in a well educated middle class family and he attended a progressive school founded by Rabindranath Tagore. He completed his economic studies in Cambridge (England) where he established a fruitful dialogue with marxist (such as the Italian Piero Sraffa), keynesian and neoclassical economists. His autobiography tells how seriously he took marxist ideas, regretting the lack of detail of Marx' political proposals, which left the door open for the atrocities of Stalinism. His discussion of such ideas includes a very good explanation of the tension between the ideal of “to each according with their needs, from each according to their ability,” and the requirement of incentives for productive activity. A difference with Hirschman is that Amartya Sen loved teaching from the times he gave lessons to illiterate children in India as an activist.

Both scholars are more foxes than hedgehogs and not only have covered many topics in economics, but they also have done it in a truly multidisciplinary way, contributing also to other “fields” like political science or philosophy. They are believers in a unified social science, in dialogue with other branches of knowledge. Both are in favor of reform and not revolution, egalitarians and democrats aware of the importance and value of individual freedom, and at the same time of the limits of national sovereignty.

Their work has in common that at least a great part of it can be interpreted as trying to optimistically react to “impossibility” results in economic theory, that were perhaps too influential in political ideologies. Hirschman work on Exit and Voice can be read as an answer to the idea of Mancur Olson that the free rider problem is pervasive and makes it impossible to sustain collective action of almost any type. Most of the work of Sen can be interpreted as a positive reaction to the work of his friend Kenneth Arrow, who in his famous theorem established that there was no system of preference aggregation (collective choice, for example through voting rules) that satisfied a minimum list of desirable attributes. Sen believed for example that public discussion and reasoning, and persuasion, should also be considered beyond just taking note of individual exogenous preferences, in a similar way as “Voice” in Hirschman. They thought that collective action and social choice were possible; perhaps not perfect, but not as impossible as to make tiranny or chaos inevitable.

Besides having a strong knowledge of contemporary economic ideas and being a gifted writer, Hirschman had a strong experience as a practitioner, and a very solid knowledge of classical thinkers in political economy and philosophy. He was aware of his limitations using mathematical techniques, although the concentration index that bears his name (and, apparently unfairly, Herfindahl’s) is one of the more used mathematical formulas in applied work and policy. Sen had a more conventional training as an academic economist (he obtained a PhD from Cambridge University) and as a mathematician, having also a solid background in history and philosophy. Sen was awarded the Nobel prize (in 1998) in Economics, for which Hirschman was probably considered at some point. It’s difficult to separate their very productive intellectual work from the progressive values and ideals that they acquired in their youth. Learning about their trajectories, one only feels sorry for those that believe that economics should not be polluted by politics and activism. As with any scholar, their work is open to scrutiny and criticism (for example, see Flyvbjerg on Hirschman’s principle of the Hiding Hand), but this is just how knowledge makes progress, and the fact that the debate continues on their ideas illustrates their importance. Their combined lives encompassed more than one century (Hirschman was born in 1915 and Sen is still alive) and four continents. It’s impossible to do everything in only one life. It probably takes two extraordinary lives to make the almost perfect scholar.

National-Populism against pluralism

In my previous post, I mentioned political scientist Müller quoting the French economist Thomas Piketty: “Everything depends on equipping groups of different origins and identities with the institutional, social, and political tools they need to recognize that what unites them outweighs what divides them.”

I just found a similar message in the impressive memoir written by the economist Amartya Sen that I am currently reading, “Home in the World:” “I was not very old before I realized the pressing need to bring economic class into an understanding of the horrors of communal violence and carnage in India. Most of the people killed in the Hindu-Muslim riots of the 1940s shared a class identity (they came from families of workers and the dispossessed), even though they differed in their religious or comunal identity (in being a Muslim or a Hindu).” In Asia then and everywhere today pluralism and egalitarianism go hand in hand.

Dividing a society by community identities and then calling “the people” only one of the identitites is a typical trait of old and modern national-populism. Müller describes modern populism: Trump, Brexit and the others (Bolsonaro, Modi, Orban, Salvini, Le Pen…). Some have been (at least temporarily) defeated, others prove more resilient.

But the phenomenon is not new. Sen’s comment reflects what he started to think about community identities in the 1940s (and kept thinking when he wrote a book on the topic many decades later), when he saw a Muslim worker asking for help and later dying after being stabbed in a racist attack.

The people is as we define it, say old and modern populists. In richer societies, where the opportunity cost of physical violence is high, things are subtler than in the Indian Subcontinent last century, but we see groups trying to benefit from “us versus them” rhetoric all the time. In Catalonia, with the secessionist drive that started in 2012, it is very common to see racist insults directed at those with origins in other Spanish regions (unfortunately, the picture with “Visca Salvini” in Catalan that accompanies this article, I just took it next to my home in Barcelona). The rise of the mirror extreme-right in Spain just encourages more identity polarization.

Signs of the more or less subtle attack on pluralism from separatist leaders are that they appeal to a “dialogue with Spain” (although not even all secessionists agree with this), but tend to reject “dialogue within Catalonia;” or that they ask for a referendum where citizens can choose between the “Catalan proposal” against “the Spanish government’s proposal,” as if there was a clear homogeneous local proposal; or that when they try to show a moderate face, they speak of “expanding the base,” which means trying to recruit more secessionists, instead of working together with people who do not agree with the indendence proposal. In the last regional election, all pro-independence parties, divided on many fronts, signed an agreement to form a sanitary cordon against social-democrats (because these were not nationalist enough), which happened to obtain the largest vote plurality.

The Catalan public sector media, controlled by the regional pro-independence parties, runs programs showing insults including “Puta España” (“Whore Spain”). Partisan pro-independence symbols in public buildings are frequent. And these are only some examples, which anyone trying to express their opinion about what happens here should know about. Although the separatist leaders that were in prison have now been pardoned (legally by the Spanish government) and are now at home (and I wish that they have forever all the protections of the European rule of law), the signs of lack of internal pluralism continue in our community.

The critical infrastructure of democracy

Hans-Werner Müller, the political scientist that in my view has better captured the spirit of modern populism (in his 2016 “What is Populism?”) has published a new book, “Democracy Rules”, where he analyzes what he calls the role of the critical infrastructure of democracy, namely the media and political parties.

Although the new book is less compact and clear than its predecessor, the author gets deeper into some of his ideas about the dangers that populism poses for democracy (often in its name), as an anti-pluralist conception of politics which, to achieve a homogeneous representation of “the people,” needs to exclude from it those that may be a disturbance.

But in “Democracy Rules”, Müller explores possible solutions, which in the previous book could ony be hinted at. Exploring solutions is not the same as having complete solutions, and the author is open about this. At the end of the book, he expresses his hope (which is not necessarily the same as optimism) that political parties and the media, which are necessary infrastructures of democracy, can be reformed. The main source of hope is that most citizens still accept that democracy is necessary.

Political parties and the media are necessary because, when they are open to everybody, allow the formation of political issues to evolve, as democracy cannot be only a way to aggregate exogenous and given preferences on a close set of issues. This is the best part of the book, and could be a good supplement to theories of social choice, to which Müller makes little reference.

Elections as rituals and reference points (a contribution of Müller in this book) could precisely help explain one of the puzzles of social choice theory, which is the paradox of voting. If potential voters were rational in a traditional sense, the costs of voting would outweigh the individual benefits and no one would vote. However, many people do vote, which needs to be explained, for example with this idea of elections as collective rituals.

The global pandemic and the climate change-induced extreme whether events alert us about an existing global federalism deficit. The critical infrastructure of democracy must now be built at a global level. Warnings about how difficult this is are no excuse to address the problem, because without global mechanisms of collective action it will be impossible to address these existential challenges.

Müller quotes the French economist Thomas Piketty saying: “Everything depends on equipping groups of different origins and identities with the institutional, social, and political tools they need to recognize that what unites them outweighs what divides them.” Exactly.

A few days ago, I was strolling with my father in the northern Spanish city of Avilés (in the region of Asturias where he lives) and we saw a building that still had some signs of beign previously used by Podemos (“We can”), the left wing populist party that is also mentioned in the Müller book (as an example of “technopopulism”). The building now is empty and advertised as to be rented. We joked that perhaps now the party should more appropriately be called “Pudimos” (“We could”). But the fact that previous attempts to improve on the traditional tools have been at least partially unsuccessful does not justify passivity.

Good fights

(This is an English version of the short piece I wrote for "Alternativas Economicas" about "The Good Fight")

This TV series, which opens its fifth season this summer, narrates the vicissitudes of a law firm, known for their defense of people affected by racial abuses, and especially cases of police brutality in the city where it is based, Chicago. The firm "Reddick, Boseman & Lockhard" is the result of the evolution of the second generation of the founding family of the company, headed by Carl Reddick, with whose funeral the second season begins; they are joined by Adrian Boseman, the ex-husband of Liz Reddick, the founder's daughter, who joins the company after the death of her father; and Diane Lockhart, who comes from the series "The Good Wife", and who joins the company at the beginning of the first season (as a "diversity quota," as she describes herself, being the only white person among the partners of the law firm), after losing all her retirement money due to a financial fraud led by a close friend of hers who managed her savings.

The first four seasons of the series take place during Donald Trump's tenure as president of the United States, and the company of the protagonists reflects all the tensions of a time marked by destabilization and institutional crisis. The person who suffers the most psychologically from the despair of not understanding how things could have gotten so far with such a shameless president is precisely Diane, who resorts to drugs and conspiratorial groups against the alt-right to manage her obsession with the president and the new tendencies of the era of political disruption. In her marriage reconciliation process, it is essential for Diane to know, at the key moment of making a decision, whether or not her husband Kurt voted for Trump or not.

In "The Good Fight" the dilemma is posed as to whether to fight the political evils of our time, and especially the destabilizing and shameless national populism, we must resort to tools within accepted and established norms, or we must use all kinds of weapons to raise an effective battle. 

Jumping into conclusions in soccer tournaments

It is well-known that soccer is a very unpredictable sport. Narrow scores, a fluid game and a round ball conspire to make it fundamentally uncertain (with some structure). That’s why one should be careful before jumping into conclusions, or at least keep questioning them all the time.

For example, for some years now, the initial conclusion by Palacios-Huerta and Apesteguia that 60% of the time, a penalty shoot-out is won by the team kicking first, is now questioned with better evidence (it is probably closer to a non-significant 53%, and in the last World Cup most shoot-outs were won by the team kicking second).

Being a socialdemocrat from a non-capital city, two of my preferred hypotheses about soccer are that western European national teams are better than the Eastern teams basically because of socialdemocracy integrating immingrants (as suggested by the great journalist Simon Kuper), and that club teams from non-capital cities are better than teams from national capitals (as suggested by Kuper and Szymanski in Soccernomics, if I remember well). I love it when evidence is consistent with these hypotheses. But then the Czech Republic defeated the Netherlands, Ukraine defeated Sweden (a socialdemocratic paradigm country) and Chelsea defeated Manchester City.

One option that would make me happy is to credit socialdemocracy for the victories of western European teams and blame managers and referees for the defeats, but it is probably fairer to provisionally conclude that socialdemocracy needs constant renewal… also in sport.

The next game may always qualify a previously clear story. The non-scoring Spain of the first two games of the Eurocup is now the top scoring team, after 10 goals in the last two games. Now everybody in Spain believes of course that Spain will win the tournament. I would urge patience and openness to the idea of defeat.

Yesterday, Gary Lineker put to bed his “Germany always win” phrase. As Branko Milanovic argued in a nice paper some years ago, inequality has increased among club teams, but decreased among national teams. That is probably because any country in the world now sends the best players to the top club teams in Europe, with the best facilties, medical doctors, colleagues… But there still seems to be a middle income trap, because no African or Asian team has ever won the World Cup or reached the final.

The home field advantage (HFA), which seemed immortal, has declined over time, to the extent that UEFA has finally eliminated the double value of the goals scored away in too-leg rounds. VAR and the pandemic have almost eliminated the contribution of the referees to the HFA, but there is still some residual HFA, which means that factors other than referees (which were supposed to have vanished according to the book “Scorecasting”) still remain.

I would love Luis Enrique’s Spain winning the Eurocup. It would confirm some of the hypotheses I love: a manager that does not like superstars, a national team without members of the big capital club team, offensive play and ball possession… However, if the Spanish national team reaches the final and wins, it will basically be by luck.

The Brexit referendum, five years later

Amartya Sen published an expanded re-edition of his classic book on "Collective Choice and Social Welfare" in 2017, just after the Brexit referendum, which took place on June 23rd., 2016. The new edition contains the old 1970 text and subsequent developments of the field, to which Sen ha enormously contributed. Some of the concerns of the author (and the sub-discipline of social choice, in-between Economics and Political Science) were confirmed by the referendum. It is well-known that the will of the people is ill defined, that there are many democratic ways of reaching collective decisions, that none of them is perfect, and that the power of agenda setting is huge. All this was confirmed by the bad experience of the Brexit referendum, which was surrounded by division, lies, xenophobia and confusion. In the new 2017 Preface of the book, Sen writes:

"Open discussion with extensive public reach and scrutiny can have a powerfully positive role in making elections and votes better informed (...). For example, the political disarray related to the British vote on 23 June 2016 to leave the European Union is at least partly due to to the factual distortions that were widely disseminated before the vote. Indeed, as I write this Preface in the summer following the vote, the Leave campaign seems to be presenting clarifications -often involving corrections- of what the campaigners had said before the vote. Just as freedom of speech is important for democracy, so are well-organized and reliable facilities to fact-check." Five years later, with more information, polls suggest that most voters would prefer to remain.

Today we know that the 2016 referendum reached a very narrow democratic decision by a bad method (a divisive binary referendum without a previous agreement to be ratified)  that has disrupted a previous democratic decision reached by a much better method, namely the Good Friday Agreement of 1997, achieved by all the relevant parties and ratified in a referendum both in Northern Ireland and in the Republic of Ireland.

The Leave vote won the Brexit referendum in 2016 by 51.9% of the vote after a campaing based on lies. The rules did not require any threshold other than more than 50% to win. Significant sub-jurisdictions such as London, Scotland and Northern Ireland voted overwhelmingly to remain, as did the youth and the urban voters. As a consequence, Britain left the EU (although, in spite of a "hard Brexit", it remains unavoidably linked to it), but Britain may be disintegrating itself. And five years after the referendum, many things remain to be clarified, even after the UK reached (after a long negotiation) an official deal with the EU on supposedly what it meant to leave after January 1st, 2021.

Before organizing the next binary referendum not based on an agreement to be ratified on a crucial institutional matter that may have consequences for many generations, anyone should perhaps read "Democracy for Realists," the book by political scientists Achen and Bartels that warns about the risks for democracy of group identity and irrational voting behavior. Democracies should be protected from some of its interested enthusiasts.

Is it possible to fix identity conflicts?

At the end of the great book edited by Piketty, Martínez-Toledano and Gethin on political cleavages (so far, only in French), they argue that identity conflicts are more difficult to solve than conflicts based on social classes and income and wealth inequalities. Democracy and deliberation do not usually find a solution to identity conflicts, so that the only way to put an end to them, they argue, is by one group defeating or eliminating the other. Based on this, they express a cautious preference for class conflicts, because they believe these are easer to solve through deliberation and democracy.

I also prefer class conflicts rather than identity conflicts, but I do not think that identity conflicts are impossible to solve, or at least I think that they can be guided to an evoltuion that makes tolerance and coexistence possible. Certainly, it s not easy. But after all, big metropolis throughout the world in democratic countries show that coexistence between different religious communities is possible. Not without tensions, but communities with different religions and ethnicities share cities like Paris, New York City, London or Berlin.

I prefer class conflicts because I think it is more ethical to focus on this, and try to see that ethnicities and religions are superficial markers that are made important for social reasons. The markers we focus on are endogenous, and the result of social dynamics and interactions.

In other words, identity is social, and we should not apply to it a different set of values from those that we apply to class conflicts.

If one looks at the Middle East instead of the big metropolis of the world, it is tempting to conclude that identity conflicts do not have a solution. But perhaps people have just been wrong on how to solve the conflict between communities in Israel/Palestine. Two great intellectuals, one Jewish and one Palestinian, Tony Judt and Edward Said, expressed a similar opinion in their last years, an opinion that has recently been echoed by some participants in the debate, such as Peter Beinart. It is wrong, Judt and Said claimed, to try to promise freedom in a small piece of land by allocating one state to each ethnicity and religion. The only solution is to be able to share the land, as it is done in big cities, and focus on respecting individual rights, and this respect should be guaranteed constitutionally and if necessary by international protection, as de facto and de iure happens in big cities. That is, individual rights should not depend on which ethnicity has the majority.

Nothern Ireland's conflict was actually fixed by forging institutions that went beyond the logic of national sovereignty, with the Good Friday Agreement, only to be put in crisis recently because of an application of the logic of the nation-state (Brexit).

If the conflict of Northern Ireland found a solution through dialogue and consensus building, surely much lesser problems, such as the split of Catalonia due to the pro-independence drive, can be solved through similar means. Identity conflicts will not go away, but we can manage them so that we can focus on the much bigger social problems of our time.

Stories that we tell ourselves

I first read about the importance of the stories that we tell ourselves and others in economics and social science in the book by George Akerlof and Robert Shiller (two Nobel Prize winners of different generations) “Animal Spirits”. I had attended a presentation by Akerlof when I spent some months in Berkeley in 2008. To be honest, at that time I thought it was what a nice man about to retire was doing as an afterthough to finish his career. Some time later I read “Narrative Economics” by Robert Shiller, and “Phishing for Phools” by the same two authors. And in-between we experienced the Global Financial Crisis, Brexit, Trump, many other national-populisms and now the Global Pandemic.

Around the same time, I read “The Economics of the Common Good,”by Jean Tirole, one of these books that great economists write for the broader pubic, but that only other economists like me read (or that is my impression). It is a great book, meant to summarize the work (and the perspective on the discipline of economics) of the great French economist after he received the Nobel Prize. In that book, in the chapter devoted to Behavioral Economics, Tirole presents three versions of the so-called Dictator Game, a two person interaction where one individual (the Dictator) has to decide how generous she is with another player (who doesn’t decide anything). Tirole explains the differences between the rationally selfish decision that we should expect (absence of generosity) and the outcomes of many experiments. In some of these experiments, for simple versions of the game, people can be generous. But in versions of the game where the decision-makers can hide their selfishness behind excuses (such as ignorance, or the existence of a horribly ungenerous possibility), then the Dictators can be as selfish as predicted by narrow-minded rationality. That is, our generosity depends on the stories that we tell ourselves, sometimes in a complex way.

I have seen what in my view are examples of this behavior in apparently normal people trying to justify their support for selfish nationalism behind the excuse of generosity. “I always think of the most vulnerable,” “if this (dead, prestigious) person had been around he would have done the same…” and many versions of the excuses that people use when they decide to be sophisticatedly selfish.

Of course, some people do not need much in terms of justification. It doesn’t seem that Trump or Bolsonaro and their closest followers need to hide their atrocious selfishness. But many other national-populists and elite members that promote populism can be very sophisticated when they need to. And they do it by telling themselves stories, or especially by promoting stories that others can tell each other. Needless to say, social media and corrupt media can do a lot to spread these stories like epidemics. Shiller used the models of epidemics with which we have become familiar lately to explain the rise and fall of stories -before the current pandemic.

All of us tell ourselves stories to try to justify our behavior and our decisions (usually taken by emotional reasons). But we must be aware of the risks of using stories that deviate too much from reality. In our times, we all must help people tell themselves true stories, especially about climate change and positive sum interactions. The alternative is extinction.

 

The social responsibility of the firm in a post-Friedman era

The behavior of firms is ideally constrained by the regulatory and fiscal power of the State and by the competitive pressure of the markets. However, the processes of globalization and monopolization by large companies (especially technological multinationals) erode the disciplining role of the State and the market, so that if firms have profit as their sole objective, they become a source of inefficiency, inequality, deterioration of the environment and excessive accumulation of power. Reflection on these issues, which has made its way into some fora, including business institutions, at an international level, has so far had little echo in some countries like Spain, and it is time for it to come with more force. For this reason, it is necessary to raise the debate of a new purpose, necessarily broader, for firms, without this implying an impairment of a stronger role by effective governments with high capacity at all levels. In fact, a stronger State and a firm that is more capable of fulfilling its social mission and being a source of wealth, are complementary aspects, as revealed during the COVID-19 pandemic, and as it will be increasingly necessary in times of growing global and climate risks. 

In many cases a company oriented towards social objectives will be compatible with robust business finances, but we must be aware that this will not always be the case. It will not always increase profits. In any case, it is necessary to avoid that firms generate social problems to earn profits. This is one of the reasons why the separation of roles between the productive company, the market as an allocative mechanism and the redistributive state, becomes more ambiguous in an era of global disruptions, monopolization and capital mobility.  A new social contract must give rise to a more complex distribution of responsibilities (which also includes communities into the equation), with the objectives of increasing the productivity of our economy and, at the same time, contributing, in a context of coordination between levels of government and companies, to social objectives of equity and environmental sustainability. Greater participation of workers in company decisions, starting from the bottom with operational tasks and financial participation in ownership and profits, can contribute to improving transparency (necessary to facilitate control by all citizens) in decision-making, and to internalizing the effects of decisions on communities and promoting the creation and maintenance of good jobs (as Rodrik argued in our interview). 

Friedman claimed in the 1980s that under certain conditions, the firm's social responsibility was to make profits. Today these conditions are largely absent (due to the conditions that globalization imposes on the state and the market, and due to the power of large companies over rule-setting) and therefore the social responsibility of the firm must be broader. And it must begin by fulfilling its obligations to contribute to the State in a meaningful way through Corporate Taxes and Income Taxes for the high salaries of people with executive positions; and it must continue with a commitment to eliminate any form of corruption and improper influence over public decision-making. 

The dilemmas of dealing with a criminal past

The two last books written by the legal scholar Philippe Sands, “East West Street” and “The Ratline,” are great stories about the tragedy and crimes of the Holocaust, and how to deal with its memories. They should belong to the book shelves of anyone interested in the contemporary footprint of passed atrocities and the lingering impact they leave in communities and individuals. The two of them deal at the same time with the collective and the personal dilemmas of confronting the past.

“East West Street” is the story of four individuals whose lives are connected to the Nuremberg trial or to the city of Lviv (currently a Ukranian city, but Lemberg, Lvov or Lwow in the past, depending on which was the “sovereign” country). This city is where the grandfather of the author, one of the main characters of the book, was born, and where two of the other characters where also born (two Jewish legal scholars that played an important role in the Nuremberg trial). The grandfather of Sands was fortunate to leave first his home town, and later Viena, to live the rest of his life with the sadness of almost all the rest of his Jewish family having been killed by the Nazis.

Lviv, a key place in the two books, is a city where the buildings remain in the same place, but the name, the country (Germany, Poland, Russia, Ukraine) and the citizens change with wars, tragedies, ethnic cleansing and occupations. The memories that the local authorities select to promote also change. The fall of a multi-ethnic past, followed by atrocious crimes driven by blind nationalism, places Sands in the tradition of Stefan Zweig in “The World of Yesterday” and Claudio Magris in “Danube.”

“East West Street” discusses the legal dilema between the concepts of “genocide” and “crimes against humanity,” which first were used in the Nuremberg trials and were promoted by the two legal scholars, whose lives are explained in the book. Genocide emphasizes the murder of people for being members of a group, and crimes against humanity emphasizes the importance of the individual and how states can abuse their sovereignty to violate human rights. Although Sands is respectful of both concepts, he does not fully hide his higher sympathy for "crimes against humanity," as he believes that “genocide” may encourage group responsibility and “us against them” dynamics. He also wrote a very interesting article (a real anti-nationalist manifesto) in The Guardian in favor of a global, instead of a national, passport.

“The Ratline” amplifies a sub-story of “East West Street:” the different views of two children of Nazi leaders. Niklas Frank, the son of the Poland governor during the Nazi occupation Hans Frank (sentenced to death in the Nuremberg trial), is openly critic of his father, even to the extent of saying that he is against the death penalty, except for his father, about whom he wrote a book expressing his negative feelings. Horst Wächter, the son of Galizia District’s governor in Nazi times Otto Wächter, a friend of Niklas, takes a very different perspective: he is totally unable of confronting the reality of his father as a mass murderer, and is always finding excuses to forgive the latter’s participation in the Holocaust, such as arguing against all evidence that he felt trapped in the system, where he supposedly tried to minimize the atrocities. 

Otto Wächter went hiding after the fall of the Third Reich, and he died in Rome under the protection of an anti-comunist Catholic Bishop with Nazi sympathies, and the tolerance of the American secret services, which were recruiting Nazis as spies at the time, the beginning of the Cold War.

Horst is a gentle individual, and he keeps a constructive relationship both with Niklas and with the author of the book. The different approaches of Niklas and Horst are also the topic of a documentary, which can be watched for free in You Tube. The two sons have also in common that they were ostracized by many in their families just for openly talking publicly about the past. Family links of affection are put at risk by the exploration of the past.

The two books are a great read, and probably belong to the genre that the Spanish writer Javier Cercas (mentioned by Sands in "The Ratline" with admiration) has called “non-fiction novels.”

Besides the two books and the documentary, the full collection should include the Financial Times article “My father, the good Nazi,” a result of the conversations between Philippe Sands and Horst Wächter.

Europe and our global political challenges

Today is Europe's day, and it is a good time to reflect about the necessary contribution of Europe to addressing the global political challenges of our time.

In Economics, we teach that free markets are not always like Adam Smith thought, but sometimes (many times, actually), they result into so called market failures, cases in which markets do not guarantee efficiency (maximizing the size of the welfare pie) at all. Examples of this include the existence of public goods, externalities or market power. In the past, the typical examples where traffic lights or defence for public goods, pollution for externalities, and telephone companies for market power. Local and national governments were designed to address these failures and fix the problems. The dominant market failures of our time, though, are global in nature and pose enormous political challenges.

Public Goods (goods that are non-rival and non-excludable) today are global financial and economic stability and peace and security. The provision of these public goods must be global in nature, as we are seeing these days with the scientific progress associated to COVID-19 remedies and vaccines.

Externalities (effects of actions not captured in prices) today also go much beyond the nation-states in many relevant dimensions, most obviously with the problem of climate change. National and local solutions are necessary, but they fall short in the absence of global action. For example, a global carbon tax would avoid adjustments at the border to neutralise the impact on trade, and would be much more effective than the current patchwork approaches.

Market Power (cases where some firms can raise prices without much worry) today is not about physical local networks, but mostly about large global technological multinationals, like Amazon, Apple, Google, or Facebook, which take advantage of fragmented polities to increase their market power, and their political power.

Initially, public goods, externalities and market power are efficiency problems, but they are inseparable from distributive implications, which must be addressed at the same time. These distributive implications are also global in nature.

We should fight for a currently hard to achieve global democratic government, but in its absence the big democratic jurisdictions, when they are in good hands, can provide leadership. This is a role that the EU is playing and can play more and more.

An integrated and stable Europe is making and can make an enormous contribution to addressing these market failures in their contemporary reincarnation of global political challenges. A federal and sovereign Europe that goes beyond their constituent member states is key to making progress in all these fronts. That is why I just signed this Manifesto, together with hundreds of Europeans.

Some economists fear that promoting activism about these issues may compromise the scientific standards of economics. But I can't see how you can teach these global political challenges without trying to convey to students the urgency of their activism to address these issues.