Sunday, October 29, 2023

The left and Israel/Palestine

The Guardian and other media organizations report today about divisions in the left in Europe and the US about the stance to take on the war in Gaza. Anything we say should start by showing humility and respect for all those who are suffering, and for all those who have opinions that are based on the real experience on the ground. But what happens there affects us all because of the connections between the Middle East and the rest of the world in terms of culture, economics, religion and geopolitics. And because of the spillovers for many other national conflicts. Perhaps these notes may help clarify at least my thoughts on the issue, based on what I believe are progressive principles of common humanity and solidarity.

-Peace and humanitarian aid should now be prioritites. An act of terror followed by hundreds of thousands of people being forced out of their homes, with no prospect of going back to them, is just the current manifestation of a decades long conflict. But people are suffering or dying now, and anyone anywhere with the capacity to help stop this madness deserves support.

-It is the land of both Jews and Arabs. As it has been argued by Jonathan Freedland, these are two peoples (and millions of individuals, all of them different) in deep pain, fated to share the same land. This is not a colonial problem. No one should leave their land.

-The two communities have their worst leaders in decades. The government of Netanyahu took a long time ago an autocratic and xenophobic path that was eroding democracy. Palestian leadership is divided between a terrorist organization in Gaza and a discredited probably corrupt authority in the West Bank. Of course, it is up to the citizenry to choose their leaders, but perhaps the international community should do more to promote a new generation of leadership that can be the protagonists of a renewed and credible peace process (one that learns from the mistakes of previous attempts). The progressive, in many cases inter-ethnic, groups that exist and that promote peace and cooperation, should not be silenced, but strongly subsidized.

-The one state (or club) reality that we have now is that there is one strong power in the area, the state of Israel. It allows the devalued Palestinian leaders to manage a few local public goods to keep a fiction, but essentially, mobility and property rights are controlled by a state (Israel) that is not granting equal rights and dignity to all the population under its control. Only part of the population has access to high quality public goods.

-Equal dignity and cooperation among all individuals in Israel/Palestine should be a priority not ten years from now when a hypothetical peace process is reactivated and delivers some fruits, but today. The US and the EU should have enough leverage to make this happen. Palestinian mothers today perceive a very low opportunity costs of sending their children to suicide missions against Israel. Only shared justice and prosperity will increase this cost.

-Are you sure the solution is more self-determination? Is the two-state solution necessary? Sufficient? Covenient? It looks more like a lazy synonim of reactivating some peace process, because that is what the UN resolutions say. But given that it has not happened since it is the official position of the UN from 1947, while there was a secular leadership in both the Israeli and the Palestinian side, one wonders how it can happen today. Before any “solution” is reached, the emphasis should be on improving the life and security of everybody, equally. And if ever a “two-state solution” is reached, the first thing that the two “states” should do is to start cooperating in a very small territory to manage everything from transport, to water, to a shared capital, to trade…

Friday, October 20, 2023

Climate change in the classroom

The Word cloud of CORE students reflects year after year a consistent concern for climate change, probably the biggest problem of our time and the decades to come. CORE’s free e-book The Economy reflects that, starting from Unit 1, and also in the chapter on market failures and a capstone chapter at the end.

In my Introductory Economics class, I asked my students to prepare class presentations with graphs on the correlation between carbon emissions and temperature changes (using data and guidance from the e-book Doing Economics), and to reflect on the policies and institutional players that interevene in trying to address the emergency.

Students immediately realize the interdisciplinary nature of the problem, which combine the knowledge from physics and natural sciences, and the insights from economics, political and behavioral science. They become familiar with the challenge of preventing temperature increases of more than 1.5 or 2 degrees, but they also realize that it is more than a heat problem, with the risk of forced migrations, and natural disasters.

Although the exercise was framed to make students think about the difference between policies (taxes, regulations) and organized institutions (United Nations, national governments), they also see that institutions are not only formal organizations as players, but also the formal and informal rules of the game, for example about the role and voice of future generations, those that will be most affected by the problem. In any case, they see that policy debates are less important than the need to introduce institutional changes, for example in terms of creating global enforcement mechanisms.

The difficulties about reforming institutions and policies come from the uncertainty about the exact profiles of the problem (not about its importance) and the lack of immediate  awareness. Current institutional players find it difficult to cooperate or coordinate in a long run problem. Although the UN has recently been speaking loudly about the emergency, national governments find it easier to cooperate with short run emergencies, such as wars or pandemics.

Three different games in The Economy 2.0’s Unit 4 are meant to model the basic dilemmas of climate change today. In these three games, China and the US have to decide between restricting or playing business as usual (BAU) either in a prisoner's dilema game (where the equilibrium is not the socially optimal outcome), a coordination game (where the socially optimal outcome is an equilibrium but there is also a suboptimal one) and a hawk-dove (or chicken) game, where the distributional problem is more acute but also the socially desirable outcome of both countries restricting is not achieved in equilibrium.

The third version (the chicken game) is very appropriate to see the combination of redistribution and efficiency issues: there is conflict (between countries and income groups/social classes) and common interest. Lobbies (mainly large polluting corporations) are not shown in the simplified games, but they are not missing from the students’ presentations. In these I expected more references to the “de-growth” controversy, but I saw none of it.

Finally, although we used them as a pedagogical tool, I advised the students to be careful with 2x2 games (eg Israel and Palestine in another context) that obscure the complexity at the interior of the institutional players and forget about other relevant stakeholders.

Saturday, October 7, 2023

The Economist against Bidenomics

The magazine The Economist was founded in 1843 to defend free trade and a limited government. Since then, free trade has globally expanded (and contracted several times) and the size of government has expanded almost continuously, together with life expectancy, education but also the destructive power of wars. Today, public expenditure is more than 50% of GDP in some of the richest and more advanced countries of the world. In the future, if societies want to improve their welfare, it will most probably come from a combination of free trade and good (and large) governments.

In a special report and an editorial this week, The Economist calls “Homeland Economics” the protectionist turn in the economic policies of the US, the EU and other jurisdictions, including Japan and India.

The usual arguments against protectionism (free trade promotes efficiency) are combined with an attack on new industrial policies targeted to strengthen value chains. The Covid-19 pandemic and the war in Ukraine have triggered an increase in the resources spent on public intervention in specific industries. At the same time, governments like the Biden administration (with Bidenomics) have taken advantage of the enhanced tolerance with government activism to introduce subsidies that accelerate the Green transition.

In what The Economist calls the era of neoliberal globalization (the decades between the fall of the Berlin Wall and the global financial crisis, where poverty and global inequality decreased), government intervention was not absent. At the same time, inequality in specific countries increased or was scarcely reduced from very high levels (as in Latin America), and climate change reached scaring dimensions. It is hard to see how to achieve better living standards (equitable and sustainable growth everywhere) without a balanced combination of markets and governments.

New Industrial Policies, according to The Economist’s special report (which sounds the alarm about introducing geopolitical objectives in economic policies, as if the two had been disconnected in history), will in fact increase inequality, because it is no longer clear that with new technologies manufacturing jobs (the traditional objective of “industrial” policies) are low-skilled any more. At the same time, less trade will mean more global inequality because the improvement of living standards in emerging economies will stop.

The environmental critique of the new interventionism is more moderate. The magazine’s special report accepts that New Industrial Policy can be a second best instrument to address climate change, because voters will better accept sacrifices from these imperfect policies if they create new jobs.

The Economist will not stop Bidenomics and similar policies and governments will remain as necessary as ever if not more. Some cautions are in order, though. Some protectionist policies have a high cost in terms of budgets and loss of productivity. And shocks are often better absorbed by markets than by planning.

That is why new forms of intervention should probably focus on: global infrastructure and development; limiting the power of global multinationals; accelerating the fight against the climate emergency; productivity and job quality. That will not mean more markets and less government, but better institutions including both.