What federalism for the Middle East?

As unexpectedly as the recent turmoil in South Korea, in a few days the rebel forces have toppled the Assad regime in Syria, and Damascus has fallen, after 50 years of authoritarian control and more than a decade of Civil War. Institutional systems evolve in a non-linear way, especially in times of geo-political changes.

The forces that opposed the Assad regime are heterogeneous across religious and ethnic lines. The rebel leaders have promised moderation and stability. If they fulfill this promise, they may be a positive influence for the Israeli-Palestinian conflict. We know the alternative: ethnic fragmentation, chaos, poverty and humiliation of minority groups. The possibility of a multi-ethnic democracy (with secular federations and confederations) in the Middle East will have to face enormous obstacles, the first one skepticism and the accusation of lack of realism. But this should be the benchmark: democratic institutions that treat every citizen with the same dignity and promote diverse cultures.

A new book and the re-edition of an old book show exactly this way for Palestine-Israel.

The Israeli historian Shlomo Sand, in “Israel-Palestine: Federation or Apartheid”, tells the story of those thinkers and writers, both Jewish and Arab, that have promoted the idea of one binational federal state from the river to the sea. The idea is as old as the Sionist movement, and was considered by the United Nations but rejected in favor of the failed two-state solution, which has tried to consolidate an imposible and undesirable ethnic separation. It is an old idea that has recently re-emerged as the logical benchmark with which to oppose the current reality of one state that practices ethnic discrimination. The author is also skeptical about the practical implementation of the idea in the short run, but admits that this should be the horizon of local and international democratic forces.

The two state solution of the Oslo accords is not feasible with the presence of more than 700.000 settlers in the West Bank. Seven million Jews and seven million Arabs share a small piece of land. The only human and just horizon is reconciliation, and institutional sharing, like in South Africa and Northern Ireland. Two aceptable alternatives would be a confederation of two states with freedom of movement (like in the European Union) after the existence of two states is consolidated, or one state with equal rights but no recognition of national rights. But the two pre-existing states would be too unequal and would spend resources on exclusive ethnic identities instead of a shared destiny. On the other extreme, not recognising the existence of two different national cultures with the right to recognition and reparation after a painful history, would be naive. A federal binational state would protect the equal rights of individuals, but would also constitutionally preserve the cultural and national rights of the two peoples, independently of the demographic game of majorities and minorities.

The 2024 reedition of "The Question of Palestine" written by the late Edward Said, with a new preface and an article he wrote on the one-state solution before his death in 2003, presents the arguments for the one state federal and binational solution, from a Palestinian perspective. Said distinguishes between the right to self-determination and the right to create an exclusive ethnocracy. Two peoples can self-determine by sharing a land and respecting each other, as we share many of the international capitals of the world. The original book was written in 1979, but the arguments are very similar to the ones proposed by Shlomo Sand. They are the same arguments that in the past were used by Hannah Arendt, Tony Judt, and that today are stated by an increasing list of corageous groups and individuals. These are the principles that should guide the efforts to build peace and justice in the whole region and in the world.

It's the workers, stupid! (but not only)

1. The facts are: Donald Trump will be President of the US for the second time, after winning the electoral vote and this time also the popular vote, although by a narrow majority. The risk for democracy, human rights and the economy is enormous. A similar number of voters have opted for him than the last time, but the Democrats have obtained under Kamala Harris less votes than under Joe Biden in 2020. The memory of recent inflation, anti-incumbency bias after the cost of living crisis, and the rhetoric of populism have been stronger than appeals to common sense. To people like me, academics with a PhD, this is an aberration. We knew that things were bad, but when we woke up on Wednesday November 6th in Europe, things were around 5% worse than we expected when we went to bed the night before. When I say we, I should include The Economist, the economists, Nate Silver and most commentators in Western media.

2. People as diverse as Economics Nobel prize winner Daron Acemoglu and Senator Bernie Sanders blame the Democratic Party for not having an agenda that is pro-worker enough, in spite of the Biden administration being the most pro-worker of the last 50 years. Asked about this on CNN, Sanders said that Biden's agenda was great, but that much more needs to be done. Others (Nancy Pelosi) blame Biden for not withdrawing earlier from the race. I've also read comments saying that Harris took the vote of women for granted, or that Democrats did not pay enough attention to the immigration issue, but paid too much attention to identity issues (these two points sometimes raised by the same people, like Fareed Zacharia, somehow paradoxically). It is impossible, of course, to prove that by following one or several of these recipes, the Democrats would have won. History only happens once and it is impossible to run pure experiments with it. The fact is that Trump (probably, a worse Trump than the first time) won, and a majority of voters has rejected the opinion of economists, scientists or celebrities.

3. What can be done? Everybody seems to have an answer. I don't. I would like to believe that by avoiding the bad populism (there is a good populism), reducing the volume of identity politics and of culture wars, and addressing cost of living and real wages issues with both pre-distribution and re-distribution, Trumpism and related national-populisms will be defeated. But that's what Biden was trying to do...

4. As political scientist Larry Bartels argues, the supply side of politics also matters. Progressive organizations have to fight against a formidable enemy. But is has been defeated before, in Poland, England, Spain, also in the US in 2020. Appealing to the prejudices of alienated voters is not a solution in the long run, and is not even a progressive solution in the short run. We need to sophisticate our instruments to make our narratives, based on science and common sense, winning ones (now they are not). Workers need high capacity governments at all levels to fight climate change at the same time that prosperity is created and shared. This is possible, there are many examples. But it is not easy.

Acemoglu and us

For the last two decades, Daron Acemoglu, together with his co-authors Johnson and Robinson (and their critics) have been a constant source of inspiration for all those economists (like me) interested in the role of institutions in the economy, and in the interaction between economics, politics and history. They have been a recurrent presence in my lectures, my research and my blogging (for example, here and here). Now that I am temporarily on leave from academia, I missed talking about these last winners of the Economics Nobel Prize with my students this week.

Acemoglu and his co-authors have improved the terms of trade-off between finding very precise answers to small problems and finding imprecise answers to big questions. This is important and difficult. The challenges of our time are big, and will not be satisfactorily addressed by adding precise answers to very small problems. However, the research techniques of social sciences are very well developed for the small, but not the big questions. Acemoglu and his co-authors have mobilized a great deal of the arsenal of modern social sciences (causal econometrics, modern theory, case studies) to address big issues such as the challenges of democracy, inequality or technological change and how they interact. Because this is inherently difficult, they have received serious methodological criticisms, to which in some cases they have respectfully responded (for example, to the issues raised by David Albouy on their work, cited in the academic essay that justifies the awarding of the Nobel Prize, about the impact of settler mortality in the colonies as an instrument for the quality of institutions and contemporary economic outcomes). Recent research has raised serious methodological issues not only about the work of Acemoglu et al. on the deep historical causes of prosperity, but also on work they inspired about historical persistence by tens of researchers.

Their theoretical work on the difficulties of commitment in politics was followed by impressive (but, as mentioned, open to criticism) empirical work on the determinants of institutional change and the impact of (inclusive or extractive) political and economic institutions on prosperity in academic articles and later in the best-selling book “Why Nations Fail” (written by Acemoglu and Robinson, two of the three laureates). They contributed to improving the reputation of the book format among economists, also with “The Narrow Corridor” and more recently with “Power and Progress” –this one, by Acemoglu and Johnson, the best of the books in my view but not mentioned in the academic essay that justified the Nobel Prize decision. All these books have long bibliographic essays at the end, which are an amazing tool for teaching and research. They have also contributed to improving the prestige of multidisciplinary work on economics, politics and history.

After reading their books, I also learned about the importance of reading good academic book reviews. Probably the best book review I have ever read is the one by W. Bentley MacLeod on Why Nations Fail. And another very good one is the review by Avinash Dixit of The Narrow Corridor (you can find them through Google Scholar). Bentley MacLeod suggests that organizational economics and social choice would be good complements of Why Nations Fail. He casts doubt on the implications of the correlation between prosperity and the protection of individual property rights. Perhaps for poor societies, it is not optimal or possible to strongly protect individual property rights (for example, because insurance markets are not well developed). If they don’t have good property rights institutions it is perhaps not because they are making a mistake, but because they are doing what is appropriate for their level of development. Political scientist Yuen Yuen Ang has raised similar doubts about the institutions that are necessary for prosperity, suggesting that corruption is perfectly compatible with the development of market economies (although not desirable). Avinash Dixit suggests that the split between government and civil society in “The Narrow Corridor” (where Acemoglu and Robinson argue that the key to posperity is a government checked by civil society) is too simplistic, and that it is the divisions in politics and society and their interaction that drive social change. Dixit says that “if rifts in society do not exist, they can be created or exaggerated… leaders cultivate hatred to mobilize their people into conflict” (mentioning Trump and Modi as examples, although there are many more).

The two books have in common that they try to fit a common model to a big diversity of case studies over time and space, which is risky.

More than their specific ideas, the value of Acemoglu and his co-authors is to have raised the status of multidisciplinary work on institutions and the notion that power and social conflict are as important today as they were in the times of Marx. The idea that inclusive political institutions correlate with inclusive economic institutions and good economic outcomes is today challenged by the unstopped growth of China. Also, today the most economically prosperous country in the world (the US) looks into the abyss of political democratic collapse. The review of Bentley MacLeod has a graph summarizing the different impact of historical shocks on different nations depending on whether their institutions were inclusive or extractive. According to this, the different impact of the contact with America for inclusive England and extractive Spain would result into more prosperity for the British today. For all their great institutions, although the Brits still have a higher income per capita than us, Spain is growing more, lots of Brits come to party or to retire to Spain, and we didn’t make the stupid mistake of leaving the EU.

The notion of a “treatment” can hardly be transplanted from the medical sciences to economics or politics. The inherent difficulty of engineering prosperity results from the fact that human society is a complex system that is constantly changing over time. Institutions, culture, geography and technology co-evolve.

The book reviewers also point out the need for more research on local and international politics, and they question the nation as the relevant unit of analysis: can we compare China, the US or India to the small nations of the Pacific?

Acemoglu (the most famous of the three laureates) today is not the same as he was 25 years ago. Today, he has stronger opinions in favor of redistribution and government intervention. I would argue that he has become more progressive over time. His last book is a call to guide technological change in an egalitarian way through public intervention.

Acemoglu, Johnson and Robinson surely deserve the Nobel Prize –but perhaps they should share it with their critics and their book reviewers.

The very productive short life of Frank Ramsey

Frank Ramsey was a Cambridge academic that lived for only 27 years and died in the early weeks of 1930. I just finished reading his biography, written by philosopher Cheryl Misak (Frank Ramsey. A Sheer Excess of Powers, Oxford University Press), and published in 2020. It is a very detailed and well written book, covering both his life and his work (including short invited contributions by specialized scholars, for example Robin Boadway and Partha Dasgupta in economics).

I was attracted to it because I’ve been teaching Ramsey pricing in Economics Masters’ courses for a long time, and using it in my research on regulation. Ramsey had an incredible short life, in the last years of which he made important contributions to philosophy, mathematics and economics. He also had time to get married, have a lover and lots of friends, two children, and friendly (and also critically) interact with some of the best minds of his time, including Ludwig Wittgenstein and Bertrand Russell.

He was a socialist (although not interested in the Marxist dogma) and also an atheist. His brother, to whom he was very close, became a progressive Archbishop of Canterbury in the Anglican Church. He was also an optimist and a pragmatist interested in how rigorous knowledge could help build a better world.

In economics, he closely interacted in Cambridge with Keynes, Sraffa and Pigou, the brightest minds on macroeconomics, Marxist economics and microeconomics then and probably of the whole XXth century.

The piece of Ramsey that I’ve been teaching over the years is Ramsey pricing, the translation to utilities’ regulation of Ramsey taxation. This is an application of the theory of the second best, which says that when there are constraints in the use of instruments (not all the tools that we would wish are available), the policies may be very different from the ones that we should implement when there are no such constraints. In the case of Ramsey pricing, if subsidies to cover for firms’ losses are not available through undistortive taxes, then prices above marginal cost are necessary, in a way that those services with lower demand elasticity should have higher prices, if the objective is to minimize inefficiency.

In Economics, Ramsey also contributed to the theory of saving in a dynamic setting and to the concept of probability (in dialogue with Keynes). His theory of saving was later expanded by David Cass (my teacher in Florence in the last years of his career) and Koopmans, in the Ramsey, Cass, Koopmans model.

Economics and mathematics were both important in the work of Ramsey. Maths were a crucial tool to understand economic and social issues and to improve human living conditions. He was a mathematics professor because he was advised to choose this subject given his incredible skills, but he was as interested in economics and philosophy.

Ramsey’s ideas about utilitarianism and rationality were broader than what his work suggests, according to the author of the biography. His models reach conclusions from assumptions addressing important real life issues, to which a large literature has later contributed taking Ramsey as a reference.

He was an interdisciplinary genius as his strong links with Keynes, Wittgenstein, Russell, Pigou and Sraffa suggest. Not only they were important to him, but he was important to them. He was able to have a strong friendship with some if not all of them and at the same time criticize them intellectually.

Interdisciplinarity was not an excuse for Ramsey to lower the intellectual and scientific standards. In fact, in the case of Ramsey, it was a strategy to set them very high.

I strongly recommend this biography

Politicians and academics

After 22 uninterrupted years of teaching and research activity (which started after 7 years between my doctoral and my postdoctoral period), I have accepted a job (Secretary of Economic Affairs and European Funds) in the Catalan government as a result of the election of my socialist colleague Salvador Illa as President.

Politics is not something new to me, as I have been involved in it in an uninterrupted way since I was 16 years old and I was a councillor in Barcelona, my city, a long time ago, between 1991 and 1995, before going to Florence to study my PhD in Economics.

I guess that I will keep learning and thinking about how to build bridges between politics and the academia. There is a lot of ignorance on either side about what the other is doing.

Many politicians tend to believe that academics are in their ivory tower, living a relaxed life surrounded by books and curious students. Politicians that have been academics know better: Andreas Papandreou, an academic economist and the historic leader of the Greek socialist party, who had a very stressful political life, said that there was nothing harder than studying and working in academic life (he had a PhD in Economics from Harvard University).

Many academics tend to believe that politicians are selfish ignorants that could not have a private sector job. In fact, most politicians are hard working people motivated by the common good, and most of them are substantial individuals who could be good in other jobs, and actually have been good at other jobs. And yes, there are corrupt politicians (and corrupt academics).

But it’s true that there are many differences, and it is not easy to transition from one sphere to the other. I’ll do my best (again), aware that both worlds give you the chance to keep learning about the world and about oneself.

The social implications of the absence of free will

Robert Sapolsky is a professor of biology and neurology at Stanford University. In his recent book “Determined” (2023, Vintage), he presents a fascintating essay about the science of life without free will and its social (and legal) implications

He starts his analysis by rescuing the crazy argument that our Planet is supported by a giant turtle. Asked what supports the first turtle, proponents of the theory answered that it’s “turtles all the way down.” This is nonsense, but the expression is used by Sapolsky to basically argue that human decisions are “biology all the way down.” There are chemical and biological forces, produced by a combination of genes and the environment, that explain human decisions and behavior. There are no autonomous forces (no soul, no conscience, no free will) that are separated from the atoms that put together our bodies, including our brains, that explain why we do the things we do. As I once heard in a TV documentary, we are not that different from anthills, we are just “put together in a way that makes us look smarter.” Similarly, I read in the book (p. 386): “There is nothing but an empty, indifferent universe in which, occasionally, atoms come together temporarily to form things we each call Me.”

Of course, I lack the expertise to scientifically evaluate the claims in the book, but after reading it I am more persuaded than I already was before (and I tend to sympathize with materialistic interpretations of reality) that there is not much that we really choose, although we are brought to believe that we do.

As a good scientist, the author challenges himself by questioning whether his theory survives after taking into consideration the contributions of three successful branches of scientific knowledge: Chaos theory, Complex systems, and Quantum indeterminacy. Chaos theory shows that small changes somewhere can have dramatic implications at some distant point in time or space. Complex systems show that difficult to predict properties emerge from the interaction of a big quantity of elements that move following simple rules at the individual level (like in flocks of migrating birds). Quantum indeterminacy shows that at a subatomic level, there is a lot of randomness going on. But none of this contradicts -if anything, it reinforces (by looking at experimental and other evidence)- that human behavior is explained by the biological forces that, influenced by the social and material environment, acted one second before, one minute before… and all the way down.

In the second half of the book, Sapolsky looks at the social (and legal) implications of the absence of free will. That these implications do not need to be pessimistic is concluded by analogy of how social thinking has evolved in our consideration of conditions such as Epilepsy, Schizophrenia, or Obesity. Back in time, those that suffered these conditions, or their relatives, were blamed in one way or another, until science clarified that there were biological (genes plus the environment) explanations for these conditions. As a result, although there is still much to improve, these persons are treated today with much more respect and compassion.

What about killers and horrible criminals? Should we treat them like we treat those that suffer from epilepsy? Basically yes, concludes the author (who also discusses the differences between atheists and believers, and the evolution of the death penalty in the US, his country). That does not imply that they should not be separated from society, in the same way that governments impose lockdowns or quarantines. The example is the prison system of Norway, probably the most advanced country in the world. In a wonderful page (379), Sapolsky combines a condemnation of white supremacism with praise for Scandinavian social democracy. The author of the massacre of the Utoya island, where dozens of young socialdemocrat activists were killed, is today learning political science in a three room living space, separated from society, where he has access to TV, computer, treadmill, kitchen and social and psychological support. Countries that are closer to the Norwegian system have better social and educational outcomes than countries that are closer to more punitive systems and that look more to the past than to the future.

The book concludes with a profoundly egalitarian message. There is little individual merit in those that “succeed.” Readers should not skip the footnotes (or the personal autobiographic references of the author). In page 391, a footnote reflects about the words of a successful Harvard student of humble origin that, in a graduation ceremony, paid tribute to his parents, who made great sacrifices so that he could study: “My talents are indistinguishable from their labors; they are one and the same”

Social democracy against the insurgent far right

France stopped the far right in the recent legislative elections. The only feasible government that can emerge from the resulting Parliament is a coalition of the united left and the centrists, and this coalition can only be built around the pro-European center-left. 

In the UK, the Labour Party led by Keir Starmer defeated the Conservative Party, after the party of Winston Churchill had become the party of Boris Johnson, coinciding with the madness of the Brexit referendum.

Starmer seeks to correct market failures and improve the welfare of workers. It also seems to have a meaningful interest in spreading power more evenly across the kingdom and in increasing again ties with Europe.

In Spain and Germany, there is a social democrat prime minister in a coalition government. Both Sanchez and Scholz are pillars of European integration and reliable partners of the European institutions. In the Scandinavian countries, social democrats remain strong, although they have been weakened and they also face threats from the far right. In Italy, the only alternative in the mid run to Meloni is the the center left of the Democratic Party.

In the European Union, a coalition form the center right to the greens, with the social democrats in the center, has left the far-right in any of its versions, out of the current majority. Therefore, a continuity of policies to fight climate change and to further integrate Europe must be expected. The strategy of those on the right (such as Manfred Weber) that wanted to move the balance to normalize part of the extremists, has failed.

Von der Leyen and Tusk are not social democrats. But they are very aware that the pro-European left, is a crucial part of the alliance that must keep Europe united in a world that faces enormous threats. Von der Leyen mentioned the federalist Manifesto of Ventotene, authored among others by the Italian Communist Altiero Spinelli, in her acceptance speech.

In the US, any alternative to Trumpism depends on the ability of the Democrats to build a strong coalition form the extreme left to the center-right, with credible leadership, in the name of democracy and reason.

Australia has a Labour Prime Minister. Chile, Brazil, and Colombia have leftist presidents with the support of the center-left, and all of them had to defeat dangerous far right populist politicians in their presidential elections.

It is true, the world has seen democracies captured by identitarian national populists like Modi, Orban, Erdogan or Netanyahu, but it has also seen how their opposition grows stronger and they can be defeated, as their peers have been defeated in Poland or in the UK.

The emerging social democratic leaders and parties are federalist, meaning a left where the organization of government (European integration, decentralization, administrative reform to make a better use of expert and dispersed knowledge), the organization of a multi-level democracy, is part of the egalitarian project, is a necessary condition of it.

It is not the same social democracy of the post second world war decades or of the 1980s in Spain. It is weaker but it is still central. It is impossible to defeat the insurgent far right without the modern social democratic parties. They have added to their doctrine the need for a green transition to fight climate change in a fair way. Our parties must be aware of their mistakes, but proud of their accomplishments, and work together to give hope to workers and middle classes.

The best of Europe is on the pitch

The best football (soccer) in the world is played in Europe, although there is a lot of good individual talent in other continents. But the best club and national teams are European and, to be more precise, Western European, as recently emphasized by Simon Kuper. Of the best eight teams in the Eurocup (those that played the quarter finals), only one was not from Western Europe (Turkey). The four semifinalists are Spain, England, The Netherlands and France. I know, the World Champion is Argentina, which is a European team of Argentinian expatriates with a coach that lives in Spain, that tend to play most of their friendly games in Europe.

The best individual players of these four teams are very different from many of the fans that cheer for them in the stands or in the streets of the cities where their teams play (sometimes with agressive nationalist chants or sexist slogans). Williams, Yamal, Gakpo, Bellingham, Saka, Mbappé, Kanté… are most of them descendants of immigrants that reached Europe sometimes in very difficult circumstances. Some of the best German players (Musiala, Rudiger, Gundogan), eliminated by Spain in the extra time of one of the quarter finals, are not precisely the model preferred by the far right party AfD. The contrast between the emerging stars of European football and some of the emerging (and also disturbing) stars of European politics could not be clearer, as highlighted by a recent article of Gideon Rachman in the Financial Times.

Some of these players have used their celebrity status to confront the far right (especially the French players), and the far right politicians have not resisted the temptation to criticise the players (especially when their teams lose).

In the last three decades, as the far right vote share has been increasing in France, the proportion of non-white players born in immigrant families in the national team has also been increasing. To be fair, most of the best French players have always had names that were not typically French (such as Platini, Fernández or Zidane), but now the pattern has consolidated: the team that defeated Portugal in the semi-final played with not a single player with a “French” name, with twelve players of originally African families playing during the game, and defeating the powerful Portugal. Thanks to the immigrants (and despite a mediocre typically French coach, Deschamps), France has become one of the best national football teams, when traditionally it was only in the middle class.

The success of European football is not only the success of descendants of African immigrants, but also the success of open borders and free movement in the European Union. The success of the English Premier League builds on the Bosman Ruling of the 1990s (this increased equality among national teams and decreased it among club teams, as brilliantly explained by Milanovic in an academic article), which banned foreign quotas. As a result, the English clubs had to open themselves and accept foreign talent. Today some of the best coaches and players in England are foreign. Unlike some suspected, this has not made the national team any worse, but in fact better, because now the best English players have to compete and cooperate with, and learn from, the best foreign experts.

Western European national teams are more diverse than Eastern European national teams. In one game with Serbia, I noticed that all the players had a name finishing with –ic. All the players of Georgia were bearded. A Turkish player had to be banned because he made a fascist salute. In these cases, probably the players are more similar to the fans in the stands. Deep historical and political currents explain this contrast.

Marine Le Pen, the French far right political leader, has dismissed the players’ appeals not to vote for her party claiming that they are billionaire elitists, in many cases playing abroad. They may be billionaire today and some of them may work abroad (which sometimes is a good thing that may do even Le Pen some good perhaps), but they know their origins very well, and the origins of their families. These superb players are the best of their countries, and the best of Europe, and not the political leaders that fear and criticise them.

The left, the right, capitalism and democracy

Democracy is a set of political institutions that combine elections, the rule of law and civic freedoms. Capitalism is a set of economic institutions that combine markets, private ownership and firms where the owners of capital hire workers. These definitions, like all definitions in social sciences, may be disputed. I use the ones in the CORE Project’s e-textbook, The Economy (now in its second edition).

Democracy and capitalism do not always go together. There are, and there have been, capitalist autocracies and capitalist democracies. The main contradiction between capitalism and democracy is that the economic power in capitalism is in the hands of a minority, and this economic power may translate into political power. In a democracy, by definition, the executive and legislative powers are, at least formally, in the hands of a majority (who must respect minorities and the rule of law).

As a result of these tensions, the left is uncomfortable with capitalism and tries to reform it or replace it. In some extreme forms, the left has made the mistake of associating capitalism with democracy, speaking of a “bourgeoise democracy”. And atrocities have been committed in the name of the left over history.

But in general, the left and the center-left today are the most reliable defenders of democracy. The left is not by definition necessarily uneasy with the market as a mechanism of resource allocation, or with the existence of large private sector firms. But it is uneasy with the unfettered power of capitalists.

There is a left wing tradition of defending free international trade as a pacifist cause, and there are connections between progressive thinking and neoclassical economics. Kenneth Arrow, probably the most interesting of neoclassical economists, wrote an article making a “cautious case for socialism.” In pages 857-858 of Bowles and Halliday’s textbook on Microeconomics, they show that frictionless perfect planning and perfect markets can actually be represented by the same model.

But efficiency and equity are only separable under very unrealistic conditions, and in many realistic ones markets can worsen discriminations or segregation. Under appropriate institutions, markets have lifted whole countries out of poverty (China, but not Russia), but have done little to stop inequality, in fact they have increased it. Only when non-market (state or civil society) strong institutions can pre-distribute or re-distribute resources, markets are compatible with both efficiency and equity. That’s a possibility that should always be explored: an economic system with regulated markets (at the realistic scale, which is more and more global), efficient firms and constrained private property (call it reformed capitalism or cautious socialism) should be the perfect complement of democracy.

Today, the biggest threat to democracy comes from the support of some capitalists for political leaders that threaten the rule of law and civic freedoms (and also elections when they don’t deliver the result that they expect). It is not a mistery why many among the very rich (and many “both siders”) endorse Donald Trump or Marine Le Pen more or less openly, as well as in the past they endorsed Hitler. They give support to these likely authocrats because they give priority to their short run economic interests (lower taxes, less regulation), they don’t really care about democracy for any ethical reasons, and they underestimate the economic and social risks that themselves also face.

Lessons from the Burmese dystopia

We receive news every day about Gaza and Ukraine, and there are good reasons to keep our focus on them. But there are other tragedies about which we only hear from time to time that we should pay attention to as well.

Thant Myint-U, a diplomat and grandson of a former secretary general of the UN wrote a few years ago a very interesting book, “The Hidden History of Burma. A Crisis of Race and Capitalism.” The author, born in New York city, knows the country well, and participated in an advisory capacity in the attempts to complete the transition to democracy until a military coup in 2021 stopped the process.

Myanmar (as the country is now officially called) is a country sandwiched between India and China, of incredible ethnic, religious and linguistic diversity, for historical and geographic reasons. The book is the chronicle of a failed transition, the history of the years between colonialism and the current civil war. Inter-ethnic violence is an important ingredient of this history, culminating in the tragedy of the wave of the Rohingya refugees as a result of this violence.

The cascading mechanism of ethnic violence is well known, and reached tragic proportions in this case in the second decade of this century, just some years ago. A supposed crime is perpetrated, and someone publicizes that the perpetrators are members of some ethnic, religious or linguistic group. The entire group is blamed for it, which triggers a reaction by the most radical members of the targeted group, and so on and so forth. One has to be careful with the narrative, and that is why it is important that the precise details are delegated to those that know the case very well, as it happens with the autor of this book.

The episodes of ethnic violence took place in the middle of a failed transition to democracy, after years of military rule, first trying to follow a socialist system and later opening up the doors to markets and private interests without much regulation. The case has similarities to dystopian fiction: “In a world with no shortage of mass atrocities, the civil war in Myanmar is perhaps the most inescapably dystopian”

The book finishes with the Covid-19 pandemic, just before the military rebellion that put an end to the transition. The current situation is one of civil war, with the army fighting against a coalition of the legitimate government and armed ethnic groups: “The resistance aims to overthrow the Military Junta, establish a genuine federal democracy, and remove the military permanently from the country’s politics."

The book is a warning about what happens to capitalism without a strong state: violence, warlords-business men, and drugs are together in a tragic cocktail. Climate change meanwhile devastates a country that is most vulnerable to it.

The mistake of ethnic federalism results from choosing to deal with fixed ethnic groups (a mistake to which the UN apparently contributed) instead of using a fluid interpretation of ethnicities, emphasizing diversity and a common purpose. Ethno-nationalism and unregulated capitalism feed each other, and Facebook contributes to it, as it did with the Rohingya catastrophe. 

The international celebrity business projects a simplified view of complex countries, and in this case it invested too much hope on a leader (Aung San Suu Kyi) that in the most dramatic moments failed to take a principled view on human rights.

I strongly recommend this book, both if you are interested in this specific case, and more generally if you are interested in the co-evolution of ethno-nationalism, capitalism and democracy.

Milei's neoliberal dogs

The recently elected President of Argentina, Javier Milei, who was trained as an economist, has several dogs that are cloned from a previous dog that died not long ago. Some of these new dogs have the names of economists favorable to a minimum role for government in the economy. One of the dogs, for example, is called Milton, after Milton Friedman.

Javier Milei has many of the attributes of right-wing populism. I read in The Guardian: “More than Milei’s ideas, what worries me is his state of mind and emotional stability, said Juan Luis González, the author of an unauthorized biography which takes Milei’s nickname as its title: El Loco (The Madman). The book portrays Milei as an unhinged loner who was bullied and beaten as a child and gets political advice from four cloned mastiff dogs named after libertarian thinkers.”

Milei defines himself as anarcho-capitalist. He was recently in Spain for an international meeting with other far right politicians, including the leaders of VOX, a Spanish nativist movement that denies the importance of climate change, and other parties that believe that the experiment of the European Union has gone too far. Milei not only has close links with the European far right, but also with Trump and Bolsonaro.

Milei illustrates that neoliberal ideas seem to be complementary of populist methods and far right objectives. In logic, it wouldn't need to be like that. The three dimensions could be separated. However, when one explores the similarities between, say Reagan and Trump, or Thatcher and Johnson, although the neoliberal leaders on the 1980's did not qualify as populists, many of their anti-government (except in law and order) policies where very similar, for example promoting a race to the bottom to lower taxes. Perhaps the modern right-wing populists are more protectionist, but that is not always the case. Now they are more populist, but they are equally neoliberal.

Where does the complementarity between neo-liberalism and populism come from? One hypothesis is that the evolution of technology and institutions forces the right to manage themselves today in a hyper-democratic society, where citizens interact in the social media and finally they vote in unavoidable elections (although eroding democratic institutions is feasible in this context). The right has always had a very instrumental view of democracy (capitalism comes with democracy or without it, see Franco or Pinochet): if they cannot destroy it formally, they will use all the technologies available to make it work for its objectives. I interpret national populism as one of these technologies.

What do people think?

In a typical interview or press conference with an athlete or a coach, he or she may be asked something like “do you plan to be in the same club next season?” He or she may find the question uncomfortable, but if in the answer she includes, hidden somewhere, the word “yes,” chances are that the headline in the media a few minutes later will be: “Athelete/coach X plans to continue in the same club next season.”

Smart people would use this as an example of the intellectual mediocrity or opportunism of the Sports media, because the athlete was not “planning” anything, or if he or she was planning anything, it was perhaps to avoid being asked about the topic, to even avoid having to decide. However, it is not very different from the kind of expert analyses that are derived from opinion polls and surveys.

This is important because how people truly form their opinions is a key input in the analysis of democratic societies and of particular aspects of them, such as politics or business. Economists such as Harvard’s Stéphanie Stantcheva have recently devoted significant efforts to learn, through online representative surveys, how people form their opinions on a variety of subjects, from taxation to international trade or inflation. I am also working on this with colleagues, especifically about how people think about public vs private ownership or about the importance of competition.

As Stantcheva and her co-authors have illustrated, it is important to complement closed questions with a few options, with open questions where subjects can openly express their views without limitation. It is interesting how people develop their thinking when they are less primed by the options given by the researchers.

The example of Catalan Independence and Catalan identity (or similar identity problems) illustrates my concern. Lots of political debate hang around surveys where, for example (taking the last one by an official sociological body of the Catalan government), around 40% of respondents say they are in favor of Catalan Independence when there is just another option (no to Independence), and the figure goes down than by more than 10 points when there are more than two options. This is an example of the well known fact that the framing of the questions determines the answers to a substantial degree in many areas. In both cases, it is not clear what independence means (in or out of the EU or the euro-zone, for example), or what the other options are (what is a state in a federal Spain as opposed to an autonomous community).

But pundits and experts use the results of these surveys to say things like “support for Independence” has declined (or increased), when they should just say that the answer to these questions in surveys has increased to decreased in some way or other. Similarly when they are asked whether they feel only Spanish, only Catalan, more Catalan than Spanish, etc. What if they don’t feel anything about this, or they care little. Surveys do not capture vague preferences or the intensity of them.

Complex social sciences

Some weeks ago, I read a review of three books in the Week-end Financial Times on Complexity Economics. I bought the three of them, written by Brian Klaas, J.Doyne Farmer and Maja Göpel. They are a good complement of  “How China scaped the poverty trap”, by Yuen Yuen Ang who also uses complexity arguments to explain the historical evolution of China, with references to other societies.

Klaas book, “Fluke,” is perhaps the most interesting and ambitious of the three, in the intersection between philosophy, natural sciences and social sciences. The book reviews the properties of complex systems, such as emergence, self-organization, non-linearity, interconnection, randomness and difficulty to make predictions (the latter, as in Taleb’s books). Complex is different from complicated in that when a part fails in a complex system, the other units change and adapt. Feedback loops, tipping points, and reverse causality are also characteristics of complex systems. These can be analyzed using network analysis and evolutionary dynamics.

In a complex evolving system, small causes can have big consequences. Applied to the human world, we are all part of an interconnected reality, the result of multiple contingencies that result in our existence. When we are born, we do not come into this Planet, but we emerge from this Planet. Klaas urges us to downplay the importance that our Western culture allocates to the individual. Our brains are the result of the interaction of many neurons, and an anthill is the result of many ants. These social insects invented agriculture before humans. We have evolved to develop a sense of self-awareness to survive, not to seek truth, and other beings have developed other skills that we do not have (flying wings, radars). 

We control nothing but we can influence everything. The complexity of human societies suggests to the author that instead of using the expression that something is or is not “rocket science,” we should instead say that something is or is not “social science.” At our state of knowledge, economic systems are more difficult to predict than some physical systems (such as planetary orbits).

To facilitate the connection with social scientists trained in traditional methods and models, books for a general audience discussing complexity should emphasize some elements of continuity with the more advanced existing methodologies. For example, I see a continuity with game theory, just with more players and less (or different) rationality, as in Bowles 2004 book on microeconomics.

For example, in the last part of the book I found useful thoughts that will help in my course on soccer and economics. When the context changes, randomizing strategies may be useful, as a tribe in Borneo does with the selection of the exact location of rice fields. Or as the animal species that follow mathematically perfect random rules in the ocean. It provides a new perspective on the use of mixed strategies, which so far I justified only in terms of being unpredictable in contexts such as penalty kicks or military strategy.

I also found useful the reference to Moneyball (the book and movie about how statistics revolutionized baseball) as a not necessarily desirable trend if brought to the extreme, because it makes the game more predictable. The notions of contingency, complexity and randomness may help explain why Moneyball techniques have been more successful in baseball (although there seems to be a backlash there as well according to Klaas) than in soccer, where the game, less dependent on set pieces, is more fluid and difficult to predict.

Why sports clubs fail

Acemoglu and Robbinson wrote “Why nations fail,” an impressive and controversial book that concluded that nations fail when they do not find inclusive institutions to make growth and cohesion compatible. Garicano wrote “Why organizations fail,” an article summarizing the literature on the economics of organizations, concluding that organizations fail when they do not allocate talent well, and when they do not balance well the short run with the long run.

A subfield of organizations that deserves a specific treatment is Sports organizations and soccer clubs in particular. Admittedly, in the current institutional setting, these organizations are very difficult to manage, because of the pressure of promotion and relegation and the economics of superstars. But clearly some of them are better managed than others. 

Soccer clubs never totally fail, but they may decline significantly, when their officials do not follow a coherent line and only care about the very short run, like bad politicians or business managers. They are too big or too important in their communities to fail, and that’s part of the problem: the moral hazard that results from the impossibility of totally failing.

Until the reelection of Joan Laporta as president of FC Barcelona in 2021, the history of the rise and fall of what some called the greatest soccer club is explained in Simon Kuper’s book “Barça.” At the end of the book, he didn’t seem very optimistic about the president that had been eleted for a second time.

Since then, three years later things are even worse. Today, the men’s Barça team (the one that just 10 years ago was the world’s best) is out of the new Clubs World Cup of 25 teams, 12th in the ranking of teams in Europe, 3rd in the Spanish league and 2nd in Catalonia after Girona. The financial crisis of the club is even deeper than then, and the president has been unable to retain or assemble a professional economic team to address the problem.

Barça does not sign the players they need, but those that they can afford or that are offered to them by opportunistic agents. Young talent, something the club keeps producing in abundance, will receive offers from clubs that have better chances of winning big titles, more money and are better managed. The club should learn from the good and bad things of the past: look abroad to learn from the best, control populism in the transfer market and coach appointment decisions, and build on the good assets that the club still has: youth academy, women’s team, a popular brand (have a look at the new and good Barça One app)… The team that had the three best players of the world in 2010 (Messi, Iniesta and Xavi) has been allowed to decay. Since it will never disappear, it would be better to give it a more decent life.

The federalist taboo

Wikipedia defines taboo as “a social group's ban, prohibition, or avoidance of something (usually an utterance or behavior) based on the group's sense that it is excessively repulsive, offensive, sacred, or allowed only for certain people. Such prohibitions are present in virtually all societies. Taboos may be prohibited explicitly, for example within a legal system or religion, or implicitly, for example by social norms or conventions followed by a particular culture or organization.”

People like me will be voting in the next few days in Catalan (May 12th) and European (June 9th) elections. The fact that the same citizens will be electing members of Parliament at two different levels, just above and below the state level (in our case, the Spanish level, on which we voted less than one year ago, a few weeks after we voted for our local representatives in the City Council), illustrates the federal character of our political reality. It is not that different from what happens in the USA, where voters have the right to participate in local, state and federal elections.

However, for some misterious reason, in Catalonia, Spain and Europe, we refuse to call this state of affairs “federal.” OK, perhaps there are historical reasons, or perhaps we are not a complete or a perfect federation, perhaps we lack some elements of that… but also do other realities that call themselves federal: for example, both Spain and Canada, two very decentralized countries, do not have a Senate as a powerful territorial chamber as in Germany, but Canada calls itself federal and Spain does not.

Spain today is Euro-Spain (in the EC since 1986), a member-state in the most integrated core of the EU: member of the euro-zone, and the Schengen area. It does not have an independent army, but it participates in NATO and in UN forces. The old nation state, in this very integrated region, is something of the past, but the sovereignists find this difficult to swallow.

Not only we do not call our federal features by the f word, but many of those in favor of better or more complete federal structures also refuse to call themselves federalists, or cautiously avoid the word. Just recently, two former Italian Prime Ministers, Letta and Draghi, and the French President, Emmannuel Macron, have made proposals (through reports, speeches or interviews) for a more integrated Europe, with stronger federal institutions, but in no part of their arguments does the f word show up.

It is a mistery to me why “federal” and its derivatives are almost taboo words, but sovereign and its derivatives are not. Part of it is the confusion around the term, although many other social or political concepts are also confusing and vague. If political scientists do not agree on a definition of federalism, or on whether Spain is a federation or not (certainly, it is not a unitary state or a confederation), it may be asking too much for people to have a clear idea of it.

But we live in an increasingly interconnected world, we live in a complex adaptive system that must be managed as such. Distributed but connected structures provide more stability and adaptabiblity than centralized or unconnected structures. And it is difficult to think of a better tradition and set of principles, other than federalism, to manage this complex reality.

Rodrik’s trilemma shows that in a hyperglobalized world, we may have to choose between national sovereignty and democracy. Federalism already provides stability to many regions of the world. But it is not a panacea, and there have also been failures and federal roads not taken. The nation-state remains a blueprint to solve conflicts, but it is rarely succeeding, as we see in former Yugoslavia or Israel-Palestine.

In Europe, we need to federate to defend ourselves (a typical motive for federations in history, from classical Greece to American native groups) but also to cooperate internally and externally, to harmonize taxes and fight against tax havens.

The defeat of national sovereignty is slow, as it is the victory of federalism. But there should be no doubt about the necessary winner.

Markets usually efficient and governments sometimes effective?

The latest issue of Advances in Economics Education features a set of papers evaluating different aspects of the CORE Project to introduce new methods, materials and contents in economics teaching.

Sam Bowles and Wendy Carlin, two of the leaders of CORE, write about the importance of showing in textbooks the economic reality and contemporary economics research in dialogue with other disciplines, as a response to criticism following the Global Financial Crisis. The need for reform has been exacerbated in the midst of making sense of a pandemic, climate change, disruptive politics and wars. It was not enough since the mid 2010s with changing 15% of textbook  contents (as it was common until then), as it was not enough to Samuelson with his famous textbook after the Great Depression and the Second World War. As a result, CORE presents a new benchmark model of economics, founded in social interactions and in dialogue with the real world, where the perfect competition supply and demand cross is just a special case of secondary importance.

The other three articles in the issue reflect an external evaluation of CORE and in particular its free e-textbook The Economy. Carlos Coutinhas argues that regardless of one’s stance as a supporter or sceptic, CORE’s approach has had a profound impact, “leaving a lasting mark on the publishing and economics education landscape”. He also reports that these reform efforts may be insufficient for those in favor of more radical approaches such as feminist economics or ecological economics.

Paul Crosby and David Orsmond, acknowledging the strengths of CORE in speaking to the big problems of our time, provide the closest call in the collection to defending the traditional approaches. In particular, they claim that there is still value to keeping the basic supply and demand graphical model as a benchmark to explain most interesting things in economics. They praise the list of Mankiw’s “10 principles of economics” contained in the most successful of the traditional textbooks. These principles do not mention problems such as inequality or climate change, and include “markets are usually a good way of organizing economic activity” and “government can sometimes improve market outcomes.”

Jo Michell’s article is in my view the most interesting of the external evaluations. He focuses on some of the details of the theoretical benchmark that accompanies the textbook The Economy, in particular on the transition from micro to macroeconomics. He finds some weaknesses in how this transition is represented in CORE’s benchmark model. He has some other interesting remarks, such as a call to define a discipline like economics by its domain, not by its specific models. Still, he believes that CORE responds to a real need for reform, and that any remaining shortcomings are more problems of the discipline in general than problems of pedagogy or teaching.

CORE is the result of an effort to present economics as a set of tools to facilitate a dialogue between theory and the real world using the scientific method. At the same time, in the selection of topics and variables of interest (such as real wages and employment), it represents an economics for the working class, which happens to be the majority of the population. The old is gone, and the new is in construction and will probably always be. As the authors of these articles explain, CORE’s contents are not easy (the way to respond to students’ criticism was not to make economics “easier”, because that would have been to mislead them), and there is a role for instructors in making them digestible. But they are more interesting, and importantly students (in my modest experience) find them more interesting than traditional approaches.

After the (not universal) success of CORE, reliance on the old textbooks is difficult to justify. CORE’s materials are not the final word, but they are useful and of high quality, and they should be taken as a motivation to keep moving in ways to make economics as a discipline a more relevant set of tools for students, researchers and citizens.

Economics for the working class

One of the great things, although not the only one, of The Economy, the free e-textbook of the CORE Project (in its 1.0 version and even better in the half-completed 2.0 one), is that it targets an audience of working class students, people that over their life will have employment and real wages as their main, but not exclusive, economic concerns. It makes sense, since it turns out that people who care about these things are a majority. Bringing a rigorous economics for the working class to the mainstream of the profession may be one of the greatest achievements of this Project. As Wendy Carlin, one of the leaders of CORE, once said, economics is not about shopping, is not about finance, it is about understanding and changing the world.

The e-textbook starts by analyzing the Industrial Revolution and how its exponential productivity growth was not translated into higher real wages until there were institutional changes that facilitated it, such as the labor movement and universal suffrage.

It presents the typical microeconomic model of constrained choice, not by analyzing the choice of bananas and apples, but the choice of working or studying hours by human beings like those in the classroom or their relatives. Next Bruno the boss and Angela the worker, two fictitious characters, are used to model the institutional history of labor relations, from slavery to the welfare state.

Before presenting markets in perfect competition in Unit 8, Units 6 and 7 analyze the firm as an institution. First, what happens inside the firm between owners and workers, how effort and salaries are determined. Second, using the relationship between the firm and its customers as a stepping stone for the aggregate labour market model, where Units 6 and 7 are put together to determine real wages and employment in the macroeconomy. 

The aggregate labour market model is then used to analyse short run fluctuations (positive and negative demand shocks) and how it is affected by fiscal and monetary policies. Inflation is described as a conflict among the claims on the value of output by capitalist owners and workers.

Unions are not one more interest group, but a critical institution that may affect the labor market equlibrium, including in a positive way (on employment and real wages) with the “union-voice effect.” The same aggregate labour market model can be used to analyze the effect of immigration in the short run and the long run. And alternatives to organizing work in the expanding fringes of the capitalist system, by worker cooperatives, are also addressed. 

The good Artificial Intelligence

David Autor analyzes in this article the use of Artificial Intelligence (AI), in the context of the economic history of technological change in the last three hundred years. The analysis goes from artisans prior to the Industrial Revolution to generative Artificial Intelligence, passing through factory machinery and the role of computers.

A type of knowledge is expert when it is necessary and scarce at the same time. It is what, for example, artisans had in the stage prior to the Industrial Revolution, a knowledge that required a long training process, which only a minority could afford. These experts developed each product creatively, as a complete and differentiated unit.

The industrial revolution displaced artisans, producing a great increase in productivity, but relegating the majority of industrial workers to extremely hard work for miserable wages for several decades. Productivity increased because from then on each worker was in charge of a small part of the process, in a repetitive and specialized way, on a mechanized assembly line.

The Luddites (who protested the mechanization that wiped out artisans) were correct in their protest that it took five decades for industrial workers to see their real wages grow significantly, requiring the power of unions and the expansion of democracy, as well as additional technological changes. Then a middle class of mass experts did emerge (intermediate workers doing administrative tasks), but they followed rules and lacked discretion (they were not the ones who made the decisions), so they were vulnerable to the automation that computers brought from the second half of the 20th century. Until personal computing and the Internet arrived, these intermediate workers saw their real wages increase and began to swell an abundant middle class in developed societies.

Computers are very effective with routine tasks, but not with those that require tacit knowledge, such as improvised language, or recognizing the face of a child in an adult. AI is the opposite, much more effective with tacit knowledge than with routine tasks.

Already before the advent of AI, and also with it, it is important to start from the basis that tools are levers that allow us to improve human work, not substitutes for it. Think of the examples of calculators, electric saws or drills. These three examples have two characteristics in common: first, they make the task of those who work with these tools much easier; secondly, to be used they require some training.

In common with other stages of accelerated technological change, AI will not eliminate human work. Employment has not stopped growing with the emergence of new technologies, despite the fact that many professions have become obsolete. But other professions have been created and professions that already existed have been able to develop in a different way. The improvement in productivity that technological change allows generates new demand for new products and services that did not exist before or that were enjoyed by a small minority. The challenge is that the new jobs created contribute to improving the dignity and living conditions of working people. In this sense, David Autor speaks out against the “inevitabilism” of thinking that AI will make human work redundant (something that he does not consider desirable, as perhaps some supporters of basic income do, as is said in passing in the article).

Unlike other technological changes, however, AI can be complementary to decision-making (and not just routine tasks), which can make it easier for many more people to participate in it, eroding the monopoly power of some specialized professions, such as doctors or university professors (or football coaches, see this article in Nature). The existing AI already helps make decisions, although the final responsibility lies with the human being, for example accepting or not a suggestion to complete a sentence, or accepting or not the “smart car” warning about its speed and direction.

The text compares computers with classical music, which follows a series of rules reproducible in each concert, and AI with jazz, which allows improvisation and adaptation to changing circumstances. David Autor suggests that AI will allow what has happened to people who work in nursing to become widespread, a portion of whom have been enabled in recent years to assume functions (for example, prescribing) that could only be performed by people before who had a medical degree. This requires additional training, but not the same as was traditionally required for a medical degree, and this expansion of employment responsibility has been made possible by technological developments such as the connection and digitization of medical records. Analogous developments can occur in education.

In this way, AI can facilitate more affordable healthcare and education (or football quality), which are not in the hands of elites who monopolize the knowledge necessary to make decisions, whether in an operating room or a classroom. If we combine this with the demographic trends that are occurring, in the future there will not be a shortage of jobs, but rather there will be a lack of people who can work, although as in the past, jobs will disappear and new ones will emerge.

The problem is not the disappearance of work, but the dignity and remuneration of working people. The human decision will be irreplaceable. That is why self-driving cars have failed, because they do not know how to make quick decisions when reality is changing. The role of AI is not to drive a car, but to assist in driving.

The unique opportunity that AI offers humanity is to reverse the shrinking trend of the mass of decent-wage workers: to expand the relevance, reach and value of human experience to a broader set of tasks. Not only could this reduce income inequality and the costs of key services such as healthcare and education, but it could also help restore the quality, prestige and prominence that too many people and jobs have lost. This alternative path is not an inevitable or intrinsic consequence of AI development. However, for David Autor (in line with other economists such as Dani Rodrik or Daron Acemoglu) it is technologically plausible, economically coherent and morally convincing. Recognizing this potential, we should not ask what AI will do for us, but what we want it to do for us.

The article does not make a prediction, but rather points out a possibility. The same technology can have different uses depending on how institutions and incentives develop. Just as nuclear energy can be used to make atomic bombs or to produce energy without contributing to climate change, AI can be used to enrich a small minority, or to pit elites against each other, or to improve the life and work experience of the vast majority.

Lessons from the good populism

In this crucial electoral year of 2024 in Europe and the US, it is important that progressive candidates get the message right, and fine-tune their narrative with the objective of maximizing the number of votes, and stop the rise of a eurosceptic right and far right. Not everything is lost, as polls suggest in the UK (unfortunately, not anymore in the EU) and Catalonia (where the federalist Socialist Party comes ahead in all recent polling, after more than 10 years of a strong pro-independence revolt).

Those of us who are in academia and keep an active interest (and an interested activity) in politics, have also a duty to learn with a critical and cautious eye from all the existing and growing research and literature on "populism," and to contribute to it if possible.

I have certainly learned from reading the 2020 book by Thomas Frank, "The People, No." The message in the book, as well and in this article in The Guardian (also, this one) from the book's author, is that there is a good and positive "populist" tradition in the US, which has its origins in the "People's Party" of poor farmers at the end of the XIXth century. Frank claims that this progressive, egalitarian tradition should claim the property rights to the word "populist," as they were the first to use it as something positive, democratic and egalitarian. In Europe, it may come as a surprise that such a positive tradition exists, but it is one that has been claimed several times by the economist Paul Krugman as well. Frank reveals that some politicians (like President Obama) have used the term in a positive sense and in a negative sense on different occasions. But the book is more than a crusade to reclaim a word: it is a crusade to reclaim a popular movement that was anti-elitist but was against demagoguery and bigotry, and that was focused on income inequality above everything else. The author, who shows little patience for the recent social scientific literature on populism and its associated psychological biases and irrational voters and voting outcomes (with authors such as Mounk, Müller, Levitsky, or Mudde, from which I have also learned) argues that "Populist" has become shorthand for racist authoritarianism. But the first populists were progressive labor activists who fought for democracy.  According to Frank, genuine populism is neither new nor right-wing. 

The book is a very interesting history of ideas and facts. In general, it strongly criticizes the centrist wing of the Democratic Party and academic liberal orthodoxy for having forgotten that rich progressive populist tradition.

This progressive populism of the late XIXth century is the one that gave the US independent regulatory agencies, and that tried to spread education and culture to the masses, and unite white and black workers. That populism did not go against science and knowledge, but it went against orthodoxy. That tradition was followed in the XXth century by Franklin D. Roosevelt and by Martin Luther King (MLK), and therefore is an important ingredient of the New Deal and the fight for Civil Rights. Thomas Frank points out that the elite of academia (and especially prestigious economists, such as Schumpeter) did not endorse the policies of Roosevelt at the beginning, because they thought that they went against the established consensus. In the XXIst century the politician that better reflects this tradition is Bernie Sanders (Elizabeth Warren is also mentioned in the book).

In the past, Frank has been criticized for not being careful with data. For example, political scientist Larry Bartels (also an egalitarian, in my view) said in the past that his claim that the working class had abandoned the Democratic Party was an exaggeration. In an article in The Guardian about Paul Krugman, Frank mentioned Bartels.

Not all left wing populisms are like Sanders, Roosevelt or MLK: Corbin in the UK, AMLO in México, Iglesias in Spain, Maduro in Venezuela, Kirschner in Argentina, are not mentioned in a book that is only about the US.

Not everything Obama or other centrist Democrats did was wrong: Obamacare, gay rights... Not all non-income progressive causes (feminism, ecologism?) should be relativized as woke or culture wars. Democracy has problems (Kenneth Arrow cannot just be forgotten) and voters do have psychological biases. There are no simple recipes. But Thomas Frank has a point: there has been such a thing as good populism, and we can learn from it.

Coaches in my course on soccer and economics

What is the role of coaches in soccer and what analogies can be established with economics? That is the subject of an interesting literature that is summarized by Peeters and Van Ours in their contribution to an IEB Report that I recently coordinated.

Sarina Wiegman, Jurgen Klopp and Pep Guardiola play the role of intermediate principals in a three-tier agency structure, similarly to referees. Upper principals are club or governing body officials, and agents are players. A problem they may have is that some agents may be more powerful than coaches. This weakness may be related to the extreme quick turnover of head coaches in soccer leagues. A graph for The Economist with data in 2016 showed that the median time in the job for a head coach (manager) in the English Premier League was less than one year. From coordination games (as for example in David Sumter's "Soccermatics"), we know that coaches could play an important motivational role to promote trust and team spirit, like Al Pacino in the movie "Any Given Sunday" in American Football. From empirical work in other branches of economics (like from Bloom and Van Reenen), we know that managerial practices are an important determinant of productivity differences among firms that produce similar goods. 

Intermediate executives can contribute to preventing organizational failure by allocating talent and wisely splitting resources between the short-run and the long-run. But it's not easy to see the impact of coaches in soccer data. In the book "Soccernomics," Kuper and Szymanski are very skeptical that coaches play any significant role (they quote Arrigo Sacchi criticizing some former players becoming coaches: "good horses do not make good jockeys"). Although they have to decide on a complex vector of multidimensional tasks, player talent seems to be much more important, and soccer coaches intervene less during the game than, say, basketball coaches. That irrelevance is confirmed by most empirical work on managerial dismissals mid-season, if those coaches that are fired are compared to coaches that experience a similarly bad streak but do not get fired. The teams of both types of coaches experience a rebound, but it is so similar that most probably it is because of regression to the mean. 

Peeters and Van Ours reach a similar conclusion in their contribution to the IEB Report when they compare the dismissal of Ronald Koeman in FC Barcelona with the non-dismissal of Valverde two coaches before. However, very recent research (which I found in Palacios-Huerta's article "The Beautiful Dataset") shows that distinguishing (imperfectly, using the notion of expected goals) merit from luck, wise dismissals really have a positive impact on performance, even after comparing with a control group of similar coaches that are not fired. It is just that there are not many wise dismissals. Peeters and Szymanski also have an article where they show that one of the reasons of the mediocrity of most managers, is that clubs are reluctant to hire new coaches with high potential due to credit constraints (new coaches may be better on average, but it is risky to hire one), and due to the fact that if they turn out to be good, they will be poached by better teams. Peeters and Van Ours argue that nevertheless, a few coaches may have as much as one goal difference impact on performance. Good coaches seem to exist, but they are rare. Perhaps artificial intelligence and big data will democratize the profession, but we are probably at a primitive stage on this.

Appointing the right coach in very popular clubs is as much a political decision as it is a business decision. That's why probably FC Barcelona tends to appoint famous former players that contributed to the past glories of the team (Guardiola, Luis Enrique, Koeman, Xavi), some of which are better as coaches than others. In general most former famous coaches do not have a good track record as managers (Guardiola is an exception: think of Rooney or Maradona), but clubs keep valuing player experience. When this experience is rich enough and is combined with a smart individual, then perhaps we have part of the secret to relevant impact (Xabi Alonso?). What surely empirical evidence shows is that coaches contribute to spreading successful tactical styles through networks of influence and evolution, as we've seen in the past with Dutch and Italian coaches and today with Spanish coaches. This season, the favourites to the English, French and German leagues are Spanish coaches. 

China and us

Political scientist Yuen Yuen Ang, from Michigan University, has written two books that analyze the incredible economic growth of China in the recent decades, and relate it to two phenomena that in theory have played a role in the economic development of rich countries: institutions and corruption. In doing so, she demolishes the conventional wisdom of mainstream political economy.

In “How China Escaped the Poverty Trap,” she shows that the institutions that facilitated the expansion of markets and economic prosperity in China after Deng’s reforms had nothing to do with the high quality institutions that are supposed to facilitate economic growth in mainstream political economy (an impersonal and specialized administration, secure property rights, etc.). China’s rulers gave a high degree of freedom to non specialized and not impersonal officials at all levels, in a climate of confusing property rights.

Acemoglu and Robinson in “Why Nations Fail” claimed that China is an anomaly that should soon collapse because it lacks “inclusive” institutions. However, more than ten years after they wrote their book, China refuses to collapse –or to adopt inclusive institutions. If anything, secure property rights and a neutral administration may be useful to preserve markets, but not necessarily to create them, according to Ang.

She proposes an evolutionary interpretation of history, where causality does not only run in one linear direction, but in multidimensional non-linear feedbacks among several domains, such as state and market. If one applies this approach not only to China, but also to Europe and the US, one can see that their economic takeoff was not preceded at all by the type of institutions that the international organizations try to promote for developing countries nowadays.

In “China’s Gilded Age,” Ang focuses on one aspect of institutional quality, namely corruption. In doing that, she criticizes the use of unbundled measures of corruption, such as the Corruption Perception Index (CPI) of Transparency Internacional. She argues that such an unbundled index gives a misleading perception of a multidimensional phenomenon.

She proposes four types of corruption mechanisms along two dimensions. One dimension reflects whether corruption affects elites or non-elites. And the other reflects whether corruption involves theft or exchange. Combining the two dimensions results into four types of corruption, which can be further decomposed. It turns out that when corruption involves exchanges among the elites, we obtain what she calls “Access money,” a sophisticated set of corrupt deals that may even be legal. This could be regulatory capture, revolving doors, or similar deals, and has a lower negative effect on economic growth than the other, less sophisticated and more harmful, types of corruption. Of more concern is the effect of Access money on inequality.

Today’s growth in China is compatible with corruption, as the growth of the US after the Civil War in the XIXth century was compatible with corruption, and today’s economic power of the US is compatible with large scale, sophisticated access money.

What can be done? Ang suggests that, consistently with her multifaceted perspective on corruption, one-size-fits-all solutions will not work. Rather, remedies must be adapted to local context, must be incentive compatible (you should not ask officials something that goes against their incentives), and must combine a top-down approach with a bottom-up approach where civil society can make a positive contribution.

What seems clear is that “the rise of capitalism is accompanied not by the eradication of corruption, but rather by the evolution of the quality of corruption from thuggery and theft to influence peddling.”

Some thoughts on Colin Mayer's last book

Colin Mayer is one of the world's most recognized experts in Business Economics and corporate finance. As founder of Oxford University’s Business School, he has launched numerous research and advisory projects with some of the UK's and the world's leading companies. 

He has dedicated his professional life to pointing out both the weaknesses and the transformative potential of the capitalist firm as a key institution of our society. In this book "Capitalism and Crises" (which completes a trilogy that began with “Firm Commitment” and continued with “Prosperity”), he proposes a new firm model, one that moves away from creating problems for society, and that, on the contrary, focuses on finding solutions to these problems and at the same time generating profits for shareholders. 

The author is forceful in pointing out the responsibility of the capitalist company in the generation and aggravation of some of the great problems of humanity: climate change, social inequalities, or political instability. The reason for this responsibility lies in the fact that, in the current model, it is possible to obtain business profits as a result of creating problems for society, either by polluting, making available to consumers products that are harmful to their health, or making decisions to the detriment of the prosperity of local communities. 

Competition in the market does not solve the issue, since one company can displace another by earning more profits, creating more, and not fewer, problems for society (even for consumers themselves when they are free to choose, as Akerlof and Shiller pointed out in their book “Phishing for Phools”). The State's corrective action does not resolve the issue through regulation either, due to its limitations as it is carried out. In some way, regulation usually arrives too late, and the possibility of it being “captured” by regulated companies is one more of the problems that they contribute to generating, thereby obtaining a profit (a problem that, according to Mayer, Artificial Intelligence aggravates). 

In reality, the capitalist corporation shares responsibility with the State and with the public-sector firm in its inability to stop the great problems of our time. The company as an institution has a great responsibility in creating problems and at the same time in the possible search for solutions to society's problems for two fundamental reasons: for its unique capacity to direct enormous resources generating social impacts, and for its potential to innovate by leading technological change. 

The proposal made in the book to focus the business task on solving problems generating profits has a philosophical background: it would be about replacing a Golden Rule (“do to others as you want them to do to you”) with a Moral Rule (“do to others as they would like”). Based on this principle, business legislation should be changed to one that forces companies to generate profits without generating problems, that is, avoiding the generation of harmful effects for the rest of society. Each company should choose to focus its activity on the “purpose” of solving a problem generating profits, and articulate all its work, its structure, its corporate governance and its control and measurement systems, in solving this problem. The company's accounts, for example, should not only reflect the value of the cost of production inputs and income through the sale of outputs, but also reflect the impact (positive or negative) on society and any type of measurable outcome that arises from their actions. This would be different from the ESG movement (the acronym for environment, society and governance), which also aims to measure the impact on social problems, because in Mayer's model this impact would become something nuclear, necessarily integrated into the core objective of the company, unlike what happens in the ESG model, which according to the author has been used fundamentally for propaganda purposes. 

According to Mayer, the change in model is feasible among other reasons because it is compatible with the power of shareholders and the objective of maximizing profits, as long as these business profits are accounted for net of the cost of the activities that the company generates for third parties. The difference with the current system is that it would not be the State that would be in charge of correcting the "negative externalities", but rather the company itself, forced to do so by legislation. 

The separation between business and the public sector would be naïve according to Mayer, leading to a train wreck between institutions that have an impact on the same society, but do so with opposite objectives (profit without taking into account the problems that the company generates, and public interest without sufficient instruments to satisfy it) in the current situation, in many cases. On the contrary, the company should be involved in social objectives as a core task and not a secondary one, and the state should work side by side with companies on the same objectives. In this sense, Colin Mayer's criticism of the British regulatory and privatization model in network industries (which he helped design, together with other economists, in the 1990s), which today is in crisis, is devastating. The criticism of privatized energy, water and railway companies, and their regulation by independent regulatory agencies, is reminiscent of that made by historian Tony Judt in the book he wrote in the last stage of his life, “Ill Fares the Land.” The notion that a benevolent regulator separated from the day-to-day work of companies ("arms-length regulation") that are solely accountable to their shareholders and their objective of maximizing profits, will succeed in imposing the public interest, would be enormously naive. 

Texit?

On Thursday February 1st, the CNN started the day criticizing the Republican candidate Nikki Haley for her support to the right of Texas to secede from the USA. To be fair, she was reacting to a question, and not explaining her program. However, it is not the first time that she shows lack of clarity on matters concerning the history of events related to the US Civil War in the XIXth century. On another occasion, she failed to acknowledge the tragedy of slavery.

However, on the evening of the same day, Jake Tapper interviewed Haley on the same TV network, and he didn’t mention the issue of “Texit” at all, although it had been the main headline some hours earlier. One can imagine that the office of candidate Haley had agrred to the interview on the condition that the secession of Texas would not be one of the topics of conversation. They talked about Iran, Hamas and the likelihood of defeating Trump and subsequently Biden.

Of course, Texit is not a serious proposal. But that does not mean that some people does not take it seriously. Brexit was not a serious proposal, but it is now a tragic reality. One can imagine millions of Texans believing the arguments of populists to “take back control” in front of the invented risk of rapists crossing the border.

“States rights” in the US have been on many occasions a synonym for the rights of elites to exploit others, and to take advantage of the prejudices of voters. The secession attempts of the Southern states preceded the Civil War in the US, which luckily was won by the federalists and lost by the confederals. Because of this victory, the US enjoys today the advantage of a large market and scale economies with a diverse and mobile population, which is also the dream of the European Union. South and Central America failed to fulfill the federalist dream of Simon Bolívar, and the African continent also failed in consolidating federations that would have replaced the current structure of small and sometimes isolated and hungry states. Egyptian leader Nasser also failed in his project to create a Federation of secular Arab states. We know today the price we are paying for this deficit of federal structures.

US Presidential candidates should be surrounded not only by communicatins experts, but also by serious historians.