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.