Monday, October 31, 2022

Some national election results as global public goods

Bolsonaro has been defeated. This is good for Brazilian citizens, for the Amazon and for the Planet. Like Bolsonaro, Trump is also a global public bad and democratic administrations in the US today are a global public good.

Stopping climate change needs at least a democratic majority in the US, a normal government in Brazil and a European Union committed with a zero-carbon economy. Governments and legislatures committed with global collective goods not only have direct positive effects on stopping the climate emergency, fighting autocrats or stopping tax competition, but also indirect effects in that they discourage opportunists from joining their ranks.

The friends in Anne Applebaum’s party that later joined the ranks of national populism would not have done so if national populists were not winning elections. Members of center left or center right parties, no matter how experienced or educated they are, are more likely to join national populist forces when these win elections. There are few cases of politicians or activists that switch parties in favor of declining political forces.

The electoral success of national populists normalizes extreme voices, voices that divide societies and may even trigger violence.

As David Axelrod has said there are those who will dismiss the meaning of the assault on Pelosi as the act of a lone, unsettled man. But he was echoing far-right conspiracy theories, legitimated by cynical people for their own purposes. “There were many hands on that hammer.”

There is the case of a Catalan opportunistic and cynical politician who, while joining a national populist regional government, says that he is a social democrat without a party. I wonder how many friends of Anne Applebaum’s say that they are center righ without a party. One day he says he is against Catalan Independence, and two days later he says he might have no option but be pro-independence.

Governements in the hands of national populists empower those that divide societies, no matter how moderate they turn when the election approaches. Sometimes they will win, as in Italy, but we must try to minimize their victories and start a strong opposition from day one if they reach power.

In the absence of democratic global enforcing powers that use legitimate coercion to provide global public goods, we rely on the voluntary contribution of national democracies to them. 

Sunday, October 23, 2022

A federal future: we must change the world to save the Planet

We live in an increasingly interconnected world, facing existential challenges that succeed one another and are interrelated. When we were leaving a painful global financial crisis, an also global pandemic reminded us about the fragility of our existence (and the potential for government action), just to witness how the aggression of Putin in Ukraine tested our mechanisms of secutirty, protection of human rights, access to energy and cooperation. Meanwhile, the increasing threat of the climate emergency is ever more present and demands urgent and massive action at all levels, making sure to put the welfare of the poor and the most vulnerable at the forefront, and not as an afterthought.

Wars, refugees, and migrations have never stopped, although we have also learned that living in democracy is possible, although fragile.

We have lived through great technological progress in the last two centuries but have also experienced great catastrophes. The European Union has proved a sophisticated and necessary mechanism to prevent wars on its soil, but is insufficient to stop disasters in its neighborhood, such as the Balkan wars or the war in Ukraine.

The new generations grow full of hope but also full of concern for their future and the future of the Planet, and are not shy to express their rage and fear whenever they can.

Addressing the challenges of our times requires unprecedented levels of cooperation. Cooperating, however, is not easy. It requires a social sophistication that nation states are far from reaching. In our hopefully post-pandemic scenario, the climate crisis, increased poverty and inequality will only get worse with additional doses of national populism. It is the time to accelerate the promotion of alternatives, and in particular the promotion of federalism as a set of principles and values, the principles of a multilevel democracy and the values of cooperation and acceptance of diversity and pluralism.

If a small group of illustrated progressive leaders could conceive of a federal Europe in the isle of Ventotene in Italy when the fascists were still in power, now the same visionary ambition should be displayed at the global level. There are people willing to fight for this more cooperative world.

 The EU must evolve towards a more integrated and democratic Union, and at the same time elements of a global federation must emerge. Governments and communities must be stronger at all levels and promote individual freedoms in a context of true equal opportunities.

Tax cooperation among jurisdictions should be promoted and tax havens should be eliminated. A multilevel democracy were no level has the monopoly of sovereignty is crucial precisely to achieve tax justice. Inequalitites must be addressed directly at their source. The Laffer curve (the notion that reducing tax rates will magically increase tax revenues) and “trickle down economics” are zombie neo-liberal ideas that have been discredited by empirical evidence.

Egalitarian ideologies that were born as alternatives to capitalism can today join forces with those that want to promote deep reforms in capitalist economies. In the fight for equality, mistakes have been made over history. One of the most important of these mistakes is the belief that equality is compatible with nationalism.

Peace and diversity are promoted through democracies with equal rights instead of ethnocracies. There is almost no piece of land in our Planet that can be closed in borders and include only members of a pure identity. That can be only the result of ethnic cleansing or a distorted view of collective freedom. All borders are artificial. We should waste no time trying to change them, but we should spend more time trying to promote cooperation and friednship over them.

Federalism is a necessary ingredient to leverage the fight of the new generations to save the Planet and change the world. We must promote the values of solidarity, fraternity and cooperation. A society guided only by the profit motive or by material interests ends up being a poor society in all respects.

Those that take advantage of the problems and exploit identity feelings are powerful and effective in the use of new communication technologies.  Those who want to oppose them cannot remain in their ivory towers, limiting themselves to explore new theories and regretting that the world has changed. No more lives must be wasted fighting for “us against them”, when the fight for the Planet and for solidarity is both the most important and the most urgent of our times.

We must use the green and digital transition to promote a better world, where the standards of living can improve for everybody without destroying the natural resources and without compromising the existence of future generations. More than ever, we must multiply the initiatives (and make them multiplicative) –in the form of virtual exhibitions, videos, web resources, apps…, in a process of trial and error, to promote federalism as a social cause in our complex world.

To promote human dignity for all, we need institutions that bring out the best of human beings, and not the worst. These institutions may evolve from the existing ones, or be the result of social innovation. If continents drifted away from Pangea, they must come together again, at least symbolically, in the fight to save the Planet.

Sunday, October 9, 2022

Pandemic lessons for (and from) behavioral economics

Behavioral economics had a bad pandemic if we restrict behavioral economics to "nudges." It seems that Johnson’s UK government at the beginning of the pandemic thought that with nudges-like cheap interventions would be enough to flatten the curve, but it wasn’t.

In some cases, nudges may be a useful part of the tool box of public interventions, to help people decide, for example in cases where health or savings may be improved. Harvard economist Raj Chetty has an article I teach in my graduate courses on how nudges in some cases may help.

But it is more than nudges that is needed to address some of the most complex issues of our time, like pandemics, inflation or climate change. In many of these cases, citizen cooperation is needed for the success of traditional instruments, like taxation or quotas (quantity decisions, prohibitions, lockdowns, masks…). The worst that can happen is that in front of these challenges that require tough public intervention, significant parts of the public adopt a cynic approach disguised into anti-establishment politics.

George Loewenstein has written that the most important nudges are those that help people support or complement traditional public interventions, instead of crowding them out.

One way of “nudging” people to support or complement traditional interventions is thorugh the impact of policies itself on the preferences and beliefs of citizens. For example, Schmelz and Bowles found that mandatory vaccines are worse for cooperative behavior than voluntary vaccines. And Mónica Martínez Bravo and Carlos Sanz found that well-managed public policies increase trust in the political system, in times where this is necessary to avoid free-riding attitudes in tax compliance, vaccination or mask-wearing.

The article by Martinez Bravo and Sanz is based on an online survey that was administered in the fall of 2020, before vaccines were available. They find that bad contact-traing policies negatively affected trust in collective institutions. After that, I wouldn’t say that phenomena such as Euro-scepticism or anti-vaxer behavior has been a more serious problem in Spain than in other countries (in fact, we are OK on these), but we have our own “trust” issues in terms of tax compliance and tax culture in general, or our own versions of populist politics. Better policy execution creates a positive feddback loop.

Saturday, October 1, 2022

The climate emergency is not part of the cultural war

Some comentators argue that the left makes a mistake to focus on cultural wars about gender and identity, instead of focusing on social class and income or wealth inequality. I am very much in favor of focusing on social inequalities, although I am also convinced that these should include categorical inequalities such as those related to gender and ethnicity.

It is also common to add environmental issues to the list of “cultural issues,” as if the climate emergency was some aesthethical concern related to birds and landscapes. That would be a very serious mistake. The environmental catastrophes that we are facing are a human social concern, because they will affect dramatically more the poor, and because unless we transition to a carbon-neutral world in an equitable way, we will never have carbon neutrality. Also, because it is a matter of social solidarity with future generations. Thanks to economists like Nicholas Stern, now we know more about how to address these issues.

Since the publication of the Stern Review in the first decade of the 21st century, two important trends stand out in terms of knowledge about climate change and the tools to deal with it: first, the problem is worse than first thought (containing the average rise in temperatures to 2 degrees Celsius is not enough) and it is happening faster; but second, there is new evidence that technological change to base the economic system on non-polluting activities is more affordable and faster than expected. The cost of renewable energy has fallen considerably, the expansion of electric vehicles has been faster than expected, and the adoption of healthy dietary patterns has become widespread.

For humanity as a whole to cope with the problem of climate change, a different kind of economic growth based on rapid technological change will be necessary. This will require high levels of social coordination. This need and virtuality of coordination is associated with an acceleration in the adoption of new technologies. The existence of non-linear temporal evolutions, that is, subject to rapid accelerations, increases the risk of unambitious and slow reactions. These overly slow and unambitious reactions are often based on short-sighted economic models (or misconceptions about “culture wars”). In a table on the "failures" (failures or imperfections) of the market mechanism that occur in relation to climate change, Stern shows in a recent article that these are more than those traditionally considered when the phenomenon has been addressed by economists. Traditional economics focuses on the imperfection of the market associated with the external effect (or externality) that occurs when polluting. The solution in this case is a tax that "internalizes" the externality, or a regulation that prohibits emitting more emissions than those that result from taking into account the interests of all affected parties, or a market system of emission permits that put a socially optimal price for emissions, resulting in incentives similar to those resulting from a carbon tax. 

However, in a broader and more realistic view of the climate change phenomenon, the negative externality is just one among several failures of the market mechanism to be considered. It is in this sense that the author proposes to change the way in which economists develop their research work, to take into account this broader perspective. Specifically, Stern believes that five other market failures must be taken into account, and public policies developed to correct them. These five additional market failures or failures are i) the incentives for technological innovation (people who innovate do not take into account the positive externality they generate, thus requiring public support policies); ii) the imperfections in the risk allocation markets and in particular the financial markets (financial mechanisms must be introduced to reduce risks and reduce the weight of dirty technologies); iii) the need for coordination in a variety of networks and systems (which makes it necessary to improve urban planning policies to ensure coordination, for example, of energy and transport networks); iv) information problems (which lead to a lack of knowledge on the part of many agents about the possibilities of new technologies); v) the need to consider benefits that go beyond those that can be obtained through the market, such as the valuation of ecosystems and biodiversity. Even if we limit ourselves to strict negative externality analysis, the risks of moving too slowly are potentially huge, and there are increasing returns to scale, fixed costs and uncertainties in key industries, so setting standards and regulations is also necessary in addition to taxes. A great challenge for action is how to promote collaboration and act together, which raises important questions from the point of view of social institutions and mutual support. The analysis of the necessary changes would be incomplete in this sense if the distributional effects at the international and local levels were not taken into account, in order to move towards a rapid transition that is just and is perceived as such, while developing institutions that survive political changes. Economics, in connection with other disciplines, can contribute to accelerating the changes necessary to stop climate change, provided that it broadens its perspective.