Sunday, April 25, 2021

Committed intellectuals vs populist intellectuals

Some of the best economists in history are or have been committed intellectuals, engaged with the issues of their time. I think of John M. Keynes, Albert O. Hirschman or Amartya Sen. In one way or another, they tried or are trying still (Sen) to influence public policies more or less directly, and they showed their support for better democracies and fairer societies. In a very nice Twitter thread and blog post, Oliver Kim summarized the life of Hirschman, a young socialist who went to Spain to fight with the Republicans, and who, later as an economist, always had in mind a commitment for a better society. That is quite different from the portrait of the ideal economist that is sometimes promoted by the mainstream of the profession, obsessed with economics as a cold and technocratic science. It must aspire to high scientific standards of course, but that is not incompatible with having a soul as a social science. In recent times, Paul Krugman has probably played the role of the economist as a public intellectual, which is not necessarily the same as blindly following some party line.

This role of economists as public intellectuals is not the same as playing the role of a star economist abusing somehow of expertise. Some of these star economists have become a version of populist intellectuals, as explained in a recent academic article ("Populism with a Ph.D: education levels and populist leaders," written by Claudia Franziska Brühwiler and Katherine Goktepe). One example they give is of Yannis Varoufakis, the former Greek minister. I have other more local versions in mind. There are several varieties of this populist intellectuals, some more narcissistic than others, none of them admitting that they have ever been wrong. I can’t imagine Hirschman in the pages of gossip magazines or exchanging insults in Twitter. 

Monday, April 19, 2021

A private league

Some of the top soccer clubs in the world have announced their willingness to create a new European super league, as an alternative to the current European Champions League organized by UEFA, the European governing body. According to MURAD AHMED and ARASH MASSOUDI from the Financial Times, "up to 12 clubs have signed up to a plan, backed by $6bn in debt financing from JPMorgan, to launch a new tournament that would supersede the Champions League, currently the continent’s top annual club competition."

"The new league, according to documents seen by the Financial Times, would involve 20 clubs with 15 being “permanent members”, meaning they could not be relegated and would not need to qualify through strong performances in national league competitions.The founder members would be granted between €100m-€350m each and would continue to play in their national competitions, such as England’s Premier League and Spain’s La Liga. With expected revenues of €4bn for the competition through media and sponsorship sales, clubs would receive a fixed payment of €264m a year.The moves threatens the existence of an open, fair and unified soccer." 

One of the reasons of social segregation is the existence of groups of wealthy parents that prefer to send their kids to exclusive private schools and abandon the collective system. Of course, they may still have to pay taxes, but they will use their political power to erode a system in which they have no special stake.

It is not the first time that top European clubs threaten to secede, although this time they seem more credible than ever because of the severity of the COVID-19 crisis. In the early days of the crisis, economist Stefan Szymanski advocated for a mutualized exit from the crisis. Now twelve top clubs have decided to propose exactly that -with them in command.

Soccer is a unified sport unlike basketball (Branko Milanovic makes also a useful comparison with tennis), where small and big teams are integrated in a coherent system where the same players play for club teams and national teams in hierarchical related competitions and a coordinated calendar. To understand how the institutions have evolved with globalization, an article by Branko Milanonic in 2005 and two blog posts by the same author are very helpful. In one of them, he criticizes the statistician Nate Silver for proposing to break the power of the governing bodies along the lines of what the top clubs are now proposing.

In his piece criticizing Silver's proposals, Milanovic says that there are two possible collective choice methods: the one individual-one vote method that prevails at the national level, and the one country-one vote method that prevails at the international level. He accepts that globalization requires some changes in the one-country one-vote method, and that the Internet may make it possible to extend the one-individual one vote method at the global scale. But he argues that the shortcomings of the current global system are no excuse to replace it by the one-dollar one vote method. In his piece about corruption in FIFA he argues that we must choose between "dirty devolution of power or (seemingly) clean oligarchy." The terms of the trade-off may not only not be improving, but they may be deteriorating. The super league chaired by Florentino Pérez (a man in the peak of the Spanish lobbying system trying to expand internationally) with the participation of Joan Laporta (the current Barça president, an ally of the controversial media company Mediapro), may achieve both a return to, or consolidation of, oligarchy and an expansion of corruption. Kleptocracy and corruption can be complementary unless collective institutions keep the dark side of soccer under strict control. This is a problem of efficiency and equity: the size of the pie could be bigger (more games between top teams) and distribution of the pie could be better. But modest teams do not only want money to be compensated from the big teams getting bigger. They also want to play against them, and to keep alive the dream of winning one day big tournaments. Now the top teams propose to enlarge the pie and to keep to themselves the power to cut it and share it. It is as if the rich decided to stop paying taxes because they will from now on be in charge of redistribution.

There are other ways to make soccer more efficient in addition to having more games between top teams. European soccer could be played more on the week-ends, some small national leagues could be merged, and more could be done for the national leagues to stop being the last refuge of the white man. Is a more efficient, unified, clean,  totally open-league soccer system still possible? Perhaps, but not without some sort of public intervention. The problem is that there is no global government and soccer is a global phenomenon.

Friday, April 9, 2021

Other dimensions of political conflict are not independent of income and wealth

The new book by Piketty and co-authors on the evolution of political cleavages in 50 democracies has been published in the French edition (the English edition is forthcoming in November) and it has a great associated web page with all the data. I will recommend it to my students in the UAB undergraduate course about Public Sector Economics, in the chapter we'll be starting next week on Public Choice and Political Economy, where we'll try to answer one of the questions of the book: "Why the poor do not expropriate the rich in democracies."

The project started with a paper that was part of the last solo Piketty book ("Capital and Ideology"), where, looking at the recent experience of the US, the UK and France, the French economist observed that a multi-élite political system was emerging in these countries, dominated by a "Brahmin Left" supported by an education élite, and a "Merchant Right" supported by the economic élite. Differences of vote by income were also being reduced, and in the 2016 presidential election in the US the economic elites even voted more for the Democratic Party. As a result, politics was becoming less redistributive in these countries.

But Piketty did not stop there, and he gathered data with a large team of collaborators on 47 more democracies from all the continents. The result is a much more nuanced picture, where it is true that, especially in developed countries, systems are evolving in a multi-élite direction, but in very different ways. The support of the educational élites and young educated voters goes more for green or new left parties rather than for the traditional left (social democrats and similar), who keep receiving the support of the shrinking traditional working class. And the support of some of the economically disadvantaged for the right does not go to traditionally right-wing parties but to some new national-populist parties (although not everywhere). Some countries retain a class-based political system based on income differences, like Portugal. The synthesis chapter offers a great overview and summary of how class-based cleavages are correlated with other dimensions of political conflict. In some countries, other dimensions reinforce class conflicts, and in other countries, these other dimensions (religion, ethnicity, gender, generation, etc.) lower the intensity of class conflicts (and are sometimes strategically used with this objective).

In the concluding chapter, the authors cautiously express their preference for a class-based political conflict, because they argue that this conflict can be led to a solution using democracy and deliberation, whereas conflicts based on other dimensions (especially ethnicity) tend to be confrontational with no end. I do not know if class based conflicts can be solved or not, but I believe that what is consistent with progressive value judgments is to focus on differences of income, wealth and class, and the other dimensions should be respected, and look first at how they correlate with income and wealth. Because they are almost never orthogonal.

Tuesday, April 6, 2021

The economic cost of populism

(This is a slightly expanded English version of the article that I originally wrote in Spanish and that was published in the newspaper La Vanguardia on Monday, April 5th)

When Mayor Pasqual Maragall visited secondary schools in the 1990s to explain to young people the transformation of the city of Barcelona, he told the students (given their understandable anxiety to find quick solutions to problems) that they had to be "analytical" , that they had to avoid simplistic explanations. Little did he foresee that a few decades later a wave of populism would make it even more urgent for the youth (and public opinion in general) to hear that message. The presence of populists in national governments peaked in 2018, with Trump, the Brexit leaders, Modi, Bolsonaro, Orban, Erdogan, and the Italian populist coalition. Despite the elections in the United States and the fall of the Italian coalition, from the last century until today, populism has proven to be a fairly successful strategy to reach, and stay in, government, but at a high cost for democratic societies. 

There are several definitions of the complex and multidimensional populist phenomenon in circulation. Surely, none of them are totally satisfactory. A widely used one is that of the political scientist Cas Mudde, for whom populism would be characterized by combining a very thin-centered ideology capable of covering very disparate political forces, with the use of a rhetoric based on the “us” (“the people” defined in a specific way, at the same time homogeneous and exclusive, denying pluralism) against "them" (some supposed "elites", whether political or economic, guilty of everything, although this often hides a confrontation between elites, or distraction strategies on the part of a dominant sector). Despite the variety of definitions, there is considerable consensus among experts on which leaders have been the most populist (including Trump and those of Brexit). 

In some societies, the phenomenon is more associated with identitarianism, and in others with authoritarianism, which somehow carry more risks than populism itself, which is an ideal complement to these drifts. The experts Funke, Schularick and Trebesch, in an article that is circulating as a working paper of some German universities, are very precise when it comes to quantifying the economic costs of populism. After examining dozens of episodes from the last century to today of populist leaders who presided over national governments, and who more than comply with Mudde's definition, they conclude that these leaders caused a decline in GDP on average of 10%, fifteen years after the start of a populist episode, compared to a plausible counterfactual about what would have happened had they not come to power. In addition, the longer populist leaders are in power, the greater the damage to the economy.

This happened without reducing inequalities (and in the case of right-wing populists, aggravating them). Despite the rhetoric of the leaders, and despite the great diversity of experiences, the most disadvantaged sectors paid a high price for populism. According to these authors, one of the mechanisms that led to this economic cost was the erosion of norms and institutions, which hold back investments, cooperation and risk-taking. Populism practices a constant confrontation with justice (like Netanyahu) or independent institutions (like Erdogan with the Central Bank). This weakens the institutional advantages of democracies, questioning the separation of powers, and undermining the good management of public services (populists such as Trump and Bolsonaro have been especially nefarious managing COVID). The normalization of behaviors previously considered unacceptable, leads to the polarization of societies and legal uncertainty, which affects more seriously the most vulnerable groups. The data provided by these economists on the economic damage of populisms surely underestimate the real damage, since they do not take into account the influence that they exert even when they do not lead the government of a country. When they don't, they can influence other parties with their pressure, or they can be minor partners in a coalition government, or they can exert destabilizing actions from sub-national governments. In composite states, such as Spain and Europe, multilevel government is a double-edged sword: other governments protect from the populist drifts of one of them, but that protection acts as insurance, as a guarantee that others will come to the rescue. We supporters of democracy have to update it permanently so that it does not remain in the hands of saving messiahs. Let us hope that citizens increasingly run away from apparently simple solutions, and that analytical thinking prevails (as Pasqual Maragall asked the youth in the 1990s), and embrace deep and lasting action to improve the living conditions of the popular and working classes.